<PAGE>   1
 
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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                            ------------------------
 
                                   FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
   SECURITIES EXCHANGE ACT OF 1934
 
                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
 
                                       OR
 
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 5(d) OF THE
   SECURITIES EXCHANGE ACT OF 1934
 
          FOR THE TRANSITION PERIOD FROM ____________ TO ____________
 
                         COMMISSION FILE NUMBER 0-22712
                            ------------------------
 
                          VERITAS SOFTWARE CORPORATION
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
 
<TABLE>
<S>                                                          <C>
                          DELAWARE                                              94-2823068
      (STATE OR OTHER JURISDICTION OF INCORPORATION OR
                        ORGANIZATION)                              (I.R.S. EMPLOYER IDENTIFICATION NO.)
 
                    1600 PLYMOUTH STREET
                 MOUNTAIN VIEW, CALIFORNIA                                        94043
          (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)                              (ZIP CODE)
</TABLE>
 
       REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (650) 335-8000
                            ------------------------
 
     SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None
       SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
                    COMMON STOCK, $0.001 PAR VALUE PER SHARE
                                (TITLE OF CLASS)
                            ------------------------
 
     Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X]  No [ ]
 
     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
 
     As of January 30, 1998, 30,841,854 shares of Common Stock of Registrant
were outstanding. The aggregate market value of the shares held by
non-affiliates of the Registrant (based upon the closing price of the
Registrant's Common Stock on January 30, 1998 of $49.13 per share) was
approximately $1,186,395,000.
 
                      DOCUMENTS INCORPORATED BY REFERENCE
 
     PORTIONS OF REGISTRANT'S DEFINITIVE PROXY STATEMENT TO BE FILED PURSUANT TO
REGULATION 14A PROMULGATED BY THE SECURITIES AND EXCHANGE COMMISSION UNDER THE
SECURITIES EXCHANGE ACT OF 1934, WHICH IS ANTICIPATED TO BE FILED WITHIN 120
DAYS AFTER THE END OF THE REGISTRANT'S FISCAL YEAR ENDED DECEMBER 31, 1997, ARE
INCORPORATED BY REFERENCE IN PART III HEREOF.
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                                     PART I
 
ITEM 1. BUSINESS
 
     This Form 10-K contains forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934 as amended, and Section 27A
of the Securities Act of 1933, as amended, that involve risks and uncertainties.
Such forward-looking statements consist of statements that are not purely
historical, including, without limitation, statements regarding the Company's
expectations, beliefs, intentions or strategies regarding the future. All
forward-looking statements included in this document are based on information
available to the Company on the date hereof, and the Company assumes no
obligation to update any such forward-looking statement. There are certain
important factors that could cause actual results to differ materially from
those projected in the forward-looking statements contained in this Form 10-K.
Among such important factors are: (i) the timing and level of sales by original
equipment manufacturers ("OEMs") of computer systems incorporating the Company's
products and resales by OEMs of the Company's products; (ii) the Company's
timely development and market acceptance of new products; (iii) the
unpredictability of the timing and level of sales to resellers and direct
end-users; (iv) the timely creation of versions of the Company's products for
the Microsoft Windows NT operating system ("Windows NT"); (v) the timely release
by Microsoft of the next version of Windows NT ("Windows NT 5.0") and the rate
of adoption of such new version by users; (vi) the impact of Windows NT and
other operating systems on the UNIX market upon which the Company's current
products are dependent; (vii) the reliance on OEMs to continue porting and
shipping the Company's products; (viii) the impact of competitive products and
pricing; (ix) the uncertainty of the labor market and local regulations in
India, where a subsidiary of the Company, which performs research and
development activities, is located; (x) the Company's ability to hire and retain
research and development, marketing and sales personnel with appropriate skills
in a highly competitive labor market; (xi) the Company's ability to deliver
products that are Year 2000 compliant, and (xii) other factors described
throughout this Form 10-K, including under "Business -- Certain Factors Which
May Affect Future Operating Results" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations." Readers are urged to
carefully review and consider the various disclosures made by the Company in
this report and those detailed from time to time in the Company's reports and
filings with the Securities and Exchange Commission that attempt to advise
interested parties of the risks and factors that may affect the Company's
business.
 
OVERVIEW
 
     VERITAS Software Corporation ("VERITAS" or the "Company") is the leading
independent supplier of enterprise data storage management solutions, providing
advanced storage management software for open system environments. The Company's
products provide performance improvement and reliability enhancement features
that are critical for many commercial applications. These products enable
protection against data loss and file corruption, rapid recovery after disk or
system failure, the ability to process large files efficiently and the ability
to manage and back-up large networks of systems without interrupting users. In
addition, the Company's products provide an automated failover between computer
systems organized in clusters sharing disk resources. The Company's highly
scalable products can be used independently, and certain products can be
combined to provide interoperable client/server storage management solutions.
The Company's products offer centralized administration with a high degree of
automation, enabling customers to manage complex, distributed environments
cost-effectively by increasing system administrator productivity and system
availability. The Company also provides a comprehensive range of services to
assist customers in planning and implementing storage management solutions. The
Company markets its products and associated services to OEM and end-user
customers through a combination of direct and indirect sales channels
(resellers, value-added resellers ("VARs"), hardware distributors, application
software vendors and systems integrators). The Company's OEM customers include
Digital Equipment Corporation ("DEC"), Hewlett-Packard Company ("HP"), Sun
Microsystems, Inc. ("Sun Microsystems"), Microsoft Corporation ("Microsoft"),
Sequent Computer Systems, Inc. and Tandem Computers, Inc. The Company's end-user
customers include AT&T Corporation, Bank of America, BMW, Boeing Company,
British Telecommunications plc, Chrysler Corporation and Motorola, Inc.
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INDUSTRY BACKGROUND
 
     High availability of stored enterprise data is a critical factor in today's
business environment. To reduce costs, improve productivity and improve customer
service, large organizations are streamlining their processes by implementing
strategic software applications such as databases, financial applications and
electronic mail systems to manage their data. To be competitive, an organization
needs immediate access to necessary data, regardless of where it is stored.
Without such access, productivity suffers and the cost of doing business
escalates. Providing reliable access to this data on an enterprise-wide basis
presents a significant challenge to the information systems ("IS") staffs of
large organizations.
 
     The difficulty of this challenge is compounded by a number of recent trends
in enterprise computing. The volume of electronic data stored by large
enterprises is rapidly increasing as enterprises increase their use of networks
to provide access to data distributed through the enterprise. According to
International Data Corporation ("IDC"), approximately 21,000 terabytes of data
storage media were sold in 1995, and IDC expects that number to increase to
nearly 570,000 terabytes in the year 2000. Moreover, the costs of managing large
volumes of data are substantial. To support strategic software applications with
the latest technologies, organizations are rapidly adopting new hardware and
operating system platforms, resulting in an increased level of heterogeneity
within their networks.
 
     As a result of these developments, the task of managing these complex
networks of enterprise data has become increasingly difficult, and traditional
approaches to data storage management are increasingly inadequate. For example,
periodic mass backups of data storage systems to protect against data loss from
a system failure is extremely time-consuming and typically requires the system
to be taken out of productive operation for up to several hours. This approach
cannot keep pace with the increasing volumes of data being maintained by
organizations. Moreover, products that target particular storage management
problems typically operate as separate products that lack integration
capabilities. As a result, IS departments have had to tie together a patchwork
of individual "point" products -- such as disk management, file management,
backup, high availability and hierarchical storage management tools -- from
different vendors. Because these tools generally have not been designed
together, they may not share data easily or be interoperable, which in either
case could require considerable administrator intervention and increase IS
costs. Moreover, separate point products that address individual aspects of data
storage management do not provide the IS department the ability to manage data
storage proactively from a central point.
 
     To meet the challenges of managing the storage of increasing volumes of
enterprise data in increasingly heterogeneous systems with fewer resources, IS
departments require a new approach to data storage management that provides
effective systems to leverage the limited resources of the IS staff. To meet
these requirements, a storage management system must incorporate a number of
critical features including: integration capable of providing a central
consistent interface for applications that are interoperable and share data;
high data availability to protect data against system failures without
interrupting day-to-day operations; scalability to accommodate rapid growth in
the volume of on-line data and the complexity of the network; centralized and
automated management to enable the administrator to manage the entire system,
including local and remote storage systems, from a single central console; and
support for heterogeneous environments.
 
VERITAS SOLUTION
 
     The Company believes that the need for reliable, high performance access to
data for mission-critical business applications, the dramatic growth in
enterprise data storage requirements and the complexity of the computing
environments on which the data is stored are driving a fundamental shift in the
paradigm for data storage management in large enterprises. To address the
challenges of this new paradigm, the Company has developed and is integrating a
family of innovative solutions for end-to-end storage and management of on-
line, near-line and off-line resources for enterprise-wide data. The Company's
product line encompasses products for on-line file and disk management; off-line
backup and hierarchical storage management; centralized and automated data
management in heterogeneous computing environments; event management;
performance management; and components that include availability enhancing
features such as multiserver failover to achieve fault tolerance and remote site
replication to accomplish rapid recovery in the event of a
 
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site disaster. The Company has also developed application-specific customized
packages that provide storage management for major application environments such
as the Sun Microsystems NFS, Oracle and SAP, as well as for Web servers.
 
     VERITAS storage management products can be used as separate products, or
can be combined to deliver more comprehensive, efficient and robust integrated
solutions. With these solutions, organizations can manage a variety of storage
types, including storage systems for workgroup servers and workstations,
Internet and intranet servers, and enterprise servers -- all from a single
central console. The Company's solutions support a wide range of server
platforms, operating systems and desktop environments. The Company also supports
a wide range of storage subsystems, including disk arrays, tape stackers, tape
libraries, tape carousels, robotics devices and optical jukeboxes.
 
VERITAS STRATEGY
 
     The Company's objective is to maintain its position of leadership in
supplying data storage management products for the enterprise. The Company's
strategy to achieve this objective includes the following elements:
 
     - Offer an Integrated End-to-End Solution. The Company offers increasingly
       integrated, end-to-end enterprise storage management solutions that
       provide comprehensive storage management functionality: on-line and
       off-line storage management; performance management and capacity
       planning; fault tolerance and disaster recovery; and application level
       optimization of storage management functions. The Company's products are
       easy to integrate, which enables them to interoperate and to share data
       for maximum effectiveness.
 
     - Ensure High Data Availability. The Company's products provide high
       availability of data through a combination of innovative backup and
       recovery techniques. For example, the Company's proprietary incremental
       block-based backup products substantially reduce the time and storage
       volume required to store backup data by backing up only the data that has
       changed since the last backup operation. This technique enables on-line
       backup without interrupting system operation and facilitates the remote
       backup of data over a network to another site to protect against a site
       disaster. VERITAS Volume Manager provides various RAID organizations of
       data, such as mirroring or RAID-5, to ensure availability. VERITAS File
       System uses a journaling technology to assure rapid recovery from system
       failures. The Company also offers a family of failover, clustering and
       replication products that provide system and cluster-level failover and
       disaster recovery.
 
     - Provide Highly Scalable Products. VERITAS products are designed to be
       highly scalable so that they are capable of growing incrementally with
       system requirements and of accommodating the addition of new storage
       devices without changing the existing storage management scheme.
 
     - Enable Centralized and Automated Management of Data Storage. VERITAS
       products enable the system administrator to manage data storage resources
       within the system from a single central console. This allows the
       administrator to set backup policies, tune input/output operations to
       balance loads, establish on-line, near-line and off-line hierarchical
       storage protocols and perform capacity planning from the same console.
 
     - Support Heterogeneous Environments. VERITAS products support a wide
       variety of heterogeneous network environments, such as Hewlett-Packard,
       IBM and Sun Microsystems server platforms, operating systems, such as
       Windows NT, Sun Microsystems Solaris and various UNIX operating systems,
       business-critical software applications from Oracle, SAP and SQL, popular
       disk and tape storage subsystems, such as ATL, Compaq, EMC, Exabyte and
       StorageTek, and desktop environments including Windows 3.x, Windows 95,
       Macintosh, OS/2 and Windows NT.
 
     - Leverage Strategic Relationships. To enhance the worldwide marketing and
       distribution of its products, the Company has established strategic
       relationships with hardware manufacturers including Hewlett-Packard and
       Sun Microsystems, operating system vendors including Microsoft, and disk
       and tape subsystem vendors including Exabyte. The Company seeks to
       leverage its strategic relationships with these and other OEM customers
       to seed the market with its products and to encourage OEMs and
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       other resellers to sell add-on VERITAS products to small- and
       medium-sized accounts and to departments within large organizations.
 
       Utilize Multiple Distribution Channels. The Company distributes its
       products through direct, OEM, reseller and distributor channels. The
Company's end-user direct sales efforts focus on enterprise-wide sales to large
customers. In the OEM channel the Company has licensing agreements with over 30
OEMs that either bundle VERITAS storage management products with their hardware
or operating system offerings or market VERITAS products through their
respective distribution channels. The Company has agreements with over 100
resellers located throughout the world which enable it to distribute its
products globally. These multiple distribution channels complement each other
and allow the Company to reach a broad market.
 
PRODUCTS
 
     The Company has developed and is integrating a family of innovative
solutions for end-to-end management of on-line, near-line and off-line resources
for the storage and management of enterprise-wide data. The Company's product
line encompasses products for on-line file and disk management; off-line backup
and hierarchical storage management; centralized and automated data management
in heterogeneous computing environments; event management; performance
management; and components that include availability enhancing features such as
multiserver failover to achieve fault tolerance and remote site replication to
accomplish rapid recovery in the event of a site disaster. The Company has also
developed application-specific customized packages that provide storage
management for major application environments such as the Sun Microsystems NFS,
Oracle and SAP, as well as for Web servers.
 
     VERITAS Volume Manager ("VxVM"). VxVM provides protection against data loss
due to disk failure, permits the acceleration of system performance by allowing
files to be spread across multiple disks and allows the system administrator to
reconfigure data locations without interrupting users. The technology
incorporated into VxVM provides a virtual software layer on top of the
underlying physical disks connected to the system. Among the features that VxVM
provides are spanning (allowing segments of user data to span multiple physical
disks and thereby overcome physical disk size limitations), mirroring (allowing
duplication of data on separate disks for uninterrupted operations after disk
failure), striping (interleaving data storage across multiple disks to increase
performance by providing multiple input/output ("I/O") data access points), and
Raid-5 (striping with the addition of redundant data for uninterrupted
operations after disk failure).
 
     VERITAS File System ("VxFS"). VxFS enables fast system recovery (generally
within seconds) from operating system failure or disruption. It also allows
on-line performance tuning, file system defragmentation, file system
reconfiguration and file system back-up to be conducted without interrupting
users' access to files. Through the application of advanced journaling
technology, VxFS is designed to ensure that metadata (information describing the
location, size and attributes of files) is maintained in a consistent and
correct state in the event of system failure or disruption. In addition, VxFS
incorporates advanced extent-based file space allocation algorithms that can
accelerate file access rates, thereby providing enhanced system performance.
Extent-based algorithms are particularly critical in applications that require
access to large, clustered or sequentially accessed files.
 
     VERITAS NetBackup. VERITAS NetBackup reduces the workload for systems
administrators of heterogeneous platforms by providing easily configured
centralized backup scheduling, user-directed backups and restores, automated
distribution and installation of client software over the network, and easy
configuration of clients. NetBackup has a database extension that provides
comprehensive on-line and hot database backup for Oracle, Sybase and Informix
databases that can be acquired and deployed by customers on an as-needed basis.
 
     VERITAS HSM. VERITAS HSM automatically moves data between file systems and
storage devices supporting most disk, tape, optical and robotics devices.
VERITAS HSM is a server-based, policy-driven migration tool that works in
conjunction with VERITAS NetBackup. VERITAS HSM has an enterprise
 
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extension that provides a simple, cost-effective means to transparently migrate,
purge and cache files between file systems on various platforms.
 
     VERITAS Media Librarian. VERITAS Media Librarian operates and manages all
types of removable media volumes, devices and repositories. It provides a secure
way to share robotic libraries and media among multiple simultaneous
applications. VERITAS Media Librarian provides a simple interface to access and
monitor removable media in a heterogeneous network of servers and clients that
eliminates the need to deal with media types, device drivers and location
information. VERITAS Media Librarian provides protection against data loss,
enhances data accessibility and availability and reduces storage management
costs, in a scalable and cost effective manner.
 
     VERITAS Event Manager. VERITAS Event Manager allows event-driven automation
and monitoring of critical system, database and application activities and
automatic error correction through its intelligent agent technology. Users can
set thresholds and alarms to monitor processor, swapping, memory, network and
I/O activity. When a threshold has been reached, Event Manager can take
automatic corrective action or alert an administrator by e-mail or page. This
product has a scalable architecture and centralized administration.
 
     VERITAS Performance Manager. VERITAS Performance Manager allows users to
have a single-screen view of many different real-time and historical performance
parameters for a large number of heterogeneous systems and databases. The
product's event-driven architecture lets users set relevant thresholds and uses
a graphical representation of the distributed configuration to notify users when
a performance problem is imminent. The user can customize the data collection
agents to display the historical performance data needed to track, isolate and
resolve performance problems in a distributed environment.
 
     VERITAS Cluster Volume Manager ("VxCVM"). Added as an extension to VERITAS
Volume Manager for parallel applications such as the Oracle Parallel Server,
VxCVM offers the same functionality as VxVM in a cluster of systems that can all
read and update the same data concurrently. VxCVM ensures atomic (all or none)
configuration updates and error event notification to all participating servers.
This guarantees consistent data and configuration updates, even in the event of
a system failure. For example, in the event of an Oracle Parallel Server
mirrored disk failure, all participating servers must atomically "see" the
failure. Without VxCVM, there is a chance that the error would only be seen by
one server, resulting in the Oracle Parallel Server delivering incorrect data.
 
     VERITAS FirstWatch. VERITAS FirstWatch adds high availability capabilities
to open system servers, making it possible to provide highly reliable network
services to users of client/server applications, including Sun Microsystems' NFS
file service and databases. VERITAS FirstWatch automates the failover of
services to designated backup systems when systems and subsystems fail or become
unavailable.
 
     VERITAS HA. VERITAS HA provides high availability protection for systems,
databases and applications and reduces the danger of service interruptions to
mission-critical applications. The product allows users to switch services to
another server automatically, monitor services on their primary server, and
start, restart or stop services as their needs require.
 
     Accelerator for NFS. The Accelerator for NFS is an extension to the VxFS
and enhances performance of the Sun Microsystems NFS. The Accelerator takes
information that would have been logged in the VxFS intent logs and uses a
single log on a separate device. Multiple file system logs can be consolidated
and accessed sequentially on one or many of these accelerator volumes, removing
the head movement latency costs associated with writing file system intent logs.
 
     VERITAS SmartSync. VERITAS SmartSync was jointly developed with Oracle and
is licensed as a product option of the VERITAS Volume Manager. This product
allows Oracle redo logs to drive resynchronization of VERITAS Volume Manager
mirrors to cut down mirror resynchronization time to less than a minute as
opposed to hours. Resynchronization takes as long as the redo log replay. This
functionality works with Oracle 7.3.2 and later.
 
     VERITAS Quick I/O Database Accelerator. VERITAS Quick I/O Database
Accelerator allows databases to run on a VERITAS file system at the same speed
as on a raw device. The database views the file
 
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system as a raw device and the system administrator sees it as a file system.
Therefore, an administrator can get the speed of raw device with the
manageability of a file system.
 
     VERITAS ServerSuite. VERITAS ServerSuite is an integrated suite of
products, providing customers with complete data storage management solutions
optimized for specific server environments including the Sun Microsystems NFS,
Web servers and database servers. VERITAS ServerSuite NFS Edition provides
increased NFS performance and availability on commodity servers. At this time,
three editions of ServerSuite are available to support NFS servers, Web servers,
SAP servers and Oracle database servers. VERITAS NetBackup has a database
extension that provides comprehensive on-line and hot database backup for
Oracle, Sybase and Informix databases that can be acquired and deployed by
customers on an as-needed basis.
 
     The Company recently announced three new products that are expected to
become available during 1998. These products comprise an integrated suite which
utilizes a centralized and automated management interface to bring automated
event, performance, configuration and capacity management solutions to
enterprise storage configurations:
 
     VERITAS Storage Manager. VERITAS Storage Manager provides a centralized and
automated management interface from which to monitor and manage diverse,
distributed storage objects, including databases, file systems, tape drives,
robotic devices, network connected storage, backup jobs and highly available
clustered servers. The interface automates the management of these storage
objects, diagnoses problems and notifies system administrators of critical and
non-critical events. This product can be integrated with other VERITAS products
or with third party storage management applications and hardware.
 
     VERITAS Storage Optimizer. VERITAS Storage Optimizer, an add-on product for
VERITAS Storage Manager, provides proactive, system-wide configuration analysis
and recommends changes to storage layouts for optimizing system performance and
reliability. This product can detect performance issues and make recommendations
enabling reconfiguration to alleviate such problems.
 
     VERITAS Storage Planner. VERITAS Storage Planner, another add-on product
for VERITAS Storage Manager, is a predictive storage resource analysis tool,
which assists system administrators with capacity planning for future storage
needs. The product analyzes data gathered by VERITAS Storage Manager to
determine how quickly storage objects are reaching capacity, and makes
recommendations when additional storage objects are needed.
 
     There can be no assurance that the Company's new products will be released
on the anticipated schedule, will achieve market acceptance or will adequately
address the changing needs of the marketplace on a timely basis, despite the
dedication of significant engineering resources to the development of such
products. Any such failure could result in the Company having with little or no
return on its investment of significant resources which could have a material
adverse effect on the Company's business, operating results and financial
condition. See "Certain Factors Which May Affect Future Operating
Results -- Rapid Technological Change and Requirement for Frequent Product
Transitions."
 
SERVICES
 
     The Company's customer service and support organization provides customers
with maintenance, technical support, consulting and training services. The
Company believes that providing a high level of customer service and technical
support is critical to customer satisfaction and the Company's success. Most of
the Company's customers currently have support agreements with the Company which
typically provide for fixed fee, renewable annual maintenance consisting of
technical and emergency support as well as minor product upgrades free of
charge. The Company's service group provides the following services:
 
     Maintenance and Technical Support. The Company offers seven day-a-week,
24-hour telephone support as well as electronic mail and fax customer support.
Additional customer support is provided by some of the Company's VARs, system
integrators and OEMs. Initial product license fees do not cover maintenance.
 
     Consulting. The Company believes that most customers need assistance before
product selection and not just for the implementation of purchased products.
Therefore, the Company offers strategy and analysis
 
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consulting services for planning the management and control of client/server
computing in their specific environment. In addition, the Company offers
services to assist customers with product implementation. As part of its broad
range of services, the Company believes it offers particular expertise in
analyzing network security threats and security policy integrity.
 
     Training. The Company has a worldwide customer education and training
organization which offers training that enables the customer to better utilize
the Company's products, reduces the need for technical support and provides the
customer with a means to optimize their personnel investment by allowing their
technical staff access to high quality, comprehensive instruction. The focus of
this organization is aligned with the Company's strategy to offer end-to-end
storage management solutions by providing instruction from highly-experienced
training professionals either at the customer's location or at one of the
Company's multi-platform classrooms.
 
MARKETING, SALES AND DISTRIBUTION
 
     The Company markets its products and associated services through OEMs and a
combination of other distribution channels (direct sales, resellers, VARs,
hardware distributors, application software vendors and systems integrators).
OEMs incorporate the products into their operating systems on a bundled basis or
license them to third parties as an optional product. In most cases, the Company
receives a user license fee for each copy sublicensed by the OEM to third
parties.
 
     In August 1996, the Company entered into a Development and License
Agreement with Microsoft pursuant to which the Company agreed to develop a
version of its Volume Manager product to be ported to and embedded in Windows NT
5.0. The Company believes that this will establish an installed customer base on
the Windows NT platform to which the Company can offer its products. The Company
will not receive royalties with respect to sales by Microsoft of the embedded
product. There can be no assurance that the Company's products will be available
for use in, or that Microsoft will use the Company's products in future versions
of Windows NT or that the Company will realize any expected benefits from the
inclusion of such embedded product in future versions of Windows NT. See
"Certain Factors Which May Affect Future Operating Results -- New Distribution
Channels" and "-- Uncertainty in Porting Products to New Operating Systems and
Expansion into Windows NT Market."
 
     In January 1997, the Company entered into a Development, License and
Distribution Agreement with Sun Microsystems which will provide a new
distribution channel for VERITAS products. The Company has agreed to develop a
specialized, integrated version of VERITAS Volume Manager that will be bundled
with the Solaris operating system. The agreement also provides for the license
of full versions of certain VERITAS products and add-on modules to Sun
Microsystems for bundling with certain Sun Microsystems products. In connection
with the merger with OpenVision, the Company also assumed an OpenVision
Development, License and Distribution Agreement with Sun Microsystems, under
which Sun Microsystems was granted a limited exclusive license with respect to
VERITAS NetBackup and VERITAS HSM and to certain enhancements to and extensions
of such products. There can be no assurance that the Company will be able to
deliver its products to Sun Microsystems in a timely manner despite the
dedication of significant resources to the development of such products or that
the simultaneous sales efforts of Sun Microsystems and the Company with respect
to the Company's products will not create certain channel conflicts. See
"Certain Factors Which May Affect Future Operating Results -- New Distribution
Channels."
 
     In November 1997, the Company entered into a marketing, engineering and
distribution agreement with HP pursuant to which HP will offer certain bundled
components of VERITAS Volume Manager, VERITAS NetBackup and VERITAS File System
with every copy of the HP-UX operating system. Components of VERITAS Cluster
Volume Manager and VERITAS Cluster File System are intended to be added to
future versions of HP-UX. The Company will not receive royalties with respect to
such bundled products. HP will become a reseller of the Company with respect to
certain VERITAS products, including full feature versions of the above named
products, and the Company will offer full feature products and value-added
products to the HP-UX installed customer base. There can be no assurance that
the Company will be able to deliver its products to HP in a timely manner, that
Company deliverables and HP deliverables under the agreement will
 
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be synchronized in a timely and successful manner, that HP will be an effective
reseller of the Company's products, or that the simultaneous sales efforts of HP
and the Company with respect to the Company's products will not create certain
channel conflicts. See "Certain Factors Which May Affect Future Operating
Results -- New Distribution Channels."
 
     During 1997, and as a result of the Company's merger (the "Merger") with
OpenVision Technologies, Inc. ("OpenVision"), the Company continued to build its
sales, marketing and customer support organization with a focus on delivery of
its products to resellers, integrators and end users. As of December 31, 1997,
the Company's North American sales, marketing and consulting force consisted of
204 employees, including 29 pre-sales engineers that provide technical sales
assistance. The Company has sales subsidiaries in Canada, Japan, the United
Kingdom, Germany, France, Sweden and the Netherlands. The international sales
force of the Company, as of December 31, 1997, consisted of 77 persons located
in Europe and North America and four persons located in Asia and the Pacific
Rim. The Company also had approximately 102 resellers as of December 31, 1997,
located in North America, Europe, Asia Pacific, South America and the Middle
East. The Company expects to increase the number of its sales, marketing and
customer support employees in the future in order to expand its direct sales
efforts to resellers and end users. There can be no assurance that the Company
will have the necessary resources, or that it will be able to establish and
expand these new distribution channels successfully or that it will complete the
integration of its sales and marketing efforts successfully. The Company expects
to hire additional sales employees in all regions in 1998. Competition for
qualified sales, technical and other personnel is intense, and there can be no
assurance that the Company will be able to attract, assimilate or retain
additional highly qualified employees in the future or that the Company will be
able to manage its growth effectively.
 
COMPETITION
 
     The markets in which the Company competes are intensely competitive and
rapidly changing. The Company's principal competition in the storage management
market consists of internal development groups of current and prospective OEM
customers, which have the resources and capability to develop their own storage
management solutions. Among the OEMs which have included storage management
capabilities in their operating systems are Sun Microsystems for its Solaris
system, DEC for its Digital UNIX system, Hewlett-Packard for its HP-UX system
and Microsoft for Windows NT. The Company also encounters competition from other
third party software vendors and hardware companies offering products that
incorporate certain of the features provided by the Company's products, and from
disk controller and disk subsystem manufacturers which have included or may
include similar features.
 
     As a result of the Merger and the associated higher visibility of the
Company in certain markets, the Company faces new competitors and new
competitive factors. In particular, the Company's new competitors include: (i)
hardware and software vendors that offer a management platform or framework to
support vendor-created and third-party systems management applications; (ii)
vendors that provide systems management software for the mainframe environment
who are migrating their products to the client/server environment; (iii) vendors
that provide "point" products that address specific problems and offer specific
functionality; and (iv) vendors that provide integrated and interoperable
solutions. Specific companies that the Company has encountered or expects to
encounter as competitors include the Cheyenne division of Computer Associates
International, Inc. ("Computer Associates"), EMC, the ADSTAR Distributed Storage
Manager division of International Business Machines Corporation ("ADSM") and
Legato Systems, Inc. ("Legato"). Many of the Company's competitors have
substantially greater financial, technical, sales, marketing and other
resources, as well as greater name recognition and a larger installed customer
base, than the Company. The Company expects that the market for storage
management software, which historically has been large and fragmented, will
become more consolidated with larger companies being better positioned to
compete in such an environment in the long term. As the open systems management
software market develops, a number of companies with greater resources than the
Company could attempt to increase their presence in this market by acquiring or
forming strategic alliances with competitors or business partners of the
Company. For example, in 1996 International Business Machines Corporation
("IBM") purchased Tivoli Systems, Inc. ("Tivoli") and
 
                                        8
<PAGE>   10
 
Computer Associates purchased Cheyenne Software, Inc. ("Cheyenne"); both Tivoli
and Cheyenne are competitors of the Company.
 
     The Company's success will depend significantly on its ability to adapt to
these competing forces, to develop more advanced products more rapidly and less
expensively than its competitors, and to educate potential customers as to the
benefits of licensing the Company's products rather than developing their own
products. The Company's future and existing competitors could introduce products
with superior features, scalability and functionality at lower prices than the
Company's products and could also bundle existing or new products with other
more established products in order to compete with the Company. In addition,
because there are relatively low barriers to entry for the software market, the
Company expects additional competition from other established and emerging
companies. Increased competition is likely to result in price reductions,
reduced gross margins and loss of market share, any of which could materially
and adversely affect the Company's business, operating results and financial
condition. There can be no assurance that the Company will be able to compete
successfully against current and future competitors, and the failure to do so
would result in the Company's business, operating results and financial
condition being materially and adversely affected.
 
RESEARCH AND DEVELOPMENT
 
     The Company's core storage management and high availability products
primarily operate with certain versions of the UNIX operating system as well as
Windows NT, offering many features that are critical for commercial
applications. The Company's development efforts have been directed towards
developing new products for the UNIX operating system, developing new features
and functionality for existing products, integrating products in the existing
product line and porting new and existing products to new operating systems such
as Windows NT. Currently, the Company's major research and development
initiatives are: (i) integration of the full family of storage management
products, commencing with the integration of VERITAS File System and NetBackup;
(ii) development of new intelligent-level storage products; and (iii) porting of
UNIX products to Windows NT. Each of these initiatives involves technical and
competitive challenges and there can be no assurance that the Company will
successfully overcome such challenges.
 
     The Company's agreement with Microsoft provides for the development by the
Company of a functional subset of the VERITAS Volume Manager product to be
ported to and embedded in Windows NT. The agreement also requires the Company to
develop a disk management graphical user interface designed specifically for
Windows NT. Microsoft is providing funding for a significant portion of the
development expenses for this product payable in quarterly increments. In order
to perform under the agreement, the Company has hired additional personnel with
expertise in the Windows NT operating system environment and is devoting
substantial capital investment and resources to successfully complete this
project. See "Certain Factors Which May Affect Future Operating
Results -- Uncertainty in Porting Products to New Operating Systems and
Expansion into Windows NT Market."
 
     The Company's agreements with Sun Microsystems and HP also involve
development obligations of the Company. The Company is required to commit
significant staffing to its projects with these OEMs. There can be no assurance
that the Company will have the resources necessary to perform its obligations
under its agreements with such OEMs or that its development efforts will be
successful.
 
     At December 31, 1997 the Company's research and development staff consisted
of 211 employees located at the Company's Mountain View, California headquarters
and at the Company's facilities in Arden Hills, Minnesota and Cambridge,
Massachusetts. In addition, the Company's subsidiary in Pune, India employed 35
research and development staff.
 
     In 1997, 1996 and 1995, research and development expenses were
approximately $25.2 million, $18.5 million and $12.8 million, respectively. The
Company believes that technical leadership is essential to its success and
expects that it will continue to commit substantial resources to research and
development. The Company's future success will depend in large part on its
ability to enhance existing products, respond to changing customer requirements
and develop and introduce in a timely manner new products that keep pace with
technological developments and emerging industry standards. The Company
continues to make
                                        9
<PAGE>   11
 
substantial investments in undisclosed new products, which may or may not be
successful. There can be no assurance that any research and development efforts
will be successfully completed or that future products will be available on a
timely basis or achieve market acceptance. The Company must hire additional
research and development personnel for timely completion of new products,
including the adaptation of its products to Windows NT and performance of
obligations to key OEM partners. The market for such personnel is very
competitive and there can be no assurance that they can be hired on a timely
basis. The Company will often consider acquiring and purchasing technology to
achieve certain of its objectives. However there can be no assurance that this
can be accomplished successfully.
 
     From time to time, the Company or its competitors may announce new
products, capabilities or technologies that have the potential to replace or
shorten the life cycles of the Company's existing products. There can be no
assurance that announcements of currently planned or other new products will not
cause customers to defer purchasing existing Company products. The Company has
from time to time in the past experienced delays of up to several months due to
the complex nature of software developed by the Company and other software
developers for whose systems or applications the Company offers products. There
can be no assurance that the Company will not experience delays in connection
with its current or future product development activities. Any such delays could
have a material adverse effect on the Company's business, operating results and
financial condition.
 
PROPRIETARY RIGHTS
 
     The Company regards certain features of its internal operations, software
and documentation as proprietary and relies on contract, copyright, trademark
and trade secret laws, confidentiality procedures and other measures to protect
its proprietary information. The Company currently holds no patents applicable
to its current business, although it has filed several applications for patents,
and existing copyright and trade secret laws afford only limited protection.
 
     As part of its confidentiality procedures, the Company generally enters
into non-disclosure agreements with its employees, distributors and corporate
partners, and license agreements with respect to its software, documentation and
other proprietary information. Such licenses are generally non-transferable and
have a perpetual term.
 
     The Company may sometimes make source code available for certain of the
Company's products. The provision of source code may increase the likelihood of
misappropriation or other misuse of the Company's intellectual property. The
Company also licenses some of its products pursuant to shrink wrap licenses that
are not signed by licensees and therefore may be unenforceable under the laws of
certain jurisdictions. In addition, the laws of some foreign countries do not
protect the Company's proprietary rights to the same extent as do the laws of
the United States. There can be no assurance that the Company's protection of
its proprietary rights will be adequate or that the Company's competitors will
not independently develop similar technology. See "Certain Factors Which May
Affect Future Operating Results -- Dependence on Proprietary Technology; Risks
of Infringement."
 
     The Company is not aware that its products, trademarks or other proprietary
rights infringe the proprietary rights of third parties. However, from time to
time, the Company receives notices from third parties asserting that the Company
has infringed their patents or other intellectual property rights. The Company
may find it necessary or desirable in the future to obtain licenses from third
parties relating to one or more of its products or relating to current or future
technologies. There can be no assurance that third parties will not assert
infringement claims against the Company in the future with respect to current or
future products or that any such assertion will not require the Company to enter
into royalty arrangements or result in costly litigation. As the number of
software products in the industry increases and the functionality of these
products further overlap, the Company believes that software developers may
become increasingly subject to infringement claims. Any such claims, with or
without merit, can be time consuming and expensive to defend. See "Certain
Factors Which May Affect Future Operating Results -- Dependence on Proprietary
Technology; Risks of Infringement."
 
                                       10
<PAGE>   12
 
     Despite these precautions, it may be possible for a third party to copy or
otherwise obtain and use the Company's products or technology without
authorization, or to develop similar technology independently. Policing
unauthorized use of the Company's products is difficult and, although the
Company is unable to determine the extent to which piracy of its software
products exists, software piracy can be expected to be a persistent problem.
 
EMPLOYEES
 
     As of December 31, 1997, the Company had 579 full-time employees, including
246 in research and development, 285 in sales, marketing, consulting and
customer support and 48 in finance and administrative services. The Company and
its employees are not parties to any collective bargaining agreement, and the
Company believes that its relations with its employees are good. The Company
believes that its future success will depend in part upon the continued service
of its key employees and on its continued ability to hire and retain qualified
personnel. There can be no assurance that the Company can retain its key
employees or that it will be successful in attracting and retaining sufficient
numbers of qualified personnel to conduct its business in the future.
 
CERTAIN FACTORS WHICH MAY AFFECT FUTURE OPERATING RESULTS
 
     Management of Growth; Dependence on Key Personnel. The Company increased
significantly in size as a result of the Merger, has continued to grow since
that time and expects to continue to experience periods of significant growth in
the future. The Company's agreements with key OEMs such as Sun Microsystems, HP
and Microsoft require the hiring of additional engineering, sales and support
personnel, and the commitment of significant staffing to the performance of the
Company's obligations under such agreements. Such growth is likely to strain the
Company's management control systems and resources (including decision support,
accounting, e-mail and management information systems). With future growth, the
Company will be required to continue to improve its financial and management
controls, reporting systems and procedures on a timely basis, to expand, train
and manage its employee work force and to secure additional facilities when and
if needed. There can be no assurance that the Company will be able to manage
such growth effectively. Any failure to do so could have a material adverse
effect on its business, operating results and financial condition. Competition
for qualified sales, technical and other personnel is intense, and there can be
no assurance that the Company will be able to attract, assimilate or retain
additional highly qualified employees in the future. If the Company is unable to
hire and retain such personnel, particularly those in key positions, its
business, operating results and financial condition would be materially and
adversely affected. The Company's future success also depends in significant
part upon the continued service of its key technical, sales and senior
management personnel. The loss of the services of one or more of these key
employees could have a material adverse effect on its business, operating
results and financial condition. Additions of new personnel and departures of
existing personnel, particularly in key positions, can be disruptive and can
result in departures of other existing personnel, which could have a material
adverse effect on the Company's business, operating results and financial
condition.
 
     New Distribution Channels. A significant portion of the Company's net
revenues are derived from user license fees received from computer OEMs that
incorporate the Company's storage management software products into their
operating systems. The Company has no control over the shipping dates or volumes
of systems shipped by its OEM customers, and there can be no assurance that any
OEMs will ship operating systems incorporating the Company's products in the
future. Furthermore, the Company's license agreements with its OEM customers
generally do not require the OEMs to recommend or offer the Company's products
exclusively, have no minimum sales requirements and may be terminated by the
OEMs without cause.
 
     The Company's strategic relationships with HP, Sun Microsystems and
Microsoft reflect a strategy for OEM product distribution involving the bundling
by OEMs of certain functional subsets or "lite" versions of the Company's
products with OEM computer systems, cooperative direct selling of full versions
of such products by the Company and the OEMs, and the direct sale by the Company
of added value products to the OEM installed base of customers. There can be no
assurance that the Company will be able to deliver its products to such OEMs in
a timely manner despite the dedication of significant engineering and other
                                       11
<PAGE>   13
 
resources to the development of such products. Any such failure could result in
the Company having expended significant resources with little or no return on
its investment, which could have a material adverse effect on the Company's
business, operating results and financial condition. There can further be no
assurance that this distribution strategy will achieve the desired propagation
of the Company's technology in the market place, or result in sufficient
revenues to the OEMs to induce OEMs to actively market the Company's products to
their customers, which could have a material adverse effect on the Company's
business, operating results and financial condition. There can be no assurance
that the simultaneous sales efforts of such OEMs and the Company will not create
certain channel conflicts. Furthermore, failure of the Company to timely develop
and achieve market acceptance of new products for sale to the OEM installed
customer base could lead to a significant loss of potential revenue to the
Company.
 
     In connection with the Company's agreement with Microsoft, there can be no
assurance that Microsoft will use the Company's products in any future version
of Windows NT, nor that the Company will realize any expected benefits even if
such products are used in any future version of Windows NT. If the Company's
products are not available in a timely fashion, if Microsoft does not use these
products in Windows NT, or if the Company does not receive any benefits for the
use of its products in Windows NT, the Company's business, operating results and
financial condition could be materially adversely affected. If the release by
Microsoft of Windows NT 5.0 is significantly delayed, and/or the rate of
adoption of Windows NT 5.0 by users is slow, the Company will not be in a
position to market add-on products to the Windows NT installed customer base,
thereby resulting in possible delays in, or loss of, revenue to the Company.
Moreover, the Company would have lost certain opportunities as a result of the
diversion of resources to this project. Under this agreement, Microsoft is also
permitted to develop enhancements to and derivative products from the Company's
products that are embedded in certain Windows NT releases, and would retain
ownership of any such enhancements or derivative products. There can be no
assurance that Microsoft will not develop any such enhancements or derivative
products and, as a result, compete with the Company in this area. See
"-- Uncertainty in Porting Products to New Operating Systems and Expansion into
Windows NT Market."
 
     In recent years, the Company has made significant investments in the
establishment of other distribution channels. Efforts by the Company in this
area include: (i) the introduction of shrink wrap packages of certain VERITAS
storage management software products for multiple platforms; (ii) the
distribution of end-user products for the Sun Microsystems' Solaris operating
system; (iii) the acquisition of Tidalwave Technologies, Inc. ("Tidalwave") in
April 1995, as a result of which the Company began distributing the VERITAS
FirstWatch end-user products; and (iv) the Merger with OpenVision which provided
an established and significant direct sales channel to the Company.
 
     As a result of the Merger, the Company's direct sales force is marketing
and selling the Company's products in competition with indirect sellers of its
products, such as OEMs and resellers, which could adversely affect the Company's
relations with such indirect sellers and result in such sellers being less
willing to market the Company's products aggressively. There can be no assurance
that such sales and marketing efforts by the Company's direct sales force will
not result in a decline in indirect sales as a result of actual or potential
competition between the Company's direct sales force and such indirect sellers,
or that such efforts will not have a material adverse effect on the Company's
business, operating results and financial condition. In addition, any such
decline in indirect sales may require the Company to accelerate investments for
expansion into alternative distribution channels, and no assurance can be given
that the Company will have sufficient resources to devote to such other
channels.
 
     Fluctuating Operating Results. The Company's operating results have
fluctuated in the past, and may fluctuate significantly in the future depending
on a number of factors. Factors that have resulted in fluctuations in operating
results include: (i) the timing and level of sales by the Company's OEM
licensees of computer systems incorporating the Company's storage management
products; (ii) a significant increase in dependence upon non-OEM distribution
channels, which tend to be more unpredictable than OEM channels; (iii) timing of
lump sum payments for source code license fees; (iv) achievement of porting
milestones; and (v) financial expenses for investment in new products and
distribution channels, including the hiring of additional sales and marketing
personnel and outlay of promotional expenses.
 
                                       12
<PAGE>   14
 
     In addition to the factors described above, factors that may contribute to
future fluctuations in quarterly operating results include, but are not limited
to: (i) development and introduction of new operating systems that require
additional development efforts; (ii) introduction or enhancement of products by
the Company or its competitors; (iii) changes in pricing policies of the Company
or its competitors; (vi) increased competition; (v) technological changes in
computer systems and environments; (vi) the ability of the Company to develop,
introduce and market new products in a timely manner; (vii) quality control of
products sold; (viii) market readiness to deploy storage management products for
distributed computing environments; (ix) market acceptance of new products and
product enhancements; (x) customer order deferrals in anticipation of new
products and product enhancements; (xi) the Company's success in expanding its
sales and marketing programs; (xii) personnel changes; (xiii) foreign currency
exchange rates; (xiv) mix of products sold; (xv) acquisition costs; (xvi) the
size and timing of orders; (xvii) seasonality of revenue; and (xviii) general
economic conditions.
 
     The Company's operating results are highly sensitive to the timing of
larger orders. Orders typically range from a few thousand dollars to several
hundred thousand dollars. Revenue is difficult to forecast because the
client/server systems management software market is an emerging market that is
highly fragmented and subject to rapid change. The sale of the Company's
products also typically involves a significant technical evaluation and
commitment of capital and other resources, with the delays frequently associated
with customers' internal procedures, including delays to approve large capital
expenditures, to engineer deployment of new technologies within their networks,
and to test and accept new technologies that affect key operations. For these
and other reasons, the sales cycle associated with the Company's products is
typically lengthy, generally lasting three to nine months, is subject to a
number of significant risks, including customers' budgetary constraints and
internal acceptance reviews, that are beyond the Company's control, and varies
substantially from transaction to transaction. Because of the lengthy sales
cycle and the large size of certain transactions, if orders forecasted for a
specific transaction for a particular quarter are not realized in that quarter,
the Company's operating results for that quarter could be materially adversely
affected.
 
     The Company's future revenue will be difficult to predict, and the Company
has, in the past, failed to achieve its revenue expectations for certain
periods. Because the Company generally ships software products within a short
period after receipt of an order, it typically does not have a material backlog
of unfilled orders, and revenue in any quarter is substantially dependent on
orders booked and shipped in that quarter. In addition, the Company typically
recognizes a significant portion of its direct sales license revenue in the last
two weeks of a quarter. The Company's expense levels are based, in part, on its
expectations as to future revenue and to a large extent are fixed in the short
term. The Company will not be able to adjust expenses in the short term to
compensate for any unexpected revenue shortfall. Accordingly, any significant
shortfall of revenue in relation to the Company's expectations or any material
delay of customer orders would have an immediate adverse effect on its business,
operating results and financial condition. As a result of all of the foregoing
factors, the Company believes that period-to-period comparisons of the Company's
results of operations are not and will not necessarily be meaningful and should
not be relied upon as any indication of future performance. Furthermore, it is
possible that in future quarters the Company's operating results may not meet or
exceed the expectations of public market analysts and investors. In such event,
the price of the Company's Common Stock would be materially adversely affected.
 
     Increasing Product Concentration; Dependence on Growth of Storage
Management Software Market. A substantial majority of the Company's revenues
have been, and in future periods will be, derived from storage management
products. Storage management products accounted for 89%, 79% and 74% of the
Company's license revenue in 1997, 1996 and 1995, respectively. The Company
expects that storage management products will continue to account for a
substantial majority of the Company's revenues in future periods as a result of
its strategic decision to devote greater financial and other resources to
selling, servicing and supporting its storage management products. The
allocation of greater levels of sales, service and support resources to such
products could adversely affect the Company's ability to continue enhancing and
supporting its other product lines. Any failure by the Company to enhance and
support its other product lines could result in adverse customer reactions and
the loss of an existing revenue base, and could have a material adverse effect
on the Company's business, operating results and financial condition.
 
                                       13
<PAGE>   15
 
     The Company's future financial performance will depend in large part on
continued growth in the number of companies adopting storage management
solutions for their client/server computing environments. There can be no
assurance that the market for storage management software and services will
continue to grow. If the storage management software and services market fails
to grow or grows more slowly than the Company currently anticipates, or in the
event of a decline in unit price or demand for the Company's storage management
products, as a result of competition, technological change or other factors, the
Company's business, operating results and financial condition would be
materially and adversely affected. The Company's financial performance may, in
the future, experience substantial fluctuations as a consequence of such
industry patterns, general economic conditions affecting the timing of orders,
and other factors affecting capital spending. There can be no assurance that
such factors will not have a material adverse effect on the Company's business,
operating results and financial condition.
 
     Inability to Integrate Current and Future Products and
Technologies. Following the Merger, the Company commenced integration of
selected products and technologies to enhance storage management functionality
and the integration of products throughout its entire product line through the
availability of common services. The Company's success is dependent in
significant part on the Company's ability to integrate its products as planned
and the resultant products achieving market acceptance by end users, resellers
and OEMs. No assurance can be given that the Company will successfully integrate
its products as planned. If the Company is unable to develop and introduce new
integrated products and technologies, or enhancements to existing products, in a
timely manner, its business, operating results and financial condition would be
materially and adversely affected.
 
     Uncertainty in Porting Products to New Operating Systems and Expansion into
Windows NT Market. Certain of the Company's products operate primarily on
certain versions of the UNIX operating system. Product development activities
are being directed towards developing new products for the UNIX operating
system, developing enhancements to the Company's current products and porting
new products and enhancements to other versions of the UNIX operating system.
The Company has also made and intends to continue to make substantial
investments in porting its products to new operating systems, including Windows
NT, and the Company's future success will depend on its ability to successfully
accomplish such ports. In addition, the Company's Windows NT product development
efforts may be dependent on product development funding received from third
parties. If such funding is delayed or not ultimately received, the Company's
Windows NT development efforts could be delayed, which could adversely affect
the Company's business, operating results and financial condition.
 
     The process of porting existing products and product enhancements to, and
developing new products for, new operating systems requires a substantial
capital investment, the devotion of substantial employee resources and the
cooperation of the owners of the operating systems to which the products are
being ported or developed. For example, the added focus on porting and
development work for the Windows NT market has required, and will require, the
Company to hire additional personnel with expertise in the Windows NT
environment and to devote its engineering resources to these projects. The
diversion of engineering personnel to this area may cause delays in other
product development efforts of the Company. Furthermore, operating system owners
have no obligation to assist in these porting or development efforts, and may
instead choose to enter into agreements with other third-party software
developers or internally develop their own products. In particular, the failure
to receive a source code license to certain portions of the operating system,
either from the operating system owner or a licensee thereof, would prevent the
Company from porting its products to or developing products for such operating
system. There can be no assurance that the Company's current or future porting
efforts will be successful or, even if successful, that the operating system to
which the Company elects to port, or for which it elects to develop products,
will achieve or maintain market acceptance. The failure of the Company to port
its products to new operating systems or to select those operating systems that
achieve and maintain market acceptance could have a material adverse effect on
the Company's business, operating results and financial condition.
 
     The Company's agreement with Microsoft requires the Company to develop a
functional subset of the VERITAS Volume Manager product to be ported to and
embedded in Windows NT. The agreement also requires the Company to develop a
disk management graphical user interface designed specifically for
                                       14
<PAGE>   16
 
Windows NT. Microsoft is obligated to fund a significant portion of the
development expenses for this product. The Company is currently recognizing
revenue under the development contract with Microsoft on a
percentage-of-completion basis consistent with its policy for revenue
recognition for other similar agreements. The payment terms in the Microsoft
agreement do not directly correlate to the timing of development efforts and
therefore revenue of $2.2 million has been recognized in advance of payment as
of December 31, 1997. The failure of the Company to complete the product in
sufficient time for inclusion in Windows NT 5.0 may result in a significant
delay of the product being embedded in Windows NT, and could ultimately result
in Microsoft electing to omit the Company's product from Windows NT altogether,
which could have a material adverse effect on the Company's business, operating
results and financial condition. In addition, the Microsoft relationship will
require the Company's marketing and sales departments to deal in higher volume
markets and will require the Company to service the growing needs of the Windows
NT channel and customer base. The Company's experience in these higher volume
markets is limited. See "-- New Distribution Channels."
 
     Intense Competition. The markets in which the Company competes are
intensely competitive and rapidly changing. The Company's principal competition
in the storage management market consists of internal development groups of
current and prospective OEM customers, which have the resources and capability
to develop their own storage management solutions. Among the OEMs which have
included storage management capabilities in their operating systems are Sun
Microsystems for its Solaris system, DEC for its Digital UNIX system, HP for its
HP-UX system and Microsoft for Windows NT. The Company also encounters
competition from other third party software vendors and hardware companies
offering products that incorporate certain of the features provided by the
Company's products, and from disk controller and disk subsystem manufacturers
which have included or may include similar features.
 
     As a result of the Merger and the associated higher visibility of the
Company in certain markets, the Company faces new competitors and new
competitive factors. In particular, the Company's new competitors include: (i)
hardware and software vendors that offer a management platform or framework to
support vendor-created and third-party systems management applications; (ii)
vendors that provide systems management software for the mainframe environment
who are migrating their products to the client/server environment; (iii) vendors
that provide "point" products that address specific problems and offer specific
functionality; and (iv) vendors that provide integrated and interoperable
solutions. Specific companies that the Company has encountered or expects to
encounter as competitors include Computer Associates' Cheyenne division, EMC,
IBM's ADSM division and Legato. Many such competitors have substantially greater
financial, technical, sales, marketing and other resources, as well as greater
name recognition and a larger installed customer base, than the Company. The
Company expects that the market for storage management software, which
historically has been large and fragmented, will become more consolidated with
larger companies being better positioned to compete in such an environment in
the long term. As the open systems management software market develops, a number
of companies with greater resources than the Company could attempt to increase
their presence in this market by acquiring or forming strategic alliances with
competitors or business partners of the Company. For example, in 1996 IBM
purchased Tivoli, and Computer Associates purchased Cheyenne; both Tivoli and
Cheyenne are competitors of the Company.
 
     The Company's success will depend significantly on its ability to adapt to
these competing forces, to develop more advanced products more rapidly and less
expensively than its competitors, and to educate potential customers as to the
benefits of licensing the Company's products rather than developing their own
products. The Company's future and existing competitors could introduce products
with superior features, scalability and functionality at lower prices than the
Company's products and could also bundle existing or new products with other
more established products in order to compete with the Company. In addition,
because there are relatively low barriers to entry for the software market, the
Company expects additional competition from other established and emerging
companies. Increased competition is likely to result in price reductions,
reduced gross margins and loss of market share, any of which could materially
and adversely affect the Company's business, operating results and financial
condition. There can be no assurance that the Company will be able to compete
successfully against current and future competitors, and the failure to do so
would result in the Company's business, operating results and financial
condition being materially and adversely affected.
 
                                       15
<PAGE>   17
 
     Rapid Technological Change and Requirement for Frequent Product
Transitions. The market for the Company's products is intensely competitive,
highly fragmented and characterized by rapid technological developments,
evolving industry standards and rapid changes in customer requirements. The
introduction of products embodying new technologies, the emergence of new
industry standards or changes in customer requirements could render the
Company's existing products obsolete and unmarketable. As a result, the
Company's success depends upon its ability to continue to enhance existing
products, respond to changing customer requirements and develop and introduce in
a timely manner new products that achieve market acceptance and keep pace with
technological developments and emerging industry standards. Customer
requirements include, but are not limited to, product operability and support
across distributed and changing heterogeneous hardware platforms, operating
systems, relational databases and networks. For example, as the Company's
customers start to utilize Windows NT or other emerging operating platforms, it
will become necessary for the Company to enhance its products to operate on such
platforms in order to meet these customers' requirements. There can be no
assurance that the Company's products will achieve market acceptance or will
adequately address the changing needs of the marketplace or that the Company
will be successful in developing and marketing enhancements to its existing
products, or new products incorporating new technology, on a timely basis. The
Company has in the past experienced delays in product development, and there can
be no assurance that the Company will not experience further delays in
connection with its current product development or future development
activities. There can be no assurance that the Company will have the resources
necessary to perform its obligations under its development agreements in a
timely and efficient manner or that its development efforts will be successful.
If the Company is unable to develop and introduce new products or enhancements
to existing products in a timely manner in response to changing market
conditions or customer requirements, the Company's business, operating results
and financial condition will be materially and adversely affected. Because the
Company has limited resources, it must restrict its product development efforts
to a relatively small number of products and operating systems. There can be no
assurance that these efforts will be successful or, even if successful, that any
resulting product or operating system will achieve market acceptance.
 
     Significant Leverage; Debt Service. In connection with the sale of 5.25%
Convertible Subordinated Notes due 2004 (the "Notes"), the Company incurred $100
million aggregate principal amount of indebtedness which resulted in a ratio of
long-term debt to total capitalization at December 31, 1997 of approximately
49.2%. As a result of this additional indebtedness, the Company's principal and
interest payment obligations will increase substantially. The degree to which
the Company will be leveraged could materially and adversely affect the
Company's ability to obtain financing for working capital, acquisitions or other
purposes and could make it more vulnerable to industry downturns and competitive
pressures. The Company's ability to meet its debt service obligations will be
dependent upon the Company's future performance, which will be subject to
financial, business and other factors affecting the operations of the Company,
many of which are beyond its control.
 
     The Company will require substantial amounts of cash to fund scheduled
payments of principal and interest on its indebtedness, including the Notes,
future capital expenditures and any increased working capital requirements. If
the Company is unable to meet its cash requirements out of cash flow from
operations, there can be no assurance that it will be able to obtain alternative
financing. In the absence of such financing, the Company's ability to respond to
changing business and economic conditions, to make future acquisitions, to
absorb adverse operating results or to fund capital expenditures or increased
working capital requirements may be adversely affected. If the Company does not
generate sufficient increases in cash flow from operations to repay the Notes at
maturity, it could attempt to refinance the Notes; however, no assurance can be
given that such a refinancing would be available on terms acceptable to the
Company, if at all. Any failure by the Company to satisfy its obligations with
respect to the Notes at maturity (with respect to payments of principal) or
prior thereto (with respect to payments of interest or required repurchases)
would constitute a default under the Indenture and could cause a default under
agreements governing other indebtedness, if any, of the Company.
 
     Dependence on Proprietary Technology; Risks of Infringement. The Company's
success depends upon its proprietary technology. The Company relies on a
combination of copyright, trademark and trade secret
 
                                       16
<PAGE>   18
 
laws, confidentiality procedures and licensing arrangements to establish and
protect its proprietary rights. The Company presently has no patents although it
has filed several patent applications. As part of its confidentiality
procedures, the Company generally enters into non-disclosure agreements with its
employees, distributors and corporate partners, and license agreements with
respect to its software, documentation and other proprietary information.
Despite these precautions, it may be possible for a third party to copy or
otherwise obtain and use the Company's products or technology without
authorization, or to develop similar technology independently. Policing
unauthorized use of the Company's products is difficult and although the Company
is unable to determine the extent to which piracy of its software products
exists, software piracy can be expected to be a persistent problem. In selling
its products, the Company relies in part on "shrink wrap" licenses that are not
signed by licensees and, therefore, may be unenforceable under the laws of
certain jurisdictions. In addition, effective protection of intellectual
property rights is unavailable or limited in certain foreign countries. There
can be no assurance that the Company's protection of its proprietary rights,
including any patent that may be issued, will be adequate or that the Company's
competitors will not independently develop similar technology, duplicate the
Company's products or design around any patents issued to the Company or its
other intellectual property rights.
 
     The Company is not aware that any of its products infringe the proprietary
rights of third parties. There can be no assurance, however, that third parties
will not claim such infringement by the Company with respect to current or
future products. The Company expects that software product developers will
increasingly be subject to such claims as the number of products and competitors
in the Company's industry segment grows and the functionality of products in the
industry segment overlaps. Any such claims, with or without merit, could result
in costly litigation that could absorb significant management time, which could
have a material adverse effect on the Company's business, operating results and
financial condition. Such claims might require the Company to enter into royalty
or license agreements. Such royalty or license agreements, if required, may not
be available on terms acceptable to the Company or at all, which could have a
material adverse effect upon the Company's business, operating results and
financial condition.
 
     Year 2000 Compliance. The Company is aware of the issues associated with
the programming code in existing computer systems as the millennium ("Year
2000") approaches. The Year 2000 problem is pervasive and complex as virtually
every computer operation will be affected in some way by the rollover of the two
digit year value to 00. Systems that do not properly recognize date sensitive
information when the year changes to 2000 could generate erroneous data or cause
a system to fail. Significant uncertainty exists in the software industry
concerning the potential effects associated with such compliance. The Company
believes that all of its existing products will be Year 2000 compliant by the
end of the first quarter of fiscal 1998 and new products are being designed to
be Year 2000 compliant. Although products have undergone, or will undergo, the
Company's normal quality testing procedures, there can, however, be no assurance
that the Company's products will contain all necessary date code changes. Any
failure of the Company's products to perform, including system malfunctions due
to the onset of the calendar year 2000, could result in claims against the
Company, which could have a material adverse effect on the Company's business,
financial condition or results of operations. Moreover, the Company's customers
could choose to convert to other calendar year 2000 compliant products or to
develop their own products in order to avoid such malfunctions, which could have
a material adverse effect on the Company's business, financial condition and
results of operations.
 
     The Company is also currently in the process of evaluating its information
technology infrastructure for Year 2000 compliance. In the event that any of the
Company's significant suppliers or customers does not successfully and timely
achieve Year 2000 compliance, the Company's business or operations could be
adversely affected. This could result in system failures or generation of
erroneous information and could cause significant disruption to business
activities. The Company is reviewing what actions are required to make all
software systems used internally Year 2000 compliant as well as actions needed
to mitigate vulnerability to problems with suppliers and other third parties'
systems. Such actions include a review of vendor contracts and formal
communication with suppliers to request certification that products are Year
2000 compliant. The Company is assessing the extent of the necessary
modifications to its computer software, and management does not anticipate that
the Company will incur significant operating expenses or be required to invest
heavily in computer system improvements to be Year 2000 compliant. There can be
no assurance that such measures
 
                                       17
<PAGE>   19
 
will alleviate the Year 2000 problems which could have a material adverse effect
upon the Company's business, operating results and financial condition.
 
     Risk of Software Defects; Product Liability. Software products as complex
as those to be offered by the Company frequently contain errors or defects,
especially when first introduced or when new versions or enhancements are
released. Despite product testing, the Company has in the past released products
with defects, discovered software errors in certain of its new products after
introduction and experienced delayed or lost revenue during the period required
to correct these errors. The Company has regularly introduced, and the Company
intends to continue to introduce, new products and enhancements to existing
products. Despite testing by the Company and by current and potential customers,
there can be no assurance that defects and errors will not be found in existing
products or in new products, versions or enhancements after commencement of
commercial shipments. Any such defects and errors could result in adverse
customer reactions, negative publicity regarding the Company and its products,
harm to the Company's reputation, loss of or delay in market acceptance or
require expensive product changes, any of which could have a material adverse
effect upon the Company's business, operating results and financial condition.
Further, the Company could be subject to liability claims (for which it carries
insurance, although such insurance may not be sufficient to fully protect the
Company against losses relating to such claims) that could have a material
adverse effect on the Company's business, operating results and financial
condition.
 
     The Company derives an increasing amount of revenue from products licenses
pursuant to "shrink wrap" licenses that are not signed by licensees and,
therefore, may be unenforceable under the laws of certain jurisdictions. The
Company's products will be generally used to manage data critical to
organizations, and, as a result, the sale and support of products by the Company
may entail the risk of product liability claims. Although the Company maintains
errors and omissions product liability insurance, such insurance may not
adequately compensate the Company for losses relating to such claims and a
successful liability claim brought against the Company could have a material
adverse effect upon the Company's business, operating results and financial
condition.
 
     Risks Associated With International Operations. International revenue (from
sales outside the United States and Canada) accounted for 19%, 28% and 23% of
the Company's total revenues in 1997, 1996 and 1995, respectively. The Company
believes that its future success depends upon continued expansion of its
international operations. The Company currently has sales and service offices in
the United States, Canada, Japan, the United Kingdom, Germany, France, Sweden
and the Netherlands and has a product development group in India. The Company
also has resellers in North America, Europe, Asia Pacific, South America and the
Middle East. International expansion may require the Company to establish
additional foreign offices, hire additional personnel and recruit additional
international resellers. This may require significant management attention and
financial resources and could adversely affect the Company's operating margins.
To the extent the Company is unable to effect these additions efficiently and in
a timely manner, its growth, if any, in international sales will be limited, and
its business, operating results and financial condition could be materially and
adversely affected. There can be no assurance that the Company will be able to
maintain or increase international market demand for its products.
 
     As of December 31, 1997, the Company had 35 engineers employed by its
Indian subsidiary located in Pune, India, who perform certain product
development work. These international operations subject the Company to a number
of risks inherent in developing products outside of the United States, including
the potential loss of developed technology, imposition of governmental controls,
export license requirements, restrictions on the export of critical technology,
political and economic instability, trade restrictions, difficulties in managing
international operations and lower levels of intellectual property protection.
Furthermore, if the Company were required to discontinue its product development
efforts in India, it would incur significantly higher operating expenses as a
result of having to perform such development work in the United States.
 
     From time to time, the Company may engage in exchange rate hedging
activities. Such activities have been insignificant to date. There can be no
assurance that any hedging techniques implemented by the Company will be
successful.
 
                                       18
<PAGE>   20
 
     The Company's international business also involves a number of additional
risks, including lack of acceptance of localized products, cultural differences
in the conduct of business, longer accounts receivable payment cycles, greater
difficulty in accounts receivable collection, seasonality due to the slow-down
in European business activity during the Company's third fiscal quarter,
unexpected changes in regulatory requirements and royalty and withholding taxes
that restrict the repatriation of earnings, tariffs and other trade barriers,
and the burden of complying with a wide variety of foreign laws. The Company's
international sales are generated primarily through its international sales
subsidiaries and are denominated in local currency, creating a risk of foreign
currency translation gains and losses. To the extent profit is generated or
losses are incurred in foreign countries, the Company's effective income tax
rate may be materially and adversely affected. In some markets, localization of
the Company's products is essential to achieve market penetration. The Company
may incur substantial costs and experience delays in localizing its products,
and there can be no assurance that any localized product will ever generate
significant revenue. There can be no assurance that any of the factors described
herein will not have a material adverse effect on the Company's future
international sales and operations and, consequently, its business, operating
results and financial condition.
 
     Past and Future Acquisitions. The Company has made several acquisitions in
the past, including the Merger with OpenVision. Acquisitions of companies,
divisions of companies or products entail numerous risks, including difficulty
in successfully integrating and assimilating acquired operations, diversion of
management's attention and loss of key employees of acquired companies.
Difficulties can arise with respect to the integration of product offerings and
employees of acquired companies, including conflicts that may arise with respect
to distribution strategies, coordination of geographically separated
organizations, differences in corporate culture and integration of personnel
with disparate business backgrounds. The integration and assimilation process
can cause an interruption of, or a loss of momentum in, the activities of the
Company's business. Failure to accomplish the effective integration of the
Company's operations with those of an acquired company could adversely affect
the revenues and operating results of the Company. In the past three years, the
Company has made three acquisitions and one divestiture of a product line; the
Company may make additional acquisitions or effect additional divestitures in
the future. Products acquired by the Company in the past have required
significant additional development, such as restructuring software code to
support larger scale environments, porting products to additional operating
system platforms, regression testing and improving network and device support,
before they could be marketed and some failed to generate any revenue for the
Company. No assurance can be given that the Company will not incur similar
problems in future acquisitions. Any such problems could have a material adverse
effect on the Company's business, operating results and financial condition. In
addition, future acquisitions by the Company may result in dilutive issuances of
equity securities, the incurrence of additional debt, large one-time write-offs
and the creation of goodwill or other intangible assets that could result in
amortization expense. These factors could have a material adverse effect on the
Company's business, operating results and financial condition.
 
     Volatility of Stock Price. The market price for the Company's Common Stock
is highly volatile. The trading price of the Company's Common Stock could be
subject to wide fluctuations in response to quarterly variations in operating
and financial results, announcements of technological innovations, new products,
acquisitions or dispositions, new customer relationships or new strategic
relationships by the Company or its competitors, changes in prices of the
Company's or its competitors' products and services, changes in product mix, or
changes in revenue and revenue growth rates for the Company. Statements or
changes in opinions, ratings, or earnings estimates made by brokerage firms or
industry analysts relating to the markets in which the Company does business, or
relating to the Company specifically, have resulted, and could in the future
result, in an immediate and adverse effect on the market price of the Company's
Common Stock. In addition, the stock market has from time to time experienced
extreme price and volume fluctuations which have particularly affected the
market price for the securities of many high-technology companies and that often
have been unrelated or disproportionate to the operating performance of these
companies. These fluctuations, as well as general economic, market and political
conditions such as recessions or military conflicts, may adversely affect the
market price of the Company's Common Stock.
 
                                       19
<PAGE>   21
 
ITEM 2. PROPERTIES
 
     The Company's principal office is located in Mountain View, California
totaling approximately 67,000 square feet of office space in a multi-tenant
building held under a lease which expires on January 31, 2002. The Company also
leases an aggregate of approximately 68,000 square feet of additional office
space in Arden Hills, Minnesota; Cambridge, Massachusetts; Pleasanton,
California; and Chertsay, United Kingdom with various expiration dates through
January 31, 2003. The Company and its subsidiaries also maintain numerous sales
and field offices in the United States and in Canada, France, Germany, the
Netherlands and Japan, with various expiration dates through December 31, 2002.
The Company also owns a building in Pune, India, which is occupied by the
Company's Indian subsidiary. The Company believes that its existing facilities
are adequate for its present needs and that additional space will be available
as required.
 
ITEM 3. LEGAL PROCEEDINGS
 
     The Company is not a party to any material legal proceedings.
 
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
     No matters were submitted to a vote of stockholders during the quarter
ended December 31, 1997.
 
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
 
     The following table sets forth information with respect to persons who
serve as executive officers of the Company.
 
<TABLE>
<CAPTION>
               NAME                 AGE                         TITLE
               ----                 ---                         -----
<S>                                 <C>   <C>
Mark Leslie.......................  52    President, Chief Executive Officer and Co-Chairman
                                          of the Board
Geoffrey W. Squire................  51    Executive Vice President and Co-Chairman of the
                                          Board
Fred van den Bosch................  51    Executive Vice President, Engineering and Director
Kenneth E. Lonchar................  40    Chief Financial Officer and Vice President,
                                          Finance
Peter J. Levine...................  37    Senior Vice President, OEM Sales
Paul A. Sallaberry................  42    Senior Vice President, Worldwide Sales
Jay A. Jones......................  43    Vice President, General Counsel and Secretary
</TABLE>
 
     Mr. Leslie has served as President and Chief Executive Officer of the
Company since February 1990 and as a director of the Company since May 1988.
From July 1989 until February 1990, he was the principal and owner of Leslie
Consulting, a management consulting firm, and from December 1984 until July
1989, he served as President and Chief Executive Officer of Rugged Digital
Systems, Inc., a computer manufacturer. Mr. Leslie is also Chairman of the Board
of Directors of Versant Object Technology Corporation.
 
     Mr. Squire has served as Executive Vice President and a director of the
Company since April 1997 and was a director of OpenVision from January 1994
until the Merger in April 1997. Mr. Squire was Chief Executive Officer of
OpenVision from July 1995 until the Merger in April 1997. From January 1994 to
November 1994, Mr. Squire was Executive Vice President and Chief Executive
Officer of International Operations of OpenVision. From November 1994 to June
1995, Mr. Squire was President and Chief Operating Officer of OpenVision. From
1984 to 1987, Mr. Squire was Managing Director and Senior Vice President of
Oracle Corporation and, from 1987 to 1990, Chief Executive Officer of Oracle
Europe. In 1990, he was promoted to Executive Vice President of Oracle
Corporation and President of Worldwide Operations. In July 1992, he was
appointed to Oracle's five-person Executive Committee with responsibility as
Chief Executive, International Operations. Mr. Squire is also a director of
Industri-Mathematik International Corp.
 
     Mr. van den Bosch has served as Executive Vice President, Engineering of
the Company since July 1997. Mr. van den Bosch served as Senior Vice President,
Engineering of the Company from January 1991 to July 1997 and was appointed as a
director of the Company in February 1996. From January 1970 until December
 
                                       20
<PAGE>   22
 
1990, he served in various positions with Philips Information Systems, including
Director of Technology from November 1988 until December 1990.
 
     Mr. Lonchar has served as Chief Financial Officer and Vice President,
Finance of the Company since April 1997. Mr. Lonchar was Chief Financial Officer
and Senior Vice President of OpenVision from December 1995 until the Merger in
April 1997. From November 1988 until joining OpenVision, Mr. Lonchar was Vice
President, Finance and Administration and Chief Financial Officer of Microtec
Research, Inc., a publicly-traded software company. Mr. Lonchar is a certified
public accountant.
 
     Mr. Levine has served as Senior Vice President, OEM Sales of the Company
since December 1997. Mr. Levine served as Vice President, OEM Sales of the
Company from December 1995 to December 1997. From January 1995 to November 1995,
Mr. Levine was Director of Marketing of the Company. From July 1992 to December
1994, Mr. Levine was an OEM Sales Representative at the Company. Mr. Levine
joined the Company in September 1990 as an Engineering Project Manager. From
1983 through 1990, Mr. Levine held several software engineering and consulting
positions including MIT's Project Athena, the Open Software Foundation and
Apollo Computer.
 
     Mr. Sallaberry has served as Senior Vice President, Worldwide Sales of the
Company since July 1997. Mr. Sallaberry served as Vice President, North American
Sales of the Company from April 1997 to July 1997. Mr. Sallaberry was
OpenVision's Senior Vice President of Sales from October 1992 until June 1994.
Mr. Sallaberry rejoined OpenVision in February 1995 as Senior Vice President of
North American Operations. From 1989 through 1992, he served in various
positions at Oracle Corporation, most recently as Vice President, Vertical Sales
Division.
 
     Mr. Jones has served as Vice President, General Counsel and Secretary of
the Company since April 1997. Mr. Jones joined OpenVision as General Counsel in
March 1993 and was appointed Vice President, General Counsel and Secretary in
July 1994 and served in those capacities until the Merger in April 1997. From
October 1991 to March 1993, Mr. Jones was Senior Corporate Counsel to Oracle
Corporation. From 1987 through 1990, Mr. Jones was Vice President, Corporate
Services, General Counsel and Secretary for Word Star International
Incorporated. Mr. Jones is a member of the California Bar Association.
 
                                    PART II
 
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
 
PRICE RANGE OF COMMON STOCK
 
     The Common Stock of the Company has been traded on the Nasdaq National
Market under the symbol "VRTS" since the Company's initial public offering in
December 1993. The following table sets forth the high and low sales prices, as
reported on the Nasdaq National Market, for each of the quarters in the past two
years. All prices have been adjusted to reflect a 3-for-2 stock split effected
in September 1997. Such prices represent prices between dealers, do not include
retail mark-ups, mark-downs or commissions and may not represent actual
transactions.
 
<TABLE>
<CAPTION>
                                                              HIGH      LOW
                                                              ----      ---
<S>                                                          <C>       <C>
FISCAL 1996
First Quarter..............................................  $17.89    $12.67
Second Quarter.............................................  $21.89    $14.39
Third Quarter..............................................  $31.44    $12.56
Fourth Quarter.............................................  $36.83    $28.50
FISCAL 1997
First Quarter..............................................  $37.42    $18.17
Second Quarter.............................................  $35.63    $16.37
Third Quarter..............................................  $49.13    $33.83
Fourth Quarter.............................................  $53.25    $38.50
</TABLE>
 
                                       21
<PAGE>   23
 
     As of January 30, 1998, there were approximately 352 holders of record of
the Company's Common Stock. The Company believes that a significant number of
beneficial owners of its Common Stock hold their shares in street name.
 
DIVIDEND POLICY
 
     The Company has never declared or paid a cash dividend on its capital
stock. The Company currently anticipates that it will retain future earnings, if
any, to fund development and growth of its business and does not anticipate
paying any cash dividends in the foreseeable future.
 
RECENT SALES OF UNREGISTERED SECURITIES
 
     On October 14, 1997, the Company issued and sold 5.25% Convertible
Subordinated Notes due 2004 amounting to $100 million in aggregate principal
amount to UBS Securities LLC (the "Initial Purchaser") in reliance upon Section
4(2) of the Securities Act of 1933, as amended (the "Securities Act") for resale
by the Initial Purchaser (i) to qualified institutional buyers within the United
States in reliance upon Rule 144A promulgated under the Securities Act, and (ii)
to non -U.S. persons outside the United States in reliance upon Regulation S
promulgated under the Securities Act. The initial purchase price for the Notes
was $100 million less the Initial Purchaser's discount of 2.5% ($2.5 million) of
the principal amount purchased. The Notes are convertible into the Company's
Common Stock at any time prior to the close of business on the maturity of the
Notes on November 1, 2004, unless previously redeemed or repurchased, at a
conversion price of $64.50 per share, subject to adjustment in certain events.
 
ITEM 6. SELECTED FINANCIAL DATA
 
     The following selected consolidated statement of operations data combines
VERITAS' pre-Merger historical results of operations for the fiscal years ended
December 31, 1996, 1995, 1994 and 1993 with OpenVision's pre-Merger historical
results of operations for the twelve months ended December 31, 1996 and 1995 and
for the fiscal years ended June 30, 1995 and June 30, 1994, respectively. As a
result, the operating results of OpenVision for the six months ended June 30,
1995, including revenue of $11.2 million and a net loss of $5.7 million, are
included in the consolidated statement of operations data for both fiscal 1995
and 1994. No adjustments were required to conform the accounting policies of
VERITAS and OpenVision. This data is qualified in its entirety and should be
read in conjunction with the more detailed consolidated financial statements and
related notes elsewhere herein.
 
<TABLE>
<CAPTION>
                                                          YEARS ENDED DECEMBER 31,
                                          --------------------------------------------------------
                                            1997       1996        1995        1994        1993
                                          --------   ---------   ---------   ---------   ---------
                                                   (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                       <C>        <C>         <C>         <C>         <C>
CONSOLIDATED STATEMENT OF OPERATIONS
  DATA:
Total net revenue.......................  $121,125   $  72,746   $  47,826   $  33,575   $  27,021
Income (loss) from operations(1)(2).....    20,076      11,858       1,193     (15,212)    (40,806)
Net income (loss).......................    22,749      12,129       2,371     (15,274)    (41,615)
Net income (loss) per share -- basic
  (3)(4)................................  $   0.75   $    0.42   $    0.09   $   (0.58)  $   (2.28)
Number of shares used in computing per
  share amounts -- basic(3)(4)..........    30,415      28,684      26,902      26,553      18,292
Net income (loss) per share -- diluted
  (3)(4)................................  $   0.69   $    0.39   $    0.08   $   (0.58)  $   (2.28)
Number of shares used in computing per
  share amounts -- diluted(3)(4)........    32,995      30,997      28,708      26,553      18,292
</TABLE>
 
                                       22
<PAGE>   24
 
<TABLE>
<CAPTION>
                                                          YEARS ENDED DECEMBER 31,
                                          --------------------------------------------------------
                                            1997       1996        1995        1994        1993
                                          --------   ---------   ---------   ---------   ---------
                                                               (IN THOUSANDS)
<S>                                       <C>        <C>         <C>         <C>         <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital.........................  $188,578   $  67,413   $  23,451   $  14,690   $  15,637
Total assets............................   241,880      94,524      48,100      36,830      42,350
Long-term obligations...................   100,911       1,468       6,205       6,366       9,623
Accumulated deficit.....................   (81,064)   (103,813)   (115,942)   (124,064)   (108,790)
Stockholders' equity....................   104,193      74,955      23,602      14,052      14,470
</TABLE>
 
---------------
 
(1) In connection with the Merger, which was completed in April 1997, the
    Company incurred charges to operations of $8.5 million.
 
(2) On April 1, 1996, the Company acquired all of the outstanding capital stock
    of Advanced Computing Systems Company ("ACSC"), a company which had
    developed technology for the operation and management of removable media
    volumes, devices and repositories, for a total purchase price of
    approximately $3.5 million, of which $2.2 million was allocated to
    in-process research and development and expensed at that date.
 
(3) Share and per share data applicable to prior periods has been restated to
    give retroactive effect to a 3-for-2 stock split in the form of a stock
    dividend effected in September 1997.
 
(4) The earnings per share amounts prior to 1997 have been restated as required
    to comply with Statement of Financial Accounting Standards No. 128,
    "Earnings Per Share" ("SFAS 128"). For further discussion of earnings per
    share and the impact of SFAS 128, see the notes to the consolidated
    financial statements beginning on page 39.
 
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
 
     As indicated in Item 1 above, this Form 10-K contains certain
forward-looking statements that involve numerous risks and uncertainties which
are described throughout this Form 10-K. Such forward-looking statements consist
of statements that are not purely historical, including, without limitation,
statements regarding the Company's expectations, beliefs, intentions or
strategies regarding the future. The actual results that the Company achieves
may differ materially from those anticipated by any forward looking statements
due to risks and uncertainties such as those referred to below as well as the
more complete description in Item 1 above under "Certain Factors Which May
Affect Future Operating Results."
 
OVERVIEW
 
     VERITAS is the leading independent supplier of enterprise data storage
management solutions, providing advanced storage management software for open
system environments. The Company's products provide performance improvement and
reliability enhancement features that are critical for many commercial
applications. These products enable protection against data loss and file
corruption, rapid recovery after disk or system failure, the ability to process
large files efficiently and the ability to manage and back-up large networks of
systems without interrupting users. In addition, the Company's products provide
an automated failover between computer systems organized in clusters sharing
disk resources. The Company's highly scalable products can be used
independently, and certain products can be combined to provide interoperable
client/server storage management solutions. The Company's products offer
centralized administration with a high degree of automation, enabling customers
to manage complex, distributed environments cost-effectively by increasing
system administrator productivity and system availability. The Company also
provides a comprehensive range of services to assist customers in planning and
implementing storage management solutions. The Company markets its products and
associated services to OEM and end-user customers through a combination of
direct and indirect sales channels (resellers, VARs, hardware distributors,
application software vendors and systems integrators).
 
                                       23
<PAGE>   25
 
     The Company derives its net revenue from user license fees, service fees
and porting fees. The Company's OEM customers either bundle the Company's
products with operating systems licensed by such OEMs or offer them as options.
Certain OEMs also resell VERITAS products. The Company generally receives a one-
time source license fee upon entering into a license agreement with an OEM, as
well as a user license fee each time the OEM licenses a copy of an operating
system to a customer that incorporates one or more of the Company's products. As
of December 31, 1997, the Company licensed its storage management products
through approximately 26 OEMs, and an additional eight OEMs had entered into
agreements to license such products. The Company's license agreements with its
OEM customers generally contain no minimum sales requirements and there can be
no assurance that any OEM will either commence or continue shipping operating
systems incorporating VERITAS products in the future. Approximately 29%, 36% and
48% of the Company's net revenue was generated from OEM business during 1997,
1996 and 1995, respectively. Storage management products accounted for
approximately 89%, 79% and 74% of the Company's net license revenue in 1997,
1996 and 1995, respectively.
 
     The Company's services revenue consists of fees derived from annual
maintenance agreements and consulting and training. The OEM maintenance
agreements covering VERITAS products provide technical and emergency support and
minor product upgrades for a fixed annual fee. The maintenance agreements
covering the products that are licensed through non-OEM channels provide
technical support and all product upgrades for an annual service fee based on
the number of user licenses purchased.
 
     Porting fees consist of fees derived from porting and other non-recurring
engineering efforts when the Company ports (i.e., adapts) its storage management
products to an OEMs' operating system and when the Company develops certain new
product features or extensions of existing product features at the request of a
customer. In most cases, the Company retains the rights to technology derived
from porting and non-recurring engineering work for licensing to other customers
and therefore generally does such work on a relatively low margin basis.
 
     The Company's international sales are generated primarily through its
international sales subsidiaries. International revenue outside the United
States and Canada, most of which is collectible in foreign currencies, accounted
for 19%, 28% and 23% of the Company's revenue in 1997, 1996 and 1995,
respectively. International revenue during this time period grew at differing
rates than in the United States and Canada, during 1997 the international growth
was slower than in the United States and Canada. The Company's international
revenue increased 11% to $23.0 million in 1997 from $20.7 million in 1996, and
89% from $10.9 million in 1995. Since much of the Company's international
operating expenses are also incurred in local currencies, the relative impact of
exchange rates on net income or loss is less than on revenues. Although the
Company's operating and pricing strategies take into account changes in exchange
rates over time, the Company's operating results may be significantly affected
in the short term by fluctuations in foreign currency exchange rates. The
Company believes that its success depends upon continued expansion of its
international operations, and if the Company were unable to expand its
international operations in the fashion or at the pace it intends, the Company's
business, operating results and financial condition could be materially
adversely affected. There can be no assurance that any international expansion
will occur or that any expansion will be at the time or in the manner intended
by the Company. The Company currently has sales and service offices in the
United States, Canada, Japan, the United Kingdom, Germany, France, Sweden and
the Netherlands, a development center in India, and resellers located in North
America, Europe, Asia Pacific, South America and the Middle East. International
expansion may require the Company to establish additional foreign offices and to
recruit additional international resellers, resulting in significant management
attention and the expenditure of financial resources. To the extent that the
Company is unable to effect these additions efficiently, growth in international
sales will be limited, which would have a material adverse effect on the
Company's business, operating results and financial condition. International
operations also subject the Company to a number of risks inherent in developing
and selling products outside the United States including potential loss of
developed technology, limited protection of intellectual property rights,
imposition of government regulation, imposition of export duties and
restrictions, cultural differences in the conduct of business and political and
economic instability. See "Certain Factors Which May Affect Future Operating
Results -- Risks Associated with International Operations."
 
                                       24
<PAGE>   26
 
     The Company has made, and intends to continue to make, a substantial
investment in porting its products to new operating systems, including Windows
NT. The success of the Windows NT product development may be dependent on
receipt of development funding from third parties, including Microsoft, and
failure to receive such funding could hamper the Company's efforts to timely
expand its products into the Windows NT market. The porting and development
process requires substantial capital investment and the devotion of substantial
employee resources to such effort and the added focus on Windows NT development
has required, and will continue to require, the Company to hire additional
personnel. Under an agreement with Microsoft, the Company has committed to
develop a functional subset of the Company's Volume Manager product that will be
ported to and embedded in Windows NT 5.0. Microsoft has agreed to provide the
Company with significant funding towards such development effort, payable in
specified increments. The Company is currently recognizing revenue under the
development contract with Microsoft on a percentage-of-completion basis
consistent with its policy for revenue recognition for other similar agreements.
The payment terms in the Microsoft agreement do not directly correlate to the
timing of development efforts and therefore revenue of $2.2 million has been
recognized in advance of payment as of December 31, 1997. The Microsoft
relationship will require the Company to expand its marketing and sales
operations to deal with higher volume markets in which the Company has limited
experience. The Company recognized revenue related to the Microsoft agreement of
approximately $3.7 million in 1997 and $0.5 million in 1996, and received
payments from Microsoft of $1.8 million and $0.2 million, for the same periods,
respectively. See "Certain Factors Which May Affect Future Operating
Results -- Uncertainty in Porting Products to New Operating Systems and
Expansion into Windows NT Market" and " -- New Distribution Channels."
 
     On January 13, 1997, VERITAS entered into an Agreement and Plan of
Reorganization relating to the Merger with OpenVision, a publicly-held company
that provided storage management applications and services for client/server
computing environments. This agreement provided for the merger of a wholly-owned
subsidiary of the Company with and into OpenVision, and resulted in OpenVision
becoming a wholly-owned subsidiary of VERITAS Delaware. The Merger was
consummated on April 25, 1997 and was accounted for as a "pooling of interests"
for financial reporting purposes in accordance with generally accepted
accounting principles. Approximately 9.8 million shares of Common Stock were
issued in the Merger, and the Company has reserved approximately 1.4 million
shares of Common Stock for issuance pursuant to the assumption of outstanding
options, warrants and rights to purchase OpenVision Common Stock. The Company's
consolidated financial statements for prior periods have been restated to
include the financial position, results of operations and cash flows of
OpenVision. Accordingly, the following discussion reflects the combined results
of the Company and its subsidiaries for all periods covered. See "Certain
Factors Which May Affect Future Operating Results -- Past and Future
Acquisitions."
 
     As a result of the Merger, the Company incurred charges to operations of
$8.5 million during the second quarter of 1997, consisting of approximately $4.2
million for transaction fees and professional services, $1.9 million for
contract terminations and asset write-offs and $2.4 million for other costs
incident to the Merger. Of the total charge, $1.2 million resulted from the
write-off of redundant assets and facilities and $7.3 million involved cash
outflows of which $0.6 million represented future outflows as of December 31,
1997. The future outflows are expected to be paid before June 30, 1998.
 
     On June 16, 1997, the Company announced a three-for-two stock split in the
form of a stock dividend, which became effective on September 15, 1997. Share
and per share data applicable to prior periods has been restated to give effect
to the stock split.
 
     On April 1, 1996, the Company acquired all of the outstanding capital stock
of ACSC, a company which had developed technology for the operation and
management of removable media volumes, devices and repositories, for a total
cost of approximately $3.5 million. Of the total charge, $2.2 million was
allocated to in-process research and development which was expensed in the
second quarter of 1996 and approximately $1.3 million was allocated to acquired
intangibles that were originally amortized and then fully written off in the
second quarter of 1997 as part of the Merger-related costs since the ACSC
product line became redundant upon the Merger.
 
                                       25
<PAGE>   27
 
     In March 1995, the Company sold substantially all of the operating assets
of its ViSTA testing tools operation resulting in a gain to the Company of
approximately $1.7 million in 1995.
 
RESULTS OF OPERATIONS
 
     The following table sets forth, for the periods indicated, certain items in
the Company's statements of operations expressed as a percentage of total
revenue.
 
<TABLE>
<CAPTION>
                                                          YEAR ENDED DECEMBER 31,
                                                         -------------------------
                                                         1997      1996      1995
                                                         -----     -----     -----
<S>                                                      <C>       <C>       <C>
Net revenue:
  User license fees....................................    79%       81%       77%
  Services.............................................    17        17        20
  Porting..............................................     4         2         3
                                                          ---       ---       ---
          Total net revenue............................   100       100       100
                                                          ---       ---       ---
Cost of revenue:
  User license fees....................................     4         4         4
  Services.............................................     6         5         8
  Porting..............................................     3         1         2
                                                          ---       ---       ---
          Total cost of revenue:.......................    13        10        14
                                                          ---       ---       ---
Gross profit...........................................    87        90        86
                                                          ---       ---       ---
Operating expenses:
  Selling and marketing................................    35        36        40
  Research and development.............................    21        25        27
  General and administrative...........................     7        10        16
  Merger-related costs.................................     7        --        --
  In-process research and development..................    --         3        --
                                                          ---       ---       ---
          Total operating expenses.....................    70        74        83
                                                          ---       ---       ---
Income from operations.................................    17        16         3
Interest expense.......................................    (1)       --        (3)
Interest and other income..............................     4         4         3
Gain on sale of ViSTA operations.......................    --        --         4
                                                          ---       ---       ---
Income before income taxes.............................    20        20         7
Provision for income taxes.............................     1         3         2
                                                          ---       ---       ---
Net income.............................................    19%       17%        5%
                                                          ===       ===       ===
</TABLE>
 
  Net Revenue
 
     The Company's total net revenue increased 67% to $121.1 million in 1997
from $72.7 million in 1996, when it increased 52% from $47.8 million in 1995.
The Company believes that the percentage increase in total revenue is not
indicative of future results. The Company's revenue is comprised of user license
fees, service revenue and porting fees. The growth in user license fees has been
driven primarily by increasing market acceptance of the Company's products and a
larger percentage of total license revenue coming through the direct sales
channel. Service revenue is derived primarily from contracts for software
maintenance and technical support and, to a lesser extent, consulting and
training services. The growth in service revenue has been driven primarily by
increased sales of service and support contracts on new license sales and, to a
lesser extent, by renewals of these contracts as the Company's installed base of
licensees has increased along with the increase in consulting and training
revenue. Porting fees are derived from the Company's funded development efforts
that are typically associated with the licensing of source code to OEMs.
 
     The new American Institute of Certified Public Accountants Statement of
Position, "Software Revenue Recognition" ("SOP 97-2") will be effective for the
Company beginning in the first quarter of 1998. The
 
                                       26
<PAGE>   28
 
criteria for recognizing revenue under SOP 97-2 are generally more rigorous than
the previous accounting standard and, in some cases, significantly more
rigorous. Due to uncertainties which exist with respect to the appropriate
interpretations and manner of implementation of SOP 97-2 in certain areas, the
effect on the Company is uncertain but could be significant.
 
     User License Fees. User license fees increased 62% to $95.7 million in 1997
from $59.2 million in 1996, when it increased 60% from $37.0 million in 1995.
The increases in both 1997 and 1996 were primarily the result of continued
growth in market acceptance of the Company's software products and introduction
of new storage products. In particular, the Company's user license fees from
storage products increased by approximately 83% from 1996 to 1997, and accounted
for 89% and 79% of user license fees in 1997 and 1996, respectively. User
license fee growth in 1997 and 1996 also included increases in direct sales and
sales from other non-OEM distributors.
 
     Service Revenue. Service revenue increased 64% to $20.2 million in 1997
from $12.3 million in 1996, when it increased 29% from $9.5 million in 1995. The
increase in 1997 was primarily due to increased sales of service and support
contracts on new licenses, renewal of service and support contracts on existing
licenses and, to a lesser extent, an increase in consulting and training
services. The increase in 1996 was primarily due to increased sales of service
and support contracts in connection with new licenses and, to a lesser extent,
renewal of service and support contracts relating to existing licenses,
partially offset by a decrease in consulting revenue.
 
     Porting Fees. Porting fees, which include revenues from porting contracts,
increased to $5.2 million in 1997 from $1.3 million in each of 1996 and in 1995.
During the third quarter of 1996, the Company entered into an agreement with
Microsoft whereby the Company has committed to develop versions of its Volume
Manager products to be included in future releases of Windows NT. The increase
in porting fees in 1997 was directly related to the efforts incurred in
supporting the development needs of the Microsoft project for which revenue is
being recognized under the percentage-of-completion method.
 
  Cost of Revenue
 
     Cost of user license fees consists primarily of royalties, media, manuals
and distribution costs. Cost of service revenue consists primarily of
personnel-related costs in providing maintenance, technical support, consulting
and training to customers. Cost of porting fees consists primarily of
personnel-related costs in providing funded development efforts. Gross margin on
user license fees is substantially higher than gross margin on service revenue
and porting fees, reflecting the low materials, packaging and other costs of
software products compared with the relatively high personnel costs associated
with providing maintenance, technical support, consulting, training services and
development efforts. Cost of service revenue also varies based upon the mix of
maintenance, technical support, consulting and training services.
 
     Cost of User License Fees. Cost of user license fees increased 57% to $4.7
million in 1997 from $3.0 million in 1996, and increased 57% in 1996 from $1.9
million in 1995. Gross margin on user license fees remained constant at 95% in
each of the three years ended December 31, 1997, 1996 and 1995. The gross margin
on user license fees may vary from period to period based on the license revenue
mix and certain products having higher royalty rates than other products. The
Company does not expect improvements in gross margin on user license fees.
 
     Cost of Service Revenue. Cost of service revenue increased 109% to $7.6
million in 1997 from $3.6 million in 1996, and decreased 3% in 1996 from $3.8
million in 1995. Gross margin on service revenue was 62%, 70% and 60% in 1997,
1996 and 1995, respectively. The gross margin decrease in 1997 was primarily due
to personnel additions to the Company's support organization to provide
maintenance and other service.
 
     Cost of Porting Fees. Cost of porting fees increased to $4.1 million in
1997 from $0.8 million in 1996, when it decreased from $1.2 million in 1995. The
increase in cost of porting fees in 1997 was primarily due to the efforts
incurred related to the development of versions of the Company's Volume Manager
products that are intended to be included in future versions of Windows NT.
Gross margin on porting fees remains relatively
 
                                       27
<PAGE>   29
 
low, reflecting the relatively high personnel costs associated with providing
development efforts. It is possible that the Company may incur negative gross
margins on porting fees from time to time.
 
  Operating Expenses
 
     Selling and Marketing. Selling and marketing expenses consist primarily of
salaries, related benefits, commissions, consultant fees and other costs
associated with the Company's sales and marketing efforts. Selling and marketing
expenses increased 65% to $42.9 million in 1997 from $26.0 million in 1996, and
increased 34% in 1996 from $19.4 million in 1995. Selling and marketing expenses
decreased as a percentage of total net revenue to 35% in 1997 from 36% in 1996
and 40% in 1995. The increase in absolute dollars is primarily attributable to
increased selling staffing and, to a lesser extent, increased marketing staffing
and increased costs associated with certain marketing programs. The Company
intends to continue to expand its global sales and marketing infrastructure, and
accordingly, the Company expects its selling and marketing expenses to increase
in the future. Such expansion may require the Company to establish additional
offices, and to recruit additional employees and resellers, which will result in
the dedication of significant management attention and expenditure of financial
resources. To the extent that the Company is unable to effect such expansion
efficiently and in a timely manner, growth in sales may be limited and the
Company may receive little or no return on its investment, which could have a
material adverse effect on the Company's business, operating results and
financial condition.
 
     Research and Development. Research and development expenses consist
primarily of salaries, related benefits, third-party consultant fees and other
costs. Research and development expenses increased 36% to $25.2 million in 1997
from $18.5 million in 1996, and increased 45% in 1996 from $12.8 million in
1995. Research and development expenses have decreased as a percentage of total
revenue to 21% in 1997 from 25% in 1996 and 27% in 1995. The Company believes
that a significant level of research and development investment is required to
remain competitive, and expects such expenses will increase in future periods,
although such expenses may continue to decline as a percentage of total net
revenue to the extent revenue increases.
 
     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
19% to $8.0 million in 1997 from $6.7 million in 1996, and decreased 12% in 1996
from $7.7 million in 1995. General and administrative expenses as a percentage
of revenue were 7%, 10% and 16% in 1997, 1996 and 1995, respectively. The
increase in absolute dollars in 1997 was primarily due to additional costs
associated with the Company enhancing its infrastructure to allow operations to
expand. The decrease in absolute dollars and as a percentage of revenue in 1996
was primarily due to decreased staffing and restructuring in finance and
administration and, to a lesser extent, a reduction in the amortization of
intangible assets. General and administrative expenses are expected to increase
in future periods to the extent the Company expands its operations, but may
continue to decline as a percentage of total net revenue to the extent revenue
increases.
 
     Merger-Related Costs. As a result of the Merger, the Company incurred
charges to operations of $8.5 million in the second quarter of 1997, consisting
of approximately $4.2 million for transaction fees and professional services,
$1.9 million for contract terminations and asset write-offs and $2.4 million for
other costs incident to the Merger. Of the total charge, $1.2 million resulted
from the write-off of assets related to redundant assets and facilities and $7.3
million involved cash outflows of which $0.6 million represented future outflows
as of December 31, 1997. The future outflows are expected to be paid before June
30, 1998.
 
     In-Process Research and Development. On April 1, 1996, the Company acquired
all of the outstanding capital stock of ACSC for a total cost of approximately
$3.5 million. Of the total cost, $2.2 million was allocated to in-process
research and development and expensed in the second quarter of 1996 and
approximately $1.3 million was allocated to intangible assets that originally
were amortized and then fully written off in the second quarter of 1997 as part
of the Merger-related costs since the ACSC product line became redundant upon
the Merger.
 
                                       28
<PAGE>   30
 
     Interest and Other Income, Net. Interest and other income, net increased to
$3.7 million in 1997 from $2.4 million in 1996, and $0.2 million in 1995. The
increase was due primarily to increased amounts of interest income attributable
to the higher level of funds available for investment and, to a lesser extent,
the repayment of certain interest bearing debt. The 1997 amount was composed
primarily of interest income totaling $5.0 million offset by $1.2 million of
interest expense. The 1996 amount was composed primarily of interest income, and
was due primarily to the repayment of debt and to interest income attributable
to the higher level of funds available for investment following OpenVision's
initial public offering in May 1996. Fluctuations in foreign currency have not
had a significant effect on the Company's results of operations.
 
     Gain on Sale of ViSTA Operations. On March 31, 1995, the Company sold
substantially all of the operating assets of its ViSTA testing tools operation
resulting in a gain on the sale of approximately $1.7 million.
 
     Income Taxes. The Company had effective tax rates of 4%, 15% and 24% in
1997, 1996 and 1995, respectively. The Company's effective tax rate is lower
than the combined federal and state statutory rates primarily due to the
utilization of federal net operating loss carryforwards, offset by the impact of
non-deductible merger-related costs and in-process research and development, as
well as foreign taxes. The 1997 tax provision reflects a benefit of $4.2
million, or 18%, due to a partial reversal of the valuation allowance for
deferred tax assets.
 
     Under Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes" ("SFAS 109"), deferred tax liabilities and assets are recognized
for the expected future tax consequences of temporary differences between the
carrying amount of assets and liabilities for financial reporting and the
amounts used for income tax purposes. The realization of the Company's net
deferred tax assets, which relate primarily to net operating loss and tax credit
carryforwards and temporary differences, is dependent on generating sufficient
taxable income in future periods. Although realization is not assured,
management believes it is more likely than not that the net deferred tax asset
will be realized. The amount of the net deferred tax assets considered
realizable, however, could be reduced or increased in the near term if estimates
of future taxable income are changed. Management intends to evaluate the
realizability of the net deferred tax assets on a quarterly basis to assess the
need for the valuation allowance.
 
     New Accounting Pronouncements. In June 1997, the Financial Accounting
Standards Board issued Statement No. 130, "Reporting Comprehensive Income"
("SFAS 130") and Statement No. 131, "Disclosures About Segments of An Enterprise
and Related Information" ("SFAS 131"). SFAS 130 established rules for reporting
and displaying comprehensive income. SFAS 131 will require the Company to use
the "management approach" in disclosing segment information. Both statements are
effective for the Company during 1998. The Company does not believe that the
adoption of either SFAS 130 or SFAS 131 will have a material impact on the
Company's results of operations, cash flows or financial position.
 
     Year 2000 Compliance. The Company is aware of the issues associated with
the programming code in existing computer systems as the millennium ("Year
2000") approaches. The Year 2000 problem is pervasive and complex as virtually
every computer operation will be affected in some way by the rollover of the two
digit year value to 00. Systems that do not properly recognize date sensitive
information when the year changes to 2000 could generate erroneous data or cause
a system to fail. Significant uncertainty exists in the software industry
concerning the potential effects associated with such compliance. The Company
believes that all of its existing products will be Year 2000 compliant by the
end of the first quarter of fiscal 1998 and new products are being designed to
be Year 2000 compliant. Although products have undergone, or will undergo, the
Company's normal quality testing procedures, there can, however, be no assurance
that the Company's products will contain all necessary date code changes. Any
failure of the Company's products to perform, including system malfunctions due
to the onset of the calendar year 2000, could result in claims against the
Company, which could have a material adverse effect on the Company's business,
financial condition and results of operations. Moreover, the Company's customers
could choose to convert to other calendar year 2000 compliant products or to
develop their own products in order to avoid such malfunctions, which could have
a material adverse effect on the Company's business, financial condition and
results of operations.
 
                                       29
<PAGE>   31
 
     The Company is also currently in the process of evaluating its information
technology infrastructure for Year 2000 compliance, including reviewing what
actions are required to make all software systems used internally Year 2000
compliant as well as actions needed to mitigate vulnerability to problems with
suppliers and other third parties' systems. Such actions include a review of
vendor contracts and formal communication with suppliers to request
certification that products are Year 2000 compliant. The Company is assessing
the extent of the necessary modifications to its computer software, and
management does not anticipate that the Company will incur significant operating
expenses or be required to invest heavily in computer system improvements to be
Year 2000 compliant. There can be no assurance that such measures will alleviate
the Year 2000 problems which could have a material adverse effect upon the
Company's business, operating results and financial condition.
 
QUARTERLY RESULTS OF OPERATIONS
 
     The following tables set forth selected unaudited consolidated results of
operations data for each of the eight quarters in the period ended December 31,
1997. This information has been derived from unaudited consolidated financial
statements of the Company that, in the opinion of management, reflect all
recurring adjustments necessary to fairly present this information when read in
conjunction with the Company's Consolidated Financial Statements and Notes
thereto appearing in Item 8 of this Form 10-K. The results of operations for any
quarter are not necessarily indicative of the results to be expected for any
future period.
 
<TABLE>
<CAPTION>
                                                        FOURTH        THIRD         SECOND        FIRST
                                                       QUARTER       QUARTER       QUARTER       QUARTER
                                                      ----------    ----------    ----------    ----------
                                                       (IN THOUSANDS EXCEPT PER SHARE AMOUNTS, UNAUDITED)
<S>                                                   <C>           <C>           <C>           <C>
FISCAL 1997
Total net revenue...................................   $35,760       $30,821       $28,934       $25,610
Gross profit........................................    29,808        26,442        25,590        22,840
Income (loss) before income taxes...................     9,973         8,315        (1,013)        6,484
Net income (loss)...................................    12,278         6,736        (1,682)        5,417
Net income (loss) per share -- basic(1)(2)..........   $  0.40       $  0.22       $ (0.06)      $  0.18
Number of shares used in computing per share
  amounts -- basic(1)(2)............................    30,650        30,497        30,328        30,147
Net income (loss) per share -- diluted(1)(2)........   $  0.36       $  0.20       $ (0.06)      $  0.17
Number of shares used in computing per share
  amounts -- diluted(1)(2)..........................    33,668        33,435        30,328        32,406
FISCAL 1996
Total net revenue...................................   $21,852       $17,706       $17,890       $15,298
Gross profit........................................    19,526        15,695        16,277        13,786
Income before income taxes..........................     5,352         3,729         1,979         3,240
Net income..........................................     4,469         3,250         1,561         2,849
Net income per share -- basic(1)(2).................   $  0.15       $  0.11       $  0.05       $  0.11
Number of shares used in computing per share
  amounts -- basic(1)(2)............................    29,940        29,743        28,970        27,077
Net income per share -- diluted(1)(2)...............   $  0.14       $  0.10       $  0.05       $  0.10
Number of shares used in computing per share
  amounts -- diluted(1)(2)..........................    32,447        31,726        30,911        28,903
</TABLE>
 
---------------
 
(1) Earnings per share amounts for 1996 and the first three quarters of 1997
    have been restated to comply with Statement of Financial Accounting
    Standards No. 128, "Earnings Per Share" ("SFAS 128"). For further discussion
    of earnings per share and the impact of SFAS 128, see the notes to the
    consolidated financial statements beginning on page 39.
 
(2) Share and per share data applicable to prior periods has been restated to
    give retroactive effect to a 3-for-2 stock split in the form of a stock
    dividend effected in September 1997.
 
                                       30
<PAGE>   32
 
     The Company's operating results have fluctuated in the past, and may
fluctuate significantly in the future depending on a number of factors,
including (i) the timing and level of sales of the Company's products by OEMs,
(ii) the introduction, timing and market acceptance of new products, (iii) the
unpredictability of the timing and level of sales to resellers and direct
end-users, (iv) the timing of license fee payments and receipt of funding for
porting, (v) financial expenses for investment in new products and distribution
channels, and (vi) certain other factors. For further background on fluctuating
operating results, see "Certain Factors Which May Affect Future Operation
Results -- Fluctuating Operating Results."
 
LIQUIDITY AND CAPITAL RESOURCES
 
     The Company's cash, cash equivalents and short-term investments totaled
$190.8 million at December 31, 1997 and represented 79% of total assets. Cash
and cash equivalents are highly liquid with original maturities of ninety days
or less. Short-term investments consist mainly of investment grade commercial
paper, market auction preferreds, government agency notes and other short-term
notes. At December 31, 1997, the Company had $100.9 million of long-term
obligations and stockholders' equity was approximately $104.2 million.
 
     Net cash provided from operating activities was $26.8 million, $14.4
million and $0.6 million in 1997, 1996 and 1995, respectively. In 1997, cash
provided from operating activities improved from 1996 as a result of higher net
income and larger increases in accounts payable and accrued liabilities balances
and increased amounts of deferred revenue partially offset by increases in
accounts receivable and prepaid expenses, reflecting the Company's overall
growth. In 1996, cash flows from operations improved from 1995, resulting from
higher net income and increases in accounts payable and accrued liabilities
balances partially offset by increases in accounts receivable.
 
     The Company's investing activities used cash of $71.1 million in 1997
primarily for net purchases of short-term investments of $65.0 million, and
capital expenditures of $6.2 million. The Company's investing activities used
cash of $31.4 million in 1996 and consisted primarily of $22.7 million of net
purchases of short-term investments, $5.5 million used for capital expenditures
and $3.5 million used for the purchase of ACSC. The Company's investing
activities used cash of $17.6 million in 1995 consisting primarily of $17.6
million of net purchases of short-term investments and $2.3 million used for
capital expenditures, offset by proceeds of $2.2 million related to the sale of
the operating assets of the ViSTA testing tools operation.
 
     Financing activities provided cash of $102.9 million in 1997, primarily
from the net proceeds of $97.5 million from the issuance of the Notes and
issuance of common stock of $5.8 million under the Company's employee stock
plans, partially offset by the payment against the note payable. In 1996,
financing activities provided cash of $31.0 million that reflects the net
proceeds of $36.4 million from OpenVision's May 1996 initial public stock
offering and issuance of common stock of $2.7 million under the Company's
employee stock plans, partially offset by the payments made against notes
payable. In 1995, financing activities provided cash of $2.1 million primarily
from the issuance of debt and common stock under the Company's employee stock
plans, partially offset by the payments made against notes payable.
 
     In October 1997, the Company issued $100.0 million aggregate principal
amount of Notes, for which the Company received net proceeds of $97.5 million.
The Notes provide for semi-annual interest payments of approximately $2.6
million each May 1 and November 1, commencing on May 1, 1998. The Notes are
convertible into the Company's 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 $64.50 per share, subject to adjustment in certain events.
On or after November 5, 2002, the Notes will be redeemable over the period of
time until maturity at the option of the Company at declining premiums to par.
The debt issuance costs are being amortized as interest expense ratably over the
term of the Notes.
 
     The issuance of the Notes resulted in a ratio of long-term debt to total
capitalization at December 31, 1997 of approximately 49.2%. As a result of this
additional indebtedness, the Company's principal and interest payment
obligations will increase substantially. The degree to which the Company will be
leveraged could materially and adversely affect the Company's ability to obtain
financing for working capital, acquisitions or other purposes and could make it
more vulnerable to industry downturns and competitive pressures. The
                                       31
<PAGE>   33
 
Company will require substantial amounts of cash to fund scheduled payments of
principal and interest on its indebtedness, including the Notes, future capital
expenditures and any increased working capital requirements. If the Company is
unable to meet its cash requirements out of cash flow from operations, there can
be no assurance that it will be able to obtain alternative financing.
 
     The Company believes that its current cash, cash equivalents and short-term
investment balances and cash flow from operations, if any, will be sufficient to
meet the Company's working capital and capital expenditure requirements for at
least the next twelve months. Thereafter, the Company may require additional
funds to support its working capital requirements or for other purposes and may
seek to raise such additional funds through public or private equity financing
or from other sources. There can be no assurance that additional financing will
be available at all or that if available, such financing will be obtainable on
terms favorable to the Company.
 
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
     Not applicable.
 
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
                          ANNUAL FINANCIAL STATEMENTS
 
     The financial statements listed in Item 14(a)(1) are included in this
report beginning on Page 35.
 
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
 
     Not applicable.
 
                                    PART III
 
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
 
     The information required by this item is incorporated by reference to the
Company's Proxy Statement to be filed pursuant to Regulation 14A of the
Securities and Exchange Commission under the Securities Exchange Act of 1934
(the "Proxy Statement").
 
ITEM 11. EXECUTIVE COMPENSATION
 
     The information required by this item is incorporated by reference to the
Company's Proxy Statement.
 
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
 
     The information required by this item is incorporated by reference to the
Company's Proxy Statement.
 
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 
     The information required by this item is incorporated by reference to the
Company's Proxy Statement.
 
                                       32
<PAGE>   34
 
                                    PART IV
 
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
 
     (a) The following documents are filed as part of this report:
 
(1) FINANCIAL STATEMENTS
 
     The following financial statements are filed as part of this Annual Report
on Form 10-K:
 
<TABLE>
<CAPTION>
                                                              PAGE
                                                              ----
<S>                                                           <C>
Consolidated Balance Sheets as of December 31, 1997 and
  December 31, 1996.........................................    35
Consolidated Statements of Operations for the years ended
  December 31, 1997, 1996 and 1995..........................    36
Consolidated Statements of Stockholders' Equity for the
  years ended December 31, 1997, 1996
  and 1995..................................................    37
Consolidated Statements of Cash Flows for the years ended
  December 31, 1997, 1996 and 1995..........................    38
Notes to Consolidated Financial Statements..................    39
Report of Ernst & Young LLP, Independent Auditors...........    50
</TABLE>
 
(2) FINANCIAL STATEMENT SCHEDULES
 
     The following financial statement schedule for the years ended December 31,
1997, 1996 and 1995 should be read in conjunction with the consolidated
financial statements of VERITAS Software Corporation filed as part of this
Annual Report on Form 10-K:
 
<TABLE>
<S>                                                           <C>
Schedule II -- Valuation and Qualifying Accounts and
  Reserves..................................................    51
</TABLE>
 
     Schedules other than that listed above have been omitted since they are
either not required, not applicable, or because the information required is
included in the consolidated financial statements or the notes thereto.
 
(3) EXHIBITS
 
<TABLE>
<CAPTION>
EXHIBIT
NUMBER                           EXHIBIT TITLE
-------                          -------------
<C>       <S>
  2.01    Agreement and Plan of Reorganization by and among the
          Registrant, VERITAS Software Corporation, a California
          corporation ("VERITAS California") and OpenVision dated
          January 13, 1997 (incorporated by reference to Exhibit 2.01
          of the Registrant's Registration Statement on Form S-4 filed
          with the Securities and Exchange Commission on March 24,
          1997 (the "Form S-4"))
  3.01    Registrant's Certificate of Incorporation (incorporated by
          reference to Exhibit 3.01 to the Form S-4)
  3.02    Registrant's Bylaws (incorporated by reference to Exhibit
          3.02 to the Form S-4)
  4.01    Registration Rights Agreement between the Registrant and
          Warburg, Pincus Investors, L.P. dated April 25, 1997
          (incorporated by reference to Exhibit 4.01 of the
          Registrant's Quarterly Report on Form 10-Q for the quarter
          ended June 30, 1997 (the "June 1997 Form 10-Q"))
  4.02    Nomination Agreement between the Registrant and Warburg,
          Pincus Investors, L.P. dated April 25, 1997 (incorporated by
          reference to Exhibit 4.02 to the June 1997 Form 10-Q).
  4.03    Indenture dated as of October 1, 1997 between the Registrant
          and State Street Bank and Trust Company of California, N.A.
          (incorporated by reference to Exhibit 4.06 of the
          Registrant's Quarterly Report on Form 10-Q for the quarter
          ended September 30, 1997 (the "September 1997 Form 10-Q"))
  4.04    Registration Rights Agreement dated as of October 1, 1997
          between the Registrant and UBS Securities LLC (incorporated
          by reference to Exhibit 4.07 to the September 1997 Form
          10-Q)
</TABLE>
 
                                       33
<PAGE>   35
 
<TABLE>
<CAPTION>
EXHIBIT
NUMBER                           EXHIBIT TITLE
-------                          -------------
<C>       <S>
 10.01    Registrant's 1993 Equity Incentive Plan, as amended
          (incorporated by reference to Exhibit 10.03 to the Form S-4)
 10.02    Registrant's 1993 Directors Stock Option Plan, as amended
          (incorporated by reference to Exhibit 10.04 to the Form S-4)
 10.03    Registrant's 1993 Employee Stock Purchase Plan, as amended
          (incorporated by reference to Exhibit 10.05 to the Form S-4)
 10.04    OpenVision Technologies, Inc. 1996 Employee Stock Purchase
          Plan, as amended (incorporated by reference to Exhibit 10.19
          to the Form S-4)
 10.05    Registrant's 1997 Chief Executive Officer Compensation Plan*
 10.06    Registrant's 1997 Executive Officer Compensation Plan*
 10.07    Key Employee Agreement between Registrant, VERITAS
          California, and Jay A. Jones (incorporated by reference to
          Exhibit 10.18 to the Form S-4)*
 10.08    Key Employee Agreement between the Registrant, VERITAS
          California and Geoffrey W. Squire*
 10.09    Key Employee Agreement between the Registrant, VERITAS
          California, and Kenneth E. Lonchar*
 10.10    Key Employee Agreement between the Registrant, VERITAS
          California, and Paul A. Sallaberry*
 10.11    Office Building Lease, dated September 2, 1994, as amended,
          by and between the Registrant and John Arriliaga and Richard
          T. Peery regarding property located in Mountain View,
          California (incorporated herein by reference to Exhibit
          10.09 of the Registrant's Annual Report on Form 10-K for the
          year ended December 31, 1994 filed with the SEC on March 29,
          1995)
 10.12    Amendment No 1. to Office Building Lease dated May 28, 1997
          by and between the Registrant and John Arriliaga and Richard
          T. Perry
 10.13    Agreement dated November 7, 1996 between VERITAS Software
          India Pvt. Ltd. and Talwalkar & Talwalkar and Mr. Rajendra
          Dattatraya Pathak, Mrs. Kamal Trimbak Nighojkar, Mrs. Bakul
          Prabhakar Pathak, Mrs. Nalini Manohar Saraf, Mr. Narhar
          Vaman Pandit, Mr. Madhav Narhar Pandit, Ms. Madhavi Damodar
          Thite, and Ms. Medha Narhar Pandit relating to the
          development of certain premises in Pune India (incorporated
          by reference to Exhibit 10.12 to the Form S-4)
 21.01    Subsidiaries of the Registrant
 23.01    Consent of Ernst & Young LLP, Independent Auditors
 27.01    Financial Data Schedule (EDGAR only)
</TABLE>
 
---------------
 
* Management contract or compensatory plan or arrangements.
 
     (b) REPORTS ON FORM 8-K
 
     (i) The Company filed a report on Form 8-K dated October 3, 1997 which
included the following items:
 
     Item 5. Disclosure of a press release filed by the Company announcing its
intention to raise $100 million through a private offering of Convertible
Subordinated Notes.
 
     Item 7(c). The Company filed the following exhibit:
 
     99.1  Press Release, dated October 3, 1997, of VERITAS Software Corporation
 
     (ii) The Company filed a report on Form 8-K dated October 10, 1997 which
included the following items:
 
     Item 5. Disclosure of a press release filed by the Company announcing its
intention to sell $100 million of its 5 1/4% Convertible Subordinated Notes due
2004.
 
     Item 7(c). The Company filed the following exhibit:
 
     99.1  Press Release, dated October 10, 1997, of VERITAS Software
Corporation
 
                                       34
<PAGE>   36
 
                          VERITAS SOFTWARE CORPORATION
 
                          CONSOLIDATED BALANCE SHEETS
               (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
 
                                     ASSETS
 
<TABLE>
<CAPTION>
                                                                  DECEMBER 31,
                                                              ---------------------
                                                                1997        1996
                                                              --------    ---------
<S>                                                           <C>         <C>
Current assets:
  Cash and cash equivalents.................................  $ 75,629    $  17,411
  Short-term investments....................................   115,131       50,145
  Accounts receivable, net of allowance for doubtful
     accounts of $1,597 and $697 at December 31, 1997 and
     1996, respectively(1)..................................    30,296       15,971
  Prepaid expenses..........................................     4,298        1,987
                                                              --------    ---------
          Total current assets..............................   225,354       85,514
  Property and equipment, net...............................    10,109        6,997
  Other assets..............................................     6,417        2,013
                                                              --------    ---------
                                                              $241,880    $  94,524
                                                              ========    =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable..........................................  $  1,552    $   1,780
  Accrued compensation and benefits.........................     6,595        3,201
  Other accrued liabilities.................................    11,180        4,875
  Deferred revenue..........................................    17,449        8,096
  Current portion of note payable...........................        --          149
                                                              --------    ---------
          Total current liabilities.........................    36,776       18,101
  Note payable, less current portion........................        --          463
  Deferred rent.............................................       911        1,005
  Convertible subordinated notes............................   100,000           --
  Commitments and contingencies.............................
  Stockholders' equity:
     Preferred stock, $.001 par value:
       10,000,000 shares authorized: none issued and
        outstanding.........................................        --           --
     Common stock, $.001 par value:
       75,000,000 shares authorized; 30,751,544 and
        30,026,245 shares issued and outstanding at December
        31, 1997 and 1996, respectively.....................        31           30
     Additional paid-in capital.............................   185,856      179,380
     Accumulated deficit....................................   (81,064)    (103,813)
     Notes receivable from stockholders.....................        --         (282)
     Deferred compensation..................................       (64)         (97)
     Foreign currency translation adjustment................      (566)        (263)
                                                              --------    ---------
          Total stockholders' equity........................   104,193       74,955
                                                              --------    ---------
                                                              $241,880    $  94,524
                                                              ========    =========
</TABLE>
 
---------------
 
(1) See Note 12 for related party disclosures.
 
          See accompanying notes to consolidated financial statements.
                                       35
<PAGE>   37
 
                          VERITAS SOFTWARE CORPORATION
 
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
 
<TABLE>
<CAPTION>
                                                                 YEARS ENDED DECEMBER 31,
                                                              ------------------------------
                                                                1997       1996       1995
                                                                ----       ----       ----
<S>                                                           <C>         <C>        <C>
Net revenue:(1)
  User license fees.........................................  $ 95,714    $59,223    $37,013
  Services..................................................    20,182     12,273      9,481
  Porting...................................................     5,229      1,250      1,332
                                                              --------    -------    -------
          Total net revenue.................................   121,125     72,746     47,826
Cost of revenue:
  User license fees.........................................     4,731      3,020      1,929
  Services..................................................     7,624      3,646      3,768
  Porting...................................................     4,090        796      1,150
                                                              --------    -------    -------
          Total cost of revenue.............................    16,445      7,462      6,847
                                                              --------    -------    -------
Gross profit................................................   104,680     65,284     40,979
                                                              --------    -------    -------
Operating expenses:
  Selling and marketing.....................................    42,868     25,998     19,362
  Research and development..................................    25,219     18,480     12,755
  General and administrative................................     8,027      6,748      7,669
  Merger-related costs......................................     8,490         --         --
  In-process research and development.......................        --      2,200         --
                                                              --------    -------    -------
          Total operating expenses..........................    84,604     53,426     39,786
                                                              --------    -------    -------
Income from operations......................................    20,076     11,858      1,193
Interest expense............................................    (1,206)      (343)    (1,198)
Interest and other income...................................     4,889      2,785      1,417
Gain on sale of ViSTA operations............................        --         --      1,726
                                                              --------    -------    -------
Income before income taxes..................................    23,759     14,300      3,138
Provision for income taxes..................................     1,010      2,171        767
                                                              --------    -------    -------
Net income..................................................  $ 22,749    $12,129    $ 2,371
                                                              ========    =======    =======
Net income per share -- basic...............................  $   0.75    $  0.42    $  0.09
                                                              ========    =======    =======
Number of shares used in computing per share
  amounts -- basic..........................................    30,415     28,684     26,902
                                                              ========    =======    =======
Net income per share -- diluted.............................  $   0.69    $  0.39    $  0.08
                                                              ========    =======    =======
Number of shares used in computing per share
  amounts -- diluted........................................    32,995     30,997     28,708
                                                              ========    =======    =======
</TABLE>
 
---------------
 
(1) See Note 12 for related party disclosures.
 
          See accompanying notes to consolidated financial statements.
                                       36
<PAGE>   38
 
                          VERITAS SOFTWARE CORPORATION
 
                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                      (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
                                                 CONVERTIBLE
                                               PREFERRED STOCK    COMMON STOCK     ADDITIONAL
                                               ---------------   ---------------    PAID-IN     ACCUMULATED
                                               SHARES   AMOUNT   SHARES   AMOUNT    CAPITAL       DEFICIT
                                               ------   ------   ------   ------   ----------   -----------
<S>                                            <C>      <C>      <C>      <C>      <C>          <C>
Balance at December 31, 1994                    6,256   $ 120    20,038    $21      $138,387     $(124,064)
  Elimination of OpenVision for duplicate
    period...................................      --      --      (332)    --          (255)        5,722
  Issuance of common stock...................      --      --        72     --            --            --
  Deferred compensation resulting from stock
    grants...................................      --      --        --     --           129            --
  Effect of compensation related to
    accelerated vesting of stock options.....      --      --        --     --           453            --
  Issuance of common stock under employee
    stock purchase plan......................      --      --       207     --           402            --
  Issuance of common stock related to merger
    with Tidalwave...........................      --      --       528     --            --            29
  Exercise of warrants issued in merger with
    Tidalwave................................      --      --       103     --            --            --
  Exercise of stock options..................      --      --       920     --         1,048            --
  Issuance of notes receivable to
    stockholders.............................      --      --        --     --            --            --
  Payments on notes receivable from
    stockholders.............................      --      --        --     --            --            --
  Foreign currency translation adjustment....      --      --        --     --            --            --
  Net income.................................      --      --        --     --            --         2,371
                                               ------   -----    ------    ---      --------     ---------
Balance at December 31, 1995                    6,256     120    21,536     21       140,164      (115,942)
  Conversion of preferred stock to common
    stock....................................  (6,256)   (120)    6,256      6           120            --
  Issuance of common stock...................      --      --     1,511      3        36,436            --
  Exercise of stock options and warrants.....      --      --       442     --         1,092            --
  Issuance of common stock under employee
    stock purchase plan......................      --      --       281     --         1,568            --
  Payments on notes receivable from
    stockholders.............................      --      --        --     --            --            --
  Amortization of deferred compensation......      --      --        --     --            --            --
  Foreign currency translation adjustment....      --      --        --     --            --            --
  Net income.................................      --      --        --     --            --        12,129
                                               ------   -----    ------    ---      --------     ---------
Balance at December 31, 1996                       --      --    30,026     30       179,380      (103,813)
  Exercise of stock options..................      --      --       555      1         3,269            --
  Issuance of common stock under employee
    stock purchase plan......................      --      --       170     --         2,507            --
  Payments on notes receivable from
    stockholders.............................      --      --        --     --            --            --
  Amortization of deferred compensation......      --      --        --     --            --            --
  Tax benefit for disqualifying
    dispositions.............................      --      --        --     --           700            --
  Foreign currency translation adjustment....      --      --        --     --            --            --
  Net income.................................      --      --        --     --            --        22,749
                                               ------   -----    ------    ---      --------     ---------
Balance at December 31, 1997                       --   $  --    30,751    $31      $185,856     $ (81,064)
                                               ======   =====    ======    ===      ========     =========
 
<CAPTION>
                                                  NOTES                        FOREIGN
                                                RECEIVABLE                    CURRENCY         TOTAL
                                                   FROM         DEFERRED     TRANSLATION   STOCKHOLDERS'
                                               STOCKHOLDERS   COMPENSATION   ADJUSTMENT       EQUITY
                                               ------------   ------------   -----------   -------------
<S>                                            <C>            <C>            <C>           <C>
Balance at December 31, 1994                   $     (284)       $  --          $(128)       $ 14,052
  Elimination of OpenVision for duplicate
    period...................................         184           --             20           5,671
  Issuance of common stock...................          --           --             --              --
  Deferred compensation resulting from stock
    grants...................................          --         (129)            --              --
  Effect of compensation related to
    accelerated vesting of stock options.....          --           --             --             453
  Issuance of common stock under employee
    stock purchase plan......................          --           --             --             402
  Issuance of common stock related to merger
    with Tidalwave...........................          --           --             --              29
  Exercise of warrants issued in merger with
    Tidalwave................................          --           --             --              --
  Exercise of stock options..................        (404)          --             --             644
  Issuance of notes receivable to
    stockholders.............................        (225)          --             --            (225)
  Payments on notes receivable from
    stockholders.............................         202           --             --             202
  Foreign currency translation adjustment....          --           --              3               3
  Net income.................................          --           --             --           2,371
                                               ------------      -----          -----        --------
Balance at December 31, 1995                         (527)        (129)          (105)         23,602
  Conversion of preferred stock to common
    stock....................................          --           --             --               6
  Issuance of common stock...................          --           --             --          36,439
  Exercise of stock options and warrants.....          --           --             --           1,092
  Issuance of common stock under employee
    stock purchase plan......................          --           --             --           1,568
  Payments on notes receivable from
    stockholders.............................         245           --             --             245
  Amortization of deferred compensation......          --           32             --              32
  Foreign currency translation adjustment....          --           --           (158)           (158)
  Net income.................................          --           --             --          12,129
                                               ------------      -----          -----        --------
Balance at December 31, 1996                         (282)         (97)          (263)         74,955
  Exercise of stock options..................          --           --             --           3,270
  Issuance of common stock under employee
    stock purchase plan......................          --           --             --           2,507
  Payments on notes receivable from
    stockholders.............................         282           --             --             282
  Amortization of deferred compensation......          --           33             --              33
  Tax benefit for disqualifying
    dispositions.............................          --           --             --             700
  Foreign currency translation adjustment....          --           --           (303)           (303)
  Net income.................................          --           --             --          22,749
                                               ------------      -----          -----        --------
Balance at December 31, 1997                   $       --        $ (64)         $(566)       $104,193
                                               ============      =====          =====        ========
</TABLE>
 
          See accompanying notes to consolidated financial statements.
                                       37
<PAGE>   39
 
                          VERITAS SOFTWARE CORPORATION
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
                                 (IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                                YEARS ENDED DECEMBER 31,
                                                            ---------------------------------
                                                              1997         1996        1995
                                                            ---------    --------    --------
<S>                                                         <C>          <C>         <C>
OPERATING ACTIVITIES:
  Net income..............................................  $  22,749    $ 12,129    $  2,371
  Adjustments to reconcile net income to net cash provided
     by operating activities:
  Depreciation and amortization...........................      3,116       3,672       2,066
  Amortization of bond issue costs........................         91          --          --
  Deferred rent...........................................        (94)        411         594
  Gain on sale of ViSTA operations........................         --          --      (1,726)
  In-process research and development.....................         --       2,200          --
  Benefit from deferred income taxes......................      4,200          --          --
  Non-cash merger-related costs...........................      1,218          --          --
  Changes in operating assets and liabilities:
     Accounts receivable..................................    (14,601)     (5,966)     (1,910)
     Prepaid expenses and other assets....................     (8,667)     (1,001)       (721)
     Accounts payable and accrued liabilities.............      9,438       1,840        (327)
     Deferred revenue.....................................      9,370       1,084         234
                                                            ---------    --------    --------
       Net cash provided by operating activities..........     26,820      14,369         581
INVESTING ACTIVITIES:
  Purchases of short-term investments.....................   (144,907)    (69,761)    (33,909)
  Sales of short-term investments.........................     79,921      47,025      16,300
  Proceeds from the sale of ViSTA assets, net.............         --          --       2,172
  Payment received on CenterLine note.....................        108         282         187
  Purchase of equipment...................................     (6,181)     (5,469)     (2,325)
  Note receivable from officer............................         --          --         (68)
  Purchase of ACSC........................................         --      (3,450)         --
                                                            ---------    --------    --------
       Net cash used for investing activities.............    (71,059)    (31,373)    (17,643)
FINANCING ACTIVITIES:
  Net proceeds from (repayment of) short-term
     borrowings...........................................         --      (2,061)      2,061
  Proceeds from issuance of common stock..................      5,777      39,105         784
  Net proceeds from issuance of convertible debt..........     97,500          --          --
  Principal payments under capital lease obligations......         --        (116)       (296)
  Payments of notes payable...............................       (612)     (6,153)       (672)
  Payments on notes receivable from stockholders..........        282         245         198
                                                            ---------    --------    --------
       Net cash provided by financing activities..........    102,947      31,020       2,075
Elimination of OpenVision for duplicate period............         --          --       5,722
Effect of exchange rate changes...........................       (490)       (132)         23
                                                            ---------    --------    --------
Net increase (decrease) in cash and cash equivalents           58,218      13,884      (9,242)
Cash and cash equivalents at beginning of year............     17,411       3,527      12,769
                                                            ---------    --------    --------
Cash and cash equivalents at end of year..................  $  75,629    $ 17,411    $  3,527
                                                            =========    ========    ========
SUPPLEMENTAL DISCLOSURES:
Cash paid for interest....................................  $      --    $  1,289    $    128
Cash paid for income taxes................................  $   1,703    $  1,341    $    446
Conversion of preferred stock to common stock.............  $      --    $ 71,806    $     --
Common stock issued in exchange for stockholder notes
  receivable..............................................  $      --    $     --    $    404
</TABLE>
 
          See accompanying notes to consolidated financial statements.
                                       38
<PAGE>   40
 
                          VERITAS SOFTWARE CORPORATION
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
NOTE 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
     VERITAS Software Corporation, a Delaware corporation (the "Company")
develops, markets and supports enterprise data storage management solutions,
providing advanced storage management software for open system environments. The
Company's products provide performance improvement and reliability enhancement
features that are critical for many commercial applications. These products
provide protection against data loss and file corruption, rapid recovery after
disk or system failure, the ability to process large files efficiently and the
ability to manage and back-up large networks of systems without interrupting
users. In addition, the Company's products provide an automated failover between
computer systems organized in clusters sharing disk resources. The Company's
highly scalable products can be used independently, and certain products can be
combined to provide interoperable client/server storage management solutions.
The Company's products offer centralized administration with a high degree of
automation, enabling customers to manage complex, distributed environments
cost-effectively by increasing system administrator productivity and system
availability. The Company also provides a comprehensive range of services to
assist customers in planning and implementing storage management solutions. The
Company markets its products and associated service to OEM and end-user
customers through a combination of direct and indirect sales channels
(resellers, VARs, hardware distributors, application software vendors and
systems integrators).
 
  Basis of Presentation
 
     The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All significant intercompany transactions and
balances have been eliminated in consolidation. As more fully described in Note
2, the Company merged with OpenVision Technologies, Inc. ("OpenVision") in April
1997 in a pooling of interests transaction. The Company's consolidated financial
statements for prior periods have been restated to include the financial
position, results of operation and cash flows of OpenVision.
 
  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 consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates.
 
  Cash, Cash Equivalents and Short-Term Investments
 
     The Company considers highly liquid investments with maturities of less
than ninety days when purchased to be cash equivalents.
 
     The Company has determined its short-term investments are held to maturity
under the provisions of Statement of Financial Accounting Standards No. 115 and
accordingly such amounts are recorded at cost. At December 31, 1997, cost
approximated fair value for all cash equivalents and short-term investments. To
date, there have been no significant realized or unrealized gains or losses on
the Company's cash equivalents or short-term investments. The cost of securities
sold is based on the specific identification method.
 
                                       39
<PAGE>   41
                          VERITAS SOFTWARE CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
     Cash, cash equivalents and short-term investments consist of the following
(in thousands):
 
<TABLE>
<CAPTION>
                                                            1997       1996
                                                          --------    -------
<S>                                                       <C>         <C>
Cash and cash equivalents:
  Cash..................................................  $  7,817    $ 3,088
  Money market funds....................................     2,717      5,574
  Commercial paper......................................    65,095      8,749
                                                          --------    -------
Cash and cash equivalents...............................    75,629     17,411
                                                          --------    -------
Short-term investments:
  Commercial paper......................................    50,640     15,975
  Market auction preferreds.............................    19,061      8,000
  Government agency notes...............................    19,748      8,018
  Short-term notes......................................    25,682     18,152
                                                          --------    -------
Short-term investments..................................   115,131     50,145
                                                          --------    -------
Cash, cash equivalents and short-term investments.......  $190,760    $67,556
                                                          ========    =======
</TABLE>
 
  Property and Equipment
 
     Furniture and equipment are depreciated using the straight-line method over
the estimated useful lives, generally three to five years or, in the case of
leasehold improvements, the term of the related lease, if shorter. Depreciation
and amortization of property and equipment charged to costs and expenses was
approximately $3.1 million, $3.3 million and $2.1 million for the years ended
December 31, 1997, 1996 and 1995, respectively. Property and equipment is stated
at cost and consisted of the following at December 31 (in thousands):
 
<TABLE>
<CAPTION>
                                                            1997       1996
                                                          --------    -------
<S>                                                       <C>         <C>
Furniture and equipment.................................  $  2,758    $ 2,643
Computer equipment......................................    18,624     13,410
Leasehold improvements..................................     1,384        652
                                                          --------    -------
                                                            22,766     16,705
Less -- accumulated depreciation and amortization.......   (12,657)    (9,708)
                                                          --------    -------
Property and equipment, net.............................  $ 10,109    $ 6,997
                                                          ========    =======
</TABLE>
 
  Software Development Costs
 
     Under Statement of Financial Accounting Standards No. 86 "Accounting for
the Costs of Computer Software to be Sold, Leased or Otherwise Marketed,"
certain software development costs incurred subsequent to the establishment of
technological feasibility are capitalized and amortized over the estimated lives
of the related products. Technological feasibility is established upon
completion of a working model, which is typically demonstrated by initial beta
shipment. The period between the achievement of technological feasibility and
the general release of the Company's products has been of short duration. As of
December 31, 1997 such capitalizable software development costs were
insignificant and all software development costs have been charged to research
and development expense in the accompanying consolidated financial statements of
operations.
 
  Accounting for Stock-Based Compensation
 
     The Company accounts for its stock option plans and its employee stock
purchase plans in accordance with the provisions of the Accounting Principles
Board's Opinion No. 25 ("APB 25"), "Accounting for Stock Issued to Employees".
In 1995, the Financial Accounting Standards Board released the Statement of
 
                                       40
<PAGE>   42
                          VERITAS SOFTWARE CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock Based
Compensation". SFAS 123 provides an alternative to APB 25 and is effective for
fiscal years beginning after December 15, 1995. As permitted by SFAS 123, the
Company has continued to account for its employee stock plans in accordance with
provisions of APB 25. Accordingly, the Company has included pro forma
disclosures of net income and earnings per share (see Note 7).
 
  Revenue Recognition
 
     Revenues for the Company's storage management products are stated net of
customer discounts and revenue sharing obligations.
 
     Storage management products are primarily marketed to computer OEMs that
pay a source license fee upon delivery of the source code and a user license fee
each time operating systems incorporating the Company's storage management
products are shipped by the OEM to end-users. Source license fees are recognized
upon delivery of source code provided that no significant vendor obligations
remain and the collectability of the resulting receivable is probable. User
license fees are recognized in the period that the OEM licensee notifies the
Company of shipments to third-party end-users. Porting and other non-recurring
engineering revenues are generally recognized using the
"percentage-of-completion" accounting method. Other services include consulting,
training and maintenance. Consulting and training revenues are generally billed
and recognized as the services are performed. Maintenance is billed separately
in annual installments, and the related revenue is recognized over the term of
the contract.
 
  Concentrations of Credit Risk
 
     Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of investments in debt
securities and trade receivables. The Company primarily invests its excess cash
in government securities, time deposits, certificates of deposit with approved
financial institutions, commercial paper rated A-1/P-1, and other specific money
market instruments of similar liquidity and credit quality. The Company is
exposed to credit risks in the event of default by the financial institutions or
issuers of investments to the extent recorded on the balance sheet. The Company
generally does not require collateral. The Company maintains allowances for
credit losses, and such losses have been within management's expectations. For
the years ended December 31, 1997, 1996 and 1995 no customer accounted for
greater than 10% of revenues.
 
  Net Income Per Share
 
     In 1997, the Financial Accounting Standards Board issued Statement No. 128,
"Earnings Per Share" ("SFAS 128"). SFAS 128 replaced the calculation of primary
and fully diluted earnings per share with basic and diluted earnings per share.
Unlike primary earnings per share, basic earnings per share excludes any
dilutive effects of options, warrants and convertible securities. Diluted
earnings per share is very similar to the previously reported fully diluted
earnings per share. All earnings per share amounts for all periods presented
have been restated to conform to SFAS 128 requirements.
 
  Translation of Foreign Currencies
 
     The Company translates the accounts of its foreign subsidiaries using the
local currency as the functional currency. Consequently, assets and liabilities
of operations outside the United States are translated into U.S. dollars using
period-end exchange rates, and revenues and expenses are translated at the
weighted average monthly exchange rates. Gains and losses from this translation
process are credited or charged to stockholders' equity. Foreign currency
transaction gains and losses have not been significant.
 
                                       41
<PAGE>   43
                          VERITAS SOFTWARE CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
  New Accounting Pronouncements
 
     The new American Institute of Certified Public Accountants Statement of
Position, "Software Revenue Recognition" ("SOP 97-2") will be effective for the
Company beginning in the first quarter of 1998. The criteria for recognizing
revenue under SOP 97-2 are generally more rigorous than the previous accounting
standard and, in some cases, significantly more rigorous. Due to uncertainties
which exist with respect to the appropriate interpretations and manner of
implementation of SOP 97-2 in certain areas, the effect on the Company is
uncertain but could be significant.
 
     In June 1997, the Financial Accounting Standards Board issued Statement No.
130, "Reporting Comprehensive Income" ("SFAS 130") and Statement No. 131,
"Disclosures About Segments of An Enterprise and Related Information" ("SFAS
131"). SFAS 130 established rules for reporting and displaying comprehensive
income. SFAS 131 will require the Company to use the "management approach" in
disclosing segment information. Both statements are effective for the Company
during 1998. The Company does not believe that the adoption of either SFAS 130
or SFAS 131 will have a material impact on the Company's results of operations,
cash flows or financial position.
 
NOTE 2. BUSINESS COMBINATIONS
 
     Effective April 25, 1997, the Company merged with OpenVision, a
publicly-held company that provided storage management applications and services
for client/server computing environments (the "Merger"). This transaction was
accounted for as a pooling of interests. Approximately 9.8 million shares of the
Company's Common Stock were issued in the Merger and the Company has reserved
approximately 1.4 million shares of its Common Stock for issuance pursuant to
the assumption of outstanding options, warrants and other rights to purchase
OpenVision Common Stock. OpenVision had a fiscal year of June 30th and, in order
to conform OpenVision's year end to the Company's calendar year end, the
operating results of OpenVision for the six months ended June 30, 1995,
including revenue of $11.2 million and a net loss of $5.7 million, are included
in the consolidated statement of operations for both 1995 and 1994. Accordingly,
an adjustment was made in 1995 to the accumulated deficit for the duplication of
net income for this period.
 
     The following information shows revenue and net income of the separate
companies during the periods preceding the merger (in thousands):
 
<TABLE>
<CAPTION>
                                                  YEAR ENDED DECEMBER 31,
                                               ------------------------------
                                                 1997       1996       1995
                                               --------    -------    -------
<S>                                            <C>         <C>        <C>
Net revenue:
  VERITAS....................................  $ 12,454    $36,090    $24,087
  OpenVision.................................    13,156     36,656     23,739
  Combined company...........................    95,515         --         --
                                               --------    -------    -------
                                               $121,125    $72,746    $47,826
                                               ========    =======    =======
Net income:
  VERITAS....................................  $  3,752    $ 9,768    $ 9,874
  OpenVision.................................     1,665      2,361     (7,503)
  Combined company...........................    17,332         --         --
                                               --------    -------    -------
                                               $ 22,749    $12,129    $ 2,371
                                               ========    =======    =======
</TABLE>
 
     Note: April 1, 1997 was used as an approximation of the effective date of
the Merger.
 
     As a result of the Merger, the Company incurred charges to operations of
$8.5 million during the second quarter of 1997, consisting of approximately $4.2
million for transaction fees and professional services, $1.9 million for
contract terminations and asset write-offs and $2.4 million for other costs
incident to the Merger. Of the total charge, $1.2 million resulted from the
write-off of redundant assets and facilities and
                                       42
<PAGE>   44
                          VERITAS SOFTWARE CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
$7.3 million involved cash outflows of which $0.6 million represented future
outflows as of December 31, 1997. The future outflows are expected to be paid
before June 30, 1998.
 
     On April 1, 1996, the Company acquired all of the outstanding stock of
Advanced Computing Systems Company ("ACSC"), a company which had developed
technology for the operation and management of removable media volumes, devices
and repositories, for a total cost of approximately $3.5 million. Of the total
charge, $2.2 million was allocated to in-process research and development which
was expensed in the second quarter of 1996 and approximately $1.3 million was
allocated to acquired intangibles that were originally amortized and then fully
written off in the second quarter of 1997 as part of the Merger-related costs
since the ACSC product line became redundant upon the Merger.
 
     In March 1995, the Company sold substantially all of the operating assets
of its ViSTA testing tools operation resulting in a gain to the Company of
approximately $1.7 million in 1995.
 
     Prior to 1995, OpenVision acquired several software businesses and products
in transactions that were accounted for as purchases. In connection with these
acquisitions, the Company is required to pay royalties based on product revenue
in excess of specified minimum levels for periods of four to five years from the
dates of acquisition. Royalty expense totaled $1.0 million, $1.2 million and
$0.7 million in 1997, 1996 and 1995, respectively. Such amounts have been
included in cost of license revenue.
 
NOTE 3. NOTE PAYABLE
 
     Note payable consists of the following (in thousands):
 
<TABLE>
<CAPTION>
                                                              1997   1996
                                                              ----   -----
<S>                                                           <C>    <C>
Acquisition agreement, noninterest bearing, net of 8%
  imputed interest..........................................   $--   $ 612
Less current portion........................................   --     (149)
                                                               --    -----
Note payable, less current portion..........................   $--   $ 463
                                                               ==    =====
</TABLE>
 
     The note was paid in full in February 1997.
 
NOTE 4. CONVERTIBLE SUBORDINATED NOTES
 
     In October 1997, the Company issued $100.0 million aggregate principal
amount of 5.25% Convertible Subordinated Notes due 2004 (the "Notes"), for which
the Company received net proceeds of $97.5 million. The Notes provide for
semi-annual interest payments of approximately $2.6 million each May 1 and
November 1, commencing on May 1, 1998. The Notes are convertible into the
Company's 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 $64.50 per share, subject to adjustment in certain events. On or after
November 5, 2002, the Notes will be redeemable over the period of time until
maturity at the option of the Company at declining premiums to par. The debt
issuance costs are being amortized as interest expense ratably over the term of
the Notes.
 
                                       43
<PAGE>   45
                          VERITAS SOFTWARE CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 5. COMMITMENTS AND CONTINGENCIES
 
     The Company currently has operating leases for its facilities through
January 31, 2003. Rental expense under operating leases was approximately $4.3
million, $3.0 million, and $2.6 million for the years ended December 31, 1997,
1996, and 1995, respectively. In addition to the basic rent, the Company is
responsible for all taxes, insurance and utilities related to the facilities.
The approximate minimum lease payments as of December 31, 1997 are as follows
(in thousands):
 
<TABLE>
<S>                                                  <C>
1998...............................................  $ 4,555
1999...............................................    3,688
2000...............................................    3,418
2001...............................................    3,089
2002...............................................    1,444
Thereafter.........................................      134
                                                     -------
Minimum lease payments.............................  $16,328
                                                     =======
</TABLE>
 
     In the ordinary course of business, various lawsuits and claims have been
filed against the Company. While the outcome of these matters is currently not
determinable, management believes that the ultimate resolution of these matters
will not have a material adverse effect on the Company's consolidated financial
position, results of operations or cash flows.
 
NOTE 6. STOCKHOLDERS' EQUITY
 
     Share and per share amounts applicable to prior periods in the consolidated
financial statements have been restated to reflect a 3-for-2 stock split in the
form of a stock dividend executed by the Company in September 1997.
 
     The Company is authorized to issue up to 10,000,000 shares of undesignated
preferred stock. No such preferred shares have been issued to date.
 
     Total common shares reserved for issuance at December 31, 1997 under all
stock compensation plans are 8,025,000 shares (see Note 7).
 
  401(k) Plan
 
     The Company has a 401(k) savings and retirement plan which covers all
employees. Eligibility to participate begins the first day of the quarter
following date of hire. The Company made matching contributions of $345,000 and
$120,000 for the years ended December 31, 1997 and 1996, respectively and none
in the year ended December 31, 1995.
 
NOTE 7. STOCK COMPENSATION PLANS
 
     At December 31, 1997, the Company has four stock-based compensation plans,
which are described below. The Company applies APB Opinion No. 25 and related
Interpretations in accounting for its plans. Since the exercise price of options
granted under such plans is generally equal to the market value on the date of
grant, no compensation cost has been recognized for grants under its stock
option plans and stock purchase plans. If compensation cost for the Company's
stock-based compensation plans had been determined consistent with Statement of
Financial Accounting Standards No. 123 ("SFAS 123"), the Company's net
 
                                       44
<PAGE>   46
                          VERITAS SOFTWARE CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
income and earnings per share would have been reduced to the pro forma amounts
indicated below (in thousands, except per share amounts):
 
<TABLE>
<CAPTION>
                                                       1997       1996       1995
                                                      -------    -------    ------
<S>                           <C>                     <C>        <C>        <C>
Net income                    As reported...........  $22,749    $12,129    $2,371
                              Pro forma.............  $12,358    $ 7,669    $1,141
Basic earnings per share      As reported...........  $  0.75    $  0.42    $ 0.09
                              Pro forma.............  $  0.41    $  0.27    $ 0.04
Diluted earnings per share    As reported...........  $  0.69    $  0.39    $ 0.08
                              Pro forma.............  $  0.39    $  0.25    $ 0.04
</TABLE>
 
     Because the method of accounting prescribed by SFAS 123 has not been
applied to options granted prior to January 1, 1995, the resulting pro forma
compensation cost may not be representative of that to be expected in future
years.
 
  Stock Option Plans
 
     The Company has two stock option plans. The Company's 1993 Equity Incentive
Plan (the "1993 Plan") provides for the issuance of either incentive or
nonstatutory stock options to employees and consultants of the Company. The
options generally are granted at the fair market value of the Company's common
stock at the date of grant, expire ten years from the date of grant, are
exercisable immediately, and vest over a four-year period. The Company has
reserved 6,150,000 shares of common stock for issuance under the 1993 Plan. The
Company has also reserved 375,000 shares for issuance under the Company's 1993
Director's Stock Option Plan (the "Director's Plan"). Generally options expire
ten years from date of grant, are exercisable immediately, and vest over the
term of each directors board membership. As of December 31, 1997, 3,969,793
shares were available for future grant under the plans.
 
     The Company's 1991 Executive Stock Option Plan and 1985 Employee Stock
Option Plan were terminated, and no further options may be granted under these
plans. Options previously granted under the 1991 and 1985 plans will continue to
be administered under such plans, and any options that expire or become
unexercisable for any reason without having been exercised in full shall be
available for issuance under the 1993 Plan.
 
     The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1997, 1996 and 1995: risk-free interest rates
ranging from 5.66% to 6.73% in 1997, from 5.25% to 6.74% in 1996 and from 5.39%
to 7.56% in 1995; a dividend yield of 0.0% for all years; a weighted-average
expected life of 5 years for all years; and a volatility factor of the expected
market price of the Company's common stock of 0.60 for 1997 and 0.65 for 1996
and 1995.
 
                                       45
<PAGE>   47
                          VERITAS SOFTWARE CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
     A summary of the status of the Company's stock option plans (including the
options assumed in the Merger) as of December 31, 1997, 1996 and 1995 and
changes during the years ended on those dates is presented below (number of
shares in thousands):
 
<TABLE>
<CAPTION>
                                         1997                   1996                   1995
                                  -------------------    -------------------    -------------------
                                            WEIGHTED-              WEIGHTED-              WEIGHTED-
                                  NUMBER     AVERAGE     NUMBER     AVERAGE     NUMBER     AVERAGE
                                    OF      EXERCISE       OF      EXERCISE       OF      EXERCISE
                                  SHARES      PRICE      SHARES      PRICE      SHARES      PRICE
                                  ------    ---------    ------    ---------    ------    ---------
<S>                               <C>       <C>          <C>       <C>          <C>       <C>
Outstanding at beginning of
  year..........................  3,825      $10.70      2,391      $ 4.47      2,172       $1.73
Granted.........................  2,129      $31.60      2,013      $16.89      1,318       $6.65
Exercised.......................   (515)     $ 6.23       (296)     $ 3.44       (794)      $1.24
Forfeited.......................   (313)     $19.81       (283)     $ 9.62       (305)      $2.80
                                  ------                 ------                 ------
Outstanding at end of year......  5,126      $19.28      3,825      $10.70      2,391       $4.47
                                  ======                 ======                 ======
Options exercisable at year
  end...........................  1,706                  1,138                    864
Weighted-average fair value of
  options granted during the
  year..........................  $18.17                 $10.58                 $6.93
</TABLE>
 
     The following table summarizes information about stock options outstanding
at December 31, 1997 (number of shares in thousands):
 
<TABLE>
<CAPTION>
                              OPTIONS OUTSTANDING                      OPTIONS EXERCISABLE
                 ----------------------------------------------   -----------------------------
                                         WEIGHTED-
                        NUMBER            AVERAGE     WEIGHTED-        NUMBER         WEIGHTED-
                     OUTSTANDING         REMAINING     AVERAGE       EXERCISABLE       AVERAGE
   RANGE OF        AT DECEMBER 31,      CONTRACTUAL   EXERCISE     AT DECEMBER 31,    EXERCISE
EXERCISE PRICES          1997              LIFE         PRICE           1997            PRICE
---------------  --------------------   -----------   ---------   -----------------   ---------
<S>              <C>                    <C>           <C>         <C>                 <C>
$ 0.09 - $11.22         1,389              6.55        $ 4.47             976          $ 3.75
$11.33 - $16.38         1,322              8.29        $15.00             447          $15.08
$16.44 - $32.33         1,528              8.99        $25.44             232          $25.37
$32.67 - $53.25           887              9.62        $38.21              51          $35.58
                        -----                                           -----
$ 0.09 - $53.25         5,126              8.26        $19.28           1,706          $10.60
                        =====                                           =====
</TABLE>
 
  Employee Stock Purchase Plans
 
     Under the terms of the Merger with OpenVision, the Company assumed the
OpenVision Employee Stock Purchase Plan (the "1996 Purchase Plan"). Upon
consummation of the Merger, each 1996 Purchase Plan option was converted into a
right to purchase shares of the Company's stock. No new offering periods will be
commenced under the 1996 Purchase Plan, and the 1996 Purchase Plan will remain
in effect until the existing offering period lapses on October 31, 1998. Under
the Company's 1993 Employee Stock Purchase Plan (the "1993 Purchase Plan"), the
Company is authorized to issue up to 1,500,000 shares of common stock to its
full-time employees, nearly all of whom are eligible to participate. Under the
terms of the 1993 Purchase Plan, employees can choose to have up to 10% of their
wages withheld to purchase the Company's common stock. The purchase price of the
stock is 85% of the lower of the subscription date fair market value and the
purchase date fair market value. Approximately all of the eligible employees
have participated in the either the 1993 Purchase Plan or the 1996 Purchase Plan
in 1997, 1996 and 1995. Under the 1993 Purchase Plan, the Company issued 99,614,
229,445 and 209,241 shares to employees in 1997, 1996 and 1995, respectively.
Under the 1996 Purchase Plan, the Company issued 70,489 and 51,223 shares to
employees in 1997 and 1996, respectively. There were no shares issued under the
1996 Purchase Plan in 1995.
 
     In accordance with APB 25, the Company does not recognize compensation cost
related to employee purchase rights under the Plan. To comply with the pro forma
reporting requirements of SFAS 123, compensation cost is estimated for the fair
value of the employees' purchase rights using the Black-Scholes
 
                                       46
<PAGE>   48
                          VERITAS SOFTWARE CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
model with the following assumptions for these rights granted in 1997, 1996 and
1995: a dividend yield of 0.0% for all years; an expected life ranging up to 2
years for all years; an expected volatility factor of 0.60 in 1997 and 0.65 in
1996 and 1995; and risk-free interest rates ranging from 5.27% to 5.84% in 1997,
from 4.81% to 6.01% in 1996 and from 5.47% to 7.00% in 1995. The weighted
average fair value of the purchase rights granted in 1997, 1996 and 1995 was
$13.90, $6.88 and $3.63, respectively.
 
NOTE 8. INCOME TAXES
 
     The provision for income taxes consists of the following (in thousands):
 
<TABLE>
<CAPTION>
                                                      YEARS ENDED DECEMBER 31,
                                                      -------------------------
                                                       1997       1996     1995
                                                      -------    ------    ----
<S>      <C>                                          <C>        <C>       <C>
Federal  -- current.................................  $   539    $  366    $253
         -- deferred................................   (3,500)       --      --
State    -- current.................................    1,939     1,119     259
         -- deferred................................     (700)       --      --
Foreign.............................................    2,732       686     255
                                                      -------    ------    ----
     Total..........................................  $ 1,010    $2,171    $767
                                                      =======    ======    ====
</TABLE>
 
     The provision for income taxes differed from the amount computed by
applying the federal statutory rate as follows:
 
<TABLE>
<CAPTION>
                                                       YEARS ENDED DECEMBER 31,
                                                      --------------------------
                                                       1997      1996      1995
                                                      ------    ------    ------
<S>                                                   <C>       <C>       <C>
Federal tax at statutory rate.......................   34.0%     34.0%     34.0%
Benefit of loss carryforwards.......................  (35.9)    (35.0)    (34.0)
State taxes.........................................    5.4       5.3       8.2
Foreign taxes.......................................    9.4       3.0       8.1
Change in valuation allowance.......................  (17.7)       --        --
Merger-related costs................................    6.5        --        --
In-process research and development charge..........     --       5.2        --
Alternative minimum tax.............................    2.3       2.7       8.1
Other...............................................    0.3        --        --
                                                      -----     -----     -----
          Total.....................................    4.3%     15.2%     24.4%
                                                      =====     =====     =====
</TABLE>
 
     Significant components of the Company's deferred tax assets are as follows
(in thousands):
 
<TABLE>
<CAPTION>
                                                 YEARS ENDED DECEMBER 31,
                                             --------------------------------
                                               1997        1996        1995
                                             --------    --------    --------
<S>                                          <C>         <C>         <C>
Net operating loss carryforwards...........  $ 22,499    $ 28,566    $ 33,361
Tax credit carryforwards...................     2,246       1,385       1,638
Acquired intangibles.......................     2,114       5,400       4,700
Reserves and accruals not currently
  deductible...............................     2,205       2,984       2,638
Other......................................       887         994         879
                                             --------    --------    --------
          Total............................    29,951      39,329      43,216
Valuation allowance........................   (25,751)    (39,329)    (43,216)
                                             --------    --------    --------
Net deferred tax assets....................  $  4,200    $     --    $     --
                                             ========    ========    ========
</TABLE>
 
                                       47
<PAGE>   49
                          VERITAS SOFTWARE CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
     The valuation allowance decreased by approximately $13.6 million and $3.9
million in 1997 and 1996, respectively. Approximately $4.3 million of the
valuation allowance reflected above relates to the tax benefits of stock option
deductions which will be credited to equity when realized.
 
     As of December 31, 1997, the Company had federal tax loss carryforwards of
approximately $65 million and federal tax credit carryforwards of approximately
$2.2 million. The federal tax loss carryforwards will expire in 1999 through
2011, and the federal tax credit carryforwards will expire in 2004 through 2010.
Because of the change in ownership provisions of the Internal Revenue Code, a
substantial portion of the Company's net operating loss and tax credit
carryforwards may be subject to annual limitations. The annual limitation may
result in the expiration of net operating loss and tax credit carryforwards
before utilization. Approximately $53 million of the net operating loss
carryforwards are further limited to the future earnings of OpenVision.
 
     Management has determined based on the Company's history of prior earnings,
its expectations for the future and the extended period over which the benefits
of certain deferred tax assets will be realized, as well as the limitations on
its ability to utilize certain net operating loss carryforwards, that a
substantial valuation allowance continues to be necessary.
 
     The realization of the Company's net deferred tax assets, which relate
primarily to net operating loss carryforwards, tax credit carryforwards and
temporary differences is dependent on generating sufficient taxable income in
future periods. Although realization is not assured, management believes it is
more likely than not that the net deferred tax assets will be realized.
 
NOTE 9. EARNINGS PER SHARE
 
     The following table sets forth the computation of basic and diluted
earnings per share (in thousands, except per share amounts):
 
<TABLE>
<CAPTION>
                                                   YEARS ENDED DECEMBER 31,
                                                 ----------------------------
                                                  1997       1996       1995
                                                 -------    -------    ------
<S>                                              <C>        <C>        <C>
Numerator:
  Net income...................................  $22,749    $12,129    $2,371
                                                 =======    =======    ======
Denominator:
  Weighted average shares......................   30,415     27,120    20,646
  Shares related to SAB 98:
     Convertible preferred stock...............       --      1,564     6,256
                                                 -------    -------    ------
  Denominator for basic earnings per share.....   30,415     28,684    26,902
  Common stock equivalents.....................    2,580      2,313     1,806
                                                 -------    -------    ------
  Denominator for diluted earnings per share...   32,995     30,997    28,708
                                                 =======    =======    ======
Basic earnings per share.......................  $  0.75    $  0.42    $ 0.09
Diluted earnings per share.....................  $  0.69    $  0.39    $ 0.08
</TABLE>
 
NOTE 10. COLABELING AGREEMENT
 
     In January 1995, the Company amended an existing Colabeling Agreement with
Novell which specifies revenue sharing terms for all storage management products
except for certain file server products. In December of 1995, Novell transferred
its UNIX business to Santa Cruz Operations ("SCO") and Hewlett-Packard and the
agreement with Novell was assigned to SCO. Under the agreement, SCO is entitled
to receive 6% of all source and user license fees received by the Company from
customer agreements in existence prior to December 31, 1995 on revenue through
December 31, 1997 which authorize the license of SVR4/ Unixware versions of the
Company's volume manager, file system and visual administrator products. The
 
                                       48
<PAGE>   50
                          VERITAS SOFTWARE CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
Company's obligation to Novell in 1995 was $940,000 which was satisfied by the
Company incurring nonrecurring engineering expenses on behalf of Novell in the
amount of $785,000 and the remaining $155,000 was refunded to Novell. The
Company's obligation to SCO was $1.3 million in both 1997 and 1996 which was
satisfied by the Company incurring nonrecurring engineering expenses on behalf
of SCO in the same amount in each year. There were no outstanding expense
obligations related to this agreement at December 31, 1997.
 
NOTE 11. GEOGRAPHIC INFORMATION
 
     The following table presents a summary of operating information and certain
year-end balance sheet information by geographical regions (in thousands):
 
<TABLE>
<CAPTION>
                                                  YEARS ENDED DECEMBER 31,
                                               ------------------------------
                                                 1997       1996       1995
                                               --------    -------    -------
<S>                                            <C>         <C>        <C>
Net revenue to unaffiliated customers:
  United States and Canada...................  $ 98,131    $52,086    $36,901
  United Kingdom.............................     7,306      5,952      4,240
  Other European Countries...................     9,072      9,236      3,570
  Pacific/Americas...........................     6,616      5,472      3,115
                                               --------    -------    -------
          Total..............................  $121,125    $72,746    $47,826
                                               ========    =======    =======
Transfers between geographic areas
  (eliminated in consolidation):.............  $    947    $   983    $   152
                                               ========    =======    =======
Income (loss) from operations:
  United States and Canada...................  $ 15,757    $11,032    $ 2,276
  United Kingdom.............................      (450)     2,347        557
  Other European Countries...................     4,309      2,130       (490)
  Pacific/Americas...........................     5,412        255         --
  India......................................      (891)      (402)        --
  Corporate..................................    (4,061)    (3,504)    (1,150)
                                               --------    -------    -------
          Total..............................  $ 20,076    $11,858    $ 1,193
                                               ========    =======    =======
Identifiable assets:
  United States and Canada...................  $231,185    $87,252    $44,967
  United Kingdom.............................     4,206      4,021      1,502
  Other European Countries...................     4,645      2,388      1,631
  Pacific/Americas...........................       112        187         --
  India......................................     1,732        676         --
                                               --------    -------    -------
          Total..............................  $241,880    $94,524    $48,100
                                               ========    =======    =======
</TABLE>
 
     United States revenue from export sales, principally to customers in
Canada, Pacific/Americas and other European countries, were approximately $10.2
million, $11.8 million and $4.6 million in 1997, 1996 and 1995, respectively.
 
NOTE 12. RELATED PARTY TRANSACTIONS
 
     On December 31, 1991, the Company entered into a Distribution License
Agreement (the "Agreement") with Tandem, a company with whom a director of the
Company became affiliated in September 1993. The agreement is a standard OEM
agreement allowing Tandem to incorporate certain portions of the Company's
technology into Tandem products in return for a royalty paid to the Company on
the sales of such products. Revenues derived from Tandem were approximately $3.4
million, $3.2 million and $2.1 million in 1997, 1996 and 1995, respectively. The
Company had an outstanding receivable balance related to Tandem at December 31,
1997 and 1996 of $197,000 and $0, respectively.
 
                                       49
<PAGE>   51
 
               REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
 
The Stockholders and Board of Directors
VERITAS Software Corporation
 
     We have audited the accompanying consolidated balance sheets of VERITAS
Software Corporation as of December 31, 1997 and 1996, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 1997. Our audits also
included the financial statement schedule listed in the index at Item 14(a).
These consolidated financial statements and schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and schedule based on our audits.
 
     We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
 
     In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
VERITAS Software Corporation at December 31, 1997 and 1996, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1997, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set forth
therein.
 
                                          ERNST & YOUNG LLP
 
San Jose, California
January 28, 1998
 
                                       50
<PAGE>   52
 
                          VERITAS SOFTWARE CORPORATION
 
         SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
 
<TABLE>
<CAPTION>
                                                                ADDITIONS
                                                               (REDUCTIONS)
                                                 BALANCE AT      CHARGED                     BALANCE AT
                                                 BEGINNING      (CREDITED)                      END
                                                  OF YEAR       TO INCOME      DEDUCTIONS     OF YEAR
                                                 ----------    ------------    ----------    ----------
                                                                     (IN THOUSANDS)
<S>                                              <C>           <C>             <C>           <C>
Allowance for doubtful accounts and
  customer returns:
  Year ended December 31, 1997.................     $697           $900           $--          $1,597
  Year ended December 31, 1996.................     $807           $(75)          $35          $  697
  Year ended December 31, 1995.................     $750           $ 60           $ 3          $  807
</TABLE>
 
                                       51
<PAGE>   53
 
                                   SIGNATURES
 
     Pursuant to the requirements of Section 13 or 15 (d) 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, in the City of
Mountain View, State of California, on the 2nd day of March 1998.
 
                                          VERITAS Software Corporation
                                          Registrant
 
                                                /s/ KENNETH E. LONCHAR
                                          --------------------------------------
                                                    Kenneth E. Lonchar
                                                 Vice President, Finance
 
     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
 
<TABLE>
<CAPTION>
                      SIGNATURE                                       TITLE                      DATE
                      ---------                                       -----                      ----
<C>                                                      <S>                                <C>
PRINCIPAL EXECUTIVE OFFICER AND DIRECTOR:
 
                   /s/ MARK LESLIE                       President, Chief Executive         March 2, 1998
-----------------------------------------------------    Officer and Co-Chairman of the
                     Mark Leslie                         Board
 
           PRINCIPAL FINANCIAL OFFICER AND
            PRINCIPAL ACCOUNTING OFFICER:
 
               /s/ KENNETH E. LONCHAR                    Vice President, Finance and        March 2, 1998
-----------------------------------------------------    Chief Financial Officer
                 Kenneth E. Lonchar
 
                ADDITIONAL DIRECTORS:
 
               /s/ GEOFFREY W. SQUIRE                    Co-Chairman of the Board           March 2, 1998
-----------------------------------------------------
                 Geoffrey W. Squire
 
               /s/ FRED VAN DEN BOSCH                    Director                           March 2, 1998
-----------------------------------------------------
                 Fred van den Bosch
 
                  /s/ STEVEN BROOKS                      Director                           March 2, 1998
-----------------------------------------------------
                    Steven Brooks
 
                 /s/ WILLIAM JANEWAY                     Director                           March 2, 1998
-----------------------------------------------------
                   William Janeway
 
                   /s/ ROEL PIEPER                       Director                           March 2, 1998
-----------------------------------------------------
                     Roel Pieper
 
                  /s/ JOSEPH RIZZI                       Director                           March 2, 1998
-----------------------------------------------------
                    Joseph Rizzi
</TABLE>
 
                                       52
<PAGE>   54
 
                               INDEX TO EXHIBITS
 
<TABLE>
<CAPTION>
EXHIBIT
NUMBER                           EXHIBIT TITLE                          PAGE
-------                          -------------                          ----
<C>       <S>                                                           <C>
 10.05    Registrant's 1997 Chief Executive Officer Compensation Plan
 10.06    Registrant's 1997 Executive Officer Compensation Plan
 10.08    Key Employee Agreement between the Registrant, VERITAS
          California and Geoffrey W. Squire
 10.09    Key Employee Agreement between the Registrant, VERITAS
          California, and Kenneth E. Lonchar
 10.10    Key Employee Agreement between the Registrant, VERITAS
          California, and Paul A. Sallaberry
 10.12    Amendment No 1. to Office Building Lease dated May 28, 1997
          by and between the Registrant and John Arriliaga and Richard
          T. Perry
 21.01    Subsidiaries of the Registrant
 23.01    Consent of Ernst & Young LLP, Independent Auditors
 27.01    Financial Data Schedule (EDGAR only)
</TABLE>