##### Table of Contents









UNITED STATES SECURITIES AND EXCHANGE
COMMISSION

Washington, D.C. 20549




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Form 10-Q



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|           |  |                                                                                                 
|---------- |  | ------------------------------------------------------------------------------------------------
|(Mark One) |  |                                                                                                 
|þ          |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR
    15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934 
|          
|           |  | For the quarterly period ended
    September 30, 2002                                           
|          
|or        
|          
|o          |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR
    15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934
|          
|           |  | For the transition period
    from           to           .                                     

Commission file number: 000-26247

VERITAS Software Corporation

(Exact name of registrant as specified in its
charter)


|                                                                   |  |                                         
|------------------------------------------------------------------ |  | ----------------------------------------
|Delaware                                                           |  | 77-0507675                              
|(State or other jurisdiction of
    incorporation or organization) |  | (I.R.S. Employer
    Identification No.)

350 Ellis Street

Mountain View, California 94043


(650) 527-8000


(Address, including zip code, of
registrants principal executive offices and
registrants telephone number, including area
code)




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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 þ          No o

The number of shares of the Registrants
common stock outstanding as of October 31, 2002 was
411.6 million shares.



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TABLE OF CONTENTS



|                              |                                                                                               |                                                                |  |  |  |  |  | 
|----------------------------- | --------------------------------------------------------------------------------------------- | -------------------------------------------------------------- |  |  |  |  |  | 
|PART I: FINANCIAL INFORMATION
|                              | Item 1. Condensed Consolidated Financial Statements                                          
|                              |                                                                                               | CONDENSED CONSOLIDATED BALANCE SHEETS                         
|                              |                                                                                               | CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS               
|                              |                                                                                               | CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
|                              |                                                                                               | NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS          
|                              | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                              | Item 3. Quantitative and Qualitative Disclosures About Market Risk                           
|                              | Item 4. Controls and Procedures                                                              
|PART II: OTHER INFORMATION   
|                              | Item 1. Legal Proceedings                                                                    
|                              | Item 5. Other Information                                                                    
|                              | Item 6. Exhibits and Reports on Form 8-K                                                     
|SIGNATURE                    
|CERTIFICATIONS               
|EXHIBIT INDEX                
|EXHIBIT 10.01                
|EXHIBIT 10.02                
|EXHIBIT 10.03                
|EXHIBIT 10.04                
|EXHIBIT 10.05                
|EXHIBIT 99.01                



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##### Table of Contents



VERITAS SOFTWARE CORPORATION

INDEX

|                                   |  |                                                                                                                          |    |      |    | 
|---------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------ | -- | ---- | -- | 
|                                   |  |                                                                                                                          |    | Page
|                                   |  |                                                                                                                          |    |     
|PART I:  FINANCIAL
    INFORMATION
|Item 1.                            |  | Condensed Consolidated Financial Statements                                                                              |    |      |    | 
|                                   |  | Condensed Consolidated Balance Sheets
    as of September 30, 2002 and  December 31,
    2001                            |    |      | 2  | 
|                                   |  | Condensed Consolidated Statements of
    Operations for the Three and Nine Months  Ended
    September 30, 2002 and 2001 |    |      | 3  | 
|                                   |  | Condensed Consolidated Statements of
    Cash Flows for the Nine Months
    Ended  September 30, 2002 and 2001           |    |      | 4  | 
|                                   |  | Notes to Condensed Consolidated
    Financial Statements                                                                 |    |      | 5  | 
|Item 2.                            |  | Managements Discussion and Analysis of
    Financial Condition and Results of Operations                                |    |      | 15 | 
|Item 3.                            |  | Quantitative and Qualitative Disclosures About
    Market Risk                                                           |    |      | 42 | 
|Item 4.                            |  | Controls and Procedures                                                                                                  |    |      | 45 | 
|PART II:  OTHER
    INFORMATION   
|Item 1.                            |  | Legal Proceedings                                                                                                        |    |      | 45 | 
|Item 5.                            |  | Other Information                                                                                                        |    |      | 46 | 
|Item 6.                            |  | Exhibits and Reports on Form 8-K                                                                                         |    |      | 48 | 
|Signature                          |  |                                                                                                                          | 50 |     
|Certifications                     |  |                                                                                                                          | 51 |     

1



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##### Table of Contents






PART I:     FINANCIAL
INFORMATION






|        |                                                
|------- | -----------------------------------------------
|Item 1. | Condensed Consolidated Financial
    Statements

VERITAS SOFTWARE CORPORATION




CONDENSED CONSOLIDATED BALANCE
SHEETS

(In thousands)


|                                         |                                                                                                                                        |                                            |           |              |           |  |           |            |           | 
|---------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | --------- | ------------ | --------- |  | --------- | ---------- | --------- | 
|                                         |                                                                                                                                        | September 30,                              |           | December 31,
|                                         |                                                                                                                                        | 2002                                       |           | 2001        
|                                         |                                                                                                                                        |                                            |           |             
|                                         |                                                                                                                                        | (Unaudited)                                |           |             
|ASSETS                                  
|Current assets:                          |                                                                                                                                        |                                            |           |              |           |  |           |           
|                                         | Cash and cash equivalents                                                                                                              |                                            | $         | 831,571      |           |  | $         | 538,419    |          
|                                         | Short-term investments                                                                                                                 |                                            |           | 1,291,467    |           |  |           | 1,156,441  |          
|                                         | Accounts receivable, net of allowance for
    doubtful accounts of $13,438 at September 30, 2002 and $12,616
    at December 31, 2001. |                                            |           | 115,128      |           |  |           | 176,635    |          
|                                         | Deferred income taxes                                                                                                                  |                                            |           | 122,834      |           |  |           | 124,527    |          
|                                         | Other current assets                                                                                                                   |                                            |           | 67,457       |           |  |           | 66,466     |          
|                                         |                                                                                                                                        |                                            |           |              |           |  |           |           
|                                         |                                                                                                                                        | Total current assets                       |           |              | 2,428,457 |  |           |            | 2,062,488 | 
|Property and equipment, net              |                                                                                                                                        |                                            | 230,799   |              |           |  | 225,763   |           
|Other intangibles, net                   |                                                                                                                                        |                                            | 102,159   |              |           |  | 209,722   |           
|Goodwill, net                            |                                                                                                                                        |                                            | 1,202,814 |              |           |  | 1,202,814 |           
|Other non-current assets                 |                                                                                                                                        |                                            | 28,383    |              |           |  | 52,451    |           
|Deferred income taxes                    |                                                                                                                                        |                                            | 84,840    |              |           |  | 45,375    |           
|                                         |                                                                                                                                        |                                            |           |              |           |  |           |           
|                                         |                                                                                                                                        | Total assets                               |           | $            | 4,077,452 |  |           | $          | 3,798,613 | 
|                                         |                                                                                                                                        |                                            |           |              |           |  |           |           
|LIABILITIES AND STOCKHOLDERS
    EQUITY
|Current liabilities:                     |                                                                                                                                        |                                            |           |              |           |  |           |           
|                                         | Accounts payable                                                                                                                       |                                            | $         | 30,016       |           |  | $         | 32,244     |          
|                                         | Accrued compensation and benefits                                                                                                      |                                            |           | 81,562       |           |  |           | 89,637     |          
|                                         | Accrued acquisition and restructuring costs                                                                                            |                                            |           | 10,786       |           |  |           | 12,093     |          
|                                         | Other accrued liabilities                                                                                                              |                                            |           | 78,099       |           |  |           | 80,833     |          
|                                         | Income taxes payable                                                                                                                   |                                            |           | 124,305      |           |  |           | 63,735     |          
|                                         | Deferred revenue                                                                                                                       |                                            |           | 256,773      |           |  |           | 239,110    |          
|                                         |                                                                                                                                        |                                            |           |              |           |  |           |           
|                                         |                                                                                                                                        | Total current liabilities                  |           |              | 581,541   |  |           |            | 517,652   | 
|Convertible subordinated notes           |                                                                                                                                        |                                            | 456,007   |              |           |  | 444,408   |           
|Deferred and other income taxes          |                                                                                                                                        |                                            | 113,100   |              |           |  | 113,100   |           
|                                         |                                                                                                                                        |                                            |           |              |           |  |           |           
|                                         |                                                                                                                                        | Total liabilities                          |           |              | 1,150,648 |  |           |            | 1,075,160 | 
|Stockholders equity:                    |                                                                                                                                        |                                            |           |              |           |  |           |           
|                                         | Common stock                                                                                                                           |                                            |           | 431          |           |  |           | 423        |          
|                                         | Additional paid-in capital                                                                                                             |                                            |           | 6,329,420    |           |  |           | 6,228,914  |          
|                                         | Accumulated deficit                                                                                                                    |                                            |           | (1,696,791   | )         |  |           | (1,803,528 | )        
|                                         | Accumulated other comprehensive loss                                                                                                   |                                            |           | (4,192       | )         |  |           | (292       | )        
|                                         | Treasury stock, at cost; 18,675 shares at
    September 30, 2002 and at December 31, 2001                                              |                                            |           | (1,702,064   | )         |  |           | (1,702,064 | )        
|                                         |                                                                                                                                        |                                            |           |              |           |  |           |           
|                                         |                                                                                                                                        | Total stockholders equity                 |           |              | 2,926,804 |  |           |            | 2,723,453 | 
|                                         |                                                                                                                                        |                                            |           |              |           |  |           |           
|                                         |                                                                                                                                        | Total liabilities and stockholders equity |           | $            | 4,077,452 |  |           | $          | 3,798,613 | 
|                                         |                                                                                                                                        |                                            |           |              |           |  |           |           

See accompanying notes to the condensed
consolidated financial statements.

2



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##### Table of Contents



VERITAS SOFTWARE CORPORATION






CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS


(In thousands, except per share
amounts)


|                                                                   |                                                 |                          |         |                   |         |      |          |         |         |   |         |         |           |   |          |         |           | 
|------------------------------------------------------------------ | ----------------------------------------------- | ------------------------ | ------- | ----------------- | ------- | ---- | -------- | ------- | ------- | - | ------- | ------- | --------- | - | -------- | ------- | --------- | 
|                                                                   |                                                 |                          |         |                  
|                                                                   |                                                 | Three Months Ended       |         | Nine Months Ended
|                                                                   |                                                 | September 30,            |         | September 30,    
|                                                                   |                                                 |                          |         |                  
|                                                                   |                                                 | 2002                     |         | 2001              |         | 2002 |          | 2001   
|                                                                   |                                                 |                          |         |                   |         |      |          |        
|                                                                   |                                                 |                          |         |                  
|                                                                   |                                                 | (Unaudited)              |         | (Unaudited)      
|Net revenue:                                                       |                                                 |                          |         |                   |         |      |          |         |         |   |         |         |           |   |          |        
|                                                                   | User license fees                               |                          | $       | 240,699           |         |      | $        | 240,014 |         |   | $       | 742,286 |           |   | $        | 842,711 |          
|                                                                   | Services                                        |                          |         | 124,985           |         |      |          | 100,217 |         |   |         | 358,537 |           |   |          | 275,184 |          
|                                                                   |                                                 |                          |         |                   |         |      |          |         |         |   |         |         |           |   |          |        
|                                                                   |                                                 | Total net revenue        |         |                   | 365,684 |      |          |         | 340,231 |   |         |         | 1,100,823 |   |          |         | 1,117,895 | 
|Cost of revenue:                                                   |                                                 |                          |         |                   |         |      |          |         |         |   |         |         |           |   |          |        
|                                                                   | User license fees                               |                          |         | 8,250             |         |      |          | 7,919   |         |   |         | 26,222  |           |   |          | 28,298  |          
|                                                                   | Services                                        |                          |         | 46,686            |         |      |          | 33,952  |         |   |         | 132,693 |           |   |          | 99,983  |          
|                                                                   | Amortization of developed technology            |                          |         | 16,457            |         |      |          | 15,791  |         |   |         | 50,264  |           |   |          | 47,295  |          
|                                                                   |                                                 |                          |         |                   |         |      |          |         |         |   |         |         |           |   |          |        
|                                                                   |                                                 | Total cost of revenue    |         |                   | 71,393  |      |          |         | 57,662  |   |         |         | 209,179   |   |          |         | 175,576   | 
|                                                                   |                                                 |                          |         |                   |         |      |          |         |         |   |         |         |           |   |          |        
|Gross profit                                                       |                                                 |                          | 294,291 |                   |         |      | 282,569  |         |         |   | 891,644 |         |           |   | 942,319  |        
|Operating expenses:                                                |                                                 |                          |         |                   |         |      |          |         |         |   |         |         |           |   |          |        
|                                                                   | Selling and marketing                           |                          |         | 122,042           |         |      |          | 138,659 |         |   |         | 375,736 |           |   |          | 427,180 |          
|                                                                   | Research and development                        |                          |         | 69,182            |         |      |          | 61,636  |         |   |         | 202,067 |           |   |          | 177,742 |          
|                                                                   | General and administrative                      |                          |         | 35,179            |         |      |          | 29,687  |         |   |         | 102,905 |           |   |          | 84,077  |          
|                                                                   | Amortization of other intangibles               |                          |         | 18,016            |         |      |          | 18,076  |         |   |         | 54,048  |           |   |          | 54,304  |          
|                                                                   | Amortization of goodwill                        |                          |         |                  |         |      |          | 203,725 |         |   |         |        |           |   |          | 610,466 |          
|                                                                   | Acquisition and restructuring costs (reversals) |                          |         |                  |         |      |          | (5,000  | )       |   |         |        |           |   |          | (5,000  | )        
|                                                                   |                                                 |                          |         |                   |         |      |          |         |         |   |         |         |           |   |          |        
|                                                                   |                                                 | Total operating expenses |         |                   | 244,419 |      |          |         | 446,783 |   |         |         | 734,756   |   |          |         | 1,348,769 | 
|                                                                   |                                                 |                          |         |                   |         |      |          |         |         |   |         |         |           |   |          |        
|Income (loss) from operations                                      |                                                 |                          | 49,872  |                   |         |      | (164,214 | )       |         |   | 156,888 |         |           |   | (406,450 | )      
|Interest and other income, net                                     |                                                 |                          | 10,619  |                   |         |      | 15,697   |         |         |   | 37,480  |         |           |   | 51,537   |        
|Interest expense                                                   |                                                 |                          | (7,606  | )                 |         |      | (7,552   | )       |         |   | (22,988 | )       |           |   | (21,847  | )      
|Loss on strategic investments                                      |                                                 |                          |        |                   |         |      | (16,074  | )       |         |   | (14,802 | )       |           |   | (16,074  | )      
|                                                                   |                                                 |                          |         |                   |         |      |          |         |         |   |         |         |           |   |          |        
|Income (loss) before income taxes                                  |                                                 |                          | 52,885  |                   |         |      | (172,143 | )       |         |   | 156,578 |         |           |   | (392,834 | )      
|Provision (benefit) for income taxes                               |                                                 |                          | 16,659  |                   |         |      | (10,157  | )       |         |   | 49,841  |         |           |   | 54,227   |        
|                                                                   |                                                 |                          |         |                   |         |      |          |         |         |   |         |         |           |   |          |        
|Net income (loss)                                                  |                                                 | $                        | 36,226  |                   |         | $    | (161,986 | )       |         | $ | 106,737 |         |           | $ | (447,061 | )      
|                                                                   |                                                 |                          |         |                   |         |      |          |         |         |   |         |         |           |   |          |        
|Net income (loss) per share  basic                                |                                                 | $                        | 0.09    |                   |         | $    | (0.40    | )       |         | $ | 0.26    |         |           | $ | (1.12    | )      
|                                                                   |                                                 |                          |         |                   |         |      |          |         |         |   |         |         |           |   |          |        
|Number of shares used in computing per share
    amounts  basic   |                                                 |                          | 410,898 |                   |         |      | 400,455  |         |         |   | 408,827 |         |           |   | 397,783  |        
|                                                                   |                                                 |                          |         |                   |         |      |          |         |         |   |         |         |           |   |          |        
|Net income (loss) per share 
    diluted                          |                                                 | $                        | 0.09    |                   |         | $    | (0.40    | )       |         | $ | 0.25    |         |           | $ | (1.12    | )      
|                                                                   |                                                 |                          |         |                   |         |      |          |         |         |   |         |         |           |   |          |        
|Number of shares used in computing per share
    amounts  diluted |                                                 |                          | 416,587 |                   |         |      | 400,455  |         |         |   | 418,823 |         |           |   | 397,783  |        
|                                                                   |                                                 |                          |         |                   |         |      |          |         |         |   |         |         |           |   |          |        

See accompanying notes to the condensed
consolidated financial statements.

3



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##### Table of Contents



VERITAS SOFTWARE CORPORATION






CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS


(In thousands)


|                                                              |                                                                                              |                                                                  |                                           |            |          |         |          |            |          |         | 
|------------------------------------------------------------- | -------------------------------------------------------------------------------------------- | ---------------------------------------------------------------- | ----------------------------------------- | ---------- | -------- | ------- | -------- | ---------- | -------- | ------- | 
|                                                              |                                                                                              |                                                                 
|                                                              |                                                                                              | Nine Months Ended                                               
|                                                              |                                                                                              | September 30,                                                   
|                                                              |                                                                                              |                                                                 
|                                                              |                                                                                              | 2002                                                             |                                           | 2001      
|                                                              |                                                                                              |                                                                  |                                           |           
|                                                              |                                                                                              |                                                                 
|                                                              |                                                                                              | (Unaudited)                                                     
|Cash flows from operating activities:                         |                                                                                              |                                                                  |                                           |            |          |         |          |           
|                                                              | Net income (loss)                                                                            |                                                                  | $                                         | 106,737    |          |         | $        | (447,061   | )       
|                                                              | Adjustments to reconcile net income
    (loss) to net cash provided by operating activities: |                                                                  |                                           |            |          |         |          |            |         
|                                                              |                                                                                              | Depreciation and amortization                                    |                                           |            | 80,087   |         |          |            | 69,500   |        
|                                                              |                                                                                              | Amortization of other intangibles                                |                                           |            | 54,048   |         |          |            | 54,304   |        
|                                                              |                                                                                              | Amortization of goodwill                                         |                                           |            |         |         |          |            | 610,466  |        
|                                                              |                                                                                              | Amortization of developed technology                             |                                           |            | 50,264   |         |          |            | 47,295   |        
|                                                              |                                                                                              | Amortization of original issue discount on
    convertible notes |                                           |            | 12,099   |         |          |            | 11,343   |        
|                                                              |                                                                                              | Provision for doubtful accounts                                  |                                           |            | 4,017    |         |          |            | 4,374    |        
|                                                              |                                                                                              | Acquisition and restructuring costs (reversals)                  |                                           |            |         |         |          |            | (5,000   | )      
|                                                              |                                                                                              | Tax benefits from stock plans                                    |                                           |            | 19,593   |         |          |            | 83,005   |        
|                                                              |                                                                                              | Loss on strategic investments                                    |                                           |            | 14,802   |         |          |            | 16,074   |        
|                                                              |                                                                                              | Gain on sale of assets                                           |                                           |            | (62      | )       |          |            |         |        
|                                                              |                                                                                              | Deferred income taxes                                            |                                           |            | (39,437  | )       |          |            | (45,687  | )      
|                                                              | Changes in operating assets and liabilities, net
    of effects of business acquisitions:    |                                                                  |                                           |            |          |         |          |            |         
|                                                              |                                                                                              | Accounts receivable                                              |                                           |            | 57,490   |         |          |            | 21,151   |        
|                                                              |                                                                                              | Other assets                                                     |                                           |            | 9,980    |         |          |            | 7,629    |        
|                                                              |                                                                                              | Accounts payable                                                 |                                           |            | (2,228   | )       |          |            | (12,348  | )      
|                                                              |                                                                                              | Accrued compensation and benefits                                |                                           |            | (8,075   | )       |          |            | 2,936    |        
|                                                              |                                                                                              | Accrued acquisition and restructuring costs                      |                                           |            | (1,414   | )       |          |            | (27,528  | )      
|                                                              |                                                                                              | Other accrued liabilities                                        |                                           |            | 4,533    |         |          |            | (12,711  | )      
|                                                              |                                                                                              | Income taxes payable                                             |                                           |            | 60,570   |         |          |            | 7,383    |        
|                                                              |                                                                                              | Deferred revenue                                                 |                                           |            | 17,663   |         |          |            | 24,572   |        
|                                                              |                                                                                              |                                                                  |                                           |            |          |         |          |           
|                                                              |                                                                                              |                                                                  | Net cash provided by operating activities |            |          | 440,667 |          |            |          | 409,697 | 
|Cash flows from investing activities:                         |                                                                                              |                                                                  |                                           |            |          |         |          |           
|                                                              | Purchases of investments                                                                     |                                                                  |                                           | (1,258,682 | )        |         |          | (1,195,468 | )       
|                                                              | Sales and maturities of investments                                                          |                                                                  |                                           | 1,122,807  |          |         |          | 579,156    |         
|                                                              | Purchases of property and equipment                                                          |                                                                  |                                           | (83,704    | )        |         |          | (124,318   | )       
|                                                              | Business acquisitions                                                                        |                                                                  |                                           |           |          |         |          | (24,000    | )       
|                                                              | Strategic investments in businesses                                                          |                                                                  |                                           |           |          |         |          | (17,110    | )       
|                                                              | Payments made for 2001 business acquisitions                                                 |                                                                  |                                           | (7,267     | )        |         |          |           |         
|                                                              |                                                                                              |                                                                  |                                           |            |          |         |          |           
|                                                              |                                                                                              | Net cash used for investing activities                           |                                           |            | (226,846 | )       |          |            | (781,740 | )      
|Cash flows from financing activities:                         |                                                                                              |                                                                  |                                           |            |          |         |          |           
|                                                              | Proceeds from issuance of common stock                                                       |                                                                  |                                           | 80,422     |          |         |          | 85,114     |         
|                                                              |                                                                                              |                                                                  |                                           |            |          |         |          |           
|                                                              |                                                                                              | Net cash provided by financing activities                        |                                           |            | 80,422   |         |          |            | 85,114   |        
|Effect of exchange rate changes                               |                                                                                              |                                                                  | (1,091                                    | )          |          |         | 3,727    |           
|                                                              |                                                                                              |                                                                  |                                           |            |          |         |          |           
|Net increase (decrease) in cash and cash
    equivalents      |                                                                                              |                                                                  | 293,152                                   |            |          |         | (283,202 | )         
|Cash and cash equivalents at beginning of period              |                                                                                              |                                                                  | 538,419                                   |            |          |         | 886,558  |           
|                                                              |                                                                                              |                                                                  |                                           |            |          |         |          |           
|Cash and cash equivalents at end of period                    |                                                                                              | $                                                                | 831,571                                   |            |          | $       | 603,356  |           
|                                                              |                                                                                              |                                                                  |                                           |            |          |         |          |           
|Supplemental disclosures:                                     |                                                                                              |                                                                  |                                           |            |          |         |          |           
|                                                              | Cash paid for interest                                                                       |                                                                  | $                                         | 10,304     |          |         | $        | 10,318     |         
|                                                              | Cash paid for income taxes                                                                   |                                                                  | $                                         | 14,000     |          |         | $        | 8,461      |         
|Supplemental schedule of non-cash financing
    transactions: |                                                                                              |                                                                  |                                           |            |          |         |          |           
|                                                              | Issuance of common stock for conversion of notes                                             |                                                                  | $                                         | 500        |          |         | $        | 82         |         

See accompanying notes to condensed consolidated
financial statements.

4



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##### Table of Contents



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 accompanying
notes included in VERITAS Software Corporations Annual
Report on Form 10-K for the year ended December 31,
2001.

2.     Use of
Estimates

The preparation of financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the amounts reported in the condensed consolidated
financial statements and accompanying notes. Actual results
could differ from those estimates.

3.     Comparative
Information

The Company has reclassified certain comparative
information to conform with current period financial
presentation.

4.     Change in
Accounting Principles

On January 1, 2002, the Company adopted
Statement of Financial Accounting Standard
(SFAS) 142, Goodwill and Other Intangible
Assets,SFAS 144, Accounting for the Impairment or
Disposal of Long-Lived Assets,and the Financial Accounting
Standards Board (FASB) staff issued Topic
No. D-103, Income Statement Characterization of
Reimbursements Received for Out-of-Pocket Expenses
Incurred(Topic D-103).

SFAS 142 requires that goodwill and intangible
assets with indefinite useful lives no longer be amortized, but
instead be tested for impairment at least annually.
SFAS 142 also requires that intangible assets with
estimable useful lives be amortized over their respective
estimated useful lives to their estimated residual values, and
reviewed for impairment in accordance with SFAS 144. In the
second quarter of 2002, the Company completed the transitional
goodwill impairment test required by SFAS 142 and did not
record an impairment charge upon completion of the test. In the
future, the Company will perform the annual impairment test
during the fourth quarter of each fiscal year or when a change
in facts and circumstances indicate that the fair value of the
reporting unit may be below its carrying amount. The Company
does not expect to record an impairment charge upon completion
of the next annual impairment test to be performed during the
fourth quarter of 2002, but there can be no assurance that at
the time the test is completed a significant impairment charge
may not be recorded.

SFAS 144 supersedes SFAS 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of,and APB Opinion No. 30,
Reporting the Results of
Operations  Reporting the Effects of Disposal of
a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions.
SFAS 144 establishes a single accounting model for
long-lived assets to be disposed of by sale, whether they were
previously held and used or newly acquired, and it also broadens
the presentation of discontinued operations to include more
disposal transactions. The adoption of SFAS 144 did not
have a material impact on the Companys consolidated
financial position, results of operations or cash flows.

5



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##### Table of Contents



VERITAS SOFTWARE CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Topic D-103 requires companies to record
certain reimbursements received for out-of-pocket expenses as
revenue instead of an offset to the related expense. Upon
application of Topic D-103, comparative financial
statements for prior periods must be reclassified to comply with
the guidance in this announcement. The adoption of
Topic D-103 did not have a material impact on the
Companys financial position, results of operations or cash
flows, and as a result the Company did not reclassify prior
period results.

In June 2002, the FASB issued SFAS 146,
Accounting for Costs Associated with Exit or Disposal
Activities. SFAS 146 supersedes Emerging Issues Task
Force Issue (EITF) No. 94-3 Liability
Recognition for Certain Employee Termination Benefits and other
Costs to Exit an Activity (Including Certain Costs Incurred in a
Restructuring). SFAS 146 addresses the recognition,
measurement, and reporting of costs that are associated with
exit and disposal activities, including costs related to
terminating a contract that is not a capital lease and
termination benefits that employees who are involuntarily
terminated receive under the terms of a one-time benefit
arrangement that is not an ongoing benefit arrangement or an
individual deferred-compensation contract. SFAS 146
requires that the liability for costs associated with an exit or
disposal activity be recognized when the liability is incurred
rather than at the date of the Companys commitment to an
exit plan as prescribed under the EITF. SFAS 146 also
establishes that the liability should initially be measured and
recorded at fair value. SFAS 146 will be effective
prospectively for exit or disposal activities of the Company
that are initiated after December 31, 2002. As of
September 30, 2002, SFAS 146 has no impact on the
Companys financial position and results of operations.
SFAS 146 will have no impact on the Companys facility
restructuring plan to exit and consolidate certain of its
facilities, which is discussed in Note 13.

5.     Strategic
Investments

The Company holds investments in common and
preferred stock of publicly traded and privately-held companies.
The total carrying amount of the Companys strategic
investments was $11.3 million as of September 30,
2002, and was included in other non-current assets. In the
second quarter of 2002, the Company recorded impairment losses
on strategic investments of $14.8 million. As of
September 30, 2002, the Company determined that there was
no further impairment in its strategic investments. The losses
represented write-downs of the Companys carrying amount of
the investments and were determined by reviewing the following:



| |   |                                                                                                           
| | - | ----------------------------------------------------------------------------------------------------------
| |  | actual or proposed rounds of financing of the
    investee, subsequent to the Companys investment date;  
|
| |  | cash position of the investee and its cash burn
    rate;                                                 
|
| |  | investees ability to obtain additional
    financing;                                                    
|
| |  | investees actual operating results compared
    to its forecasted results;                               
|
| |  | status of the investees product development
    and its competitive position;                            
|
| |  | investees management experience and
    employee headcount additions or reductions;                      
|
| |  | current industry and economic trends relevant to
    the business of the investee;                        
|
| |  | if privately-held, the market value of common
    stock of the investees publicly traded competitors; and
|
| |  | if publicly traded, the market value of the
    investees common stock.                                  

6



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##### Table of Contents



VERITAS SOFTWARE CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

6.     Net Income
(Loss) Per Share

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

|                                    |                                                                                             |                    |      |                   |  |      |       |          |   |   |      |         |  |   |       |          |  
|----------------------------------- | ------------------------------------------------------------------------------------------- | ------------------ | ---- | ----------------- |  | ---- | ----- | -------- | - | - | ---- | ------- |  | - | ----- | -------- | -
|                                    |                                                                                             |                    |      |                  
|                                    |                                                                                             | Three Months Ended |      | Nine Months Ended
|                                    |                                                                                             | September 30,      |      | September 30,    
|                                    |                                                                                             |                    |      |                  
|                                    |                                                                                             | 2002               |      | 2001              |  | 2002 |       | 2001    
|                                    |                                                                                             |                    |      |                   |  |      |       |         
|Numerator:                          |                                                                                             |                    |      |                   |  |      |       |          |   |   |      |         |  |   |       |         
|                                    | Net income (loss)                                                                           |                    | $    | 36,226            |  |      | $     | (161,986 | ) |   | $    | 106,737 |  |   | $     | (447,061 | )
|                                    |                                                                                             |                    |      |                   |  |      |       |          |   |   |      |         |  |   |       |         
|Denominator:                        |                                                                                             |                    |      |                   |  |      |       |          |   |   |      |         |  |   |       |         
|                                    | Denominator for basic net income (loss) per
    share  weighted-average shares outstanding |                    |      | 410,898           |  |      |       | 400,455  |   |   |      | 408,827 |  |   |       | 397,783  |  
|                                    | Potential common shares                                                                     |                    |      | 5,689             |  |      |       |         |   |   |      | 9,996   |  |   |       |         |  
|                                    |                                                                                             |                    |      |                   |  |      |       |          |   |   |      |         |  |   |       |         
|                                    | Denominator for diluted net income
    (loss) per share                                     |                    |      | 416,587           |  |      |       | 400,455  |   |   |      | 418,823 |  |   |       | 397,783  |  
|                                    |                                                                                             |                    |      |                   |  |      |       |          |   |   |      |         |  |   |       |         
|Basic net income (loss) per share   |                                                                                             | $                  | 0.09 |                   |  | $    | (0.40 | )        |   | $ | 0.26 |         |  | $ | (1.12 | )       
|                                    |                                                                                             |                    |      |                   |  |      |       |          |   |   |      |         |  |   |       |         
|Diluted net income (loss) per share |                                                                                             | $                  | 0.09 |                   |  | $    | (0.40 | )        |   | $ | 0.25 |         |  | $ | (1.12 | )       
|                                    |                                                                                             |                    |      |                   |  |      |       |          |   |   |      |         |  |   |       |         

For the three and nine months ended
September 30, 2002, potential common shares consist of
employee stock options using the treasury method. The following
table sets forth the potential common shares that were excluded
from the net income (loss) per share computations (in thousands)
as their effect would be antidilutive:

|                                      |  |               |        |               |  |      |        |      |  |  |        |  |  |  |        | 
|------------------------------------- |  | ------------- | ------ | ------------- |  | ---- | ------ | ---- |  |  | ------ |  |  |  | ------ | 
|                                      |  |               |        |              
|                                      |  | Three Months  |        | Nine Months  
|                                      |  | Ended         |        | Ended        
|                                      |  | September 30, |        | September 30,
|                                      |  |               |        |              
|                                      |  | 2002          |        | 2001          |  | 2002 |        | 2001
|                                      |  |               |        |               |  |      |        |     
|Employee stock options outstanding(1) |  |               | 44,723 |               |  |      | 57,694 |      |  |  | 35,547 |  |  |  | 56,253 | 
|5.25% convertible subordinated notes  |  |               | 6,695  |               |  |      | 6,748  |      |  |  | 6,695  |  |  |  | 6,749  | 
|1.856% convertible subordinated notes |  |               | 12,981 |               |  |      | 12,981 |      |  |  | 12,981 |  |  |  | 12,981 | 



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | For the three and nine months ended
    September 30, 2002, 44,723 and 35,547 employee stock
    options were excluded from the computation of diluted net income
    per share because the exercise price of these options was
    greater than the average market price of the Companys
    common stock during the period, and therefore the effect is
    antidilutive. For the three and nine months ended
    September 30, 2001, all employee stock options were
    excluded from the computation of diluted net loss per share
    because the effect would have been antidilutive.

The weighted average exercise price of the
employee stock options with exercise prices exceeding the
average fair value of the Companys common stock for the
three and nine months ended September 30, 2002 was $55.58
and $66.04 per share, respectively. The weighted average
exercise price of all employee stock options outstanding for the
three and nine months ended September 30, 2001 was $45.66
and $44.86 per share, respectively.

7.     Goodwill and
Other Intangible Assets

On January 1, 2002, the Company adopted
SFAS 142, Goodwill and Other Intangible Assets. As a
result, the Company will no longer amortize goodwill, but will
test it for impairment annually or whenever events or changes in
circumstances suggest that the carrying amount may not be
recoverable.

7



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##### Table of Contents



VERITAS SOFTWARE CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The following table sets forth the carrying
amount of goodwill. Goodwill also includes amounts originally
allocated to assembled workforce (in thousands):

|         |  |                                          |           |              |  |              |           |  |  |   |           | 
|-------- |  | ---------------------------------------- | --------- | ------------ |  | ------------ | --------- |  |  | - | --------- | 
|         |  |                                         
|         |  | September 30, 2002 and December 31, 2001
|         |  |                                         
|         |  | Gross                                    |           |             
|         |  | Carrying                                 |           | Accumulated  |  | Net Carrying
|         |  | Amount                                   |           | Amortization |  | Amount      
|         |  |                                          |           |              |  |             
|Goodwill |  | $                                        | 3,293,744 |              |  | $            | 2,090,930 |  |  | $ | 1,202,814 | 
|         |  |                                          |           |              |  |              |           |  |  |   |           | 

The following tables set forth the carrying
amount of other intangible assets that will continue to be
amortized (in thousands):

|                                              |  |                    |         |              |  |              |         |  |  |   |         | 
|--------------------------------------------- |  | ------------------ | ------- | ------------ |  | ------------ | ------- |  |  | - | ------- | 
|                                              |  |                   
|                                              |  | September 30, 2002
|                                              |  |                   
|                                              |  | Gross Carrying     |         | Accumulated  |  | Net Carrying
|                                              |  | Amount             |         | Amortization |  | Amount      
|                                              |  |                    |         |              |  |             
|Developed technology                          |  | $                  | 250,826 |              |  | $            | 204,122 |  |  | $ | 46,704  | 
|Distribution channels                         |  |                    | 234,800 |              |  |              | 195,667 |  |  |   | 39,133  | 
|Trademarks                                    |  |                    | 24,350  |              |  |              | 20,291  |  |  |   | 4,059   | 
|Other intangible assets                       |  |                    | 29,700  |              |  |              | 24,363  |  |  |   | 5,337   | 
|                                              |  |                    |         |              |  |              |         |  |  |   |         | 
|Intangibles related to business acquisitions  |  |                    | 539,676 |              |  |              | 444,443 |  |  |   | 95,233  | 
|Convertible subordinated notes issuance costs |  |                    | 14,506  |              |  |              | 7,580   |  |  |   | 6,926   | 
|                                              |  |                    |         |              |  |              |         |  |  |   |         | 
|Total other intangibles assets                |  | $                  | 554,182 |              |  | $            | 452,023 |  |  | $ | 102,159 | 
|                                              |  |                    |         |              |  |              |         |  |  |   |         | 

|                                              |  |                   |         |              |  |              |         |  |  |   |         | 
|--------------------------------------------- |  | ----------------- | ------- | ------------ |  | ------------ | ------- |  |  | - | ------- | 
|                                              |  |                  
|                                              |  | December 31, 2001
|                                              |  |                  
|                                              |  | Gross Carrying    |         | Accumulated  |  | Net Carrying
|                                              |  | Amount            |         | Amortization |  | Amount      
|                                              |  |                   |         |              |  |             
|Developed technology                          |  | $                 | 258,027 |              |  | $            | 159,425 |  |  | $ | 98,602  | 
|Distribution channels                         |  |                   | 234,800 |              |  |              | 151,642 |  |  |   | 83,158  | 
|Trademarks                                    |  |                   | 24,350  |              |  |              | 15,724  |  |  |   | 8,626   | 
|Other intangible assets                       |  |                   | 29,700  |              |  |              | 18,726  |  |  |   | 10,974  | 
|                                              |  |                   |         |              |  |              |         |  |  |   |         | 
|Intangibles related to business acquisitions  |  |                   | 546,877 |              |  |              | 345,517 |  |  |   | 201,360 | 
|Convertible subordinated notes issuance costs |  |                   | 14,506  |              |  |              | 6,144   |  |  |   | 8,362   | 
|                                              |  |                   |         |              |  |              |         |  |  |   |         | 
|Total other intangibles assets                |  | $                 | 561,383 |              |  | $            | 351,661 |  |  | $ | 209,722 | 
|                                              |  |                   |         |              |  |              |         |  |  |   |         | 

The total amortization expense related to
goodwill, developed technology, and other intangible assets is
set forth in the table below (in thousands):

|                        |  |                    |        |                   |  |      |         |      |  |   |         |  |  |   |         | 
|----------------------- |  | ------------------ | ------ | ----------------- |  | ---- | ------- | ---- |  | - | ------- |  |  | - | ------- | 
|                        |  |                    |        |                  
|                        |  | Three Months Ended |        | Nine Months Ended
|                        |  | September 30,      |        | September 30,    
|                        |  |                    |        |                  
|                        |  | 2002               |        | 2001              |  | 2002 |         | 2001
|                        |  |                    |        |                   |  |      |         |     
|Goodwill                |  | $                  |       |                   |  | $    | 203,725 |      |  | $ |        |  |  | $ | 610,466 | 
|Developed technology    |  |                    | 16,457 |                   |  |      | 15,791  |      |  |   | 50,264  |  |  |   | 47,295  | 
|Distribution channels   |  |                    | 14,675 |                   |  |      | 14,675  |      |  |   | 44,025  |  |  |   | 44,025  | 
|Trademarks              |  |                    | 1,522  |                   |  |      | 1,522   |      |  |   | 4,567   |  |  |   | 4,567   | 
|Other intangible assets |  |                    | 1,819  |                   |  |      | 1,879   |      |  |   | 5,456   |  |  |   | 5,712   | 
|                        |  |                    |        |                   |  |      |         |      |  |   |         |  |  |   |         | 
|Total amortization      |  | $                  | 34,473 |                   |  | $    | 237,592 |      |  | $ | 104,312 |  |  | $ | 712,065 | 
|                        |  |                    |        |                   |  |      |         |      |  |   |         |  |  |   |         | 

8



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##### Table of Contents



VERITAS SOFTWARE CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The total expected future annual amortization
related to other intangible assets is set forth in the table
below (in thousands):

|                                           |  |              |        | 
|------------------------------------------ |  | ------------ | ------ | 
|                                           |  | Future      
|Year                                       |  | Amortization
|                                           |  |             
|2002 (for the fourth quarter of 2002 only) |  | $            | 34,495 | 
|2003                                       |  |              | 59,493 | 
|2004                                       |  |              | 1,245  | 
|                                           |  |              |        | 
|Total                                      |  | $            | 95,233 | 
|                                           |  |              |        | 

The adjusted net income per share excluding
amortization of goodwill is as follows (in thousands):

|                                      |                          |                    |        |                   |  |      |          |         |  |   |         |   |  |   |          |         | 
|------------------------------------- | ------------------------ | ------------------ | ------ | ----------------- |  | ---- | -------- | ------- |  | - | ------- | - |  | - | -------- | ------- | 
|                                      |                          |                    |        |                  
|                                      |                          | Three Months Ended |        | Nine Months Ended
|                                      |                          | September 30,      |        | September 30,    
|                                      |                          |                    |        |                  
|                                      |                          | 2002               |        | 2001              |  | 2002 |          | 2001   
|                                      |                          |                    |        |                   |  |      |          |        
|Net income (loss)                     |                          | $                  | 36,226 |                   |  | $    | (161,986 | )       |  | $ | 106,737 |   |  | $ | (447,061 | )      
|Add back:                             |                          |                    |        |                   |  |      |          |         |  |   |         |   |  |   |          |        
|                                      | Amortization of goodwill |                    |        |                  |  |      |          | 203,725 |  |   |         |  |  |   |          | 610,466 | 
|                                      |                          |                    |        |                   |  |      |          |         |  |   |         |   |  |   |          |        
|Adjusted net income                   |                          | $                  | 36,226 |                   |  | $    | 41,739   |         |  | $ | 106,737 |   |  | $ | 163,405  |        
|                                      |                          |                    |        |                   |  |      |          |         |  |   |         |   |  |   |          |        
|Basic net income (loss) per share     |                          | $                  | 0.09   |                   |  | $    | (0.40    | )       |  | $ | 0.26    |   |  | $ | (1.12    | )      
|Diluted net income (loss) per share   |                          | $                  | 0.09   |                   |  | $    | (0.40    | )       |  | $ | 0.25    |   |  | $ | (1.12    | )      
|Add back:                             |                          |                    |        |                   |  |      |          |         |  |   |         |   |  |   |          |        
|                                      | Amortization of goodwill |                    |        |                  |  |      |          | 0.50    |  |   |         |  |  |   |          | 1.53    | 
|                                      |                          |                    |        |                   |  |      |          |         |  |   |         |   |  |   |          |        
|Adjusted basic net income per share   |                          | $                  | 0.09   |                   |  | $    | 0.10     |         |  | $ | 0.26    |   |  | $ | 0.41     |        
|                                      |                          |                    |        |                   |  |      |          |         |  |   |         |   |  |   |          |        
|Adjusted diluted net income per share |                          | $                  | 0.09   |                   |  | $    | 0.10     |         |  | $ | 0.25    |   |  | $ | 0.39     |        
|                                      |                          |                    |        |                   |  |      |          |         |  |   |         |   |  |   |          |        

8.     Comprehensive
Income (Loss)

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

|                                               |                                                     |                    |        |                   |   |      |          |        |   |   |         |        |   |   |          |       |  
|---------------------------------------------- | --------------------------------------------------- | ------------------ | ------ | ----------------- | - | ---- | -------- | ------ | - | - | ------- | ------ | - | - | -------- | ----- | -
|                                               |                                                     |                    |        |                  
|                                               |                                                     | Three Months Ended |        | Nine Months Ended
|                                               |                                                     | September 30,      |        | September 30,    
|                                               |                                                     |                    |        |                  
|                                               |                                                     | 2002               |        | 2001              |   | 2002 |          | 2001  
|                                               |                                                     |                    |        |                   |   |      |          |       
|Net income (loss)                              |                                                     | $                  | 36,226 |                   |   | $    | (161,986 | )      |   | $ | 106,737 |        |   | $ | (447,061 | )    
|Other comprehensive income (loss), net of tax: |                                                     |                    |        |                   |   |      |          |        |   |   |         |        |   |   |          |      
|                                               | Foreign currency translation adjustments            |                    |        | 100               |   |      |          | (2,636 | ) |   |         | 5,613  |   |   |          | (262  | )
|                                               | Derivative financial instrument adjustments         |                    |        | (2,165            | ) |      |          | 9,563  |   |   |         | (6,705 | ) |   |          | 3,989 |  
|                                               | Unrealized gain (loss) on marketable
    securities |                    |        | 1,484             |   |      |          | 583    |   |   |         | (2,808 | ) |   |          | 767   |  
|                                               |                                                     |                    |        |                   |   |      |          |        |   |   |         |        |   |   |          |      
|Comprehensive income (loss)                    |                                                     | $                  | 35,645 |                   |   | $    | (154,476 | )      |   | $ | 102,837 |        |   | $ | (442,567 | )    
|                                               |                                                     |                    |        |                   |   |      |          |        |   |   |         |        |   |   |          |      

9



---



##### Table of Contents



VERITAS SOFTWARE CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The components of accumulated other comprehensive
loss are (in thousands):

|                                            |  |               |        |              |  |   |        |  
|------------------------------------------- |  | ------------- | ------ | ------------ |  | - | ------ | -
|                                            |  | September 30, |        | December 31,
|                                            |  | 2002          |        | 2001        
|                                            |  |               |        |             
|Foreign currency translation adjustments    |  | $             | (3,216 | )            |  | $ | (8,829 | )
|Derivative financial instrument adjustments |  |               | (4,359 | )            |  |   | 2,346  |  
|Unrealized gain on marketable securities    |  |               | 3,383  |              |  |   | 6,191  |  
|                                            |  |               |        |              |  |   |        |  
|Accumulated other comprehensive loss        |  | $             | (4,192 | )            |  | $ | (292   | )
|                                            |  |               |        |              |  |   |        |  

9.     Derivative
Financial Instruments

In September 2000, the Company entered into a
three-year cross currency interest rate swap transaction for the
purpose of hedging fixed interest rate, foreign currency
denominated cash flows under an inter-company loan receivable.
Under the terms of this derivative financial instrument, Euro
denominated fixed principal and interest payments to be received
under the inter-company loan are swapped for
U.S. dollar-fixed principal and interest payments. As of
September 30, 2002, 12 monthly payments of
4.3 million
remained to be swapped at a forward exchange rate of 0.89070
U.S. dollar per Euro. The fair market value of the swap at
September 30, 2002 was $(4.9) million. As a result of
entering into the swap, the Company has mitigated its exposure
to foreign currency exchange rate fluctuations. The gains or
losses on the foreign currency loan receivable will be offset by
the gains or losses on the swap. Because the Company is
receiving monthly fixed interest payments under the swap, it is
still subject to fluctuations in value due to changes in Euro
and U.S. dollar foreign currency rates and U.S. dollar
interest rates. As of September 30, 2002 the impact of
these fluctuations was not significant. This cash flow hedge was
deemed to be highly effective as of September 30, 2002.

In January 2002, the Company entered into two
three-year pay fixed, receive floating, interest rate swaps for
the purpose of hedging cash flows on variable interest rate debt
of its build-to-suit lease agreements. Under the terms of these
interest rate swaps, the Company makes payments based on a
stated fixed rate and will receive interest payments based on
the 3-month London Inter Bank Offer Rate (LIBOR).
The Companys payments on its build-to-suit lease
agreements are based upon a 3-month LIBOR plus a credit spread.
If the Companys credit spread remains consistent and other
critical terms of the interest rate swap or the hedged item do
not change, the interest rate swap will be considered highly
effective with all changes in the fair value included in other
comprehensive income. If the Companys credit spread
changes or other critical terms of the interest rate swap or the
hedged item change, the hedge may become partially or fully
ineffective, which could result in all or a portion of the
changes in fair value of the derivative recorded in the
statement of operations. The interest rate swaps settle the
first day of January, April, July and October until expiration.
As of September 30, 2002, the fair value of the interest
rate swaps was $(10.7) million. As a result of entering
into the interest rate swaps, the Company has mitigated its
exposure to variable cash flows associated with interest rate
fluctuations. Because the rental payments on the leases are
based on the 3-month LIBOR and the Company receives 3-month
LIBOR from the interest rate swap counter-party, the Company has
eliminated any impact to raising interest rates related to its
rent payments under the build-to-suit lease agreements.

10.     Segment
Information

The Company operates in one segment, storage
software solutions. The Companys products and services are
sold throughout the world, through original equipment
manufacturers, direct sales channels and indirect sales
channels. The Companys chief operating decision maker, the
chief executive officer, evaluates the performance of the
Company based upon stand-alone revenue of product channels and
the geographic regions of the segment and does not receive
discrete financial information about asset allocation, expense
allocation or profitability from the Companys storage
software products or services.

10



---



##### Table of Contents



VERITAS SOFTWARE CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |                       
| | ----------------------
| | Geographic Information

|                      |               |                    |   |                   |         |      |   |         |         |  |   |         |           |  |   |         |           | 
|--------------------- | ------------- | ------------------ | - | ----------------- | ------- | ---- | - | ------- | ------- |  | - | ------- | --------- |  | - | ------- | --------- | 
|                      |               |                    |   |                  
|                      |               | Three Months Ended |   | Nine Months Ended
|                      |               | September 30,      |   | September 30,    
|                      |               |                    |   |                  
|                      |               | 2002               |   | 2001              |         | 2002 |   | 2001   
|                      |               |                    |   |                   |         |      |   |        
|                      |               |                   
|                      |               | (In thousands)    
|User license fees(1): |               |                    |   |                   |         |      |   |         |         |  |   |         |           |  |   |        
|                      | United States |                    | $ | 155,311           |         |      | $ | 168,872 |         |  | $ | 484,772 |           |  | $ | 586,232 |          
|                      | Europe(2)     |                    |   | 54,848            |         |      |   | 44,110  |         |  |   | 167,251 |           |  |   | 175,496 |          
|                      | Other(3)      |                    |   | 30,540            |         |      |   | 27,032  |         |  |   | 90,263  |           |  |   | 80,983  |          
|                      |               |                    |   |                   |         |      |   |         |         |  |   |         |           |  |   |        
|                      |               | Total              |   |                   | 240,699 |      |   |         | 240,014 |  |   |         | 742,286   |  |   |         | 842,711   | 
|                      |               |                    |   |                   |         |      |   |         |         |  |   |         |           |  |   |        
|Services(1):          |               |                    |   |                   |         |      |   |         |         |  |   |         |           |  |   |        
|                      | United States |                    |   | 90,272            |         |      |   | 80,053  |         |  |   | 271,662 |           |  |   | 220,711 |          
|                      | Europe(2)     |                    |   | 24,255            |         |      |   | 14,329  |         |  |   | 61,902  |           |  |   | 37,816  |          
|                      | Other(3)      |                    |   | 10,458            |         |      |   | 5,835   |         |  |   | 24,973  |           |  |   | 16,657  |          
|                      |               |                    |   |                   |         |      |   |         |         |  |   |         |           |  |   |        
|                      |               | Total              |   |                   | 124,985 |      |   |         | 100,217 |  |   |         | 358,537   |  |   |         | 275,184   | 
|                      |               |                    |   |                   |         |      |   |         |         |  |   |         |           |  |   |        
|                      |               | Total net revenue  |   | $                 | 365,684 |      |   | $       | 340,231 |  |   | $       | 1,100,823 |  |   | $       | 1,117,895 | 
|                      |               |                    |   |                   |         |      |   |         |         |  |   |         |           |  |   |        

|                      |               |               |   |              |           |  |   |           |           | 
|--------------------- | ------------- | ------------- | - | ------------ | --------- |  | - | --------- | --------- | 
|                      |               | September 30, |   | December 31,
|                      |               | 2002          |   | 2001        
|                      |               |               |   |             
|Long-lived assets(4): |               |               |   |              |           |  |   |          
|                      | United States |               | $ | 1,465,554    |           |  | $ | 1,592,060 |          
|                      | Europe(2)     |               |   | 57,265       |           |  |   | 33,945    |          
|                      | Other(3)      |               |   | 12,953       |           |  |   | 12,294    |          
|                      |               |               |   |              |           |  |   |          
|                      |               | Total         |   | $            | 1,535,772 |  |   | $         | 1,638,299 | 
|                      |               |               |   |              |           |  |   |          



---



|    |                                                                                                                                                                                                     
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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 includes Canada, Latin America, Japan and
    the Asia Pacific region.                                                                                                                        
|   
|(4) | Long-lived assets include all long-term assets
    except those specifically excluded under SFAS 131, such as
    deferred income taxes. Reconciliation to total assets reported
    (in thousands):

|                                |                           |               |           |              |  |   |           |           | 
|------------------------------- | ------------------------- | ------------- | --------- | ------------ |  | - | --------- | --------- | 
|                                |                           | September 30, |           | December 31,
|                                |                           | 2002          |           | 2001        
|                                |                           |               |           |             
|Total long-lived assets         |                           | $             | 1,535,772 |              |  | $ | 1,638,299 |          
|Other assets, including current |                           |               | 2,541,680 |              |  |   | 2,160,314 |          
|                                |                           |               |           |              |  |   |           |          
|                                | Total consolidated assets |               | $         | 4,077,452    |  |   | $         | 3,798,613 | 
|                                |                           |               |           |              |  |   |           |          

One customer, a major distributor, represented
approximately 12% of the Companys net revenue for the
three months ended September 30, 2002 and the same customer
represented approximately 10% of the Companys net revenue
for the nine months ended September 30, 2002.



| |                              
| | -----------------------------
| | User License Fees Information

The Company markets and distributes its software
products both as individual software products and as integrated
product suites, also referred to as application solutions. The
Company derives its user license fees from the sale of its core
technologies, including data protection and file system and
volume management

11



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##### Table of Contents



VERITAS SOFTWARE CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

products, from its emerging technologies,
including cluster and replication and SAN or NAS products, and
from its application solutions, which include technologies from
both its core and emerging technologies. User license fees from
core technologies were $210.7 million for the three months
ended September 30, 2002 and $204.5 million for the
three months ended September 30, 2001. User license fees
from core technologies were $649.2 million for the nine
months ended September 30, 2002 and $715.0 million for
the nine months ended September 30, 2001. User license fees
from emerging technologies were $30.0 million for the three
months ended September 30, 2002 and $35.5 million for
the three months ended September 30, 2001. User license
fees from emerging technologies were $93.1 million for the
nine months ended September 30, 2002 and
$127.7 million for the nine months ended September 30,
2001.

User license fees from application solutions, as
stand-alone products, were $49.7 million for the three
months ended September 30, 2002 and $44.9 million for
the three months ended September 30, 2001. User license
fees from application solutions, as stand-alone products, were
$148.6 million for the nine months ended September 30,
2002 and $178.2 million for the nine months ended
September 30, 2001. User license fees generated by
application solutions are allocated between core technology
products and emerging technology products.

11.     Credit
Facility

During 2001, the Company extended and amended the
terms of its $50.0 million unsecured credit facility held
with a syndicate of financial institutions. In September 2002,
this credit facility expired in accordance with its terms and
was not renewed by the Company.

During the first quarter of 2002, the
Companys Japanese subsidiary entered into a short-term
credit facility with a multinational Japanese bank in the amount
of 1.0 billion Japanese yen ($8.2 million). At
September 30, 2002, no amount was outstanding under this
credit facility. The short-term credit facility is due to expire
in March 2003. Borrowings under the short-term credit facility
bear interest at Tokyo Inter Bank Offer Rate (TIBOR)
plus 0.5%. There are no covenants on the credit facility and the
loan has been guaranteed by VERITAS Software Global Corporation,
a wholly-owned subsidiary of the Company.

12.     Commitments
and Contingencies



| |                             
| | ----------------------------
| | Facilities Lease Commitments

In 1999 and 2000, the Company entered into three
build-to-suit lease agreements for office buildings in Mountain
View, California, Roseville, Minnesota and Milpitas, California.
The Company began occupying the Roseville and Mountain View
facilities in May and June 2001, respectively. The development
and acquisition of the properties have been financed by a third
party through a syndicate of financial institutions. The Company
has accounted for these agreements as operating leases in
accordance with SFAS 13, Accounting for Leases,as
amended.

During 2001 and 2002, the Company amended its
existing lease agreement, originally signed in 1999, for
corporate campus facilities in Mountain View, California. The
facilities of 425,000 square feet provide space for sales,
marketing, administration and research and development
functions. The lease term for these facilities is five years
beginning in March 2000, with an option to extend the lease term
for two successive periods of one year each, if agreed to by the
financial institutions. The Company has the option to purchase
the property (land and facilities) for the termination value of
$145.2 million or, at the end of the lease, to arrange for
the sale of the property to a third party while the Company
retains an obligation to the owner for the difference between
the sales price and the guaranteed residual value up to
$129.0 million if the sales price is less than this amount,
subject to certain provisions of the lease. In addition, the
Company is entitled to any proceeds from a sale of the property
in excess of the termination value. The Company occupies these
facilities

12



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VERITAS SOFTWARE CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

and began making lease payments in 2001. Monthly
lease payments under this lease agreement are based on LIBOR
using 30-day to 180-day LIBOR contracts.

During 2001 and 2002, the Company amended its
existing lease agreement, originally signed in 2000, for its
facilities in Roseville, Minnesota. The Company improved and
expanded its existing facilities of 62,000 square feet and
developed adjacent property adding 142,000 square feet
completed in 2001. The facilities provide space for technical
support and research and development functions. The lease term
for these facilities is five years beginning in March 2000, with
an option to extend the lease term for two successive periods of
one year each, if agreed to by the financial institutions. The
Company has the option to purchase the property (land and
facilities) for the termination value of $41.3 million or,
at the end of the lease, to arrange for the sale of the property
to a third party while the Company retains an obligation to the
owner for the difference between the sales price and the
guaranteed residual value up to $35.1 million if the sales
price is less than this amount, subject to certain provisions of
the lease. In addition, the Company is entitled to any proceeds
from a sale of the property in excess of the termination value.
The Company occupies these facilities and began making lease
payments in 2001. Monthly lease payments under this lease
agreement are based on LIBOR using 30-day to 180-day LIBOR
contracts.

During 2001 and 2002, the Company amended its
existing lease agreement, originally signed in 2000, for the
lease of 65 acres of land and subsequent improvements for
new research and development campus facilities in Milpitas,
California. The Company plans to develop the site in two phases.
The first phase of 466,000 square feet was completed in the
third quarter of 2002. The facilities will provide space for
research and development and general corporate functions. The
lease term for the first phase is five years beginning in July
2000, with an option to extend the lease term for two successive
periods of one year each, if agreed to by the financial
institutions. The Company has the option to purchase the
property (land and first phase facilities) for the termination
value of $194.3 million or, at the end of the lease, to
arrange for the sale of the property to a third party while the
Company retains an obligation to the owner for the difference
between the sales price and the guaranteed residual value up to
$180.5 million if the sales price is less than this amount,
subject to certain provisions of the lease. In addition, the
Company is entitled to any proceeds from a sale of the property
in excess of the termination value. The Company began paying the
lease payments in the third quarter of 2002 and will commence
occupying a portion of the new campus facilities in the first
quarter of 2003. Monthly lease payments under this lease
agreement are based on LIBOR using 30-day to 180-day LIBOR
contracts. The Company is currently analyzing its development
schedule for the second phase of the campus, and at this time no
commitments have been made with respect to the start of
construction.

The Company has evaluated the expected fair value
of the properties at the end of the lease terms by reviewing
current real estate market conditions and indicators of
expectations for the market in the future. In the event that the
Company determines it is probable that the expected fair value
of any of the properties at the end of the lease terms will be
less than the respective termination values, the Company will
accrue the expected loss on a straight-line basis over the
remaining lease term. Currently, the Company does not believe it
is probable that the fair market value of the properties at the
end of the lease terms will be less than the termination values.

The agreements for the facilities described above
require that the Company maintain specified financial covenants
such as EBITDA, debt on EBITDA and quick ratio, all of which the
Company was in compliance with as of September 30, 2002.
All the facilities are subject to deeds of trust in favor of the
respective lessors in order to secure the Companys
obligations under the leases.

13.     Subsequent
Event

In October 2002, the Companys board of
directors approved a facility restructuring plan to exit and
consolidate certain of its facilities located in
17 metropolitan areas worldwide. In connection with this
restructuring plan, the Company will record a restructuring
charge to operating expenses of approximately

13



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##### Table of Contents



VERITAS SOFTWARE CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

$99 million during the fourth quarter of
2002. This restructuring charge will be comprised primarily of:
(i) costs of approximately $87 million associated with
terminating and satisfying remaining lease commitments,
partially offset by sublease income net of related sublease
costs; and (ii) write-offs of approximately
$12 million for leasehold improvements and other fixed
assets. Total cash outlays under this restructuring plan are
expected to be approximately $87 million. The Company
expects to begin realizing the related cost savings in the third
quarter of 2003.

Actual costs and cost savings related to this
restructuring plan may vary depending on factors that are beyond
the Companys control, including the commercial real estate
market in the applicable metropolitan areas, the Companys
ability to obtain subleases related to these facilities, the
sublease rental market rates and the outcome of negotiations
with lessors regarding terminations of some facilities
leases.

14



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##### Table of Contents






Item 2.     Managements
Discussion and Analysis of Financial Condition and Results of
Operations

The following discussion should be read in
conjunction with our consolidated financial statements and
accompanying notes, which appear elsewhere in this Quarterly
Report on Form 10-Q. The following discussion contains
forward-looking statements regarding our expectations, beliefs,
plans, intentions or strategies regarding the future, which
involve many risks and uncertainties. These forward-looking
statements include statements regarding expansion of our
international operations, effects of business combinations and
acquisitions, changes in license and service revenue, revenue
mix, license and service gross margin, expense, amortization and
impairment estimates and future commitments. In some cases,
forward-looking statements are identified by words such as
believe, anticipate, expect,
intend, plan, will,
may and similar expressions. All these
forward-looking statements are based on information available to
us at this time, and we assume no obligation to update any of
these statements. The actual results that we achieve may differ
materially from those anticipated by any forward-looking
statement due to risks and uncertainties including those
described below under Factors That May Affect Future
Results.

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

Overview

VERITAS is a leading independent supplier of
storage software products and services. Storage software
includes storage management and data protection software as well
as clustering, replication and SAN or NAS software. We develop
and sell products for most popular operating systems, including
various versions of Windows, UNIX and Linux. We also develop and
sell products that support a wide variety of servers, storage
devices, databases, applications and network solutions.
Customers use our software solutions in a wide variety of
industries, and include many leading global corporations and
e-commerce businesses. We also provide a full range of services
to assist our customers in assessing, architecting and
implementing their storage software solutions.

We derive user license fee revenue from shipments
of our software products to end-user customers through a
combination of original equipment manufacturers, direct sales
channels and indirect sales channels such as resellers,
value-added resellers, hardware distributors, application
software vendors and systems integrators. Some original
equipment manufacturers incorporate our products into their
products, some bundle our products with their products and some
license our products to third parties as optional products. In
general, we receive a user license fee for each sublicense of
our products granted by an original equipment manufacturer to
its customer.

Our services revenue consists of fees derived
from maintenance, technical support, consulting and training
services. Original equipment manufacturer maintenance agreements
covering our products provide for technical and emergency
support and minor unspecified product upgrades for a fixed
annual fee. 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 fee based on the number of user
licenses purchased and the level of service subscribed.

International Sales and Operations

Our international sales are generated primarily
through our international sales subsidiaries. International
revenue, most of which is collectible in foreign currencies,
accounted for approximately 33% of our total revenue for the
three months ended September 30, 2002 and 27% of our total
revenue for the three months ended September 30, 2001. Our
international revenue accounted for approximately 31% of our
total revenue for the nine months ended September 30, 2002
and 28% of our total revenue for the nine months ended
September 30, 2001. Our international revenue increased 32%
from $91.3 million for the three months ended
September 30, 2001 to $120.1 million for the three
months ended September 30, 2002. The majority of this
increase is due to higher revenues from license and service fees
in Europe. Our international revenue increased 11% from
$311.0 million for the nine months ended September 30,
2001 to $344.4 million for the nine months

15



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##### Table of Contents



ended September 30, 2002. User license and
service revenue is attributed to geographic regions based on
location of our customers.


We believe that our success depends upon
continued expansion of our international operations. We
currently have sales and service offices and resellers located
in North America, Europe, Asia-Pacific, South America and
the Middle East, and a development center in India.
International expansion will require us to establish additional
foreign offices, hire additional personnel and recruit new
international resellers, resulting in the need for significant
management attention and the expenditure of financial resources.
To the extent that we are unable to meet these additional
requirements, growth in international sales will be limited,
which would have an adverse effect on our business, operating
results and financial condition.

Seagate Technology Transaction

On November 22, 2000, we completed a
multi-party transaction with Seagate Technology, which we refer
to as Seagate, and Suez Acquisition Company (Cayman) Limited,
which we refer to as SAC, a company formed by a group of private
equity firms. The transaction was a leveraged buyout of Seagate
pursuant to which Seagate sold all of its operating assets to
SAC, we acquired Seagate and SAC assumed and indemnified Seagate
and us for substantially all liabilities arising in connection
with the operating assets sold to SAC. We did not acquire
Seagates disc drive business or any other Seagate
operating business. At the closing, and after the operating
assets and liabilities of Seagate had been transferred to SAC, a
wholly-owned subsidiary of ours merged with and into Seagate,
following which Seagate became our wholly-owned subsidiary and
was renamed VERITAS Software Technology Corporation.

We issued approximately 109.4 million shares
of our common stock to the Seagate stockholders in exchange for
approximately 128.1 million shares of our common stock and
certain non-operating assets and liabilities held by Seagate.
The transaction resulted in a decrease of approximately
18.7 million shares of our outstanding common stock. At the
closing of the transaction, we recorded the non-operating assets
and liabilities assumed from Seagate at their fair values. In
addition, we accrued $40.0 million of direct transaction
costs.

Acquisition-related costs are summarized below
(in millions):

|                                      |  |             |       |  
|------------------------------------- |  | ----------- | ----- | -
|                                      |  | Direct     
|                                      |  | Transaction
|                                      |  | Costs      
|                                      |  |            
|Provision accrued at acquisition date |  | $           | 40.0  |  
|Cash payments                         |  |             | (8.6  | )
|                                      |  |             |       |  
|Balance at December 31, 2000          |  |             | 31.4  |  
|Cash payments                         |  |             | (26.0 | )
|Reversals                             |  |             | (5.0  | )
|                                      |  |             |       |  
|Balance at December 31, 2001          |  |             | 0.4   |  
|Cash payments                         |  |             | (0.1  | )
|                                      |  |             |       |  
|Balance at September 30, 2002         |  | $           | 0.3   |  
|                                      |  |             |       |  

In the third quarter of 2001, we reversed
$5.0 million of attorneys fees originally accrued in
relation to the Delaware lawsuit captioned In re Seagate
Technology, Inc. Shareholders Litigation,which we will not
have to pay as a result of a Delaware Chancery Court ruling that
approved the settlement of the lawsuit and the subsequent
distribution of $50.0 million of additional consideration
to the former Seagate stockholders that was paid by SAC. We
anticipate that the remaining $0.3 million of accrued
acquisition-related costs will be paid in 2002 and in the first
half of 2003.

For the three and nine months ended
September 30, 2002, the transaction had no impact on our
consolidated statements of operations. The impacts of the
decrease of approximately 18.7 million shares of our

16



---



##### Table of Contents



outstanding common stock and the impact of the
reversal of the $5.0 million of attorneys fees during the
three and nine months ended September 30, 2001 on our net
income per share is outlined in the following table:


|                                                   |                                                               |               |      |               |   |      |       |      |  |   |      |       |   |   |       |      | 
|-------------------------------------------------- | ------------------------------------------------------------- | ------------- | ---- | ------------- | - | ---- | ----- | ---- |  | - | ---- | ----- | - | - | ----- | ---- | 
|                                                   |                                                               |               |      |              
|                                                   |                                                               | Three Months  |      | Nine Months  
|                                                   |                                                               | Ended         |      | Ended        
|                                                   |                                                               | September 30, |      | September 30,
|                                                   |                                                               |               |      |              
|                                                   |                                                               | 2002          |      | 2001          |   | 2002 |       | 2001
|                                                   |                                                               |               |      |               |   |      |       |     
|Net income (loss) per share  diluted              |                                                               | $             | 0.09 |               |   | $    | (0.40 | )    |  | $ | 0.25 |       |   | $ | (1.12 | )   
|Adjustment:                                        |                                                               |               |      |               |   |      |       |      |  |   |      |       |   |   |       |     
|                                                   | Effect of the reduction of 18.7 million
    shares            |               |      | (0.01         | ) |      |       | 0.01 |  |   |      | (0.01 | ) |   |       | 0.04 | 
|                                                   | Effect of the reversal of $5.0 million of
    attorneys fees |               |      | 0.00          |   |      |       | 0.00 |  |   |      | 0.00  |   |   |       | 0.00 | 
|                                                   |                                                               |               |      |               |   |      |       |      |  |   |      |       |   |   |       |     
|Adjusted net income (loss) per
    share  diluted |                                                               | $             | 0.08 |               |   | $    | (0.39 | )    |  | $ | 0.24 |       |   | $ | (1.08 | )   
|                                                   |                                                               |               |      |               |   |      |       |      |  |   |      |       |   |   |       |     

As of September 30, 2002 and
December 31, 2001, the transaction had impacts on our
consolidated balance sheets. The impact on our assets and
liabilities as of September 30, 2002 and December 31,
2001 were as follows:



| |   |                                                                                                                                                                                                   
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | other current assets included $21.3 million
    of indemnification receivable from SAC;                                                                                                           
|
| |  | other non-current assets included
    $18.0 million of indemnification receivable from SAC;                                                                                                       
|
| |  | accrued acquisition and restructuring costs
    included $0.3 million of direct transaction costs at
    September 30, 2002 and $0.4 million of direct
    transaction costs at December 31, 2001;
|
| |  | income taxes payable included an additional
    $21.3 million; and                                                                                                                                
|
| |  | deferred and other income taxes included an
    additional $113.1 million.                                                                                                                        

As of September 30, 2002 and
December 31, 2001, deferred and other income taxes payable
recorded in connection with the Seagate transaction totaled
$134.4 million and related to certain tax liabilities that
we expect to pay after the merger. Certain of Seagates
federal and state tax returns for various fiscal years are under
examination by tax authorities. We believe that adequate amounts
for tax liabilities have been provided for any final assessments
that may result from these examinations. The timing of the
settlement of these examinations is uncertain. To the extent the
settlements of these audits and the amounts reimbursed by SAC
are different from the amounts recorded, the difference will be
recorded as a component of income tax expense or benefit and may
significantly affect the Companys effective tax rate for
the period in which the settlements take place.

17



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##### Table of Contents



Business Combinations

As of September 30, 2002, as a result of the
acquisition of Network & Storage Management Group
business of Seagate Software, Inc., or NSMG, in 1999 and three
acquisitions of privately-held companies in 2001, we had the
following acquisition-related accruals (in millions):

|                                      |  |      |       |              |  |       |      |   |  |   |       |  
|------------------------------------- |  | ---- | ----- | ------------ |  | ----- | ---- | - |  | - | ----- | -
|                                      |  |      |       | 2001         |  |      
|                                      |  | NSMG |       | Acquisitions |  | Total
|                                      |  |      |       |              |  |      
|Provision accrued at acquisition date |  | $    | 43.4  |              |  | $     |     |   |  | $ | 43.4  |  
|Cash payments                         |  |      | (19.5 | )            |  |       |     |   |  |   | (19.5 | )
|Non-cash charges                      |  |      | (11.7 | )            |  |       |     |   |  |   | (11.7 | )
|                                      |  |      |       |              |  |       |      |   |  |   |       |  
|Balance at December 31, 1999          |  |      | 12.2  |              |  |       |     |   |  |   | 12.2  |  
|Cash payments                         |  |      | (4.7  | )            |  |       |     |   |  |   | (4.7  | )
|                                      |  |      |       |              |  |       |      |   |  |   |       |  
|Balance at December 31, 2000          |  |      | 7.5   |              |  |       |     |   |  |   | 7.5   |  
|Provision accrued at acquisition date |  |      |      |              |  |       | 1.9  |   |  |   | 1.9   |  
|Cash payments                         |  |      | (1.2  | )            |  |       | (1.1 | ) |  |   | (2.3  | )
|                                      |  |      |       |              |  |       |      |   |  |   |       |  
|Balance at December 31, 2001          |  |      | 6.3   |              |  |       | 0.8  |   |  |   | 7.1   |  
|Cash payments                         |  |      |      |              |  |       | (0.5 | ) |  |   | (0.5  | )
|                                      |  |      |       |              |  |       |      |   |  |   |       |  
|Balance at September 30, 2002         |  | $    | 6.3   |              |  | $     | 0.3  |   |  | $ | 6.6   |  
|                                      |  |      |       |              |  |       |      |   |  |   |       |  

The remaining acquisition-related costs accrual
of $6.6 million is anticipated to be utilized primarily for
servicing operating lease payments or negotiated buyout of
operating lease commitments, the lease terms of which will
expire in various years through 2013.

In addition, we recorded restructuring charges
related to the NSMG acquisition. These restructuring charges
consisted of cancellation of facilities leases and other
contracts, involuntary termination benefits relating to the
salary and fringe benefit expense for terminated employees in
research and development, and write-off of redundant equipment
and leasehold improvements.

Restructuring costs are summarized below (in
millions):

|                                      |  |                       |      |                      |  |                     |      |       |  |   |      |   |  |   |      |  
|------------------------------------- |  | --------------------- | ---- | -------------------- |  | ------------------- | ---- | ----- |  | - | ---- | - |  | - | ---- | -
|                                      |  |                       |      |                      |  | Write-off of        |      |      
|                                      |  | Cancellation of       |      |                      |  | Redundant Equipment |      |      
|                                      |  | Facilities Leases and |      | Involuntary          |  | and Leasehold       |      |      
|                                      |  | Other Contracts       |      | Termination Benefits |  | Improvements        |      | Total
|                                      |  |                       |      |                      |  |                     |      |      
|Provision accrued at acquisition date |  | $                     | 8.8  |                      |  | $                   | 1.3  |       |  | $ | 0.9  |   |  | $ | 11.0 |  
|Cash payments                         |  |                       |     |                      |  |                     | (0.9 | )     |  |   |     |   |  |   | (0.9 | )
|Non-cash charges                      |  |                       |     |                      |  |                     |     |       |  |   | (0.9 | ) |  |   | (0.9 | )
|                                      |  |                       |      |                      |  |                     |      |       |  |   |      |   |  |   |      |  
|Balance at December 31, 1999          |  |                       | 8.8  |                      |  |                     | 0.4  |       |  |   |     |   |  |   | 9.2  |  
|Cash payments                         |  |                       | (0.2 | )                    |  |                     |     |       |  |   |     |   |  |   | (0.2 | )
|Reversals                             |  |                       | (3.9 | )                    |  |                     | (0.4 | )     |  |   |     |   |  |   | (4.3 | )
|                                      |  |                       |      |                      |  |                     |      |       |  |   |      |   |  |   |      |  
|Balance at December 31, 2000          |  |                       | 4.7  |                      |  |                     |     |       |  |   |     |   |  |   | 4.7  |  
|Cash payments                         |  |                       |     |                      |  |                     |     |       |  |   |     |   |  |   |     |  
|                                      |  |                       |      |                      |  |                     |      |       |  |   |      |   |  |   |      |  
|Balance at December 31, 2001          |  |                       | 4.7  |                      |  |                     |     |       |  |   |     |   |  |   | 4.7  |  
|Cash payments                         |  |                       | (1.1 | )                    |  |                     |     |       |  |   |     |   |  |   | (1.1 | )
|                                      |  |                       |      |                      |  |                     |      |       |  |   |      |   |  |   |      |  
|Balance at September 30, 2002         |  | $                     | 3.6  |                      |  | $                   |     |       |  | $ |     |   |  | $ | 3.6  |  
|                                      |  |                       |      |                      |  |                     |      |       |  |   |      |   |  |   |      |  

We anticipate that the remaining restructuring
charge accrual of $3.6 million will be utilized for servicing
operating lease payments or negotiated buyout of operating lease
commitments, the lease terms of which will expire in various
years through 2012.

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| |                                                                                                       
| | ------------------------------------------------------------------------------------------------------
| | Accounting Pronouncements Affecting the
    Accounting Treatment of Previous Business
    Combinations

For the three and nine months ended
September 30, 2001, we incurred net losses due to the
amortization of developed technology, goodwill and other
intangibles mainly related to the acquisitions of NSMG,
TeleBackup Systems, Inc. and NuView Inc., in 1999. On
January 1, 2002, upon adoption of SFAS 142,
Goodwill and Other Intangible Assets,the quarterly
charges related to the amortization of developed technology,
goodwill and other intangibles have changed. Because of these
changes, we no longer amortize goodwill related to business
combinations and as a result we were profitable in the three and
nine months ended September 30, 2002. Refer to the
New Accounting Pronouncements section in this
Item 2 for a discussion on the impacts of the adoption of
SFAS 142 on our financial statements.

Critical Accounting Policies

We believe that several accounting policies are
critical to understanding our historical and future performance,
as these policies affect reported revenue and other significant
areas that involve managements judgments and estimates.
These significant accounting policies are:



| |   |                                     
| | - | ------------------------------------
| |  | Revenue recognition;                
|
| |  | Impairment of goodwill;             
|
| |  | Impairment of long-lived assets;    
|
| |  | Accounting for income taxes; and    
|
| |  | Impairment of strategic investments.

These policies, and our procedures related to
these policies, are described in detail below and under specific
areas within the discussion and analysis of our financial
condition and result of operations. In addition, please refer to
the notes to the consolidated financial statements in our
Form 10-K for further discussion of our accounting policies.



| |                    
| | -------------------
| | Revenue Recognition

We derive revenue from primarily two sources:
software licenses and services. Service revenue includes
contracts for software maintenance and technical support,
consulting and training.

We apply the provisions of Statement of Position
(SOP) 97-2, Software Revenue Recognition(as amended by SOP 98-4 and SOP 98-9) and related
interpretations to all transactions to recognize revenue.

We allocate revenue on software arrangements
involving multiple elements to each element based on the
relative fair values of the elements. The determination of fair
value of each element in multiple element arrangements is based
on the price charged when the same element is sold separately.
For non-site license software arrangements, we use historical
renewal rates to determine the price for maintenance and
technical support and for site license software arrangements, we
use the stated renewal rate generally included in the
arrangement.

The elements of a typical software arrangement
include software licenses, software media and maintenance. Some
arrangements include training and consulting. Software licenses
are sold as site licenses or on a per copy basis. Site licenses
give the customer the right to copy the software on a limited or
unlimited basis during a specified term.

Maintenance includes updates (unspecified product
upgrades and enhancements) on a when-and-if-available basis,
telephone support and bug fixes or patches. Maintenance revenue
is recognized ratably over the maintenance term. Training
consists of courses taught by our instructors at our facility or
at the customers site. Various courses are offered that
are specific to the licensed products. Training fees are based
on a per course basis and revenue is recognized as the services
are performed. Consulting consists primarily of product
installation, storage architecture assistance and disaster
recovery assessments. Installation services provided by

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us are not mandatory. Installation can be
performed by the customer, a third party or us. Consulting fees
are based on a daily rate.


We have analyzed all of the elements included in
our multiple-element software arrangements and have determined
that we have to allocate revenue to maintenance, training and
consulting. Accordingly, assuming all other revenue recognition
criteria are met, revenue from perpetual licenses is recognized
upon delivery of the software license and media using the
residual method in accordance with SOP 98-9. Revenue from
maintenance is recognized ratably over the maintenance term.
Revenue for consulting and training is recognized as the
services are performed.

We define revenue recognition criteria as follows:

Persuasive Evidence of an Arrangement Exists.It is our customary practice to have a
written contract, which is signed by both the customer and us,
and a purchase order for all new standard end-user arrangements
above a certain dollar threshold prior to recognizing revenue on
an arrangement. All other standard end user license arrangements
require a customer purchase order prior to recognizing revenue
on an arrangement.

For customers entering into a site license, it is
our practice to require a written contract and a site license
addendum signed by both the customer and us and a purchase order
to serve as evidence of the arrangement.

Reseller and distributor arrangements require a
written contract and a purchase order prior to recognizing
revenue on an arrangement.

Delivery Has Occurred.Our software is physically delivered
to our customers, with standard transfer terms as FOB shipping
point. If undelivered products or services exist that are
essential to the functionality of the delivered product in an
arrangement, delivery is not considered to have occurred.

The Vendors Fee is Fixed or
Determinable.The fees our customers
pay for our products are negotiated at the outset of an
arrangement, and are generally based on the specific volume of
product to be delivered. Therefore, except in cases in which we
grant extended payment terms to a specific customer, the fees
are considered to be fixed or determinable at the inception of
the arrangement. Arrangements with payment terms extending
beyond 90 days from the invoice date are not considered to
be fixed or determinable. Revenue from such arrangements is
recognized as the fees become due and payable.

Collection is Probable.Probability of collection is assessed
on a customer-by-customer basis. We typically sell to customers
with whom we have a history of successful collection. New
customers are subject to a credit review process that evaluates
the customers financial position and ultimately its
ability to pay. If it is determined from the outset of an
arrangement that collection is not probable based upon our
credit review process, revenue is recognized on a cash-collected
basis.

Additionally, we generally recognize revenue from
licensing of software products through our indirect sales
channel when the reseller, value added reseller, hardware
distributor, application software vendor or system integrator
sells the software products to its customers. For licensing of
our software to original equipment manufacturers, royalty
revenue is recognized when the original equipment manufacturer
reports to us the sale of software to an end user customer. In
addition to license royalties, some original equipment
manufacturers pay an annual flat fee and/or support royalties
for the right to sell maintenance to the end user. We recognize
revenue from original equipment manufacturer fees and/or support
royalties ratably over the term of the support agreement.

Our arrangements do not generally include
acceptance clauses. However, if an arrangement includes an
acceptance provision, we defer the revenue and recognize it upon
acceptance, except for government contracts, as acceptance terms
are standard in all government arrangements and returns have
historically not occurred. Acceptance occurs upon the earlier of
receipt of a written customer acceptance or expiration of the
acceptance period.

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| |                       
| | ----------------------
| | Impairment of Goodwill

Since January 1, 2002, we no longer amortize
goodwill. Instead, we will test it for impairment at least
annually in accordance with the provisions of SFAS 142,
Goodwill and Other Intangible Assets.

In the second quarter of 2002, we completed the
transitional goodwill impairment test required by SFAS 142.
We did not record an impairment charge upon completion of the
test.

We will review our goodwill for impairment
annually during the fourth quarter, or when an event or a change
in facts and circumstances indicate the fair value of our
reporting unit may be below its carrying amount. Events or
changes in facts and circumstances that we consider as
impairment indicators include the following:



| |   |                                                                                         
| | - | ----------------------------------------------------------------------------------------
| |  | significant underperformance of our business
    relative to expected operating results;
|
| |  | significant adverse economic and industry trends;                                       
|
| |  | significant adverse legal action;                                                       
|
| |  | loss of key personnel; and                                                              
|
| |  | expectations that a reporting unit will be sold
    or otherwise disposed of.           

The goodwill impairment test will consist of the
two-step process as follows:

Step 1.We will
compare the fair value of our reporting unit to its carrying
amount, including the existing goodwill and intangible assets.
If the carrying amount of our reporting unit exceeds its fair
value, an indication exists that the reporting units
goodwill may be impaired and we will perform the second step of
the impairment test. If the fair value of our reporting unit
exceeds its carrying amount, no further work is needed.

Step 2.We will
compare the implied fair value of the reporting units
goodwill, determined by allocating the reporting units
fair value to all of its assets and its liabilities in a manner
similar to a purchase price allocation, to its carrying amount.
If the carrying amount of the reporting units goodwill
exceeds its fair value, an impairment loss will be recognized in
an amount equal to that excess.



| |                                    
| | -----------------------------------
| | Impairment of Long-Lived
    Assets

We review our long-lived assets, including
property and equipment and other intangibles, for impairment
when events or changes in facts and circumstances indicate that
their carrying amount may not be recoverable. Events or changes
in facts and circumstances that we consider as impairment
indicators include the following:



| |   |                                                                                                       
| | - | ------------------------------------------------------------------------------------------------------
| |  | significant adverse change in our business that
    could affect the value of the asset;              
|
| |  | significant adverse economic and industry trends;                                                     
|
| |  | significant decrease in the market value of the
    asset;                                            
|
| |  | significant change in the extent that we use an
    asset or changes in the manner that we use it; and
|
| |  | significant changes to the asset since we
    acquired it.                                            

If we determine that one or more impairment
indicators are present, we will compare the carrying amount of
the asset to net future undiscounted cash flows that the asset
is expected to generate. If the carrying amount of the asset is
greater than the net future undiscounted cash flows that the
asset is expected to generate, we would recognize an impairment
loss. The impairment loss would be the excess of the carrying
amount of the asset over its fair value.

As of September 30, 2002, we had not
recorded an impairment loss on our long-lived assets. We do not
expect to record an impairment loss on these assets in the near
future.

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| |                            
| | ---------------------------
| | Accounting for Income Taxes

We are required to estimate our income taxes in
each federal, state and international jurisdiction in which we
operate. This process requires that we estimate the current tax
exposure as well as assess temporary differences between the
accounting and tax treatment of assets and liabilities,
including items such as accruals and allowances not currently
deductible for tax purposes. The income tax effects of the
differences we identify are classified as current or long-term
deferred tax assets and liabilities in our consolidated balance
sheets. We must also assess the likelihood that deferred tax
assets will be realized from future taxable income, including
the likelihood that income of a source and character needed to
realize such tax benefits will be earned, and, based on this
assessment, establish a valuation allowance if required. As of
September 30, 2002, we determined the valuation allowance
to be $71.4 million based upon uncertainties related to our
ability to recover two main components of our deferred tax
assets. These two components are tax benefits of certain assets
acquired in the NSMG acquisition and tax benefits from employee
stock option activity.

Future results may vary from these estimates, and
at this time it is not practicable to determine if we will need
to establish an additional valuation allowance and if it will
have a material impact on our financial statements.



| |                                        
| | ---------------------------------------
| | Impairment of Strategic
    Investments

We hold investments in common and preferred stock
of publicly traded and privately-held companies. We make
investments in development-stage companies that we believe
provide us with strategic opportunities, access to new
technologies and emerging markets, and create opportunities for
additional sales of our products and services. We review our
strategic investments quarterly to determine if there has been a
decline in their fair value that is other than temporary. We
consider the following elements in our review:



| |   |                                                                                                           
| | - | ----------------------------------------------------------------------------------------------------------
| |  | actual or proposed rounds of financing of the
    investee, subsequent to our investment date;            
|
| |  | cash position of the investee and its cash burn
    rate;                                                 
|
| |  | investees ability to obtain additional
    financing;                                                    
|
| |  | investees actual operating results compared
    to its forecasted results;                               
|
| |  | status of the investees product development
    and its competitive position;                            
|
| |  | investees management experience and
    employee headcount additions or reductions;                      
|
| |  | current industry and economic trends relevant to
    the business of the investee;                        
|
| |  | if privately-held, the market value of common
    stock of the investees publicly traded competitors; and
|
| |  | if publicly traded, the market value of the
    investees common stock.                                  

During the quarter ended June 30, 2002, we
recorded impairment losses of $14.8 million on our
strategic investments due to the determination that there had
been a decline in the fair value of our investments that was
other than temporary. As of September 30, 2002, we
determined that there was no further impairment in our strategic
investments.

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Results of Operations

The following tables set forth the condensed
consolidated statement of operations expressed as a percentage
of total net revenue for the periods indicated:

|                                     |                                                 |                    |                          |                   |     |      |     |      |     |     |    |    |     |    |     |    |     |     |  
|------------------------------------ | ----------------------------------------------- | ------------------ | ------------------------ | ----------------- | --- | ---- | --- | ---- | --- | --- | -- | -- | --- | -- | --- | -- | --- | --- | -
|                                     |                                                 |                    |                          |                  
|                                     |                                                 | Three Months Ended |                          | Nine Months Ended
|                                     |                                                 | September 30,      |                          | September 30,    
|                                     |                                                 |                    |                          |                  
|                                     |                                                 | 2002               |                          | 2001              |     | 2002 |     | 2001
|                                     |                                                 |                    |                          |                   |     |      |     |     
|Net revenue:                         |                                                 |                    |                          |                   |     |      |     |      |     |     |    |    |     |    |     |   
|                                     | User license fees                               |                    |                          | 66                | %   |      |     | 71   | %   |     |    | 67 | %   |    |     | 75 | %  
|                                     | Services                                        |                    |                          | 34                | %   |      |     | 29   | %   |     |    | 33 | %   |    |     | 25 | %  
|                                     |                                                 |                    |                          |                   |     |      |     |      |     |     |    |    |     |    |     |   
|                                     |                                                 | Total net revenue  |                          |                   | 100 | %    |     |      | 100 | %   |    |    | 100 | %  |     |    | 100 | %  
|Cost of revenue:                     |                                                 |                    |                          |                   |     |      |     |      |     |     |    |    |     |    |     |   
|                                     | User license fees                               |                    |                          | 2                 | %   |      |     | 2    | %   |     |    | 2  | %   |    |     | 3  | %  
|                                     | Services                                        |                    |                          | 13                | %   |      |     | 10   | %   |     |    | 12 | %   |    |     | 9  | %  
|                                     | Amortization of developed technology            |                    |                          | 5                 | %   |      |     | 5    | %   |     |    | 5  | %   |    |     | 4  | %  
|                                     |                                                 |                    |                          |                   |     |      |     |      |     |     |    |    |     |    |     |   
|                                     |                                                 |                    | Total cost of revenue    |                   |     | 20   | %   |      |     | 17  | %  |    |     | 19 | %   |    |     | 16  | %
|Gross profit                         |                                                 |                    | 80                       | %                 |     |      | 83  | %    |     |     | 81 | %  |     |    | 84  | % 
|Operating expenses:                  |                                                 |                    |                          |                   |     |      |     |      |     |     |    |    |     |    |     |   
|                                     | Selling and marketing                           |                    |                          | 33                | %   |      |     | 41   | %   |     |    | 34 | %   |    |     | 38 | %  
|                                     | Research and development                        |                    |                          | 19                | %   |      |     | 18   | %   |     |    | 19 | %   |    |     | 16 | %  
|                                     | General and administrative                      |                    |                          | 9                 | %   |      |     | 9    | %   |     |    | 9  | %   |    |     | 8  | %  
|                                     | Amortization of other intangibles               |                    |                          | 5                 | %   |      |     | 5    | %   |     |    | 5  | %   |    |     | 5  | %  
|                                     | Amortization of goodwill                        |                    |                          |                  |     |      |     | 60   | %   |     |    |   |     |    |     | 55 | %  
|                                     | Acquisition and restructuring costs (reversals) |                    |                          |                  |     |      |     | (2   | )%  |     |    |   |     |    |     | (1 | )% 
|                                     |                                                 |                    |                          |                   |     |      |     |      |     |     |    |    |     |    |     |   
|                                     |                                                 |                    | Total operating expenses |                   |     | 66   | %   |      |     | 131 | %  |    |     | 67 | %   |    |     | 121 | %
|Income (loss) from operations        |                                                 |                    | 14                       | %                 |     |      | (48 | )%   |     |     | 14 | %  |     |    | (37 | )%
|Interest and other income, net       |                                                 |                    | 3                        | %                 |     |      | 5   | %    |     |     | 3  | %  |     |    | 5   | % 
|Interest expense                     |                                                 |                    | (2                       | )%                |     |      | (3  | )%   |     |     | (2 | )% |     |    | (2  | )%
|Loss on strategic investments        |                                                 |                    |                         |                   |     |      | (5  | )%   |     |     | (1 | )% |     |    | (1  | )%
|                                     |                                                 |                    |                          |                   |     |      |     |      |     |     |    |    |     |    |     |   
|Income (loss) before income taxes    |                                                 |                    | 15                       | %                 |     |      | (51 | )%   |     |     | 14 | %  |     |    | (35 | )%
|Provision (benefit) for income taxes |                                                 |                    | 5                        | %                 |     |      | (3  | )%   |     |     | 4  | %  |     |    | 5   | % 
|                                     |                                                 |                    |                          |                   |     |      |     |      |     |     |    |    |     |    |     |   
|Net income (loss)                    |                                                 |                    | 10                       | %                 |     |      | (48 | )%   |     |     | 10 | %  |     |    | (40 | )%
|                                     |                                                 |                    |                          |                   |     |      |     |      |     |     |    |    |     |    |     |   



| |            
| | -----------
| | Net Revenue

Total net revenue increased 7% from
$340.2 million for the three months ended
September 30, 2001 to $365.7 million for the three
months ended September 30, 2002, and decreased 2% from
$1,117.9 million for the nine months ended
September 30, 2001 to $1,100.8 million for the nine
months ended September 30, 2002. We expect total net
revenue to increase slightly in the fourth quarter of 2002
compared to the third quarter of 2002. Our revenue is comprised
of user license fees and services revenue.

User License Fees.User license fees increased slightly
from $240.0 million for the three months ended
September 30, 2001 to $240.7 million for the three
months ended September 30, 2002. For the three months ended
September 30, 2001, the revenue from user license fees were
adversely impacted by the events of September 11, 2001.
User license fees decreased 12% from $842.7 million for the
nine months ended September 30, 2001 to $742.3 million
for the nine months ended September 30, 2002 primarily due
to weak general economic conditions during the first three
quarters of 2002. For the nine months ended September 30,
2002, our customers tended to purchase our products on an
as-needed basis due to limited capital spending

23



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##### Table of Contents



budgets, resulting in fewer large end-user
transactions and less user license fees from emerging
technologies. In the fourth quarter of 2002, we expect user
license fees to increase slightly as compared to the third
quarter of 2002.


We market and distribute our software products
both as individual software products and as integrated products
suites, also referred to as application solutions. We derive our
user license fees from the sale of our core technologies,
including data protection and file system and volume management
products, from our emerging technologies, including cluster and
replication and SAN and NAS products, and from our application
solutions, which include technologies from both our core and
emerging technologies. User license fees from our core
technologies increased 3% from $204.5 million for the three
months ended September 30, 2001 to $210.7 million for
the three months ended September 30, 2002, and decreased 9%
from $715.0 million for the nine months ended
September 30, 2001 to $649.2 million for the nine
months ended September 30, 2002. User license fees from our core
technologies accounted for 88% of user license fees for the
three months ended September 30, 2002 and 85% for the three
months ended September 30, 2001, and accounted for 87% of
user license fees for the nine months ended September 30,
2002 and 85% for the nine months ended September 30, 2001.
User license fees from our emerging technologies decreased 16%
from $35.5 million for the three months ended
September 30, 2001 to $30.0 million for the three
months ended September 30, 2002, and decreased 27% from
$127.7 million for the nine months ended September 30,
2001 to $93.1 million for the nine months ended
September 30, 2002. User license fees from our emerging
technologies accounted for 12% of user license fees for the
three months ended September 30, 2002 and 15% for the three
months ended September 30, 2001, and accounted for 13% of
user license fees for the nine months ended September 30,
2002 and 15% for the nine months ended September 30, 2001.

User license fees from our application solutions
increased 11% from $44.9 million for the three months ended
September 30, 2001 to $49.6 million for the three
months ended September 30, 2002, and decreased 17% from
$178.2 million for the nine months ended September 30,
2001 to $148.6 million for the nine months ended
September 30, 2002. The user license fees generated by
application solutions are allocated between core technology and
emerging technology products. Most of our application solutions
include a major component of emerging technologies.

In the three and nine months ended
September 30, 2002 and 2001, we recorded a number of large
end-user transactions. For end-user transactions valued at
$250,000 or more, our user license fees remained stable at
$36.4 million for the three months ended September 30,
2001 compared to $36.2 million for the three months ended
September 30, 2002, and decreased 10% from $180.6 million
for the nine months ended September 30, 2001 to
$162.0 million for the nine months ended September 30,
2002.

Our user license fees from original equipment
manufacturers decreased 12% from $43.6 million for the
three months ended September 30, 2001 to $38.5 million for
the three months ended September 30, 2002, and decreased
18% from $143.6 million for the nine months ended
September 30, 2001 to $117.8 million for the nine
months ended September 30, 2002. User license fees from
original equipment manufacturers accounted for 16% of user
license fees for the three months ended September 30, 2002
and 18% for the three months ended September 30, 2001, and
accounted for 16% for the nine months ended September 30,
2002 and 17% for the nine months ended September 30, 2001.

Service Revenue.We
derive our service revenue primarily from contracts for software
maintenance and technical support and, to a lesser extent, from
consulting and training services. Service revenue increased 25%
from $100.2 million for the three months ended
September 30, 2001 to $125.0 million for the three
months ended September 30, 2002, and increased 30% from
$275.2 million for the nine months ended September 30,
2001 to $358.5 million for the nine months ended
September 30, 2002. The increase was primarily due to the
continued strength of our customer support renewals. Service
revenue represented 34% of total net revenue for the three
months ended September 30, 2002 and 33% for the nine months
ended September 30, 2002. We expect service revenue to
remain stable or slightly increase in absolute dollars in the
fourth quarter of 2002.

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| |                
| | ---------------
| | Cost of Revenue

Cost of revenue increased 24% from
$57.7 million for the three months ended September 30,
2001 to $71.4 million for the three months ended
September 30, 2002, and increased 19% from
$175.6 million for the nine months ended September 30,
2001 to $209.2 million for the nine months ended
September 30, 2002. Gross margin on user license fees,
excluding amortization of developed technology, 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 and
training services. Gross margin on service revenue varies
depending upon the mix of maintenance, technical support,
consulting and training services. We expect total gross margin
to fluctuate in the future, reflecting mix between license and
service revenue and timing differences between increased
organizational investments and the recognition of revenue
expected from these investments.

Cost of User License Fees (including
amortization of developed technology).Cost of user license fees consists primarily of amortization of
developed technology, royalties, media, manuals and distribution
costs. The amortization of developed technology is related
primarily to the acquisitions of NSMG, TeleBackup and NuView in
1999. Cost of user license fees increased slightly from
$23.7 million and $75.6 million for the three and nine
months ended September 30, 2001 to $24.7 million and
$76.5 million for the three and nine months ended
September 30, 2002. Gross margin on user license fees
remained constant at 90% for the three months ended
September 30, 2001 and the three months ended
September 30, 2002, and decreased slightly from 91% for the
nine months ended September 30, 2001 to 90% for the nine
months ended September 30, 2002. If we excluded the
amortization of developed technology from the cost of user
license fees, the gross margin on user license fees would have
been 97% for the three months ended September 30, 2002 and
96% for the nine months ended September 30, 2002 and 97%
for the three and nine months ended September 30, 2001. The
gross margin on user license fees may vary from period to period
based on the license revenue mix because some products carry
higher royalty rates than others. In the fourth quarter of 2002,
we expect gross margin on user license fees to remain stable as
a percentage of user license fee revenue.

Cost of Service
Revenue.Cost of service revenue
consists primarily of personnel-related costs in providing
maintenance, technical support, consulting and training to
customers. Cost of service revenue increased 38% from
$34.0 million for the three months ended September 30,
2001 to $46.7 million for the three months ended
September 30, 2002, and increased 33% from
$100.0 million for the nine months ended September 30,
2001 to $132.7 million for the nine months ended
September 30, 2002. These increases primarily resulted from
the increases in our service revenue. Gross margin on service
revenue decreased slightly from 66% for the three months ended
September 30, 2001 to 63% for the three months ended
September 30, 2002, and decreased slightly from 64% for the
nine months ended September 30, 2001 to 63% for the nine
months ended September 30, 2002. In the fourth quarter of
2002, we expect the costs of service revenue to remain stable or
slightly increase in absolute dollars and we expect the gross
margin on service revenue to remain stable as a percentage of
service revenue.

Amortization of Developed
Technology.Amortization of developed
technology increased 4% from $15.8 million for the three
months ended September 30, 2001 to $16.5 million for the
three months ended September 30, 2002, and increased 6%
from $47.3 million for the nine months ended
September 30, 2001 to $50.3 million for the nine
months ended September 30, 2002. These amounts mainly
represent the amortization of the developed technology recorded
upon the acquisitions of NSMG, TeleBackup and NuView in 1999.
The increase in 2002 relates to an acquisition that occurred in
the fourth quarter of 2001. The useful life of the developed
technology acquired is two to four years and we expect the
amortization to be approximately $16.5 million per quarter
through the first quarter of 2003.



| |                   
| | ------------------
| | Operating Expenses

Total operating expenses decreased 45% from
$446.8 million for the three months ended
September 30, 2001 to $244.4 million for the three
months ended September 30, 2002, and decreased 46% from
$1,348.8 million for the nine months ended
September 30, 2001 to $734.8 million for the nine
months ended September 30, 2002. The three and nine month
decreases relate primarily to the adoption of SFAS 142, which

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requires that goodwill is no longer amortized. We
believe that the percentage decrease in total operating expenses
in this period is not necessarily indicative of future results.
Our operating expenses include selling and marketing expenses,
research and development expenses, general and administrative
expenses, and amortization of goodwill and other intangibles.


Selling and
Marketing.Selling and marketing
expenses consist primarily of salaries, related benefits,
commissions, consultant fees and other costs associated with our
sales and marketing efforts. Selling and marketing expenses
decreased 12% from $138.7 million for the three months
ended September 30, 2001 to $122.0 million for the
three months ended September 30, 2002, and decreased 12%
from $427.2 million for the nine months ended
September 30, 2001 to $375.7 million for the nine
months ended September 30, 2002. The decrease in absolute
dollars for the three and nine months ended September 30,
2002 was primarily attributable to decreased compensation and
sales commissions and, to a lesser extent, decreased advertising
and promotion costs. As a percentage of net revenue, selling and
marketing expenses decreased from 41% for the three months ended
September 30, 2001 to 33% for the three months ended
September 30, 2002, and decreased from 38% for the nine
months ended September 30, 2001 to 34% for the nine months
ended September 30, 2002. In the fourth quarter of 2002, we
expect our selling and marketing expenses to remain stable or
increase slightly in absolute dollars.

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 12% from $61.6 million
for the three months ended September 30, 2001 to
$69.2 million for the three months ended September 30,
2002, and increased 14% from $177.7 million for the nine
months ended September 30, 2001 to $202.1 million for
the nine months ended September 30, 2002. The increase in
absolute dollars for the three and nine months ended
September 30, 2002 was due primarily to increased
compensation and benefits and, to a lesser extent, costs
associated with outside services, primarily for localization and
intellectual property protection. As a percentage of net
revenue, research and development expenses increased from 18%
for the three months ended September 30, 2001 to 19% for
the three months ended September 30, 2002, and increased
from 16% for the nine months ended September 30, 2001 to
18% for the nine months ended September 30, 2002. We
believe that a significant level of research and development
investment is required for us to remain competitive. In the
fourth quarter of 2002, we expect these expenses to continue to
increase in absolute dollars. We expect research and development
expenses to fluctuate from time to time to the extent that we
make periodic incremental investments in research and
development.

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 18% from
$29.7 million for the three months ended September 30,
2001 to $35.2 million for the three months ended
September 30, 2002, and increased 22% from
$84.1 million for the nine months ended September 30,
2001 to $102.9 million for the nine months ended
September 30, 2002. The increase in absolute dollars for
the three and nine months ended September 30, 2002 was
primarily due to an increase in additional personnel costs
related to additional employees, and to a lesser extent,
expenses associated with outside services, primarily consulting
services. As a percentage of net revenue, general and
administrative expenses increased from 9% for the three months
ended September 30, 2001 to 10% for the three months ended
September 30, 2002 and from 8% for the nine months ended
September 30, 2001 to 9% for the nine months ended
September 30, 2002. In the fourth quarter of 2002, we
expect general and administrative expenses to increase in
absolute dollars.

Amortization of Other Intangibles.Amortization of other intangibles was
$18.0 million for the three months ended September 30,
2002, and $18.1 million for the three months ended
September 30, 2001. Amortization of other intangibles was
$54.0 million for the nine months ended September 30,
2002, and $54.3 million for the nine months ended
September 30, 2001. This amount principally represents
amortization of distribution channels, trademarks and other
intangible assets recorded upon the acquisitions of NSMG,
TeleBackup and NuView in 1999. The estimated useful life of our
other intangibles is two to four years. We expect the
amortization related to other intangibles to be approximately
$18.0 million per quarter through the first quarter of 2003.

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Amortization of Goodwill.Amortization of goodwill decreased
from $203.7 million for the three months ended
September 30, 2001 to zero for the three months ended
September 30, 2002, and decreased from $610.5 million
for the nine months ended September 30, 2001 to zero for
the nine months ended September 30, 2002. This decrease
arose from our adoption of the provisions of SFAS 142,
Goodwill and Other Intangible Assets, effective
January 1, 2002, which requires that goodwill no longer be
amortized, but continue to be evaluated for impairment. Refer to
the New Accounting Pronouncementssection in
this Item 2 for a discussion on the impacts of the adoption
of SFAS 142 on our consolidated financial statements.

Acquisition and Restructuring Costs
(Reversals).In the third quarter of
2001, we reversed $5.0 million of net attorneys fees
originally accrued in connection with the leveraged buyout of
Seagate Technology in relation to the Delaware lawsuit captioned
In Re Seagate Technology, Inc. Shareholders
Litigation, which we will not have to pay as a result of a
Delaware Chancery Court ruling approving the settlement of the
lawsuit and the subsequent distribution of $50.0 million of
additional consideration to the former Seagate Technology
stockholders that was paid by SAC.

Interest and Other Income, Net.Interest and other income, net
decreased 32% from $15.7 million for the three months ended
September 30, 2001 to $10.6 million for the three months
ended September 30, 2002, and decreased 27% from
$51.5 million for the nine months ended September 30,
2001 to $37.5 million for the nine months ended
September 30, 2002. The decrease was due principally to the
fall in interest rates in 2002 and a change in the mix of
investment instruments toward shorter-term investments. This
decrease exceeded the interest income earned on the higher level
of funds we had available for investment, which were generated
primarily from the net cash provided by operating activities.

Interest Expense.Interest expense consisted primarily
of interest recorded under the 1.856% convertible subordinated
notes due 2006 issued in August 1999 and the 5.25% convertible
subordinated notes due 2004 issued in October 1997. Interest
expense remained constant at $7.6 million for the three
months ended September 30, 2002 and 2001 and increased 5%
from $21.8 million for the nine months ended
September 30, 2001 to $23.0 million for the nine
months ended September 30, 2002. The increase from the nine
months ended September 30, 2001 to the nine months ended
September 30, 2002 is due primarily to amortization of the
original issue discount on the 1.856% convertible notes.

Loss on Strategic Investments.In the second quarter of 2002, we
recognized impairment losses of $14.8 million on our
strategic investments when we determined that there had been a
decline in the fair value of these investments that was other
than temporary. These losses represented write-downs of the
carrying amount of our investments and were determined by using
the factors outlined in our Critical Accounting
Policiessection in this Item 2. As of
September 30, 2002, we determined that there was no further
impairment of our strategic investments.

Income Taxes.We had
effective tax rates of 32% for the three months ended
September 30, 2002, compared to negative 6% for the three
months ended September 30, 2001. We had effective tax rates
of 32% for the nine months ended September 30, 2002,
compared to negative 14% for the nine months ended
September 30, 2001. The change in the effective tax rate
from 2001 to 2002 is due primarily to the effect of our becoming
profitable, as a result of the amortization of goodwill no
longer being expensed in accordance with SFAS 142. Refer to
the New Accounting Pronouncementssection in
this Item 2 for the impacts of the adoption of
SFAS 142 on our consolidated financial statements. Our
September 30, 2002 and 2001 effective tax rates differed
from the combined federal and state statutory rates due
primarily to differences attributable to acquisition-related
charges that were non-deductible for tax purposes.

New Accounting Pronouncements

In July 2001, the FASB issued SFAS 141,
Business Combinations,and SFAS 142, Goodwill and
Other Intangible Assets.

SFAS 141, effective July 2001, requires that
the purchase method of accounting be used for all business
combinations initiated after June 30, 2001. SFAS 141
also specifies criteria that intangible assets acquired in a
purchase method business combination must meet to be recognized
and reported apart from goodwill, noting

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that any purchase price allocable to an assembled
workforce may not be accounted for separately. Upon adoption of
SFAS 142 on January 1, 2002, we evaluated our existing
intangible assets and goodwill that were acquired in prior
purchase business combinations, and made necessary
reclassifications in order to conform with the new criteria in
SFAS 141 for recognition apart from goodwill. Also, we
reassessed the useful lives and residual values of all
intangible assets acquired, and made necessary amortization
adjustments by March 31, 2002. No impairment loss was
recognized and the adoption of SFAS 141 did not have a
material impact on our financial position, results of operations
or cash flows.


SFAS 142 requires that goodwill and
intangible assets with indefinite useful lives no longer be
amortized, but instead be tested for impairment at least
annually in accordance with the provisions of SFAS 142.
SFAS 142 also requires that intangible assets with
estimable useful lives be amortized over their respective
estimated useful lives to their estimated residual values, and
reviewed for impairment in accordance with SFAS 144,
Accounting for the Impairment or Disposal of Long-Lived
Assets.In the second quarter of 2002, we completed the
transitional goodwill impairment test required by SFAS 142
and did not record an impairment charge upon completion of the
test. SFAS 142 requires that we perform the goodwill
impairment test annually, which will be performed during the
fourth quarter of each year or when a change in facts and
circumstances indicate that the fair value of our reporting unit
may be below its carrying amount. We do not expect to record an
impairment charge upon completion of the annual impairment test,
but there can be no assurance that at the time the test is
completed a significant impairment charge may not be recorded.

In August 2001, FASB issued SFAS 144,
Accounting for the Impairment or Disposal of Long-Lived
Assets.SFAS 144 supersedes SFAS 121,
Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of, and APB Opinion
No. 30, Reporting the Results of
Operation  Reporting the Effects of Disposal of
a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions.SFAS 144 established a single accounting model for
long-lived assets to be disposed of by sale, whether they were
previously held and used or newly acquired, and it also broadens
the presentation of discontinued operations to include more
disposal transactions. We adopted SFAS 144 as of
January 1, 2002. The adoption of SFAS 144 did not have
a material impact on our financial position, results of
operations or cash flows.

In December 2001, the FASB staff issued Topic
No. D-103, Income Statement Characterization of
Reimbursements Received for Out-of-Pocket Expenses
Incurred. Topic D-103 requires companies to record
certain reimbursements received for out-of-pocket expenses as
revenue instead of an offset to the related expense. Upon
application of Topic D-103, comparative financial
statements for prior periods must be reclassified to comply with
the guidance in this announcement. We adopted the provisions of
Topic D-103 as of January 1, 2002. The adoption of
Topic D-103 did not have a material impact on our financial
position, results of operations or cash flows, and as a result,
we did not reclassify prior period results.

In June 2002, the FASB issued SFAS 146,
Accounting for Costs Associated with Exit or Disposal
Activities. SFAS 146 supersedes Emerging Issues Task
Force Issue (EITF) No. 94-3 Liability
Recognition for Certain Employee Termination Benefits and other
Costs to Exit an Activity (Including Certain Costs Incurred in a
Restructuring).SFAS 146 addresses the recognition,
measurement, and reporting of costs that are associated with
exit and disposal activities, including costs related to
terminating a contract that is not a capital lease and
termination benefits that employees who are involuntarily
terminated receive under the terms of a one-time benefit
arrangement that is not an ongoing benefit arrangement or an
individual deferred-compensation contract. SFAS 146
requires that the liability for costs associated with an exit or
disposal activity be recognized when the liability is incurred
rather than at the date of our commitment to an exit plan as
prescribed under the EITF. SFAS 146 also establishes that
the liability should initially be measured and recorded at fair
value. SFAS 146 will be effective prospectively for exit or
disposal activities that are initiated after December 31,
2002. As of September 30, 2002, SFAS 146 has no impact
on our financial position and results of operations.
SFAS 146 will have no impact on our facility restructuring
plan to exit and consolidate certain of our facilities, which is
discussed further under Commitments.

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Liquidity and Capital Resources



| |           
| | ----------
| | Cash Flows

Our cash, cash equivalents and short-term
investments totaled $2,123.0 million at September 30, 2002
and represented 77% of our net tangible assets. Our cash, cash
equivalents and short-term investments totaled
$1,694.9 million at December 31, 2001 and represented
71% of our net tangible assets. Cash and cash equivalents are
highly liquid with original maturities of ninety days or less.
Short-term investments consist mainly of money market funds,
investment grade commercial paper, medium-term notes, corporate
notes and bonds, government securities (taxable and
non-taxable), asset-backed securities and market auction
preferreds.

Operating activities provided cash of
$440.7 million in the nine months ended September 30,
2002, primarily from net income after adjustments to exclude
non-cash charges, increases in deferred revenue and income taxes
payable and a decrease in accounts receivable. These items were
partially offset by an increase in deferred income taxes.
Operating activities provided cash of $409.7 million for
the nine months ended September 30, 2001, primarily from
income after adjustments to exclude non-cash charges, a decrease
in accounts receivable and an increase in deferred revenue.
These elements were partially offset by decreases in accrued
restructuring and acquisition costs, accrued compensation and
benefits, other accrued liabilities and an increase in deferred
income taxes. For all periods presented, non-cash charges
include amortization of intangibles related to acquisition
activities, depreciation and amortization, tax benefits from
stock plans and loss on strategic investments.

Investing activities used cash of
$226.8 million in the nine months ended September 30,
2002, due primarily to the net purchases of short-term
investments of $135.9 million, and for the purchases of
property and equipment of $83.7 million. Investing
activities used cash of $781.7 million in the nine months
ended September 30, 2001, due primarily to the net
purchases of short and long-term investments of
$616.3 million, and for the purchases of property and
equipment of $124.3 million.

Financing activities provided cash of
$80.4 million in the nine months ended September 30,
2002, and $85.1 million in the nine months ended
September 30, 2001, arising primarily from the issuance of
common stock under our employee stock plans.



| |                                   
| | ----------------------------------
| | Convertible Subordinated
    Notes

In October 1997, we issued $100.0 million,
aggregate principal amount at maturity, of 5.25% convertible
subordinated notes due in 2004 (the 5.25% notes),
for which we received net proceeds of $97.5 million. We and
our wholly-owned subsidiary, VERITAS Operating Corporation, are
co-obligors on the 5.25% notes and are unconditionally,
jointly and severally liable for all payments under the notes.
As of September 30, 2002, a total principal amount of
$36.0 million had been converted into approximately
3.7 million shares of our common stock. Based on the
aggregate principal amount at maturity of $64.0 million
outstanding as of September 30, 2002, the 5.25% notes
provide for semi-annual interest payments of $1.7 million
each May 1 and November 1. The 5.25% notes are
convertible into shares of our 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 $9.56 per
share, subject to adjustment in certain events, equivalent to a
conversion rate of 104.65 shares of common stock per $1,000
principal amount at maturity. On November 5, 2002, the
5.25% notes became redeemable until maturity at our option
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, we and our wholly-owned
subsidiary, VERITAS Operating Corporation, issued
$465.8 million, aggregate principal amount at maturity, of
1.856% convertible subordinated notes due in 2006 (the
1.856% notes) for which we 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%. We and VERITAS Operating
Corporation are co-obligors on the 1.856% notes and are
unconditionally, jointly and severally liable for all payments
under the notes. As of September 30, 2002, a total
principal amount of $1.1 million had been converted into
approximately 29,400 shares of our common stock. Based on
the

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aggregate principal amount at maturity of
$464.7 million outstanding as of September 30, 2002,
the 1.856% notes provide for semi-annual interest payments
of $4.3 million each February 13 and August 13.
The 1.856% notes are convertible into shares of our 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 $35.80 per share, subject to adjustment in certain events,
equivalent to a conversion rate of 27.934 shares of common
stock per $1,000 principal amount at maturity. On
August 16, 2002, the 1.856% notes became redeemable until
maturity at our option at the 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 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. The
degree to which we will be leveraged could impair our ability to
obtain financing necessary for working capital, acquisitions or
other purposes, and could make us more vulnerable to industry
downturns and competitive pressure.



| |            
| | -----------
| | Commitments

During 2001, we extended and amended the terms of
our $50.0 million unsecured credit facility, which we held
with a syndicate of financial institutions. In September 2002,
this credit facility expired in accordance with its terms and
was not renewed by the Company.

During the first quarter of 2002, our Japanese
subsidiary entered into a short-term credit facility with a
multinational Japanese bank in the amount of 1.0 billion
Japanese yen ($8.2 million). At September 30, 2002, no
amount was outstanding. The short-term credit facility is due to
expire in March 2003. Borrowings under the short-term credit
facility bear interest at TIBOR plus 0.5%. There are no
covenants on the credit facility and the loan has been
guaranteed by VERITAS Software Global Corporation, our
wholly-owned subsidiary.

In 1999 and 2000, we entered into three
build-to-suit lease agreements for office buildings in Mountain
View, California, Roseville, Minnesota and Milpitas, California.
We began occupying the Roseville and Mountain View facilities in
May and June 2001 respectively. The development and acquisition
of the properties have been financed by a third party through a
syndicate of financial institutions. We have accounted for these
agreements as operating leases in accordance with SFAS 13,
Accounting for Leases,as amended.

During 2001 and 2002, we amended our existing
lease agreement, originally signed in the second quarter of
1999, for corporate campus facilities in Mountain View,
California. The facilities of 425,000 square feet provide space
for sales, marketing, administration and research and
development functions. The lease term for these facilities is
five years beginning in March 2000, with an option to extend the
lease term for two successive periods of one year each, if
agreed to by the financial institutions. We have the option to
purchase the property (land and facilities) for the termination
value of $145.2 million or, at the end of the lease, to
arrange for the sale of the property to a third party while we
retain an obligation to the owner for the difference between the
sales price and the guaranteed residual value up to
$129.0 million if the sales price is less than this amount,
subject to certain provisions of the lease. In addition, we are
entitled to any proceeds from a sale of the property in excess
of the termination value. We occupy these facilities and began
making lease payments in the second quarter of 2001. Monthly
lease payments under this lease agreement are based on LIBOR
using 30-day to 180-day LIBOR contracts.

During 2001 and 2002, we amended our existing
lease agreement, originally signed in 2000, for our facilities
in Roseville, Minnesota. We improved and expanded our existing
facilities of 62,000 square feet and developed adjacent
property adding 142,000 square feet completed in 2001. The
facilities provide space for technical support and research and
development functions. The lease term for these facilities is
five years beginning in March 2000, with an option to extend the
lease term for two successive periods of one year each, if
agreed to by the financial institutions. We have the option to
purchase the property (land and facilities) for the termination
value of $41.3 million or, at the end of the lease, to
arrange for the sale of the property to a third party while we
retain an obligation to the owner for the difference between the
sales price and the guaranteed residual value up to
$35.1 million if the sales price is less than this amount,
subject to certain

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provisions of the lease. In addition, we are
entitled to any proceeds from a sale of the property in excess
of the termination value. We now occupy these facilities and
began making lease payments in 2001. Monthly lease payments
under this lease agreement are based on LIBOR using 30-day to
180-day LIBOR contracts.


During 2001 and 2002, we amended our existing
lease agreement, originally signed in 2000, for the lease of 65
acres of land and subsequent improvements for new research and
development campus facilities in Milpitas, California. We plan
to develop the site in two phases. The first phase of
466,000 square feet was completed in the third quarter of
2002. The facilities will provide space for research and
development and general corporate functions. The lease term for
the first phase is five years beginning in July 2000, with an
option to extend the lease term for two successive periods of
one year each, if agreed to by the financial institutions. We
have the option to purchase the property (land and first phase
facilities) for the termination value of $194.3 million or,
at the end of the lease, to arrange for the sale of the property
to a third party while we retain an obligation to the owner for
the difference between the sales price and the guaranteed
residual value up to $180.5 million if the sales price is
less than this amount, subject to certain provisions of the
lease. In addition, we are entitled to any proceeds from a sale
of the property in excess of the termination value. We began
paying the lease payments in the third quarter of 2002 and will
commence occupying a portion of the new campus facilities in the
first quarter of 2003. Monthly lease payments under this lease
agreement are based on LIBOR using 30-day to 180-day LIBOR
contracts. We are currently analyzing our development schedule
for the second phase of the campus, and at this time no
commitments have been made with respect to the start of
construction.

We have evaluated the expected fair value of the
properties at the end of the lease terms by reviewing current
real estate market conditions and indicators of expectations for
the market in the future. In the event that we determine it is
probable that the expected fair value of any of the properties
at the end of the lease terms will be less than the respective
termination values, we will accrue the expected loss on a
straight-line basis over the remaining lease term. Currently, we
do not believe it is probable that the fair market value of the
properties at the end of the lease terms will be less than the
termination values.

The agreements for the facilities described above
require that we maintain specified financial covenants such as
EBITDA, debt on EBITDA and quick ratio, all of which we were in
compliance with as of September 30, 2002. All the
facilities are subject to deeds of trust in favor of the
respective lessors in order to secure our obligations under the
leases.

We currently have operating leases for our
facilities and rental equipment through 2023. In addition to our
basic rent, we are responsible for all taxes, insurance and
utilities related to the facilities. The table below shows our
commitments related to our approximate minimum lease payments
for our facilities and rental equipment as of September 30,
2002 (in millions):

|                                                       |  |             |       | 
|------------------------------------------------------ |  | ----------- | ----- | 
|                                                       |  | Operating  
|                                                       |  | Lease      
|                                                       |  | Commitments
|                                                       |  |            
|Three months ended December 31, 2002                   |  | $           | 20.0  | 
|2003                                                   |  |             | 75.5  | 
|2004                                                   |  |             | 70.3  | 
|2005                                                   |  |             | 47.4  | 
|2006                                                   |  |             | 36.5  | 
|2007 and thereafter                                    |  |             | 165.5 | 
|                                                       |  |             |       | 
|Total minimum lease payments at
    September 30, 2002 |  | $           | 415.2 | 
|                                                       |  |             |       | 

We have performed an evaluation of our facilities
requirements and we believe that our existing and planned
facilities exceed our near-term needs due to slower than
anticipated growth in the number of our employees as a result of
ongoing economic weakness. In October 2002, our board of
directors approved a facility restructuring plan to exit and
consolidate certain of our facilities located in
17 metropolitan areas worldwide. In connection with this
restructuring plan, we will record a restructuring charge to
operating

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expenses of approximately $99 million during
the fourth quarter of 2002. Total cash outlays under this plan
are expected to be approximately $87 million and relate to
the costs associated with terminating and satisfying the
remaining lease commitments, partially offset by sublease
income, net of related sublease costs. We expect to begin
realizing the related cost savings in the third quarter of 2003.
Actual costs and cost savings related to this restructuring plan
may vary depending on factors that are beyond our control,
including the commercial real estate market in the applicable
metropolitan areas, our ability to obtain subleases related to
these facilities, the sublease rental market rates and the
outcome of negotiations with lessors regarding terminations of
some facilities leases.


We believe that our current cash, cash
equivalents and short-term investment balances and cash flow
from operations will be sufficient to meet our working capital
and capital expenditure requirements for at least the next
12 months.

Factors That May Affect Future
Results

In addition to other information contained in
this quarterly report, you should consider carefully the
following factors in evaluating VERITAS and our business.



| |                                                                                                                                                                                                                                                         
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our actual revenue and earnings may be
    lower than analyst expectations in future periods, or we may
    lower our forecasted revenue and earnings in future periods,
    each of which could cause the market price of our securities to
    decline

We may experience a shortfall in revenue in any
given quarter or we may lower our forecasted revenue or earnings
in future periods. Any such development could cause the market
price of our securities to fall substantially. Our revenue in
general, and our license revenue in particular, is difficult to
forecast and is likely to fluctuate significantly from quarter
to quarter due to a number of factors, many of which are outside
of our control. These factors include, but are not limited to:



| |   |                                                                                                                                                                                                                                                    
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the possibility that our customers may cancel,
    defer or limit purchases as a result of reduced information
    technology budgets or the current weak and uncertain economic
    and industry conditions;                                      
|
| |  | the timing and magnitude of our sales through our
    original equipment manufacturer customers, which may fluctuate
    from quarter to quarter as a result of varying demand for our
    original equipment manufacturers products and services;
|
| |  | the possibility that our original equipment
    manufacturers will introduce, market and sell products that
    compete with our products;                                                                                                         
|
| |  | the unpredictability of the timing and magnitude
    of sales through our retail channel and direct sales channel,
    both of which tend to generate sales later in a quarter than
    original equipment manufacturer channel;                   
|
| |  | the possibility that we may realign our sales
    organization to increase the efficiency and productivity of our
    direct sales force;                                                                                                          
|
| |  | the introduction and market acceptance of our new
    products and services, which may be delayed as a result of weak
    and uncertain economic and industry conditions;                                                                          
|
| |  | the seasonal nature of purchases by customers of
    our products and services;                                                                                                                                                                    
|
| |  | the rate of adoption and long sales cycles of
    storage area networks and network attached storage appliance
    technology;                                                                                                                     
|
| |  | the rate at which our customers renew their
    service and maintenance contracts with us;                                                                                                                                                         
|
| |  | changes in our pricing and distribution terms or
    those of our competitors;                                                                                                                                                                     
|
| |  | the possibility that our customers may defer
    purchases in anticipation of new products or product updates by
    us or by our competitors; and                                                                                                 

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| |   |                                                                                                                                                                                                                    
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the possibility that our customers may cancel,
    defer or limit purchases as a result of the threat of terrorism
    or military actions taken by the United States or its allies in
    reaction to that threat.

You should not rely on the results of prior
periods as an indication of our future performance. Our
operating expense levels are based, in significant part, on our
expectations of future revenue. If we have a shortfall in
revenue in any given quarter, we may not be able to quickly
reduce our operating expenses. Therefore, any significant
shortfall in revenue could have an immediate adverse effect on
our operating results for that quarter. In addition, if we fail
to manage our business effectively, we may experience higher
operating expenses and lower operating margins. As a result, it
is possible that in future periods our operating results may be
below the expectations of securities analysts or investors,
which could cause the price of our common stock to decline.



| |                                                                                                                                      
| | -------------------------------------------------------------------------------------------------------------------------------------
| | The loss of key personnel and any failure
    to successfully integrate replacement personnel could adversely
    affect our business

Our future success depends upon the continued
service of our key management, technical and sales personnel.
Our officers and other key personnel are employees at-will, and
we cannot assure you that we will be able to retain them. Key
personnel have left our company over the years, and we cannot
assure you that there will not be additional departures. The
loss of any key employee could result in significant disruptions
to our operations, and the integration of replacement personnel
could be time consuming, may cause additional disruptions to our
operations and may be unsuccessful. We do not have any key
person life insurance covering any of our personnel.

In 2002, we hired a new chief financial officer
and three other senior management personnel in marketing,
product operations and corporate development. Any resulting
restructuring of those organizations could adversely affect the
timeliness of product releases, the successful implementation
and completion of company initiatives and the results of our
operations. Our ability to execute effectively on our business
strategy will depend on how well these individuals perform in
their positions and are integrated within our company,
particularly with our customers and our employees.



| |                                                                                                                                
| | -------------------------------------------------------------------------------------------------------------------------------
| | For our business to succeed, we need to
    attract and retain qualified employees and manage our employee
    base effectively

Our success depends on our ability to hire and
retain qualified employees and to manage our employee base
effectively. If we are unable to hire and retain qualified
employees, our business and operating results could be adversely
affected. Conversely, if we fail to manage employee performance
or reduce staffing levels when required by market conditions,
our costs would be excessive and our business and operating
results could be adversely affected. We need to hire additional
sales, technical and senior management personnel when required
to support our business and to meet customer demand for our
products and services. Competition for people with the skills
that we require is intense, particularly in the San Francisco
Bay area where our headquarters are located, and the high cost
of living in this area makes our recruiting and compensation
costs higher. We cannot assure you that we will be successful in
hiring or retaining qualified personnel.

We have historically granted stock options to our
employees as an important component of our total compensation
package. Our 1993 Equity Incentive Plan will expire in October
2003. If we fail to obtain stockholder approval of a new stock
option plan, we may not be able to grant stock options to
employees as planned, which could limit or restrict our ability
to retain and recruit employees. In addition, many of our
outstanding stock options have exercise prices that are
significantly higher than the current trading prices of our
common stock, and the incentives created by these stock options
is reduced. Furthermore, potential changes in practices
regarding accounting for stock plans could result in significant
accounting charges, which could both raise our costs and impair
our ability to use stock options for compensation purposes. If
we are unable to use stock options as a meaningful component of
our total compensation package, we may be unsuccessful in
attracting or retaining personnel or we may have to pay higher
cash compensation.

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| |                                                                           
| | --------------------------------------------------------------------------
| | We face intense competition, which could
    cause us to lose market share

We have a number of competitors in the markets
for our various products. If existing or new competitors gain
market share in any of these markets, our business and operating
results could be adversely affected. Our principal competitors
are internal development groups of original equipment
manufacturers that provide storage management functions to
support their systems, as well as hardware and software vendors
that offer backup, file system and volume management,
clustering, replication, SAN and NAS products.

Many of our original equipment manufacturer
customers have products that compete with our products, and
these original equipment manufacturers may choose to license
their own products rather than offer our products to their
customers, or limit our access to their hardware platforms. In
addition, software vendors may choose to bundle their operating
systems with their own or other vendors storage or
clustering software, or limit our access to standard product
interfaces for these operating systems. If our original
equipment manufacturer customers or software vendors were to
take any of these actions, we could lose market share and our
operating results could be adversely affected.

Many of our competitors have greater financial,
technical, sales, marketing and other resources than we do. Our
future and existing competitors could introduce products with
superior features, scalability and functionality at lower prices
than our products, and could also bundle existing or new
products with other more established products in order to
compete with us. Our competitors could also gain market share by
acquiring or forming strategic alliances with our other
competitors. Finally, because new distribution methods offered
by the Internet and electronic commerce have removed many of the
barriers to entry historically faced by start-up companies in
the software industry, we may face additional competition from
these companies in the future.



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

We sell our products through original equipment
manufacturers, our direct sales and a retail distribution
channel. In 2002, we changed our pricing structure for some of
our products. If these changes to our pricing structure are not
accepted by our customers, or if our sales force does not
successfully implement the new pricing structure, our business
and operating results could be adversely affected. We cannot
assure you that our customers will accept the pricing structure
or that they will renew their agreements with us as the terms of
these agreements expire. In addition, if we fail to manage our
distribution channels successfully, our distribution channels
may conflict with one another or otherwise fail to perform as we
anticipate, and our business and operating results could be
adversely affected.

Original equipment manufacturers.A portion of our revenue comes from
our original equipment manufacturer customers that incorporate
our products into their systems. This involves a number of
risks, including:



| |   |                                                                                                                                                                                                                               
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | our lack of control over the shipping dates or
    volumes of systems shipped by our original equipment
    manufacturer customers;                                                                                           
|
| |  | the absence of obligation of our original
    equipment manufacturer customers to recommend or offer our
    products;                                                                                                        
|
| |  | the absence of minimum sales requirements and the
    ability of our original equipment manufacturer customers to
    terminate their relationship with us at any time;                                                       
|
| |  | a significant period of time may elapse before we
    realize any associated revenue, due to development work that we
    must generally undertake under the agreement with our original
    equipment manufacturer customers;
|
| |  | significant time may be needed for the sales and
    marketing organizations of our original equipment manufacturer
    customers and distributors to become familiar with and gain
    confidence in our products;           

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| |   |                                                                                                                                                                                                                                                                                  
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the ability of our original equipment
    manufacturer customers to choose not to continue to embed,
    market or distribute our products and instead choose to solely
    develop, market and distribute their own storage products or
    storage products from another party;
|
| |  | the possibility that our original equipment
    manufacturer customers could develop enhancements to and
    derivative products from our products; and                                                                                                                          
|
| |  | the possibility that our original equipment
    manufacturer customers may change their own base products, which
    could make it difficult for us to adapt our products to theirs.                                                                                             

Our original equipment manufacturer customers
compete with one another. If one of our original equipment
manufacturer customers views the products we have developed for
another original equipment manufacturer as competing with its
products, it might decide to stop doing business with us, which
could adversely affect our business and our operating results.

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 efforts;                                      
|
| |  | our need to hire, train, retain and motivate our
    direct sales force; and       
|
| |  | the length of time it takes our new sales
    representatives to become productive.

Retail distribution.Some of our software products are sold
primarily in the retail channel, which poses different
challenges than we face in selling our products through other
distribution channels, including:



| |   |                                                                                                                                               
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------
| |  | the VERITAS brand does not have high recognition
    in the retail channel;                                                                   
|
| |  | retail distribution typically involves products
    with shorter life cycles;                                                                 
|
| |  | the retail channel has higher risks of product
    returns, higher marketing expenses and less predictable market
    demand; and             
|
| |  | our retail distributors have no obligation to
    continue selling our products and may terminate their
    relationships with us at any time.



| |                                                                                                         
| | --------------------------------------------------------------------------------------------------------
| | Some of our original equipment manufacturer
    agreements may not result in increased product
    sales

We have entered into original equipment
manufacturer agreements with Hewlett-Packard, IBM, Microsoft and
Sun Microsystems. Under these agreements, we develop unique or
limited functionality versions of our products to be included in
these original equipment manufacturers products. If we are
unable to leverage these relationships to increase product
sales, we will have expended significant resources without
generating corresponding revenue, which could adversely affect
our business and our operating results. These relationships
require our personnel to develop expertise with respect to the
original equipment manufacturers products and markets and
to cooperate closely with their personnel. We cannot assure you
that we will be able to attract and retain qualified employees
to work with our original equipment manufacturer customers or to
develop and improve the products designed for these customers.
These relationships are also dependent on a series of
development, licensing and support agreements. We cannot assure
you that these agreements will not be terminated by one or
several of these original equipment manufacturers or that these
agreements will be renewed when their terms expire or when new
platforms are introduced by the original equipment manufacturers.



| |                                                                                                          
| | ---------------------------------------------------------------------------------------------------------
| | We face uncertainties in porting products
    to new operating systems and in developing new
    products

Many of our products operate primarily on the
UNIX computer operating system. We have also redesigned, or
ported, these products to operate on the Windows NT and
Linux operating systems. We continue to develop new products for
UNIX, Windows NT and Linux. In addition, we entered into an
agreement with IBM under which we will port our complete set of
storage products to AIX 5L for IBM POWER PC. We may not be
successful in porting our other storage products to
IBM AIX. We may not

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accomplish any of this work quickly or
cost-effectively, and it is not clear what the relative growth
rates of these operating systems will be. These activities
require substantial capital investment, the devotion of
substantial employee resources and the cooperation of the owners
of the operating systems to or for which the products are being
ported or developed. For example, our porting and development
work for the Windows NT market required us to hire additional
personnel with expertise on these platforms and to devote
engineering resources to these projects. For some operating
systems, we must obtain from the owner of the operating system a
source code license to 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 may
not be able to expand our product line into other areas. We also
cannot predict how quickly, or to what extent, the market for
Linux will evolve. If the market for Linux does not develop as
anticipated, or demand for our products and services in this
market does not materialize or occurs more slowly than we
expect, we will have expended substantial resources and capital
without realizing sufficient revenue, and our business and
operating results could be adversely affected.




| |                                                                                                                         
| | ------------------------------------------------------------------------------------------------------------------------
| | Our international sales and operations
    create special problems that could adversely affect our
    operating results

We derive a substantial portion of our revenue
from customers located outside of the U.S. We have significant
operations outside of the U.S., including engineering, sales,
customer support and production operations, and we plan to
expand our international operations. Our international
operations are subject to risks, including:



| |   |                                                                                                                                                                                                                                                                                      
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | potential loss of proprietary information due to
    piracy, misappropriation or weaker laws regarding intellectual
    property protection;                                                                                                                                         
|
| |  | imposition of foreign laws and other governmental
    controls, including trade restrictions;                                                                                                                                                                                        
|
| |  | fluctuations in currency exchange rates and
    economic instability such as higher interest rates and
    inflation, which could reduce our customers ability to
    obtain financing for software products or which could make our
    products more expensive in those countries;
|
| |  | restrictions on growth or maintenance of our
    revenue from international sales if we do not invest
    sufficiently in our international operations;                                                                                                                              
|
| |  | difficulties in hedging foreign currency
    transaction exposures;                                                                                                                                                                                                                  
|
| |  | longer payment cycles for sales in foreign
    countries and difficulties in collecting accounts receivable;                                                                                                                                                                         
|
| |  | difficulties in staffing and managing our
    international operations, including difficulties related to
    administering our stock option plan in foreign countries;                                                                                                              
|
| |  | difficulties in coordinating the activities of
    our geographically dispersed and culturally diverse operations;                                                                                                                                                                   
|
| |  | seasonal reductions in business activity in the
    summer months in Europe and in other periods in other countries;                                                                                                                                                                 
|
| |  | costs and delays associated with developing
    software in multiple languages; and                                                                                                                                                                                                  
|
| |  | political unrest, war or terrorism, 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 adversely affect our
business and operating results. We receive significant tax
benefits from sales to our non-U.S. customers. These benefits
are contingent upon existing tax regulations in both the U.S.
and in the countries in which our international customers are
located. Future changes in domestic or international tax
regulations could affect our anticipated ability to continue to
realize these tax benefits.

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

We derive and expect to derive a substantial
majority of our revenue from a limited number of software
products. For the nine months ended September 30, 2002, we
derived approximately $649.2 million, or 87%, of our user
license fees from our core technologies, including data
protection, file system and volume management products. If our
customers do not continue to purchase these products as a result
of competition, technological change, budget constraints or
other factors, our revenue would decrease and our business and
operating results would be adversely affected.



| |                                                                        
| | -----------------------------------------------------------------------
| | We derive a significant amount of revenue
    from only a few customers

One customer, a major distributor, accounted for
approximately 12% of our total net revenue for the three months
ended September 30, 2002 and approximately 10% for the nine
months ended September 30, 2002. For the three and nine
months ended September 30, 2001, no single customer
accounted for greater than 10% of our total net revenue. We
typically derive significant revenue from a small number of
customers, including our original equipment manufacturer
customers. If any of these customers were to reduce purchases of
products or services from us, our business would be adversely
affected unless we were able to increase sales to other
customers substantially. Many of these customers have announced
that their own businesses are slowing, which could adversely
affect their demand for our products and services. In addition,
many of our customers may believe that they have sufficient
storage products to meet their current needs, which would reduce
demand for our products and services. We do not have a contract
with any of these customers 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.



| |                                                                                                                          
| | -------------------------------------------------------------------------------------------------------------------------
| | Our success depends on our ability to
    develop new and enhanced products that achieve widespread market
    acceptance

Our future success depends on our ability to
address the rapidly changing needs of our customers by
developing and introducing new products, product updates and
services on a timely basis, by extending the operation of our
products on new platforms and by keeping pace with technological
developments and emerging industry standards. In order to grow
our business, we are committing substantial resources to
developing new software products and services, including
software products and services for the storage area networking
market and the network attached storage appliance market. Each
of these markets is new and unproven, and industry standards for
these markets are evolving and changing. They also may require
development of new channels. If these markets do not develop as
anticipated, or demand for our products and services in these
markets does not materialize or occurs more slowly than we
expect, we will have expended substantial resources and capital
without realizing sufficient revenue, and our business and
operating results could be adversely affected.

We have provided standards-setting organizations
and various partners with access to our standard product
interfaces through our VERITAS Enabled Program. If these
standards-setting organizations or our partners do not accept
our standard product interfaces for use with other products, or
if our partners are better able to capitalize on the use of our
standard product interfaces, then our business and operating
results could be adversely affected.



| |                                                                           
| | --------------------------------------------------------------------------
| | Our growth strategy is risky because it
    includes business acquisitions

As part of our growth strategy, we have in the
past acquired and expect in the future to acquire other
businesses, business units and technologies. Acquisitions
involve a number of special risks and challenges, including:



| |   |                                                                                                                                                                                                                                                                                  
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | diversion of managements attention from our
    core business;                                                                                                                                                                                                                  
|
| |  | integration of acquired business operations and
    employees with our existing business, including coordination of
    geographically dispersed operations, which in the past has taken
    longer and was more complex than initially expected for some
    acquired companies;

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| |   |                                                                                                                                                                                                                  
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | incorporation of acquired business technology
    into our existing product lines, including consolidating
    technology with duplicative functionality or designed on
    different technological architecture;
|
| |  | loss or termination of employees, including
    costly litigation resulting from the termination of those
    employees;                                                                                         
|
| |  | dilution of our then-current stockholders
    percentage ownership;                                                                                                                                             
|
| |  | assumption of liabilities of the acquired
    business, including costly litigation related to alleged
    liabilities of the acquired business;                                                                 
|
| |  | presentation of a unified corporate image to our
    customers and our employees; and                                                                                                                            
|
| |  | risk of impairment charges related to potential
    write-down of acquired assets in future acquisitions.                                                                                                        



| |                                                                                                                                                                                                                    
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | As a result of the Seagate Technology
    leveraged buyout and merger transaction, our subsidiary may be
    liable to third parties for liabilities resulting from
    Seagates operations before the transaction

In November 2000, Seagate Technology became our
subsidiary. As part of that transaction, Suez Acquisition
(Cayman) Company, or SAC, acquired the operating assets of
Seagate Technology. SAC assumed and agreed to indemnify us for
substantially all liabilities arising in connection with Seagate
Technologys operations prior to the transaction. However,
governmental organizations or other third parties may seek
recourse against our subsidiary or us for these liabilities. As
a result, our subsidiary could receive claims related to a wide
range of possible liabilities. The main area of potential
liability for our Seagate Technology subsidiary relates to tax
liabilities. Any such claim, with or without merit, could be
time consuming to defend, result in costly litigation and divert
management attention. Moreover, if SAC is unable or unwilling to
indemnify us as agreed, we could incur unexpected costs. For
example, the Internal Revenue Service is currently auditing past
tax returns of Seagate Technology. We can predict neither the
outcome of these audits, nor the amount of any liability we
might incur arising from these audits.



| |                                                                                                     
| | ----------------------------------------------------------------------------------------------------
| | The Seagate merger consideration may be
    subject to recovery under fraudulent conveyance
    laws

The leveraged buyout of assets from Seagate
Technology and our acquisition of the remaining corporate assets
may in the future be challenged by a creditor of Seagate
Technology as a fraudulent transfer. If a court were to
determine that a fraudulent transfer had occurred, one of the
remedial actions it could take would be to order that the
transaction be unwound. Because we have integrated Seagate
Technology into our business, unwinding the acquisition would be
extremely costly for us. In addition, any litigation in
connection with this matter could be costly in terms of time and
resources and could divert the attention of management from our
core business.



| |                                        
| | ---------------------------------------
| | Our effective tax rate may
    increase

Our effective tax rate could be adversely
affected by several factors, many of which are outside of our
control. Our effective tax rate is directly affected by the
relative proportions of domestic and international revenue and
income before taxes. We are also subject to changing tax laws,
regulations and interpretations in multiple jurisdictions in
which we operate. We do not have a history of audit activity
from various taxing authorities and while we believe we are in
compliance with all federal, state and international tax laws,
there are various interpretations of their application that
could result in additional tax assessments. In addition, in
November 2000, we acquired Seagate Technology, which has certain
federal and state tax returns for various fiscal years under
examination by tax authorities. We believe that adequate amounts
for tax liabilities have been provided for any final assessments
that may result from these examinations. The timing of the
settlement of these examinations is uncertain. To the extent the
settlements of these audits and the amounts reimbursed by SAC,
as required by the Seagate buyout agreements, are different from
the amounts recorded, the difference will be recorded as a
component of income tax expense or benefit and may significantly
affect our effective tax rate for the period in which the
settlements take place.

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| |                                                                                                                                                                            
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We incur or may incur significant
    accounting charges that, individually or in aggregate, could
    create net losses under generally accepted accounting
    principles

We incur or may incur significant accounting
charges that, individually or in aggregate, could create losses
under generally accepted accounting principles in future
periods. Examples of these charges are:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Amortization of developed technology and other
    intangibles.We are currently
    incurring significant charges related to the amortization of
    developed technology and other intangibles. We expect the total
    amortization charge to be approximately $34.5 million per
    quarter through the first quarter of 2003. The quarterly
    amortization charge could increase as a result of future
    business combinations or impairment of our other intangibles.
    While we do not expect to record other intangibles impairment
    charges, we cannot be sure that we will not have to record
    impairment in the future. As of September 30, 2002, the
    total carrying amount of our other intangibles was
    $102.2 million;                                                                                          
|
| |  | Impairment of goodwill.On January 1, 2002, we adopted
    SFAS 142 and, as a result, we no longer amortize goodwill
    related to business combinations but test it for impairment at
    least annually. While we do not expect to record goodwill
    impairment charges, we cannot be sure that we will not have to
    record impairment in the future. As of September 30, 2002,
    the total carrying amount of our goodwill was
    $1,202.8 million;                                                                                                                                                                                                                                                                                                                                                                                  
|
| |  | Loss on strategic investments.In the third quarter of 2001 and in
    the second quarter of 2002, we recorded losses on strategic
    investments. Future losses will depend on the results of our
    quarterly reviews to determine if there has been a decline in
    the fair value that is other than temporary. As of
    September 30, 2002, the total carrying amount of our
    strategic investments was $11.3 million;                                                                                                                                                                                                                                                                                                                                                                                                               
|
| |  | Stock-based compensation.We apply APB Opinion 25 and
    related interpretations in accounting for our stock option and
    stock purchase plans. Because the exercise price of options
    granted under our stock plans are generally equal to the market
    value of our common stock on the date of grant, no compensation
    cost has been recognized for grants under our stock option and
    stock purchase plans. Potential changes in practices regarding
    accounting for stock plans could result in significant
    accounting charges; and                                                                                                                                                                                                                                                                                    
|
| |  | Restructuring charges.We regularly perform evaluations of
    our operations and activities. Any decision to restructure our
    operations, to exit any activity or to eliminate any excess
    capacity could result in significant accounting charges.
    Restructuring charges could also result from future business
    combinations. As a result of an evaluation of our facilities
    requirements, we believe that we have excess capacity in our
    domestic and foreign facilities. In October 2002, our board of
    directors approved a restructuring plan to exit and consolidate
    certain of our facilities located in 17 metropolitan areas
    worldwide. In connection with this restructuring plan, we expect
    to record a restructuring charge of approximately
    $99 million during the fourth quarter of 2002.



| |                                                                                                                                                                                                                         
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We may not be able to successfully execute
    our facility restructuring efforts, or we may find that the
    assumptions that underlie our facility restructuring plan are
    not reflective of future market results

In October 2002, our board of directors approved
a restructuring plan to exit and consolidate some of our
facilities based on our evaluation that our existing and planned
facilities would exceed our near-term facilities needs due to
slower than anticipated growth in the number of our employees as
a result of weak and uncertain economic and industry conditions.
In connection with this restructuring plan, we expect to record
a restructuring charge of approximately $99 million during
the fourth quarter of 2002. Our restructuring plan includes
assumptions related to our ability to enter sublease and/or
lease termination arrangements regarding some of our facilities.
We cannot predict if, or when, we will be able to successfully
enter sublease and/or lease termination arrangements for these
facilities or if the actual terms of these arrangements will be
as favorable as those assumed under our restructuring plan.
Should we be unable to execute our restructuring plan under
terms as favorable as those assumed under the restructuring
plan, we may be required to materially increase our
restructuring charge in future periods. We also cannot predict
if our evaluation of our needs is accurate or if weak and
uncertain economic and industry conditions will continue once we
begin to implement

39



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our restructuring plan. We may find that our
facility requirements are greater than estimated under our plan,
which could necessitate procuring facilities at rates higher and
at costs in addition to facilities that have been vacated by us.
In addition, we cannot assure you that our restructuring program
will achieve the anticipated benefits or will be completed in
accordance with the contemplated timetable.




| |                                                                                   
| | ----------------------------------------------------------------------------------
| | We have a significant amount of debt that
    we may be unable to service or repay

In October 1997, we issued $100.0 million in
aggregate principal amount at maturity of 5.25% convertible
subordinated notes due 2004, of which $64.0 million was
outstanding as of September 30, 2002. In August 1999, we
issued $465.8 million in aggregate principal amount at
maturity of 1.856% convertible subordinated notes due 2006, of
which $392.0 million was outstanding as of
September 30, 2002. As of September 30, 2002, the
annual interest payments on our outstanding 5.25% notes were
$3.4 million and the annual interest payments on our
outstanding 1.856% notes were $8.6 million, all of which we
plan to fund from cash flows 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 pay our debts as they come due, we could be
in default of those debts. For example, if we do not make timely
payments, the notes could be declared immediately due and
payable. Our outstanding debt could also increase our
vulnerability to adverse economic and industry conditions by
making it more difficult for us to raise capital if needed. In
addition, any changes in accounting rules regarding our
operating leases and built-to-suit facilities may affect our
debt levels and operating expenses in the future.



| |                                                              
| | -------------------------------------------------------------
| | We may not be able to protect our
    proprietary information

We rely on a combination of copyright, patent,
trademark and trade secret laws, confidentiality procedures,
contractual provisions and other measures to protect our
proprietary information. All of these measures afford only
limited protection. These measures may be invalidated,
circumvented or challenged, and others may develop technologies
or processes that are similar or superior to our technology. We
may not have the proprietary information controls and procedures
in place that we need to protect our proprietary information
adequately. In addition, because we license the source code for
some of our products to third parties, there is a higher
likelihood of misappropriation or other misuse of our
intellectual property. We also license some of our products
under shrink wrap license agreements that are not signed by
licensees and therefore may be unenforceable under the laws of
some jurisdictions. Despite our efforts to protect our
proprietary rights, unauthorized parties may attempt to copy our
products or to obtain or use information that we regard as
proprietary.



| |                                                                      
| | ---------------------------------------------------------------------
| | Third parties may claim that we infringe
    their proprietary rights

We may from time to time receive claims that we
have infringed the intellectual property rights of others. As
the number of products in the software industry increases and
the functionality of these products further overlap, we believe
that we may become increasingly subject to infringement claims,
including patent and copyright infringement claims. We have
received several trademark claims in the past and may receive
more claims in the future based on the name VERITAS, which is a
word commonly used in trade names throughout Europe and the
western hemisphere. We have also received patent infringement
claims in the past and may receive more claims in the future
based on allegations that our products infringe upon patents
held by third parties. In addition, former employers of our
former, current or future employees may assert claims that such
employees have improperly disclosed to us the confidential or
proprietary information of these former employers. Any such
claim, with or without merit, could:



| |   |                                                                                  
| | - | ---------------------------------------------------------------------------------
| |  | be time consuming to defend;                                                     
|
| |  | result in costly litigation;                                                     
|
| |  | divert managements attention from our core
    business;                        
|
| |  | require us to stop selling, to delay shipping or
    to redesign our product; and

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| |   |                                                                                                                                                                                     
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | require us to pay monetary amounts as damages,
    for royalty or licensing arrangements, or to satisfy
    indemnification obligations that we have with some of our
    customers.

In addition, we license and use software from
third parties in our business. These third party software
licenses may not continue to be available to us on acceptable
terms. Also, these third parties may from time to time receive
claims that they have infringed the intellectual property rights
of others, including patent and copyright infringement claims,
which may affect our ability to continue licensing this
software. Our inability to use any of this third party software
could result in shipment delays or other disruptions in our
business, which could materially and adversely affect our
operating results.



| |                                                            
| | -----------------------------------------------------------
| | We might experience significant defects in
    our products

Software products frequently contain errors or
failures, especially when first introduced or when new versions
are released. We might experience significant errors or failures
in our products, or they might not work with other hardware or
software as expected, which could delay the development or
release of new products or new versions of products, or which
could adversely affect market acceptance of our products. Our
end-user customers use our products for applications that are
critical to their businesses, and they have a greater
sensitivity to product defects than the market for software
products generally. If we were to experience significant delays
in the release of new products or new versions of products, or
if customers were dissatisfied with product functionality or
performance, we could lose revenue or be subject to liability
for service or warranty costs, and our business and operating
results could be adversely affected.



| |                                                                  
| | -----------------------------------------------------------------
| | Natural disasters or power outages could
    disrupt our business

We must protect our business and our network
infrastructure against damage from earthquake, flood, hurricane
and similar events. Many of our operations are subject to these
risks, particularly our operations located in California. In
addition, our operations have been and could be further
disrupted by temporary power shortages in our California
facilities. A natural disaster, power outage or other
unanticipated problem could adversely affect our business,
including both our primary data center and other internal
operations and our ability to communicate with our customers or
sell our products over the Internet.



| |                                                                                            
| | -------------------------------------------------------------------------------------------
| | Some provisions in our charter documents
    may prevent or deter certain corporate actions

Some of the provisions in our charter documents
may deter or prevent certain corporate actions, such as a
merger, tender offer or proxy contest, which could affect the
market value of our securities. These provisions include:



| |   |                                                                                                                                                                                                          
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | our board of directors is authorized to issue
    preferred stock with any rights it may determine;                                                                                                      
|
| |  | our board of directors is classified into three
    groups, with each group of directors to hold office for three
    years;                                                                             
|
| |  | our stockholders are not entitled to cumulate
    votes for directors and may not take any action by written
    consent without a meeting; and                                                          
|
| |  | special meetings of our stockholders may be
    called only by our board of directors, by the chairman of the
    board or by our chief executive officer, and may not be called
    by our stockholders.

We also have in place a stockholder rights plan
that is designed to discourage coercive takeover offers.



| |                                                                                                       
| | ------------------------------------------------------------------------------------------------------
| | Our stock price may be volatile in the
    future, and you could lose the value of your
    investment

The market price of our common stock has
experienced significant fluctuations and may continue to
fluctuate significantly, and you could lose the value of your
investment. The market price of our common stock may be
adversely affected by a number of factors, including:



| |   |                                                                                                                                       
| | - | --------------------------------------------------------------------------------------------------------------------------------------
| |  | announcements of our quarterly operating results
    or those of our competitors or our original equipment
    manufacturer customers;

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| |   |                                                                                                                                                                                                       
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | rumors, announcements or press articles regarding
    changes in our management, organization, operations or prior
    financial statements; or inquiries by the SEC, Nasdaq or
    regulatory bodies.
|
| |  | changes in earnings estimates by securities
    analysts;                                                                                                                                             
|
| |  | announcements of planned acquisitions by us or by
    our competitors;                                                                                                                                
|
| |  | the gain or loss of a significant customer;                                                                                                                                                           
|
| |  | announcements of new products by us, our
    competitors or our original equipment manufacturer customers; and                                                                                        
|
| |  | economic slowdowns in general.                                                                                                                                                                        

The stock market in general, and the market
prices of stocks of other technology companies in particular,
have experienced extreme price volatility, which has adversely
affected and may continue to adversely affect the market price
of our common stock for reasons unrelated to our business or
operating results.






|        |                                                               
|------- | --------------------------------------------------------------
|Item 3. | Quantitative and Qualitative Disclosures
    About Market Risk

Foreign Currency Risk

We transact business in various foreign
currencies and we have established a foreign currency-hedging
program, utilizing foreign currency forward exchange contracts
to hedge certain foreign currency transaction exposures. Under
this program, increases or decreases in our foreign currency
transactions are offset by gains and losses on the forward
contracts, so as to mitigate the possibility of foreign currency
transaction gains and losses. We do not use forward contracts
for speculative or trading purposes. All foreign currency
transactions and all outstanding forward contracts are
marked-to-market at the end of the period with unrealized gains
and losses included in other income (expense). The unrealized
gain (loss) on the outstanding forward contracts at
September 30, 2002 was immaterial to our consolidated
financial statements.

Our outstanding forward contracts as of
September 30, 2002 are presented in the table below. All
forward contract amounts are representative of the expected
payments to be made under these instruments. As of

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##### Table of Contents



September 30, 2002, all forward contracts
mature in 35 days or less, with the exception of one
contract with a maturity of 96 days (dollars in thousands):


|                             |  |                 |             |                 |  |                       |      |                   |  |  |          |  |  |  |     |  |  |  |        |  
|---------------------------- |  | --------------- | ----------- | --------------- |  | --------------------- | ---- | ----------------- |  |  | -------- |  |  |  | --- |  |  |  | ------ | -
|                             |  |                 |             |                 |  |                       |      | Fair Market Value
|                             |  | Local Currency  |             |                 |  | at September 30, 2002
|                             |  | Contract Amount |             | Contract Amount |  | (US $)               
|                             |  |                 |             |                 |  |                      
|                             |  |                 |             |                 |  |                       |      |                   |  | 
|Contracts to Sell US $       |  |                 |             |                 |  |                       |      |                   |  |  |          |  |  |  |     |  |  |  |        |  
|Euro                         |  |                 | 41,100.0    |                 |  |                       | Euro |                   |  |  | 40,074.1 |  |  |  | USD |  |  |  | 525.7  |  
|Euro                         |  |                 | 15,000.0    |                 |  |                       | Euro |                   |  |  | 14,625.0 |  |  |  | USD |  |  |  | 192.5  |  
|GBP                          |  |                 | 2,846.0     |                 |  |                       | GBP  |                   |  |  | 4,427.7  |  |  |  | USD |  |  |  | (16.7  | )
|Contracts to Buy US $        |  |                 |             |                 |  |                       |      |                   |  |  |          |  |  |  |     |  |  |  |        |  
|Mexican peso                 |  |                 | 9,800.0     |                 |  |                       | MXN  |                   |  |  | 959.2    |  |  |  | USD |  |  |  | 0.1    |  
|Brazilian reals              |  |                 | 4,000.0     |                 |  |                       | BRL  |                   |  |  | 1,215.1  |  |  |  | USD |  |  |  | 162.5  |  
|Contracts to Sell Euro
     |  |                 |             |                 |  |                       |      |                   |  |  |          |  |  |  |     |  |  |  |        |  
|Swedish krona                |  |                 | 13,380.0    |                 |  |                       | SEK  |                   |  |  | 1,460.3  |  |  |  | EUR |  |  |  | 0.3    |  
|Singapore dollar             |  |                 | 363.0       |                 |  |                       | SGD  |                   |  |  | 209.1    |  |  |  | EUR |  |  |  | (2.3   | )
|Swiss franc                  |  |                 | 1,094.0     |                 |  |                       | CHF  |                   |  |  | 747.0    |  |  |  | EUR |  |  |  | 3.4    |  
|Danish krone                 |  |                 | 1,800.0     |                 |  |                       | DKK  |                   |  |  | 242.3    |  |  |  | EUR |  |  |  |       |  
|Norwegian krone              |  |                 | 2,107.0     |                 |  |                       | NOK  |                   |  |  | 286.8    |  |  |  | EUR |  |  |  | 1.2    |  
|Contracts to Buy Euro
      |  |                 |             |                 |  |                       |      |                   |  |  |          |  |  |  |     |  |  |  |        |  
|Australian dollar            |  |                 | 21,277.0    |                 |  |                       | AUD  |                   |  |  | 11,869.1 |  |  |  | EUR |  |  |  | 168.6  |  
|British pound                |  |                 | 38,786.0    |                 |  |                       | GBP  |                   |  |  | 61,868.5 |  |  |  | EUR |  |  |  | (85.4  | )
|UAE dirham                   |  |                 | 10,046.0    |                 |  |                       | AED  |                   |  |  | 2,806.9  |  |  |  | EUR |  |  |  | 35.1   |  
|Taiwan dollar                |  |                 | 9,854.0     |                 |  |                       | TWD  |                   |  |  | 290.5    |  |  |  | EUR |  |  |  | 4.4    |  
|Hong Kong dollar             |  |                 | 15,032.0    |                 |  |                       | HKD  |                   |  |  | 1,977.0  |  |  |  | EUR |  |  |  | (25.6  | )
|South African rand           |  |                 | 6,724.0     |                 |  |                       | ZAR  |                   |  |  | 645.3    |  |  |  | EUR |  |  |  | 1.6    |  
|Japanese yen                 |  |                 | 1,953,500.0 |                 |  |                       | JPY  |                   |  |  | 16,377.4 |  |  |  | EUR |  |  |  | (130.5 | )

Interest Rate Risk

We are exposed to interest rate risk, primarily
on our investment portfolio and long-term debt obligations. Our
primary investment objective is to preserve principal while at
the same time maximizing yields without significantly increasing
risk. Our portfolio includes money markets funds, investment
grade commercial paper, medium-term notes, corporate notes and
bonds, government agency securities (taxable and non-taxable),
asset-backed securities and market auction preferreds. The
diversity of our portfolio helps us to achieve our investment
objective.

Long-term debt of $456.0 million consists of
our 5.25% notes of $64.0 million and our 1.856% notes of
$392.0 million. The interest rate of 1.856% on the 1.856%
notes, together with the accrual of original issue discount,
represents 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 $1.7 million
each May 1 and November 1 for the 5.25% notes and
approximately $4.3 million each February 13 and
August 13 for the 1.856% notes. The notes are
convertible into our 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.

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The following table presents the amounts of our
cash equivalents, investments and long-term debt, according to
maturity date, that may be subject to interest rate risk and the
average interest rates as of September 30, 2002 by year of
maturity (dollars in thousands):

|                                                   |                       |                     |   |            |   |              |   |            |   |           |   |           |   |  |   |           |   |  |   |           |  
|-------------------------------------------------- | --------------------- | ------------------- | - | ---------- | - | ------------ | - | ---------- | - | --------- | - | --------- | - |  | - | --------- | - |  | - | --------- | -
|                                                   |                       |                     |   |            |   |             
|                                                   |                       | 2002 Amortized Cost |   |            |   |             
|                                                   |                       |                     |   |            |   | December 21,
|                                                   |                       |                     |   | Due in     |   |              |   |            |   | 2001     
|                                                   |                       | Due in              |   | 2003 and   |   |              |   | 2002       |   | Amortized
|                                                   |                       | 2002                |   | Thereafter |   | Total        |   | Fair Value |   | Cost     
|                                                   |                       |                     |   |            |   |              |   |            |   |          
|Cash equivalents and short-term                    |                       |                     |   |            |   |              |   |            |   |           |   |           |   |  |   |           |   |  |   |          
|                                                   | Investments:          |                     |   |            |   |              |   |            |   |           |   |           |   |  |   |           |   |  |   |           |  
|                                                   | Fixed rate            |                     | $ | 843,172    |   |              | $ | 723,593    |   |           | $ | 1,566,765 |   |  | $ | 1,566,396 |   |  | $ | 1,096,141 |  
|                                                   | Average fixed rate    |                     |   | 1.83       | % |              |   | 3.16       | % |           |   | 2.44      | % |  |   | 2.44      | % |  |   | 3.76      | %
|                                                   | Variable rate         |                     | $ | 217,425    |   |              |   | 208,853    |   |           | $ | 426,278   |   |  | $ | 426,167   |   |  | $ | 202,574   |  
|                                                   | Average variable rate |                     |   | 1.98       | % |              |   | 2.10       | % |           |   | 2.04      | % |  |   | 2.04      | % |  |   | 2.12      | %
|Total cash equivalents and short-term investments: |                       |                     |   |            |   |              |   |            |   |           |   |           |   |  |   |           |   |  |   |          
|                                                   | Investments           |                     | $ | 1,060,597  |   |              | $ | 932,446    |   |           | $ | 1,993,043 |   |  | $ | 1,992,563 |   |  | $ | 1,298,715 |  
|                                                   | Average rate          |                     |   | 1.86       | % |              |   | 2.92       | % |           |   | 2.36      | % |  |   | 2.36      | % |  |   | 3.51      | %
|Long-term investments:                             |                       |                     |   |            |   |              |   |            |   |           |   |           |   |  |   |           |   |  |   |          
|                                                   | Fixed rate            |                     |   |           |   |              |   |           |   |           |   |          |   |  |   |          |   |  |   |          |  
|                                                   | Average fixed rate    |                     |   |           |   |              |   |           |   |           |   |          |   |  |   |          |   |  |   |          |  
|Long-term debt:                                    |                       |                     |   |            |   |              |   |            |   |           |   |           |   |  |   |           |   |  |   |          
|                                                   | Fixed rate            |                     |   |           |   |              | $ | 456,007    |   |           | $ | 456,007   |   |  | $ | 484,912   |   |  | $ | 444,408   |  
|                                                   | Average fixed rate    |                     |   |           |   |              |   | 6.32       | % |           |   | 6.32      | % |  |   | 6.32      | % |  |   | 6.32      | %

In September 2000, we entered into a three-year
cross currency interest rate swap for the purpose of hedging
fixed interest rate, foreign currency denominated cash flows
under an inter-company loan receivable. Under the terms of this
derivative financial instrument, Euro denominated fixed
principal and interest payments to be received under the
inter-company loan are swapped for U.S. dollar-fixed
principal and interest payments. As of September 30, 2002,
12 monthly payments of
4.3 million
remained to be swapped at a forward exchange rate of 0.89070
U.S. dollar per Euro. The fair market value of the swap at
September 30, 2002 was $(4.9) million. As a result of
entering into the swap, we have mitigated our exposure to
foreign currency exchange rate fluctuations. The gains or losses
on the foreign currency loan receivable will be offset by the
gains or losses on the swap. Because we are receiving monthly
fixed interest payments under the swap, we are still subject to
fluctuations in value due to changes in Euro and
U.S. dollar foreign currency rates and U.S. dollar
interest rates. As of September 30, 2002, the impact of
these fluctuations was not significant. This hedge was deemed to
be perfectly effective as of September 30, 2002.

In January 2002, we entered into two three-year
pay fixed, receive floating, interest rate swaps for the purpose
of hedging cash flows on variable interest rate debt of our
build-to-suit lease agreements. Under the terms of these
interest rate swaps, we make payments based on a stated fixed
rate and will receive interest payments based on the 3-month
LIBOR. The payments on our build-to-suit lease agreements are
based upon a 3-month LIBOR plus a credit spread. If our credit
spread remains consistent and other critical terms of the
interest rate swap or the hedged item do not change, the
interest rate swap will be considered perfectly effective with
all changes in the fair value included in other comprehensive
income. If our credit spread changes or other critical terms of
the interest rate swap or the hedged item change, the hedge may
become partially or fully ineffective, which could result in all
or a portion of the changes in fair value of the derivative
recorded in our statement of operations. The interest rate swaps
settle the first day of January, April, July and October until
expiration. As of September 30, 2002, the fair value of the
interest rate swaps was $(10.7) million. As a result of
entering into the interest rate swaps, we have mitigated our
exposure to variable cash flows associated with interest rate
fluctuations. Because the rental payments on the leases are
based on the 3-month LIBOR and we receive 3-month LIBOR from the
interest rate swap counter-party, we have

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eliminated any impact to raising interest rates
related to our rent payments under the build-to-suit lease
agreements.


Equity Price Risk

We are exposed to equity price risk on the
marketable portion of our portfolio of equity securities
investments. We typically do not attempt to reduce or eliminate
our market exposure on these equity securities. These
investments are in companies in the high-technology industry. As
of September 30, 2002, we held one marketable equity
security, representing a total market value of
$0.3 million. If this marketable equity security had been
valued using prices as of October 31, 2002, the value of
this security would have decreased by less then
$0.1 million from the value as of September 30, 2002.
This estimate is not necessarily indicative of future
performance and actual results may differ materially.

We also make investments in development-stage
companies that we believe provide strategic opportunities for
us. We intend that these investments will provide access to new
technologies and emerging markets, and create opportunities for
additional sales of our products and services. We recognize
impairment losses on our strategic investments when we determine
that there has been a decline in the fair value of the
investment that was other than temporary. During the second
quarter of 2002, we recognized impairment losses of
$14.8 million on our strategic investments when we
determined that there had been a decline in the fair value of
the investment that was other than temporary. The losses
represented write-downs of the carrying amount of our
investments and were determined by using, among other factors,
an investees significant decline in stock value, its
inability to obtain additional private financing, and the
uncertainty of its financial conditions. As of
September 30, 2002, we determined that there was no further
impairment in these investments. We cannot assure you that our
investment will have the above mentioned results, or even that
we will not lose all or any part of these investments.






|        |                        
|------- | -----------------------
|Item 4. | Controls and Procedures

Evaluation of Disclosure Controls and
Procedures

Regulations under the Securities Exchange Act of
1934 require public companies, including our company, to
maintain disclosure controls and procedures, which
are defined to mean a companys controls and other
procedures that are designed to ensure that information required
to be disclosed in the reports that it files or submits under
the Securities Exchange Act of 1934 are recorded, processed,
summarized and reported, within the time periods specified in
the Securities and Exchange Commissions rules and forms.
Our chief executive officer and our chief financial officer,
based upon their evaluation of our disclosure controls and
procedures within 90 days before the filing date of this
report, concluded that as of their evaluation date, our
disclosure controls and procedures were effective for this
purpose.

Changes in Internal Controls

There were no significant changes in our internal
controls or to our knowledge, in other factors that could
significantly affect these controls subsequent to the date of
their evaluation, which occurred as of the evaluation date
referenced in the above paragraph.




PART II:     OTHER
INFORMATION






Item 1.     Legal
Proceedings

On October 23, 2001, Storage Computer
Corporation filed an action against VERITAS Software Corporation
in the United States District Court for the Northern District of
Texas alleging infringement of one of Storage Computer
Corporations patents. On November 30, 2001, Storage
Computer Corporation filed an amended complaint to add VERITAS
Software Global Corporation, our subsidiary, as a defendant. On
February 6, 2002, Storage Computer Corporation filed an
action alleging infringement of a second patent held by Storage
Computer Corporation. On March 21, 2002, Storage Computer
Corporation filed an action alleging infringement of a third
patent held by Storage Computer Corporation. The United States
District

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##### Table of Contents



Court for the Northern District of Texas has
subsequently consolidated all of these actions. VERITAS Software
Corporation and its subsidiary filed answers to these
consolidated actions denying all material allegations of Storage
Computer Corporations complaints, and filed counterclaims
for declaratory judgment of invalidity and non-infringement of
the patents-in-suit. On September 9, 2002, Storage Computer
Corporation was granted leave to amend its pleadings to withdraw
the allegations of infringement by us with respect to one of the
asserted patents. On September 23, 2002, we filed a
counterclaim against Storage Computer Corporation alleging
infringement of one of our patents. Storage Computer Corporation
is claiming that the following products of VERITAS infringe upon
one or more of Storage Computer Corporations patents:
VERITAS Volume Manager release 3.01 and later (individually or
as part of a suite of products); VERITAS SANPoint Direct;
VERITAS SANPoint Foundation Suite; and VERITAS SANPoint
Foundation Suite HA. Storage Computer Corporation is
seeking unspecified damages, treble damages, costs of suit and
attorneys fees, and a permanent injunction from further
alleged infringement. We believe that we have adequate defenses
and counterclaims relative to the claims of infringement
asserted against us and intend to vigorously defend this action.







|        |                  
|------- | -----------------
|Item 5. | Other Information



| |                                                  
| | -------------------------------------------------
| | Corporate Governance and Nominating
    Committee

In May 2002, our board of directors established a
new committee, known as the Corporate Governance and Nominating
Committee. This committee has the following responsibilities:



| |   |                                                                                                            
| | - | -----------------------------------------------------------------------------------------------------------
| |  | advise and make recommendations to the board of
    directors on matters concerning corporate governance;  
|
| |  | review potential or actual conflicts of interest
    involving members of the board of directors;          
|
| |  | help identify, evaluate and recruit candidates to
    fill vacancies on the board of directors;            
|
| |  | identify the nominees for election to the board
    of directors at the annual meeting of stockholders; and
|
| |  | oversee the evaluation of members of the board of
    directors.                                           

The current members of the Corporate Governance
and Nominating Committee are Steven Brooks, Joseph Rizzi and
David Roux, all of whom are independent members of the board of
directors. The chairman of the Corporate Governance and
Nominating Committee is David Roux.



| |                
| | ---------------
| | AOL/Time Warner

In response to subpoenas issued by the Securities
and Exchange Commission in the investigation entitled In the
Matter of AOL/Time Warner, we are furnishing information to
the SEC, including information relating to transactions we
entered into with AOL in September of 2000. We are cooperating
with the SECs investigation.

The transactions involved a $50 million
software license and services sale to AOL and a $20 million
advertising services purchase from AOL. We recognized
$37 million of revenue in the fourth quarter of 2000 and
have been recognizing the remaining $13 million as revenue
over the three-year support period. The $20 million of
advertising expense was recorded over the five quarters during
which AOL provided advertising services to us, beginning in the
fourth quarter of 2000 and ending in the fourth quarter of 2001.
We are currently reviewing our accounting treatment for these
transactions, focusing on the $20 million of advertising
services expense and $20 million of the revenue.



| |                        
| | -----------------------
| | Chief Financial Officer

On November 12, 2002, we announced that
Mr. Edwin Gillis will join the company as our Chief
Financial Officer and Executive Vice President, Finance,
effective November 18, 2002. Mr. Gillis will oversee
all aspects of our financial management, control, reporting,
planning and investor relations. Most recently, Mr. Gillis
served as Executive Vice President and Chief Financial Officer
of Parametric Technology Corporation, a software company, which
he joined as its Chief Financial Officer in October 1995.

46



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##### Table of Contents





| |                             
| | ----------------------------
| | Audit and Non-Audit Services

Our Audit Committee has approved our auditors,
KPMG LLP, to perform audit services related to the consolidated
financial statements for the year ending December 31, 2002,
and quarterly reviews of the unaudited consolidated financial
statements for the periods ending June 30,
September 30 and December 31, 2002. In addition, the
Audit Committee has approved the following non-audit services
anticipated to be performed by KPMG LLP through the end of
2002; statutory audit services related to international
subsidiaries; regulatory compliance reviews related to
international stock plans; tax consulting services; merger and
acquisition related due diligence services; and general
accounting advice.

47



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##### Table of Contents








|        |                                     
|------- | ------------------------------------
|Item 6. | Exhibits and Reports on
    Form 8-K

(a) Exhibits

|        |    |                     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  |       |  |        |  |          |  |  |  |  |  |  |  |  |   | 
|------- | -- | ------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----- |  | ------ |  | -------- |  |  |  |  |  |  |  |  | - | 
|        |    |                     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  |      
|        |    |                     |  | Incorporated by Reference                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |  |      
|Exhibit |    |                     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  | Filed
|Number  |    | Exhibit Description |  | Form                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |  | Date  |  | Number |  | Herewith
|        |    |                     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  |       |  |        |  |         
|        | 10 | .01                 |  | Fifth Amendment and Restatement of Certain
    Operative Agreements, dated as of September 24, 2002 among
    VERITAS Software Global Corporation, or VSGC, the various
    parties to the participation agreement and other operative
    agreements from time to time as Guarantors, Wells
    Fargo Bank Northwest, National Association as Owner
    Trustee, the various banks and other lending institutions
    which are parties to the participation agreement and other
    operative agreements from time to time as Holders,
    the various banks and other lending institutions which are
    parties to the participation agreement and other operative
    agreements from time to time as Lenders and Bank of
    America, N.A. as Agent for the secured parties |  |       |  |        |  |          |  |  |  |  |  |  |  |  | X | 
|        | 10 | .02                 |  | Sixth Amendment and Restatement of Certain
    Operative Agreements, dated as of September 24, 2002 among
    VSGC, the various parties to the participation agreement and
    other operative agreements from time to time as
    Guarantors, Wells Fargo Bank Northwest, National
    Association as Owner Trustee, the various banks and
    other lending institutions which are parties to the
    participation agreement and other operative agreements from time
    to time as Holders, the various banks and other
    lending institutions which are parties to the participation
    agreement and other operative agreements from time to time as
    Lenders and Bank of America, N.A. as
    Agent for the secured parties                                         |  |       |  |        |  |          |  |  |  |  |  |  |  |  | X | 
|        | 10 | .03                 |  | VERITAS Participation Agreement Fourth Amendment
    dated September 24, 2002 by and among VSGC, the various
    parties thereto from time to time, Wells Fargo Bank Northwest,
    National Association as Owner Trustee, the various
    banks and other lending institutions which are parties thereto
    from time to time as Holders or Lenders
    and ABN Amro Bank N.V. as Agent                                                                                                                                                                                                                                                                                                                                                                                           |  |       |  |        |  |          |  |  |  |  |  |  |  |  | X | 
|        | 10 | .04                 |  | VERITAS Participation Agreement Fifth Amendment
    dated October 11, 2002 by and among VSGC, the various
    parties thereto from time to time, Wells Fargo Bank Northwest,
    National Association as Owner Trustee, the various
    banks and other lending institutions which are parties thereto
    from time to time as Holders or Lenders
    and ABN Amro Bank N.V. as Agent                                                                                                                                                                                                                                                                                                                                                                                              |  |       |  |        |  |          |  |  |  |  |  |  |  |  | X | 
|        | 10 | .05*                |  | Amended and Restated Employment Agreement dated
    as of August 12, 2002 between VERITAS Software Global
    Corporation and Michael Cully                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  |       |  |        |  |          |  |  |  |  |  |  |  |  | X | 
|        | 99 | .01                 |  | Certification of Chief Executive Officer and
    Chief Financial Officer pursuant to Section 906 of the
    Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  |       |  |        |  |          |  |  |  |  |  |  |  |  | X | 



---



|  |                                                          
|- | ---------------------------------------------------------
|* | Management contract, compensatory plan or
    arrangement

48



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##### Table of Contents



(b) Reports on Form 8-K

|               |         |         |  |             |      |  |  |                                                                                                                                                                                                                                                                                 
|-------------- | ------- | ------- |  | ----------- | ---- |  |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Date of Report |         | Item(s) |  | Description
|               |         |         |  |            
|               | 7/17/02 |         |  |             | 5, 7 |  |  | VERITAS Software announced financial results for
    its second quarter ended June 30, 2002 and included the
    related press release                                                                                                                                          
|               | 8/14/02 |         |  |             | 7, 9 |  |  | VERITAS Softwares Chief Executive Officer
    and Chief Financial Officer submitted sworn statements to the
    Securities and Exchange Commission in accordance with the
    SECs June 27, 2002 order pursuant to
    Section 21(a)(1) of the Securities Exchange Act of 1934
|               | 10/4/02 |         |  |             | 5, 7 |  |  | VERITAS Software announced the resignation of
    Kenneth Lonchar, its Executive Vice President, Finance and Chief
    Financial Officer and included the related press release                                                                                                 

49



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##### Table of Contents






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 14, 2002.



| |                               
| | ------------------------------
| | VERITAS SOFTWARE CORPORATION  
|
| | /s/ JAY A. JONES              
| |                               
| | Jay A. Jones                  
| | Senior Vice President, Chief  
| | Administrative Officer and    
| | Acting Chief Financial Officer
| | (Duly Authorized Officer and  
| | Principal Financial Officer)  

50



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##### Table of Contents






CERTIFICATIONS

I, Gary L. Bloom, certify that:



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



| |    |                                                                                                                                                                                                                                                                                                                                                   
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 2. | Based on my knowledge, this quarterly report does
    not contain any untrue statement of a material fact or omit to
    state a material fact necessary to make the statements made, in
    light of the circumstances under which such statements were
    made, not misleading with respect to the period covered by this
    quarterly report;
|
| | 3. | Based on my knowledge, the financial statements,
    and other financial information included in this quarterly
    report, fairly present in all material respects the financial
    condition, results of operations and cash flows of the
    registrant as of, and for, the periods presented in this
    quarterly report;                   
|
| | 4. | The registrants other certifying officer
    and I are responsible for establishing and maintaining
    disclosure controls and procedures (as defined in Exchange Act
    Rules 13a-14 and 15d-14) for the registrant and we have:                                                                                                              



| |    |                                                                                                                                                                                                                                                                                                                
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) | designed such disclosure controls and procedures
    to ensure that material information relating to the registrant,
    including its consolidated subsidiaries, is made known to us by
    others within those entities, particularly during the period in
    which this quarterly report is being prepared;
|
| | b) | evaluated the effectiveness of the
    registrants disclosure controls and procedures as of a
    date within 90 days prior to the filing date of this
    quarterly report (the Evaluation Date); and                                                                                                      
|
| | c) | presented in this quarterly report our
    conclusions about the effectiveness of the disclosure controls
    and procedures based on our evaluation as of the Evaluation Date;                                                                                                                                



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



| |    |                                                                                                                                                                                                                                                                                                                   
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) | all significant deficiencies in the design or
    operation of internal controls which could adversely affect the
    registrants ability to record, process, summarize and
    report financial data and have identified for the
    registrants auditors any material weaknesses in internal
    controls; and
|
| | b) | any fraud, whether or not material, that involves
    management or other employees who have a significant role in the
    registrants internal controls; and                                                                                                                                                    



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

Dated:
November 14, 2002



| |                        
| | -----------------------
| | /s/ GARY L. BLOOM      
| |                        
| | Gary L. Bloom          
| | Chief Executive Officer

51



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##### Table of Contents



I, Jay A. Jones, certify that:



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



| |    |                                                                                                                                                                                                                                                                                                                                                   
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 2. | Based on my knowledge, this quarterly report does
    not contain any untrue statement of a material fact or omit to
    state a material fact necessary to make the statements made, in
    light of the circumstances under which such statements were
    made, not misleading with respect to the period covered by this
    quarterly report;
|
| | 3. | Based on my knowledge, the financial statements,
    and other financial information included in this quarterly
    report, fairly present in all material respects the financial
    condition, results of operations and cash flows of the
    registrant as of, and for, the periods presented in this
    quarterly report;                   
|
| | 4. | The registrants other certifying officer
    and I are responsible for establishing and maintaining
    disclosure controls and procedures (as defined in Exchange Act
    Rules 13a-14 and 15d-14) for the registrant and we have:                                                                                                              



| |    |                                                                                                                                                                                                                                                                                                                
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) | designed such disclosure controls and procedures
    to ensure that material information relating to the registrant,
    including its consolidated subsidiaries, is made known to us by
    others within those entities, particularly during the period in
    which this quarterly report is being prepared;
|
| | b) | evaluated the effectiveness of the
    registrants disclosure controls and procedures as of a
    date within 90 days prior to the filing date of this
    quarterly report (the Evaluation Date); and                                                                                                      
|
| | c) | presented in this quarterly report our
    conclusions about the effectiveness of the disclosure controls
    and procedures based on our evaluation as of the Evaluation Date;                                                                                                                                



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



| |    |                                                                                                                                                                                                                                                                                                                   
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) | all significant deficiencies in the design or
    operation of internal controls which could adversely affect the
    registrants ability to record, process, summarize and
    report financial data and have identified for the
    registrants auditors any material weaknesses in internal
    controls; and
|
| | b) | any fraud, whether or not material, that involves
    management or other employees who have a significant role in the
    registrants internal controls; and                                                                                                                                                    



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

Dated:
November 14, 2002



| |                               
| | ------------------------------
| | /s/ JAY A. JONES              
| |                               
| | Jay A. Jones                  
| | Acting Chief Financial Officer

52



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##### Table of Contents






EXHIBIT INDEX

|        |    |                     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  |       |  |        |  |          |  |  |  |  |  |  |  |  |   | 
|------- | -- | ------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----- |  | ------ |  | -------- |  |  |  |  |  |  |  |  | - | 
|        |    |                     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  |      
|        |    |                     |  | Incorporated by Reference                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |  |      
|Exhibit |    |                     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  | Filed
|Number  |    | Exhibit Description |  | Form                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |  | Date  |  | Number |  | Herewith
|        |    |                     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  |       |  |        |  |         
|        | 10 | .01                 |  | Fifth Amendment and Restatement of Certain
    Operative Agreements, dated as of September 24, 2002 among
    VERITAS Software Global Corporation, or VSGC, the various
    parties to the participation agreement and other operative
    agreements from time to time as Guarantors, Wells
    Fargo Bank Northwest, National Association as Owner
    Trustee, the various banks and other lending institutions
    which are parties to the participation agreement and other
    operative agreements from time to time as Holders,
    the various banks and other lending institutions which are
    parties to the participation agreement and other operative
    agreements from time to time as Lenders and Bank of
    America, N.A. as Agent for the secured parties |  |       |  |        |  |          |  |  |  |  |  |  |  |  | X | 
|        | 10 | .02                 |  | Sixth Amendment and Restatement of Certain
    Operative Agreements, dated as of September 24, 2002 among
    VSGC, the various parties to the participation agreement and
    other operative agreements from time to time as
    Guarantors, Wells Fargo Bank Northwest, National
    Association as Owner Trustee, the various banks and
    other lending institutions which are parties to the
    participation agreement and other operative agreements from time
    to time as Holders, the various banks and other
    lending institutions which are parties to the participation
    agreement and other operative agreements from time to time as
    Lenders and Bank of America, N.A. as
    Agent for the secured parties                                         |  |       |  |        |  |          |  |  |  |  |  |  |  |  | X | 
|        | 10 | .03                 |  | VERITAS Participation Agreement Fourth Amendment
    dated September 24, 2002 by and among VSGC, the various
    parties thereto from time to time, Wells Fargo Bank Northwest,
    National Association as Owner Trustee, the various
    banks and other lending institutions which are parties thereto
    from time to time as Holders or Lenders
    and ABN Amro Bank N.V. as Agent                                                                                                                                                                                                                                                                                                                                                                                           |  |       |  |        |  |          |  |  |  |  |  |  |  |  | X | 
|        | 10 | .04                 |  | VERITAS Participation Agreement Fifth Amendment
    dated October 11, 2002 by and among VSGC, the various
    parties thereto from time to time, Wells Fargo Bank Northwest,
    National Association as Owner Trustee, the various
    banks and other lending institutions which are parties thereto
    from time to time as Holders or Lenders
    and ABN Amro Bank N.V. as Agent                                                                                                                                                                                                                                                                                                                                                                                              |  |       |  |        |  |          |  |  |  |  |  |  |  |  | X | 
|        | 10 | .05*                |  | Amended and Restated Employment Agreement dated
    as of August 12, 2002 between VERITAS Software Global
    Corporation and Michael Cully                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  |       |  |        |  |          |  |  |  |  |  |  |  |  | X | 
|        | 99 | .01                 |  | Certification of Chief Executive Officer and
    Chief Financial Officer pursuant to Section 906 of the
    Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  |       |  |        |  |          |  |  |  |  |  |  |  |  | X | 




* Management contract, compensatory plan or
arrangement.

53