UNITED STATES

SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549




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FORM 10-Q



---

(Mark One)



| |   |                                                        
| | - | -------------------------------------------------------
| | x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934.


For the quarterly period ended June 30, 2001

OR



| |   |                                                         
| | - | --------------------------------------------------------
| | o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934.


For the transition period from _______________ to
 .

Commission file number: 000-26247

VERITAS SOFTWARE CORPORATION

(Exact Name of Registrant as Specified in Its
Charter)


|                                                                |  |                                      
|--------------------------------------------------------------- |  | -------------------------------------
|                                                               
|                                                               
|                                                               
|                                                               
|Delaware                                                        |  | 77-0507675                           
|                                                               
|                                                               
|                                                               
|                                                               
|(State or Other Jurisdiction of
	Incorporation or Organization) |  | (I.R.S. Employer
	Identification No.)

350 Ellis Street

Mountain View, California 94043


(650) 527-8000


(Address, including Zip Code, of
Registrants Principal Executive Offices


and Registrants Telephone Number,
including Area Code)




---

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 
o

The number of shares of the registrants common stock
outstanding as of July 31, 2001 was 399,815,002 shares.









---



VERITAS SOFTWARE CORPORATION

INDEX

|                              |  |                                                                                                            |    |      |    | 
|----------------------------- |  | ---------------------------------------------------------------------------------------------------------- | -- | ---- | -- | 
|                              |  |                                                                                                            |    | Page
|                              |  |                                                                                                            |    |     
|PART I: FINANCIAL INFORMATION
|                             
|                             
|                             
|                             
|                             
|Item  1.                      |  | Condensed Consolidated Financial Statements                                                                |    |      | 1  | 
|                             
|                             
|                             
|                             
|                              |  | Condensed Consolidated Balance Sheets as of
	June 30, 2001 and December 31, 2000                           |    |      | 1  | 
|                             
|                             
|                             
|                             
|                              |  | Condensed Consolidated Statements of Operations
	for the Three and Six Months Ended June 30, 2001 and 2000 |    |      | 2  | 
|                             
|                             
|                             
|                             
|                              |  | Condensed Consolidated Statements of Cash Flows
	for the Six Months Ended June 30, 2001 and 2000           |    |      | 3  | 
|                             
|                             
|                             
|                             
|                              |  | Notes to Condensed Consolidated Financial
	Statements                                                      |    |      | 4  | 
|                             
|                             
|                             
|                             
|Item  2.                      |  | Managements Discussion and Analysis of
	Financial Condition and Results of Operations                     |    |      | 10 | 
|                             
|                             
|                             
|                             
|Item  3.                      |  | Quantitative and Qualitative Disclosures About
	Market Risk                                                |    |      | 33 | 
|                             
|                             
|                             
|                             
|PART II: OTHER INFORMATION   
|                             
|                             
|                             
|                             
|Item  4.                      |  | Submissions of Matters to a Vote of Security
	Holders                                                      |    |      | 35 | 
|                             
|                             
|                             
|                             
|Item  6.                      |  | Exhibits and Reports on Form 8-K                                                                           |    |      | 35 | 
|                             
|                             
|                             
|                             
|Signature                     |  |                                                                                                            | 37 |     

i



---



PART I:  FINANCIAL INFORMATION

Item 1.   Condensed Consolidated
Financial Statements

VERITAS SOFTWARE CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)


ASSETS

|                                     |                                                                                                                           |                                            |           |              |           |  |           |            |           | 
|------------------------------------ | ------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | --------- | ------------ | --------- |  | --------- | ---------- | --------- | 
|                                     |                                                                                                                           | June 30,                                   |           | December 31,
|                                     |                                                                                                                           | 2001                                       |           | 2000        
|                                     |                                                                                                                           |                                            |           |             
|                                     |                                                                                                                           | (Unaudited)                                |           |             
|                                    
|                                    
|                                    
|                                    
|Current assets:                      |                                                                                                                           |                                            |           |              |           |  |           |           
|                                    
|                                    
|                                    
|                                    
|                                     | Cash and cash equivalents                                                                                                 |                                            | $         | 868,018      |           |  | $         | 886,558    |          
|                                    
|                                    
|                                    
|                                    
|                                     | Short-term investments                                                                                                    |                                            |           | 340,310      |           |  |           | 232,891    |          
|                                    
|                                    
|                                    
|                                    
|                                     | Accounts receivable, net of allowance for
	doubtful accounts of $9,618 at June 30, 2001 and $7,810 at
	December  31, 2000 |                                            |           | 189,544      |           |  |           | 186,863    |          
|                                    
|                                    
|                                    
|                                    
|                                     | Deferred income taxes                                                                                                     |                                            |           | 38,017       |           |  |           | 38,017     |          
|                                    
|                                    
|                                    
|                                    
|                                     | Other current assets                                                                                                      |                                            |           | 40,358       |           |  |           | 38,303     |          
|                                     |                                                                                                                           |                                            |           |              |           |  |           |           
|                                     |                                                                                                                           | Total current assets                       |           |              | 1,476,247 |  |           |            | 1,382,632 | 
|                                    
|                                    
|                                    
|                                    
|Long-term investments                |                                                                                                                           |                                            | 281,379   |              |           |  | 136,111   |           
|                                    
|                                    
|                                    
|                                    
|Property and equipment, net          |                                                                                                                           |                                            | 217,853   |              |           |  | 168,389   |           
|                                    
|                                    
|                                    
|                                    
|Goodwill and other intangibles, net  |                                                                                                                           |                                            | 1,844,109 |              |           |  | 2,285,320 |           
|                                    
|                                    
|                                    
|                                    
|Other non-current assets             |                                                                                                                           |                                            | 114,401   |              |           |  | 110,382   |           
|                                     |                                                                                                                           |                                            |           |              |           |  |           |           
|                                     |                                                                                                                           | Total assets                               |           | $            | 3,933,989 |  |           | $          | 4,082,834 | 
|                                     |                                                                                                                           |                                            |           |              |           |  |           |           
|LIABILITIES AND STOCKHOLDERS EQUITY
|                                    
|                                    
|                                    
|                                    
|Current liabilities:                 |                                                                                                                           |                                            |           |              |           |  |           |           
|                                    
|                                    
|                                    
|                                    
|                                     | Accounts payable                                                                                                          |                                            | $         | 40,225       |           |  | $         | 45,250     |          
|                                    
|                                    
|                                    
|                                    
|                                     | Accrued compensation and benefits                                                                                         |                                            |           | 72,752       |           |  |           | 63,838     |          
|                                    
|                                    
|                                    
|                                    
|                                     | Accrued acquisition and restructuring costs                                                                               |                                            |           | 17,158       |           |  |           | 44,123     |          
|                                    
|                                    
|                                    
|                                    
|                                     | Other accrued liabilities                                                                                                 |                                            |           | 81,180       |           |  |           | 69,289     |          
|                                    
|                                    
|                                    
|                                    
|                                     | Income taxes payable                                                                                                      |                                            |           | 35,485       |           |  |           | 34,454     |          
|                                    
|                                    
|                                    
|                                    
|                                     | Deferred revenue                                                                                                          |                                            |           | 228,564      |           |  |           | 201,001    |          
|                                     |                                                                                                                           |                                            |           |              |           |  |           |           
|                                     |                                                                                                                           | Total current liabilities                  |           |              | 475,364   |  |           |            | 457,955   | 
|                                    
|                                    
|                                    
|                                    
|Convertible subordinated notes       |                                                                                                                           |                                            | 436,459   |              |           |  | 429,176   |           
|                                    
|                                    
|                                    
|                                    
|Deferred and other income taxes      |                                                                                                                           |                                            | 186,288   |              |           |  | 213,132   |           
|                                    
|                                    
|                                    
|                                    
|Stockholders equity:                |                                                                                                                           |                                            |           |              |           |  |           |           
|                                    
|                                    
|                                    
|                                    
|                                     | Common stock                                                                                                              |                                            |           | 418          |           |  |           | 412        |          
|                                    
|                                    
|                                    
|                                    
|                                     | Additional paid-in capital                                                                                                |                                            |           | 5,989,236    |           |  |           | 5,847,844  |          
|                                    
|                                    
|                                    
|                                    
|                                     | Accumulated deficit                                                                                                       |                                            |           | (1,437,241   | )         |  |           | (1,152,166 | )        
|                                    
|                                    
|                                    
|                                    
|                                     | Accumulated other comprehensive loss                                                                                      |                                            |           | (14,471      | )         |  |           | (11,455    | )        
|                                    
|                                    
|                                    
|                                    
|                                     | Treasury stock, cost; 18,675 shares at
	June 30, 2001 and December 31, 2000                                               |                                            |           | (1,702,064   | )         |  |           | (1,702,064 | )        
|                                     |                                                                                                                           |                                            |           |              |           |  |           |           
|                                     |                                                                                                                           | Total stockholders equity                 |           |              | 2,835,878 |  |           |            | 2,982,571 | 
|                                     |                                                                                                                           |                                            |           |              |           |  |           |           
|                                     |                                                                                                                           | Total liabilities and stockholders equity |           | $            | 3,933,989 |  |           | $          | 4,082,834 | 
|                                     |                                                                                                                           |                                            |           |              |           |  |           |           

See accompanying notes to condensed consolidated financial
statements.

1



---



VERITAS SOFTWARE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)


(Unaudited)


|                                                                          |                                                |                          |          |                  |         |      |          |         |         |   |          |         |         |   |          |         |         | 
|------------------------------------------------------------------------- | ---------------------------------------------- | ------------------------ | -------- | ---------------- | ------- | ---- | -------- | ------- | ------- | - | -------- | ------- | ------- | - | -------- | ------- | ------- | 
|                                                                          |                                                |                          |          |                 
|                                                                          |                                                | Three Months Ended       |          | Six Months Ended
|                                                                          |                                                | June 30,                 |          | June 30,        
|                                                                          |                                                |                          |          |                 
|                                                                          |                                                | 2001                     |          | 2000             |         | 2001 |          | 2000   
|                                                                          |                                                |                          |          |                  |         |      |          |        
|Net revenue:                                                              |                                                |                          |          |                  |         |      |          |         |         |   |          |         |         |   |          |        
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | User license fees                              |                          | $        | 293,680          |         |      | $        | 224,851 |         |   | $        | 602,697 |         |   | $        | 429,167 |        
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Services                                       |                          |          | 96,543           |         |      |          | 50,585  |         |   |          | 174,967 |         |   |          | 90,909  |        
|                                                                          |                                                |                          |          |                  |         |      |          |         |         |   |          |         |         |   |          |        
|                                                                          |                                                | Total net revenue        |          |                  | 390,223 |      |          |         | 275,436 |   |          |         | 777,664 |   |          |         | 520,076 | 
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|Cost of revenue:                                                          |                                                |                          |          |                  |         |      |          |         |         |   |          |         |         |   |          |        
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | User license fees                              |                          |          | 9,711            |         |      |          | 8,199   |         |   |          | 20,379  |         |   |          | 19,977  |        
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Services                                       |                          |          | 34,361           |         |      |          | 20,165  |         |   |          | 66,031  |         |   |          | 38,464  |        
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Amortization of developed technology           |                          |          | 15,713           |         |      |          | 15,553  |         |   |          | 31,504  |         |   |          | 30,948  |        
|                                                                          |                                                |                          |          |                  |         |      |          |         |         |   |          |         |         |   |          |        
|                                                                          |                                                | Total cost of revenue    |          |                  | 59,785  |      |          |         | 43,917  |   |          |         | 117,914 |   |          |         | 89,389  | 
|                                                                          |                                                |                          |          |                  |         |      |          |         |         |   |          |         |         |   |          |        
|Gross profit                                                              |                                                |                          | 330,438  |                  |         |      | 231,519  |         |         |   | 659,750  |         |         |   | 430,687  |        
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|Operating expenses:                                                       |                                                |                          |          |                  |         |      |          |         |         |   |          |         |         |   |          |        
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Selling and marketing                          |                          |          | 145,716          |         |      |          | 106,109 |         |   |          | 288,521 |         |   |          | 193,692 |        
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Research and development                       |                          |          | 59,881           |         |      |          | 39,205  |         |   |          | 116,106 |         |   |          | 74,318  |        
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | General and administrative                     |                          |          | 28,486           |         |      |          | 17,595  |         |   |          | 54,390  |         |   |          | 32,506  |        
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Amortization of goodwill and other intangibles |                          |          | 221,743          |         |      |          | 219,758 |         |   |          | 442,969 |         |   |          | 439,517 |        
|                                                                          |                                                |                          |          |                  |         |      |          |         |         |   |          |         |         |   |          |        
|                                                                          |                                                | Total operating expenses |          |                  | 455,826 |      |          |         | 382,667 |   |          |         | 901,986 |   |          |         | 740,033 | 
|                                                                          |                                                |                          |          |                  |         |      |          |         |         |   |          |         |         |   |          |        
|Loss from operations                                                      |                                                |                          | (125,388 | )                |         |      | (151,148 | )       |         |   | (242,236 | )       |         |   | (309,346 | )      
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|Interest and other income, net                                            |                                                |                          | 17,212   |                  |         |      | 12,777   |         |         |   | 35,840   |         |         |   | 24,040   |        
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|Interest expense                                                          |                                                |                          | (7,325   | )                |         |      | (7,525   | )       |         |   | (14,295  | )       |         |   | (15,048  | )      
|                                                                          |                                                |                          |          |                  |         |      |          |         |         |   |          |         |         |   |          |        
|Loss before income taxes                                                  |                                                |                          | (115,501 | )                |         |      | (145,896 | )       |         |   | (220,691 | )       |         |   | (300,354 | )      
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|Provision for income taxes                                                |                                                |                          | 13,475   |                  |         |      | 26,445   |         |         |   | 64,384   |         |         |   | 46,370   |        
|                                                                          |                                                |                          |          |                  |         |      |          |         |         |   |          |         |         |   |          |        
|Net loss                                                                  |                                                | $                        | (128,976 | )                |         | $    | (172,341 | )       |         | $ | (285,075 | )       |         | $ | (346,724 | )      
|                                                                          |                                                |                          |          |                  |         |      |          |         |         |   |          |         |         |   |          |        
|Net loss per share  basic and diluted                                    |                                                | $                        | (0.32    | )                |         | $    | (0.43    | )       |         | $ | (0.72    | )       |         | $ | (0.87    | )      
|                                                                          |                                                |                          |          |                  |         |      |          |         |         |   |          |         |         |   |          |        
|Number of shares used in computing per share
	amounts  basic and diluted |                                                |                          | 398,017  |                  |         |      | 400,787  |         |         |   | 396,432  |         |         |   | 397,645  |        
|                                                                          |                                                |                          |          |                  |         |      |          |         |         |   |          |         |         |   |          |        

See accompanying notes to condensed consolidated financial
statements.

2



---



VERITAS SOFTWARE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)


(Unaudited)


|                                                           |                                                                                        |                                                               |                                           |          |         |          |         |          |         |         |  
|---------------------------------------------------------- | -------------------------------------------------------------------------------------- | ------------------------------------------------------------- | ----------------------------------------- | -------- | ------- | -------- | ------- | -------- | ------- | ------- | -
|                                                           |                                                                                        |                                                              
|                                                           |                                                                                        | Six Months Ended                                             
|                                                           |                                                                                        | June 30,                                                     
|                                                           |                                                                                        |                                                              
|                                                           |                                                                                        | 2001                                                          |                                           | 2000    
|                                                           |                                                                                        |                                                               |                                           |         
|Cash flows from operating activities:                      |                                                                                        |                                                               |                                           |          |         |          |         |         
|                                                          
|                                                          
|                                                          
|                                                          
|                                                           | Net loss                                                                               |                                                               | $                                         | (285,075 | )       |          | $       | (346,724 | )      
|                                                          
|                                                          
|                                                          
|                                                          
|                                                           | Adjustments to reconcile net loss to net cash
	provided by operating activities:       |                                                               |                                           |          |         |          |         |          |        
|                                                          
|                                                          
|                                                          
|                                                          
|                                                           |                                                                                        | Depreciation and amortization                                 |                                           |          | 39,664  |          |         |          | 19,639  |        
|                                                          
|                                                          
|                                                          
|                                                          
|                                                           |                                                                                        | Amortization of goodwill and other intangibles                |                                           |          | 442,969 |          |         |          | 439,517 |        
|                                                          
|                                                          
|                                                          
|                                                          
|                                                           |                                                                                        | Amortization of developed technology                          |                                           |          | 31,504  |          |         |          | 30,948  |        
|                                                          
|                                                          
|                                                          
|                                                          
|                                                           |                                                                                        | Amortization of original issue discount on
	convertible notes |                                           |          | 7,365   |          |         |          | 7,016   |        
|                                                          
|                                                          
|                                                          
|                                                          
|                                                           |                                                                                        | Deferred income taxes                                         |                                           |          | (26,967 | )        |         |          | (26,967 | )      
|                                                          
|                                                          
|                                                          
|                                                          
|                                                           | Changes in operating assets and liabilities, net
	of effects of business acquisitions: |                                                               |                                           |          |         |          |         |          |        
|                                                          
|                                                          
|                                                          
|                                                          
|                                                           |                                                                                        | Accounts receivable                                           |                                           |          | (2,681  | )        |         |          | (6,365  | )      
|                                                          
|                                                          
|                                                          
|                                                          
|                                                           |                                                                                        | Other assets                                                  |                                           |          | 7,343   |          |         |          | (7,286  | )      
|                                                          
|                                                          
|                                                          
|                                                          
|                                                           |                                                                                        | Accounts payable                                              |                                           |          | (5,025  | )        |         |          | 6,879   |        
|                                                          
|                                                          
|                                                          
|                                                          
|                                                           |                                                                                        | Accrued compensation and benefits                             |                                           |          | 8,914   |          |         |          | 16,621  |        
|                                                          
|                                                          
|                                                          
|                                                          
|                                                           |                                                                                        | Accrued acquisition and restructuring costs                   |                                           |          | (27,165 | )        |         |          | (4,299  | )      
|                                                          
|                                                          
|                                                          
|                                                          
|                                                           |                                                                                        | Other accrued liabilities                                     |                                           |          | (2,109  | )        |         |          | 999     |        
|                                                          
|                                                          
|                                                          
|                                                          
|                                                           |                                                                                        | Income taxes payable                                          |                                           |          | 1,031   |          |         |          | (6,482  | )      
|                                                          
|                                                          
|                                                          
|                                                          
|                                                           |                                                                                        | Tax benefits from stock plans                                 |                                           |          | 83,841  |          |         |          | 82,200  |        
|                                                          
|                                                          
|                                                          
|                                                          
|                                                           |                                                                                        | Deferred revenue                                              |                                           |          | 27,563  |          |         |          | 39,140  |        
|                                                           |                                                                                        |                                                               |                                           |          |         |          |         |         
|                                                           |                                                                                        |                                                               | Net cash provided by operating activities |          |         | 301,172  |         |          |         | 244,836 |  
|                                                          
|                                                          
|                                                          
|                                                          
|Cash flows from investing activities:                      |                                                                                        |                                                               |                                           |          |         |          |         |         
|                                                          
|                                                          
|                                                          
|                                                          
|                                                           | Purchases of investments                                                               |                                                               |                                           | (642,407 | )       |          |         | (448,444 | )      
|                                                          
|                                                          
|                                                          
|                                                          
|                                                           | Investment maturities                                                                  |                                                               |                                           | 389,720  |         |          |         | 480,670  |        
|                                                          
|                                                          
|                                                          
|                                                          
|                                                           | Purchases of property and equipment                                                    |                                                               |                                           | (87,190  | )       |          |         | (48,076  | )      
|                                                          
|                                                          
|                                                          
|                                                          
|                                                           | Purchases of businesses and technologies                                               |                                                               |                                           | (21,000  | )       |          |         | (2,520   | )      
|                                                          
|                                                          
|                                                          
|                                                          
|                                                           | Strategic investments in businesses                                                    |                                                               |                                           | (13,110  | )       |          |         | (12,000  | )      
|                                                           |                                                                                        |                                                               |                                           |          |         |          |         |         
|                                                           |                                                                                        |                                                               | Net cash used for investing activities    |          |         | (373,987 | )       |          |         | (30,370 | )
|                                                          
|                                                          
|                                                          
|                                                          
|Cash flows from financing activities:                      |                                                                                        |                                                               |                                           |          |         |          |         |         
|                                                          
|                                                          
|                                                          
|                                                          
|                                                           | Proceeds from issuance of common stock                                                 |                                                               |                                           | 57,475   |         |          |         | 63,203   |        
|                                                           |                                                                                        |                                                               |                                           |          |         |          |         |         
|                                                           |                                                                                        |                                                               | Net cash provided by financing activities |          |         | 57,475   |         |          |         | 63,203  |  
|                                                          
|                                                          
|                                                          
|                                                          
|Effect of exchange rate changes                            |                                                                                        |                                                               | (3,200                                    | )        |         |          | (2,154  | )       
|                                                           |                                                                                        |                                                               |                                           |          |         |          |         |         
|Net increase (decrease) in cash and cash
	equivalents      |                                                                                        |                                                               | (18,540                                   | )        |         |          | 275,515 |         
|                                                          
|                                                          
|                                                          
|                                                          
|Cash and cash equivalents at beginning of period           |                                                                                        |                                                               | 886,558                                   |          |         |          | 148,244 |         
|                                                           |                                                                                        |                                                               |                                           |          |         |          |         |         
|Cash and cash equivalents at end of period                 |                                                                                        | $                                                             | 868,018                                   |          |         | $        | 423,759 |         
|                                                           |                                                                                        |                                                               |                                           |          |         |          |         |         
|Supplemental disclosures:                                  |                                                                                        |                                                               |                                           |          |         |          |         |         
|                                                          
|                                                          
|                                                          
|                                                          
|                                                           | Cash paid for interest                                                                 |                                                               | $                                         | 6,005    |         |          | $       | 6,947    |        
|                                                          
|                                                          
|                                                          
|                                                          
|                                                           | Cash paid for income taxes                                                             |                                                               | $                                         | 7,513    |         |          | $       | (2,088   | )      
|                                                          
|                                                          
|                                                          
|                                                          
|Supplemental schedule of non-cash financing
	transactions: |                                                                                        |                                                               |                                           |          |         |          |         |         
|                                                          
|                                                          
|                                                          
|                                                          
|                                                           | Issuance of common stock for conversion of notes                                       |                                                               | $                                         | 82       |         |          | $       | 1,473    |        

See accompanying notes to condensed consolidated financial
statements.

3



---



VERITAS SOFTWARE CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)


1.   Basis of presentation

The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally
accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Article 10
of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted
accounting principles for annual financial statements. In the
opinion of management, all adjustments, consisting only of
normal recurring adjustments, considered necessary for a fair
presentation have been included. The results for the interim
periods presented are not necessarily indicative of the results
that may be expected for any future period. The following
information should be read in conjunction with the consolidated
financial statements and notes thereto included in VERITAS
Software Corporations Annual Report on Form 10-K for
the year ended December 31, 2000.

2.   Use of estimates

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

3.   Comparative Information

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

4.   Change in accounting principles

On January 1, 2001, the Company adopted Statement of
Financial Accounting Standard No. 133, Accounting for
Derivative Instruments and Hedging Activities
(SFAS 133). SFAS 133 requires the
recognition of all derivatives on the balance sheet at fair
value. Derivatives that are not hedges of underlying
transactions are adjusted to fair value through current
earnings. If the derivative is a hedge, depending on the nature
of the hedge, changes in fair value of the derivative are offset
against the change in fair value of the hedged assets,
liabilities or firm commitments through earnings or are
recognized in other comprehensive income until the hedged item
is recognized in earnings. The ineffective portion of a
derivatives fair value is immediately recognized in
current earnings under other income (expense). The adoption of
SFAS 133 did not have a material impact on the
Companys consolidated financial position or operating
results.

5.   Net loss per share

Basic net loss per share is computed using the weighted-average
number of common shares outstanding during the period. Diluted
net loss per share is computed using the weighted-average number
of common shares and dilutive potential common shares
outstanding during the period. However, dilutive potential
common shares outstanding are not included in the denominator
for the three or six months ended June 30,

4



---



VERITAS SOFTWARE CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

(Unaudited)


2001 and 2000, as their effect would be anti-dilutive. The
following table sets forth the computation of basic and diluted
net loss per common share (in thousands, except per share
amounts):

|                                     |                                                                                 |                    |       |                  |   |      |       |          |   |   |       |          |   |   |       |          |  
|------------------------------------ | ------------------------------------------------------------------------------- | ------------------ | ----- | ---------------- | - | ---- | ----- | -------- | - | - | ----- | -------- | - | - | ----- | -------- | -
|                                     |                                                                                 |                    |       |                 
|                                     |                                                                                 | Three Months Ended |       | Six Months Ended
|                                     |                                                                                 | June 30,           |       | June 30,        
|                                     |                                                                                 |                    |       |                 
|                                     |                                                                                 | 2001               |       | 2000             |   | 2001 |       | 2000    
|                                     |                                                                                 |                    |       |                  |   |      |       |         
|Numerator:                           |                                                                                 |                    |       |                  |   |      |       |          |   |   |       |          |   |   |       |         
|                                    
|                                    
|                                    
|                                    
|                                     | Net loss                                                                        |                    | $     | (128,976         | ) |      | $     | (172,341 | ) |   | $     | (285,075 | ) |   | $     | (346,724 | )
|                                     |                                                                                 |                    |       |                  |   |      |       |          |   |   |       |          |   |   |       |         
|Denominator:                         |                                                                                 |                    |       |                  |   |      |       |          |   |   |       |          |   |   |       |         
|                                    
|                                    
|                                    
|                                    
|                                     | Denominator for basic net loss per
	share  weighted-average shares outstanding |                    |       | 398,017          |   |      |       | 400,787  |   |   |       | 396,432  |   |   |       | 397,645  |  
|                                    
|                                    
|                                    
|                                    
|                                     | Common stock equivalents                                                        |                    |       |                 |   |      |       |         |   |   |       |         |   |   |       |         |  
|                                     |                                                                                 |                    |       |                  |   |      |       |          |   |   |       |          |   |   |       |         
|                                     | Denominator for diluted net loss per share                                      |                    |       | 398,017          |   |      |       | 400,787  |   |   |       | 396,432  |   |   |       | 397,645  |  
|                                     |                                                                                 |                    |       |                  |   |      |       |          |   |   |       |          |   |   |       |         
|Basic and diluted net loss per share |                                                                                 | $                  | (0.32 | )                |   | $    | (0.43 | )        |   | $ | (0.72 | )        |   | $ | (0.87 | )       
|                                     |                                                                                 |                    |       |                  |   |      |       |          |   |   |       |          |   |   |       |         

Common stock equivalents included in the denominator for
purposes of computing diluted net loss per share do not include
shares related to employee stock options, shares issuable upon
conversion of the outstanding 5.25% convertible subordinated
notes or shares issuable upon conversion of the outstanding
1.856% convertible subordinated notes, as their effect would be
anti-dilutive for all periods presented. The following table
sets forth the common stock equivalents that were excluded from
the net loss per share computations:

|                                                                              |  |                    |            |                  |  |      |            |      |  |  |            |  |  |  |            | 
|----------------------------------------------------------------------------- |  | ------------------ | ---------- | ---------------- |  | ---- | ---------- | ---- |  |  | ---------- |  |  |  | ---------- | 
|                                                                              |  |                    |            |                 
|                                                                              |  | Three Months Ended |            | Six Months Ended
|                                                                              |  | June 30,           |            | June 30,        
|                                                                              |  |                    |            |                 
|                                                                              |  | 2001               |            | 2000             |  | 2001 |            | 2000
|                                                                              |  |                    |            |                  |  |      |            |     
|Employee stock options using the treasury stock
	method                       |  |                    | 22,901,493 |                  |  |      | 36,866,696 |      |  |  | 24,010,074 |  |  |  | 39,812,006 | 
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|Employee stock options with exercise prices
	exceeding the average fair value |  |                    | 19,732,483 |                  |  |      | 1,102,475  |      |  |  | 19,136,253 |  |  |  | 712,218    | 
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|5.25% convertible subordinated notes                                          |  |                    | 6,747,802  |                  |  |      | 10,355,023 |      |  |  | 6,749,297  |  |  |  | 10,433,661 | 
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|1.856% convertible subordinated notes                                         |  |                    | 12,981,442 |                  |  |      | 13,003,514 |      |  |  | 12,981,640 |  |  |  | 13,008,250 | 

The weighted average exercise prices of the employee stock
options with exercise prices exceeding the average fair value of
the Companys common stock for the three and six months
ended June 30, 2001 and 2000 are $97.88, $99.32, $133.40
and $133.54 per share, respectively.

5



---



VERITAS SOFTWARE CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

(Unaudited)


6.   Comprehensive loss

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

|                                               |                                                  |                    |          |                  |   |      |          |        |   |   |          |        |   |   |          |        |  
|---------------------------------------------- | ------------------------------------------------ | ------------------ | -------- | ---------------- | - | ---- | -------- | ------ | - | - | -------- | ------ | - | - | -------- | ------ | -
|                                               |                                                  |                    |          |                 
|                                               |                                                  | Three Months Ended |          | Six Months Ended
|                                               |                                                  | June 30,           |          | June 30,        
|                                               |                                                  |                    |          |                 
|                                               |                                                  | 2001               |          | 2000             |   | 2001 |          | 2000  
|                                               |                                                  |                    |          |                  |   |      |          |       
|Net loss                                       |                                                  | $                  | (128,976 | )                |   | $    | (172,341 | )      |   | $ | (285,075 | )      |   | $ | (346,724 | )     
|                                              
|                                              
|                                              
|                                              
|Other comprehensive income (loss), net of tax: |                                                  |                    |          |                  |   |      |          |        |   |   |          |        |   |   |          |       
|                                              
|                                              
|                                              
|                                              
|                                               | Foreign currency translation adjustments         |                    |          | 2,420            |   |      |          | (1,011 | ) |   |          | 2,374  |   |   |          | (2,154 | )
|                                              
|                                              
|                                              
|                                              
|                                               | Derivative financial instrument adjustments      |                    |          | (6,421           | ) |      |          |       |   |   |          | (5,574 | ) |   |          |       |  
|                                              
|                                              
|                                              
|                                              
|                                               | Unrealized gain or loss on marketable securities |                    |          | 2,281            |   |      |          | 8,901  |   |   |          | 184    |   |   |          | 8,901  |  
|                                               |                                                  |                    |          |                  |   |      |          |        |   |   |          |        |   |   |          |       
|Comprehensive loss                             |                                                  | $                  | (130,696 | )                |   | $    | (164,451 | )      |   | $ | (288,091 | )      |   | $ | (339,977 | )     
|                                               |                                                  |                    |          |                  |   |      |          |        |   |   |          |        |   |   |          |       

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

|                                            |  |          |         |              |  |   |         |  
|------------------------------------------- |  | -------- | ------- | ------------ |  | - | ------- | -
|                                            |  | June 30, |         | December 31,
|                                            |  | 2001     |         | 2000        
|                                            |  |          |         |             
|Foreign currency translation adjustments    |  | $        | (8,137  | )            |  | $ | (10,511 | )
|                                           
|                                           
|                                           
|                                           
|Derivative financial instrument adjustments |  |          | (5,574  | )            |  |   |        |  
|                                           
|                                           
|                                           
|                                           
|Unrealized loss on marketable securities    |  |          | (760    | )            |  |   | (944    | )
|                                            |  |          |         |              |  |   |         |  
|Accumulated other comprehensive loss        |  | $        | (14,471 | )            |  | $ | (11,455 | )
|                                            |  |          |         |              |  |   |         |  

7.   Derivative financial
instruments

In the normal course of business, the Companys financial
position is subjected to a variety of risks, including market
risk associated with interest rate fluctuations and currency
rate fluctuations on non-functional currency denominated assets
and liabilities. The Company regularly assesses risks and has
established policies and business practices to protect against
effects of these and other potential exposures. The Company uses
derivatives to moderate the financial market risks of its
business operations by hedging the foreign currency market
exposures underlying certain assets and liabilities and
commitments related to customer transactions. The Company does
not use derivatives for speculative or trading purposes.

Cash flow hedges are hedges of forecasted transactions or of the
variability of cash flows to be received or paid related to a
recognized asset or liability. In September 2000, the Company
entered into a three year cross currency interest rate swap
(swap) transaction for the purpose of hedging fixed
interest rate, foreign currency denominated cash flows under an
intercompany loan receivable. This swap was entered into to
protect against the risk that the eventual cash flows resulting
from the loan receivable will be adversely affected by changes
in exchange rates. During the six months ended June 30,
2001, there was no portion of the hedging instrument excluded
from the assessment of the effectiveness. Additionally, there
was no ineffective portion of the hedge.

The effectiveness test for derivatives used to hedge the
underlying economic exposure is determined by using the change
in the forward rate for each derivative.

Additionally, the Company utilizes foreign currency forward
exchange contracts (forward contracts) to hedge
intercompany accounts of certain of its international
subsidiaries. Changes in the fair value of forward

6



---



VERITAS SOFTWARE CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

(Unaudited)


contracts are recognized in other income (expense) as an
offset to the changes in the fair value of the assets or
liabilities being hedged.

8. Segment information

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

Geographic information (in thousands):

|                      |               |                    |   |                  |         |      |   |         |         |  |   |         |         |  |   |         |         | 
|--------------------- | ------------- | ------------------ | - | ---------------- | ------- | ---- | - | ------- | ------- |  | - | ------- | ------- |  | - | ------- | ------- | 
|                      |               |                    |   |                 
|                      |               | Three Months Ended |   | Six Months Ended
|                      |               | June 30,           |   | June 30,        
|                      |               |                    |   |                 
|                      |               | 2001               |   | 2000             |         | 2001 |   | 2000   
|                      |               |                    |   |                  |         |      |   |        
|User license fees(1): |               |                    |   |                  |         |      |   |         |         |  |   |         |         |  |   |        
|                     
|                     
|                     
|                     
|                      | United States |                    | $ | 196,322          |         |      | $ | 165,609 |         |  | $ | 417,360 |         |  | $ | 318,410 |        
|                     
|                     
|                     
|                     
|                      | Europe(2)     |                    |   | 68,342           |         |      |   | 34,619  |         |  |   | 131,386 |         |  |   | 75,008  |        
|                     
|                     
|                     
|                     
|                      | Other(3)      |                    |   | 29,016           |         |      |   | 24,623  |         |  |   | 53,951  |         |  |   | 35,749  |        
|                      |               |                    |   |                  |         |      |   |         |         |  |   |         |         |  |   |        
|                      |               | Total              |   |                  | 293,680 |      |   |         | 224,851 |  |   |         | 602,697 |  |   |         | 429,167 | 
|                      |               |                    |   |                  |         |      |   |         |         |  |   |         |         |  |   |        
|Services(1):          |               |                    |   |                  |         |      |   |         |         |  |   |         |         |  |   |        
|                     
|                     
|                     
|                     
|                      | United States |                    |   | 76,721           |         |      |   | 43,658  |         |  |   | 140,658 |         |  |   | 76,615  |        
|                     
|                     
|                     
|                     
|                      | Europe(2)     |                    |   | 13,928           |         |      |   | 5,641   |         |  |   | 23,487  |         |  |   | 11,727  |        
|                     
|                     
|                     
|                     
|                      | Other(3)      |                    |   | 5,894            |         |      |   | 1,286   |         |  |   | 10,822  |         |  |   | 2,567   |        
|                      |               |                    |   |                  |         |      |   |         |         |  |   |         |         |  |   |        
|                      |               | Total              |   |                  | 96,543  |      |   |         | 50,585  |  |   |         | 174,967 |  |   |         | 90,909  | 
|                      |               |                    |   |                  |         |      |   |         |         |  |   |         |         |  |   |        
|                      |               | Total net revenue  |   | $                | 390,223 |      |   | $       | 275,436 |  |   | $       | 777,664 |  |   | $       | 520,076 | 
|                      |               |                    |   |                  |         |      |   |         |         |  |   |         |         |  |   |        

|                      |               |          |   |              |           |  |   |           |           | 
|--------------------- | ------------- | -------- | - | ------------ | --------- |  | - | --------- | --------- | 
|                      |               | June 30, |   | December 31,
|                      |               | 2001     |   | 2000        
|                      |               |          |   |             
|Long-lived assets(4): |               |          |   |              |           |  |   |          
|                     
|                     
|                     
|                     
|                      | United States |          | $ | 2,021,837    |           |  | $ | 2,423,292 |          
|                     
|                     
|                     
|                     
|                      | Europe(2)     |          |   | 28,234       |           |  |   | 22,212    |          
|                     
|                     
|                     
|                     
|                      | Other(3)      |          |   | 11,891       |           |  |   | 8,205     |          
|                      |               |          |   |              |           |  |   |          
|                      |               | Total    |   | $            | 2,061,962 |  |   | $         | 2,453,709 | 
|                      |               |          |   |              |           |  |   |          




|    |                                                                                                    
|--- | ---------------------------------------------------------------------------------------------------
|(1) | License and services revenues are attributed to geographic
	regions based on location of customers.
|   
|(2) | Europe includes the Middle East and Africa.                                                        
|   
|(3) | Other includes Canada, Latin America, Japan and the Asia Pacific
	region.                          

7



---



VERITAS SOFTWARE CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

(Unaudited)




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

|                                |                           |          |           |              |  |   |           |           | 
|------------------------------- | ------------------------- | -------- | --------- | ------------ |  | - | --------- | --------- | 
|                                |                           | June 30, |           | December 31,
|                                |                           | 2001     |           | 2000        
|                                |                           |          |           |             
|Total long-lived assets         |                           | $        | 2,061,962 |              |  | $ | 2,453,709 |          
|                               
|                               
|                               
|                               
|Other assets, including current |                           |          | 1,872,027 |              |  |   | 1,629,125 |          
|                                |                           |          |           |              |  |   |           |          
|                                | Total consolidated assets |          | $         | 3,933,989    |  |   | $         | 4,082,834 | 
|                                |                           |          |           |              |  |   |           |          

No customer represented 10% or more of the Companys net
revenue for each of the three and six months ended June 30,
2001 or for each of the three and six months ended June 30,
2000.

9. Commitments and contingencies

Facilities lease commitments

During the first quarter of 2001, the Company amended its
existing lease agreement, originally signed in the second
quarter of 1999, for new corporate campus facilities in Mountain
View, California. These facilities will replace certain
facilities that the Company currently leases in Mountain View.
The new corporate campus facilities were developed in one phase
for a total of 425,000 square feet and provide space for sales,
marketing, administration and research and development
functions. The lease term for these facilities is five years
beginning in March 2000, with an option to extend the lease term
for two successive periods of one year each. The Company has an
option to purchase the property (land and facilities) for
$147.8 million or, at the end of the lease, to arrange for
the sale of the property to a third party with the Company
retaining an obligation to the owner for the difference between
the sales price and the guaranteed residual value up to
$130.8 million if the sales price is less than this amount,
subject to certain provisions of the lease. The Company now
occupies a portion of the new corporate campus facilities and
began making lease payments in the second quarter of 2001.

During the first quarter of 2001, the Company amended its
existing lease agreement, originally signed in the first quarter
of 2000, for its existing facilities in Roseville, Minnesota.
The Company improved and expanded its existing facilities of
62,000 square feet and developed adjacent property adding
260,000 square feet to the campus, with the first phase of
142,000 square feet completed in the second quarter of 2001. The
facilities provide space for research and development functions.
The lease term for these facilities is five years beginning in
March 2000, with an option to extend the lease term for two
successive periods of one year each. The Company has an option
to purchase the property (land and facilities) for
$41.5 million or, at the end of the lease, to arrange for
the sale of the property to a third party with the Company
retaining an obligation to the owner for the difference between
the sales price and the guaranteed residual value up to
$36.0 million if the sales price is less than this amount,
subject to certain provisions of the lease. The Company now
occupies the new campus facilities and began making lease
payments in the second quarter of 2001.

During the third quarter of 2000, the Company signed a lease
agreement for the lease of 65 acres of land and subsequent
improvements for new research and development campus facilities
in Milpitas, California. The Company plans to develop the site
in two phases, with the first phase of 466,000 square feet being
completed in the fourth quarter of 2002. The facilities will
provide space for research and development and general corporate
functions. The lease term for the first phase is five years
beginning in July 2000, with an option to extend the lease term
for two successive periods of one year each. The Company has an
option to purchase the property (land and first phase
facilities) for $243.0 million or, at the end of the lease,
to arrange for the sale of the property to a third party with
the Company retaining an obligation to the owner for the
difference between the sales price and the guaranteed residual
value up to $220.0 million if the sales price is less than
this amount, subject to certain provisions of the lease. The
Company anticipates occupying the new campus facilities and

8



---



VERITAS SOFTWARE CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

(Unaudited)


beginning the lease payments in the second quarter of 2002 for
the first phase. The Company is currently analyzing its
construction schedule for the second phase of the campus, but at
this time no commitments have been made with respect to the
start of construction.

The three lease agreements listed above require the Company to
maintain specified financial covenants such as earnings before
interest, taxes, depreciation and amortization
(EBITDA), debt on EBITDA and quick ratio, all of
which the Company was in compliance with as of June 30,
2001.

9



---



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

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

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

Overview

VERITAS is a leading independent supplier of data availability
software products. Data availability software includes storage
management and data protection software as well as clustering,
replication and storage area networking software.

We develop products for most popular operating systems,
including versions of UNIX, Windows NT and Linux. We market our
products and services to original equipment manufacturers and
end user customers through a combination of direct sales and
indirect sales channels such as resellers, value-added
resellers, hardware distributors, application software vendors
and systems integrators.

We derive user license fee revenue from shipments of our
software products to end-user customers through direct sales
channels, indirect sales channels and original equipment
manufacturer customers. Our original equipment manufacturer
customers either bundle our products with the products licensed
by the original equipment manufacturers or offer them as
options. Some original equipment manufacturers also resell our
products. We receive a royalty each time the original equipment
manufacturer licenses to a customer a copy of the original
equipment manufacturers products that incorporates one or
more of our products. Our license agreements with our original
equipment manufacturer customers generally contain no minimum
sales requirements. We cannot assure you that any original
equipment manufacturer will either commence or continue shipping
operating systems incorporating our products in the future. When
we enter into new agreements with original equipment
manufacturer customers and resellers, a significant period of
time may elapse before we realize any associated revenue, due to
development work that we must generally undertake in these
agreements and the time needed for the sales and marketing
organizations within these customers and distributors to become
familiar with and gain confidence in our products.

Our services revenue consists of fees derived mainly from annual
maintenance agreements, as well as fees from consulting and
training services. Original equipment manufacturer maintenance
agreements covering our products provide for technical and
emergency support and minor unspecified product upgrades for a
fixed annual fee. Maintenance agreements covering products that
are licensed through channels other than original equipment
manufacturers provide for technical support and unspecified
product upgrades for an annual fee based on the number of user
licenses purchased and the level of service subscribed.

International sales and operations

Our international sales are generated primarily through our
international sales subsidiaries. International revenue, most of
which is collectible in foreign currencies, accounted for
approximately 30% of our total revenue for the three months
ended June 30, 2001 and 24% of our total revenue for the
three months ended June 30, 2000, for 28% of our total
revenue for the six months ended June 30, 2001 and 24% of
our total revenue for the six months ended June 30, 2000.
Our international revenue increased 77% from $66.2 million

10



---





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

Seagate Technology transaction

On November 22, 2000, we completed a multi-party
transaction with Seagate Technology, Inc. (Seagate)
and Suez Acquisition Company (Cayman) Limited (SAC),
a company formed by a group of private equity firms led by
Silver Lake Partners. The transaction was structured as a
leveraged buyout of Seagate pursuant to which Seagate sold all
of its operating assets to SAC, and SAC assumed and indemnified
Seagate and us for substantially all liabilities arising in
connection with those operating assets. At the closing, and
after the operating assets and liabilities of Seagate had been
transferred to SAC, a wholly-owned subsidiary of ours merged
with and into Seagate, following which Seagate became our
wholly-owned subsidiary and was renamed VERITAS Software
Technology Corporation. We issued approximately
109.4 million shares of our common stock to the Seagate
stockholders in exchange for approximately 128.1 million
shares of our common stock and equity securities in Gadzoox
Networks, Inc. (Gadzoox) held by Seagate, which
represented a decrease of approximately 18.7 million shares
of our outstanding common stock. We recorded the equity
securities in Gadzoox and other assets and liabilities assumed
from Seagate at their fair values and we accrued
$40.0 million of acquisition related costs. All equity
securities in Gadzoox have been sold as of June 30, 2001.
As of June 30, 2001, our other assets included
$70.0 million of indemnification receivable from SAC, our
accrued acquisition and restructuring costs included
$5.8 million of direct transaction costs, and our deferred
and other income taxes included an additional
$135.0 million.We did not acquire Seagates
disc drive business or any other Seagate operating business.

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

|                                      |  |             |       |  
|------------------------------------- |  | ----------- | ----- | -
|                                      |  | Direct     
|                                      |  | transaction
|                                      |  | costs      
|                                      |  |            
|Provision accrued at acquisition date |  | $           | 40.0  |  
|                                     
|                                     
|                                     
|                                     
|Cash payments                         |  |             | (8.6  | )
|                                      |  |             |       |  
|Balance at December 31, 2000          |  |             | 31.4  |  
|                                     
|                                     
|                                     
|                                     
|Cash payments                         |  |             | (25.6 | )
|                                      |  |             |       |  
|Balance at June 30, 2001              |  | $           | 5.8   |  
|                                      |  |             |       |  

We anticipate that the remaining $5.8 million will be
utilized in 2001.

Business combinations

On May 28, 1999, we acquired the Network & Storage
Management Group business of Seagate Software, Inc., which we
refer to as NSMG. On June 1, 1999 we acquired TeleBackup
Systems, Inc., which we refer to as TeleBackup. On
August 10, 1999, we acquired certain assets of NuView,
Inc., which we refer to as NuView.

NSMG acquisition

The NSMG business developed and marketed software products and
provided related services enabling information technology
professionals to manage distributed network resources and to
secure and protect

11



---





Acquisition-related costs consisted of direct transaction costs
of $20.0 million, operating lease commitments on
duplicative facilities of $8.2 million and involuntary
termination benefits of $15.2 million. Non-cash charges
included in the acquisition-related costs approximated
$11.7 million.

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

|                                      |  |                   |       |                        |  |                      |      |       |  |   |       |   |  |   |       |  
|------------------------------------- |  | ----------------- | ----- | ---------------------- |  | -------------------- | ---- | ----- |  | - | ----- | - |  | - | ----- | -
|                                      |  |                   |       | Operating lease        |  |                      |      |      
|                                      |  | Direct            |       | commitments on         |  | Involuntary          |      |      
|                                      |  | transaction costs |       | duplicative facilities |  | termination benefits |      | Total
|                                      |  |                   |       |                        |  |                      |      |      
|Provision accrued at acquisition date |  | $                 | 20.0  |                        |  | $                    | 8.2  |       |  | $ | 15.2  |   |  | $ | 43.4  |  
|                                     
|                                     
|                                     
|                                     
|Cash payments                         |  |                   | (17.4 | )                      |  |                      | (0.3 | )     |  |   | (1.8  | ) |  |   | (19.5 | )
|                                     
|                                     
|                                     
|                                     
|Non-cash charges                      |  |                   |      |                        |  |                      |     |       |  |   | (11.7 | ) |  |   | (11.7 | )
|                                      |  |                   |       |                        |  |                      |      |       |  |   |       |   |  |   |       |  
|Balance at December 31, 1999          |  |                   | 2.6   |                        |  |                      | 7.9  |       |  |   | 1.7   |   |  |   | 12.2  |  
|                                     
|                                     
|                                     
|                                     
|Cash payments                         |  |                   | (1.9  | )                      |  |                      | (1.9 | )     |  |   | (0.9  | ) |  |   | (4.7  | )
|                                      |  |                   |       |                        |  |                      |      |       |  |   |       |   |  |   |       |  
|Balance at December 31, 2000          |  |                   | 0.7   |                        |  |                      | 6.0  |       |  |   | 0.8   |   |  |   | 7.5   |  
|                                     
|                                     
|                                     
|                                     
|Cash payments                         |  |                   | (0.7  | )                      |  |                      | (0.1 | )     |  |   | (0.3  | ) |  |   | (1.1  | )
|                                      |  |                   |       |                        |  |                      |      |       |  |   |       |   |  |   |       |  
|Balance at June 30, 2001              |  | $                 |      |                        |  | $                    | 5.9  |       |  | $ | 0.5   |   |  | $ | 6.4   |  
|                                      |  |                   |       |                        |  |                      |      |       |  |   |       |   |  |   |       |  

We anticipate that the remaining acquisition-related costs
accrual of $6.4 million will be utilized primarily for
servicing operating lease payments or negotiated buyout of
operating lease commitments, the lease terms of which will
expire at various times through the year 2013.

In addition, we recorded a restructuring charge of
$11.0 million in 1999 as a result of the NSMG acquisition.
This restructuring charge consisted of cancellation of
facilities leases and other contracts of $8.8 million,,
involuntary termination benefits relating to the salary and
fringe benefit expense for terminated employees in research and
development of $1.3 million and $0.9 million of
write-off of redundant equipment and leasehold improvements. The
involuntarily terminated employees represented 2% of the global
workforce. In the fourth quarter of 2000, mainly as a result of
lower actual exit costs than originally estimated with respect
to duplicative facilities, we reversed $4.3 million of the
restructuring charge.

12



---



Restructuring costs are summarized below (in millions):

|                                      |  |                      |      |                      |  |                        |      |       |  |   |      |   |  |   |      |  
|------------------------------------- |  | -------------------- | ---- | -------------------- |  | ---------------------- | ---- | ----- |  | - | ---- | - |  | - | ---- | -
|                                      |  |                      |      |                      |  | Write-off              |      |      
|                                      |  | Cancellation         |      |                      |  | of redundant           |      |      
|                                      |  | of facilities leases |      | Involuntary          |  | equipment and          |      |      
|                                      |  | and other contracts  |      | termination benefits |  | leasehold improvements |      | Total
|                                      |  |                      |      |                      |  |                        |      |      
|Provision accrued at acquisition date |  | $                    | 8.8  |                      |  | $                      | 1.3  |       |  | $ | 0.9  |   |  | $ | 11.0 |  
|                                     
|                                     
|                                     
|                                     
|Cash payments                         |  |                      |     |                      |  |                        | (0.9 | )     |  |   |     |   |  |   | (0.9 | )
|                                     
|                                     
|                                     
|                                     
|Non-cash charges                      |  |                      |     |                      |  |                        |     |       |  |   | (0.9 | ) |  |   | (0.9 | )
|                                      |  |                      |      |                      |  |                        |      |       |  |   |      |   |  |   |      |  
|Balance at December 31, 1999          |  |                      | 8.8  |                      |  |                        | 0.4  |       |  |   |     |   |  |   | 9.2  |  
|                                     
|                                     
|                                     
|                                     
|Cash payments                         |  |                      | (0.2 | )                    |  |                        |     |       |  |   |     |   |  |   | (0.2 | )
|                                     
|                                     
|                                     
|                                     
|Reversals                             |  |                      | (3.9 | )                    |  |                        | (0.4 | )     |  |   |     |   |  |   | (4.3 | )
|                                      |  |                      |      |                      |  |                        |      |       |  |   |      |   |  |   |      |  
|Balance at December 31, 2000          |  |                      | 4.7  |                      |  |                        |     |       |  |   |     |   |  |   | 4.7  |  
|                                     
|                                     
|                                     
|                                     
|Cash payments                         |  |                      | (0.1 | )                    |  |                        |     |       |  |   |     |   |  |   | (0.1 | )
|                                      |  |                      |      |                      |  |                        |      |       |  |   |      |   |  |   |      |  
|Balance at June 30, 2001              |  | $                    | 4.6  |                      |  | $                      |     |       |  | $ |     |   |  | $ | 4.6  |  
|                                      |  |                      |      |                      |  |                        |      |       |  |   |      |   |  |   |      |  

We anticipate that the remaining restructuring charge accrual of
$4.6 million will be utilized for servicing operating lease
payments or negotiated buyout of operating lease commitments,
the lease terms of which will expire at various times through
2012.

TeleBackup acquisition

TeleBackup designed, developed and marketed software products
for local and remote backup and recovery of electronic
information stored on networked, remote and mobile personal
computers. TeleBackup became our wholly owned subsidiary in
exchange for the issuance of 6,842,795 shares of either our
common stock or exchangeable shares exchangeable into our common
stock to the holders of TeleBackup common shares, and the
exchange of options to purchase 154,706 shares of our
common stock to our employees who were former employees of
TeleBackup. We accounted for the TeleBackup acquisition using
the purchase method of accounting, and we are incurring charges
of $9.0 million per quarter, primarily related to the
amortization of developed technology, goodwill and other
intangibles over their estimated useful life of four years. The
total purchase price for TeleBackup was $143.1 million and
included $134.1 million related to the issuance of our
common stock, $2.8 million for the issuance of options to
purchase our common stock and $6.2 million in
acquisition-related costs. The purchase price was allocated,
based on an independent valuation, to goodwill of
$133.1 million, distribution channels of $1.0 million,
original equipment manufacturer agreements of $2.1 million,
developed technology of $6.6 million, assembled workforce
of $0.3 million, trademarks of $1.3 million,
in-process research and development of $1.9 million, net
deferred tax liabilities of $3.0 million and tangible net
liabilities assumed of $0.2 million. For the three months
ended June 30, 2001 and 2000, we recorded $8.6 million
for the amortization of goodwill and other intangibles, and
$0.4 million for the amortization of developed technology
related to this acquisition, and for the six months ended
June 30, 2001 and 2000, we recorded $17.2 million for
the amortization of goodwill and other intangibles, and
$0.8 million for the amortization of developed technology
related to this acquisition.

The acquisition costs of $6.2 million consisted primarily
of direct transaction costs and involuntary termination benefits.

13



---



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

|                                      |  |                   |      |                      |  |       |      |   |  |   |      |  
|------------------------------------- |  | ----------------- | ---- | -------------------- |  | ----- | ---- | - |  | - | ---- | -
|                                      |  | Direct            |      | Involuntary          |  |      
|                                      |  | transaction costs |      | termination benefits |  | Total
|                                      |  |                   |      |                      |  |      
|Provision accrued at acquisition date |  | $                 | 5.6  |                      |  | $     | 0.6  |   |  | $ | 6.2  |  
|                                     
|                                     
|                                     
|                                     
|Cash payments                         |  |                   | (5.1 | )                    |  |       | (0.2 | ) |  |   | (5.3 | )
|                                      |  |                   |      |                      |  |       |      |   |  |   |      |  
|Balance at December 31, 1999          |  |                   | 0.5  |                      |  |       | 0.4  |   |  |   | 0.9  |  
|                                     
|                                     
|                                     
|                                     
|Cash payments                         |  |                   | (0.2 | )                    |  |       | (0.4 | ) |  |   | (0.6 | )
|                                      |  |                   |      |                      |  |       |      |   |  |   |      |  
|Balance at December 31, 2000          |  |                   | 0.3  |                      |  |       |     |   |  |   | 0.3  |  
|                                     
|                                     
|                                     
|                                     
|Cash payments                         |  |                   | (0.1 | )                    |  |       |     |   |  |   | (0.1 | )
|                                      |  |                   |      |                      |  |       |      |   |  |   |      |  
|Balance at June 30, 2001              |  | $                 | 0.2  |                      |  | $     |     |   |  | $ | 0.2  |  
|                                      |  |                   |      |                      |  |       |      |   |  |   |      |  

We anticipate that the remaining $0.2 million will be
utilized in 2001.

NuView acquisition

Under an asset purchase agreement, we acquired certain assets of
NuView for a total cost of approximately $67.9 million. We
accounted for the acquisition using the purchase method of
accounting, and we are incurring charges of $4.3 million
per quarter primarily related to the amortization of developed
technology, goodwill and other intangibles over their estimated
useful life of four years. The purchase price included
$47.7 million related to the issuance of our common stock,
$0.8 million for the issuance of options to purchase our
common stock to former NuView employees, $0.2 million in
acquisition-related costs and $19.2 million paid in cash.
The purchase price was allocated, based on an independent
valuation, to goodwill of $62.6 million, developed
technology of $2.4 million, assembled workforce of
$0.6 million, trademarks of $0.3 million,
covenant-not-to-compete of $0.9 million and in-process
research and development of $1.1 million. For the three
months ended June 30, 2001 and 2000, we recorded
$4.1 million for amortization of goodwill and other
intangibles, and $0.2 million for the amortization of
developed technology related to this acquisition, and for the
six months ended June 30, 2001 and 2000, we recorded
$8.2 million for amortization of goodwill and other
intangibles, and $0.3 million for the amortization of
developed technology related to this acquisition.

For the three and six months ended June 30, 2001 and 2000,
we incurred net losses due to the amortization of developed
technology, goodwill and other intangibles mainly related to the
acquisitions of the NSMG business, TeleBackup and NuView. From
all of our acquisitions, we will incur total charges of
$237.6 million per quarter until the fourth quarter of 2001
related to the amortization of developed technology, goodwill
and other intangibles. Because of these significant quarterly
charges, it is likely that we will remain unprofitable at least
through the fourth quarter of 2001. On January 1, 2002,
upon adoption of newly issued Statement of Financial Accounting
Standards, or SFAS, No. 141, Business Combinations,
and SFAS No. 142, Goodwill and Other Intangible
Assets, the total quarterly charges related to the
amortization of developed technology, goodwill and other
intangibles will change. As extensive effort is needed to comply
with adopting SFAS 141 and 142, it is not practicable
to reasonably estimate the impact of adopting these Statements
on our financial statements at the date of this report. Refer to
the New Accounting Pronouncementssection on page 19
for the impacts of the adoption of SFAS No. 141 and SFAS
No. 142 on our financial statements.

14



---



Results of Operations

The following table sets forth the percentage of total net
revenue represented by certain line items from our condensed
consolidated statement of operations for the three months and
six months ended June 30, 2001 and 2000, respectively, and
the percentage changes between the comparable periods:

|                               |                                                |                          |     |                    |     |                  |     |    |     |  |     |    |    | 
|------------------------------ | ---------------------------------------------- | ------------------------ | --- | ------------------ | --- | ---------------- | --- | -- | --- |  | --- | -- | -- | 
|                               |                                                |                          |     |                   
|                               |                                                | Percentage of            |     |                   
|                               |                                                | Total Net Revenue        |     |                   
|                               |                                                |                          |     | Period-to-Period  
|                               |                                                |                          |     | Percentage Change 
|                               |                                                | Three Months Ended       |     |                   
|                               |                                                | June 30,                 |     | Three Months Ended
|                               |                                                |                          |     | June 30, 2001     
|                               |                                                | 2001                     |     | 2000               |     | Compared to 2000
|                               |                                                |                          |     |                    |     |                 
|Net revenue:                   |                                                |                          |     |                    |     |                  |     |    |     |  |     |   
|                              
|                              
|                              
|                              
|                               | User license fees                              |                          |     | 75                 | %   |                  |     | 82 | %   |  |     | 31 | % 
|                              
|                              
|                              
|                              
|                               | Services                                       |                          |     | 25                 |     |                  |     | 18 |     |  |     | 91 |   
|                               |                                                |                          |     |                    |     |                  |     |    |     |  |     |   
|                               |                                                | Total revenue            |     |                    | 100 |                  |     |    | 100 |  |     |    | 42 | 
|                              
|                              
|                              
|                              
|Cost of revenue:               |                                                |                          |     |                    |     |                  |     |    |     |  |     |   
|                              
|                              
|                              
|                              
|                               | User license fees                              |                          |     | 3                  |     |                  |     | 3  |     |  |     | 18 |   
|                              
|                              
|                              
|                              
|                               | Services                                       |                          |     | 8                  |     |                  |     | 7  |     |  |     | 70 |   
|                              
|                              
|                              
|                              
|                               | Amortization or developed technology           |                          |     | 4                  |     |                  |     | 6  |     |  |     | 1  |   
|                               |                                                |                          |     |                    |     |                  |     |    |     |  |     |   
|                               |                                                | Total cost of revenue    |     |                    | 15  |                  |     |    | 16  |  |     |    | 36 | 
|                               |                                                |                          |     |                    |     |                  |     |    |     |  |     |   
|Gross profit                   |                                                |                          | 85  |                    |     |                  | 84  |    |     |  | 43  |   
|                              
|                              
|                              
|                              
|Operating expenses:            |                                                |                          |     |                    |     |                  |     |    |     |  |     |   
|                              
|                              
|                              
|                              
|                               | Selling and marketing                          |                          |     | 38                 |     |                  |     | 39 |     |  |     | 37 |   
|                              
|                              
|                              
|                              
|                               | Research and development                       |                          |     | 15                 |     |                  |     | 14 |     |  |     | 53 |   
|                              
|                              
|                              
|                              
|                               | General and administrative                     |                          |     | 7                  |     |                  |     | 6  |     |  |     | 62 |   
|                              
|                              
|                              
|                              
|                               | Amortization of goodwill and other intangibles |                          |     | 57                 |     |                  |     | 80 |     |  |     | 1  |   
|                               |                                                |                          |     |                    |     |                  |     |    |     |  |     |   
|                               |                                                | Total operating expenses |     |                    | 117 |                  |     |    | 139 |  |     |    | 19 | 
|                               |                                                |                          |     |                    |     |                  |     |    |     |  |     |   
|Loss from operations           |                                                |                          | (32 | )                  |     |                  | (55 | )  |     |  | (17 | ) 
|                              
|                              
|                              
|                              
|Interest and other income, net |                                                |                          | 4   |                    |     |                  | 5   |    |     |  | 34  |   
|                              
|                              
|                              
|                              
|Interest expense               |                                                |                          | (2  | )                  |     |                  | (3  | )  |     |  | (3  | ) 
|                               |                                                |                          |     |                    |     |                  |     |    |     |  |     |   
|Loss before income taxes       |                                                |                          | (30 | )                  |     |                  | (53 | )  |     |  | (21 | ) 
|                              
|                              
|                              
|                              
|Provision for income taxes     |                                                |                          | 3   |                    |     |                  | 10  |    |     |  | 49  |   
|                               |                                                |                          |     |                    |     |                  |     |    |     |  |     |   
|Net loss                       |                                                |                          | (33 | )%                 |     |                  | (63 | )% |     |  | (25 | )%
|                               |                                                |                          |     |                    |     |                  |     |    |     |  |     |   

15



---



|                               |                                                |                          |     |                   |     |                  |     |    |     |  |     |    |    | 
|------------------------------ | ---------------------------------------------- | ------------------------ | --- | ----------------- | --- | ---------------- | --- | -- | --- |  | --- | -- | -- | 
|                               |                                                |                          |     |                  
|                               |                                                | Percentage of            |     |                  
|                               |                                                | Total Net Revenue        |     |                  
|                               |                                                |                          |     | Period-to-Period 
|                               |                                                |                          |     | Percentage Change
|                               |                                                | Six Months Ended         |     |                  
|                               |                                                | June 30,                 |     | Six Months Ended 
|                               |                                                |                          |     | June 30, 2001    
|                               |                                                | 2001                     |     | 2000              |     | Compared to 2000
|                               |                                                |                          |     |                   |     |                 
|Net revenue:                   |                                                |                          |     |                   |     |                  |     |    |     |  |     |   
|                              
|                              
|                              
|                              
|                               | User license fees                              |                          |     | 78                | %   |                  |     | 83 | %   |  |     | 40 | % 
|                              
|                              
|                              
|                              
|                               | Services                                       |                          |     | 22                |     |                  |     | 17 |     |  |     | 93 |   
|                               |                                                |                          |     |                   |     |                  |     |    |     |  |     |   
|                               |                                                | Total revenue            |     |                   | 100 |                  |     |    | 100 |  |     |    | 50 | 
|                              
|                              
|                              
|                              
|Cost of revenue:               |                                                |                          |     |                   |     |                  |     |    |     |  |     |   
|                              
|                              
|                              
|                              
|                               | User license fees                              |                          |     | 3                 |     |                  |     | 4  |     |  |     | 2  |   
|                              
|                              
|                              
|                              
|                               | Services                                       |                          |     | 8                 |     |                  |     | 7  |     |  |     | 72 |   
|                              
|                              
|                              
|                              
|                               | Amortization or developed technology           |                          |     | 4                 |     |                  |     | 6  |     |  |     | 2  |   
|                               |                                                |                          |     |                   |     |                  |     |    |     |  |     |   
|                               |                                                | Total cost of revenue    |     |                   | 15  |                  |     |    | 17  |  |     |    | 32 | 
|                               |                                                |                          |     |                   |     |                  |     |    |     |  |     |   
|Gross profit                   |                                                |                          | 85  |                   |     |                  | 83  |    |     |  | 53  |   
|                              
|                              
|                              
|                              
|Operating expenses:            |                                                |                          |     |                   |     |                  |     |    |     |  |     |   
|                              
|                              
|                              
|                              
|                               | Selling and marketing                          |                          |     | 37                |     |                  |     | 37 |     |  |     | 49 |   
|                              
|                              
|                              
|                              
|                               | Research and development                       |                          |     | 15                |     |                  |     | 14 |     |  |     | 56 |   
|                              
|                              
|                              
|                              
|                               | General and administrative                     |                          |     | 7                 |     |                  |     | 6  |     |  |     | 67 |   
|                              
|                              
|                              
|                              
|                               | Amortization of goodwill and other intangibles |                          |     | 57                |     |                  |     | 85 |     |  |     | 1  |   
|                               |                                                |                          |     |                   |     |                  |     |    |     |  |     |   
|                               |                                                | Total operating expenses |     |                   | 116 |                  |     |    | 142 |  |     |    | 22 | 
|                               |                                                |                          |     |                   |     |                  |     |    |     |  |     |   
|Loss from operations           |                                                |                          | (31 | )                 |     |                  | (59 | )  |     |  | (22 | ) 
|                              
|                              
|                              
|                              
|Interest and other income, net |                                                |                          | 4   |                   |     |                  | 4   |    |     |  | 49  |   
|                              
|                              
|                              
|                              
|Interest expense               |                                                |                          | (2  | )                 |     |                  | (3  | )  |     |  | (5  | ) 
|                               |                                                |                          |     |                   |     |                  |     |    |     |  |     |   
|Loss before income taxes       |                                                |                          | (29 | )                 |     |                  | (58 | )  |     |  | (27 | ) 
|                              
|                              
|                              
|                              
|Provision for income taxes     |                                                |                          | 8   |                   |     |                  | 9   |    |     |  | 39  |   
|                               |                                                |                          |     |                   |     |                  |     |    |     |  |     |   
|Net loss                       |                                                |                          | (37 | )%                |     |                  | (67 | )% |     |  | (17 | )%
|                               |                                                |                          |     |                   |     |                  |     |    |     |  |     |   

Net Revenue

Total net revenue increased 42% from $275.4 million for the
three months ended June 30, 2000 to $390.2 million for
the three months ended June 30, 2001, and increased 50%
from $520.1 million for the six months ended June 30,
2000 to $777.7 million for the six months ended
June 30, 2001. We believe that the percentage increase in
total revenue achieved in this period is not necessarily
indicative of future results, but we do expect total net revenue
to continue to grow in 2001 compared to 2000. Our revenue is
comprised of user license fees and service revenue.

User License Fees.User license fees increased 31% from
$224.9 million for the three months ended June 30,
2000 to $293.7 million for the three months ended
June 30, 2001, and increased 40% from $429.2 million
for the six months ended June 30, 2000 to
$602.7 million for the six months ended June 30, 2001.
The increases were primarily the result of the continued growth
in market acceptance of our software products, a greater volume
of large end-user transactions, and increased revenue from
original equipment manufacturers. In particular, our user
license fees from our data protection, file and volume
management and application solutions products increased 37% from
$187.8 million for the three months ended June 30,
2000 to $257.3 million for the three months ended
June 30, 2001, and increased 41% from $369.8 million
for the six months ended June 30, 2000 to
$520.3 million for the six months ended June 30, 2001.
The user license fees from our data protection, file and volume
management and application solutions products accounted for 88%
of user license fees for the three months ended June 30,
2001, and 84% for the three months ended June 30, 2000, and
accounted for 86% of user license fees for each of the six
months ended June 30, 2001, and 2000.For the three
months and six months ended June 30, 2001, we also recorded
a greater volume of large end-user transactions. For end-user
transactions valued at $250,000 or more, our user license fees
increased 44% from $40.9 million for the three months ended
June 30, 2000 to $58.7 million for the three months
ended June 30,

16



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Service Revenue. We derive our service revenue primarily
from contracts for software maintenance and technical support
and, to a lesser extent, consulting and training services.
Service revenue increased 91% from $50.6 million for the
three months ended June 30, 2000 to $96.5 million for
the three months ended June 30, 2001, and increased 93%
from $90.9 million for the six months ended June 30,
2000 to $175.0 million for the six months ended
June 30, 2001. These increases were primarily due to
increased sales of service and support contracts on new
licenses, renewal of service and support contracts on existing
licenses and, to a lesser extent, an increase in demand for
consulting and training services. Service revenue represented
25% of total net revenue for the three months ended
June 30, 2001 and 22% of total revenue for the six months
ended June 30, 2001. We expect service revenue to increase
in absolute dollars and to increase slightly as a percentage of
total net revenue in the future.

Cost of Revenue

Cost of revenue increased 36% from $43.9 million for the
three months ended June 30, 2000 to $59.8 million for
the three months ended June 30, 2001, and increased 32%
from $89.4 million for the six months ended June 30,
2000 to $117.9 million for the six months ended
June 30, 2001. Gross margin on user license fees, excluding
amortization of developed technology, is substantially higher
than gross margin on service revenue, reflecting the low
materials, packaging and other costs of software products
compared with the relatively high personnel costs associated
with providing maintenance, technical support, consulting and
training services. Cost of service revenue varies depending upon
the mix of maintenance, technical support, consulting and
training services. We expect gross margin to fluctuate in the
future, reflecting this mix and the timing differences between
increasing our organizational investments and the recognition of
revenue that we expect as a result of these investments.

Cost of User License Fees (including amortization of
developed technology). Cost of user license fees consists
primarily of royalties, media, manuals and distribution costs.
Also included in the cost of revenue is the amortization of
developed technology related primarily to the 1999 acquisitions
of NSMG, TeleBackup and NuView. Cost of user license fees
increased 7% from $23.8 million for the three months ended
June 30, 2000 to $25.4 million for the three months
ended June 30, 2001, and increased 2% from
$50.9 million for the six months ended June 30, 2000
to $51.9 million for the six months ended June 30,
2001. Gross margin on user license fees increased from 89% for
the three months ended June 30, 2000 to 91% for the three
months ended June 30, 2001, and increased from 88% for the
six months ended June 30, 2000 to 91% for the six months
ended June 30, 2001. The increase in gross margin on user
license fees in 2001 was due mainly to the combination of
increases in user license fees revenue and the stability of the
amortization of developed technology. If we excluded the
amortization of developed technology from the cost of user
license fees, the gross margin on user license fees would have
been 96% for the three months ended June 30, 2000 and 97%
for the three months ended June 30, 2001, and 95% for the
six months ended June 30, 2000 and 97% for the six months
ended June 30, 2001. The gross margin on user license fees
may vary from period to period based on the license revenue mix,
because some products carry higher royalty rates than others. We
do not expect gross margin on user license fees to increase in
the future.

Cost of Service Revenue. Cost of service revenue consists
primarily of personnel-related costs in providing maintenance,
technical support, consulting and training to customers. Cost of
service revenue increased 70% from $20.2 million for the
three months ended June 30, 2000 to $34.4 million for
the three months ended June 30, 2001, and increased 72%
from $38.5 million for the six months ended June 30,
2000 to $66.0 million for the six months ended
June 30, 2001. Gross margin on service revenue increased
from 60% for the three months ended June 30, 2000 to 64%
for the three months ended June 30, 2001, and increased from

17



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Amortization of Developed Technology. Amortization of
developed technology increased 1% from $15.6 million for
the three months ended June 30, 2000 to $15.7 million
for the three months ended June 30, 2001, and increased 2%
from $30.9 million for the six months ended June 30,
2000 to $31.5 million for the six months ended
June 30, 2001. These amounts mainly represent the
amortization of the developed technology recorded upon the
acquisitions of NSMG, TeleBackup and NuView in 1999. The useful
life of the developed technology acquired is four years and we
expect the amortization to be approximately $15.7 million
per quarter through the fourth quarter of 2001. Refer to the
New Accounting Pronouncements section on page 19 for
the impacts of the adoption of SFAS No. 141, Business
Combinations, and SFAS No. 142, Goodwill and Other
Intangible Assets on our financial statements.

Operating Expenses

Total operating expenses increased 19% from $382.7 million
for the three months ended June 30, 2000 to
$455.8 million for the three months ended June 30,
2001, and increased 22% from $740.0 million for the six
months ended June 30, 2000 to $902.0 million for the
six months ended June 30, 2001. We believe that the
percentage increase in total operating expenses in this period
is not necessarily indicative of future results. Our operating
expenses include selling and marketing expenses, research and
development expenses, general and administrative expenses, and
amortization of goodwill and other intangibles.

Selling and Marketing. Selling and marketing expenses
consist primarily of salaries, related benefits, commissions,
consultant fees and other costs associated with our sales and
marketing efforts. Selling and marketing expenses increased 37%
from $106.1 million for the three months ended
June 30, 2000 to $145.7 million for the three months
ended June 30, 2001, and increased 49% from
$193.7 million for the six months ended June 30, 2000
to $288.5 million for the six months ended June 30,
2001. The increase in absolute dollars was primarily
attributable to increased sales and marketing staffing and, to a
lesser extent, increased costs associated with new marketing
programs. As a percentage of net revenue, selling and marketing
expenses decreased slightly from 39% for the three months ended
June 30, 2000 to 37% for the three months ended
June 30, 2001, and remained at 37% for the six months ended
June 30, 2000 and 2001. We intend to continue to expand our
global sales and marketing infrastructure, and accordingly, we
expect our selling and marketing expenses to increase in
absolute dollars and to increase slightly as a percentage of
total net revenue in the future.

Research and Development. Research and development
expenses consist primarily of salaries, related benefits,
third-party consultant fees and other engineering related costs.
Research and development expenses increased 53% from
$39.2 million for the three months ended June 30, 2000
to $59.9 million for the three months ended June 30,
2001, and increased 56% from $74.3 million for the six
months ended June 30, 2000 to $116.1 million for the
six months ended June 30, 2001. The increases were due
primarily to increased staffing levels associated with new hires
and, to a lesser extent, expansion of development efforts for
new technology. As a percentage of net revenue, research and
development expenses increased from 14% for the three and six
months ended June 30, 2000 to 15% for the three and six
months ended June 30, 2001. We believe that a significant
level of research and development investment is required to
remain competitive, and expect these expenses will continue to
increase in absolute dollars in future periods and may increase
slightly as a percentage of net revenue. We expect research and
development expenses to fluctuate from time to time to the
extent that we make periodic incremental investments in research
and development.

General and Administrative. General and administrative
expenses consist primarily of salaries, related benefits and
fees for professional services, such as legal and accounting
services. General and administrative expenses increased 62% from
$17.6 million for the three months ended June 30, 2000
to $28.5 million for the three months ended June 30,
2001, and increased 67% from $32.5 million for the six
months ended June 30,

18



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Amortization of Goodwill and Other Intangibles.
Amortization of goodwill and other intangibles increased 1% from
$219.8 million for the three months ended June 30,
2000 to $221.7 million for the three months ended
June 30, 2001, and increased 1% from $439.5 million
for the six months ended June 30, 2000 to
$443.0 million for the six months ended June 30, 2001.
This amount mainly represents amortization of goodwill,
distribution channels, trademarks and other intangibles assets
recorded upon the acquisitions of NSMG, TeleBackup and NuView in
1999. The estimated useful life of the goodwill and the other
intangibles is four years. We expect the amortization related to
goodwill to be approximately $202.8 million per quarter
through the fourth quarter of 2001 and the amortization related
to other intangibles to be approximately $19.0 million per
quarter through 2003. Refer to the New Accounting
Pronouncements section below for the impacts of the adoption
of SFAS No. 141, Business Combinations, and SFAS
No. 142, Goodwill and Other Intangible Assets on our
financial statements.

Interest and Other Income, Net. Interest and other
income, net increased 34% from $12.8 million for the three
months ended June 30, 2000 to $17.2 million for the
three months ended June 30, 2001, and increased 49% from
$24.0 million for the six months ended June 30, 2000
to $35.8 million for the six months ended June 30,
2001. The increase was due to increased amounts of interest
income attributable to the higher level of funds available for
investment, which were primarily from the net cash provided by
operating activities, partially offset by a lower return on
investments due to lower market interest rates.

Interest Expense. Interest expense consisted primarily of
interest recorded under the 1.856% convertible subordinated
notes due 2006 issued in August 1999 and the 5.25% convertible
subordinated notes due 2004 issued in October 1997. Interest
expense decreased 3% from $7.5 million for the three months
ended June 30, 2000 to $7.3 million for the three
months ended June 30, 2001, and decreased 5% from
$15.0 million for the six months ended June 30, 2000
to $14.3 million for the six months ended June 30,
2001. The decrease was primarily due to the interest expense
savings that has been realized with the conversion of
approximately $35.5 million of the 5.25% convertible
subordinated notes that occurred in the third quarter of 2000.

Income Taxes. We had effective tax rates of negative 12%
for the three months ended June 30, 2001, compared to
negative 18% for the three months ended June 30, 2000. We
also had effective tax rates of negative 29% for the six months
ended June 30, 2001, compared to negative 15% for the six
months ended June 30, 2000. Our June 30, 2001 and 2000
effective tax rates were negative and differed from the combined
federal and state statutory rates primarily due to differences
attributable to acquisition-related charges that were
non-deductible for tax purposes.

New Accounting Pronouncements. In July 2001, the
Financial Accounting Standards Board, or FASB, issued SFAS
No. 141, Business Combinations, and SFAS
No. 142, Goodwill and Other Intangible Assets.
SFAS 141 requires that the purchase method of accounting be
used for all business combinations initiated after June 30,
2001. SFAS 141 also specifies criteria intangible assets
acquired in a purchase method business combination must meet to
be recognized and reported apart from goodwill, noting that any
purchase price allocable to an assembled workforce may not be
accounted for separately. SFAS 142 will require that
goodwill and intangible assets with indefinite useful lives no
longer be amortized, but instead be tested for impairment at
least annually in accordance with the provisions of
SFAS 142. SFAS 142 will also require that intangible
assets with estimable useful lives be amortized over their
respective estimated useful lives to their estimated residual
values, and reviewed for impairment in accordance with
SFAS 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of.

We are required to adopt the provisions of SFAS 141
immediately, except with regard to business combinations
initiated prior to July 1, 2001, which we expect to account
for using the pooling-of-interests method. SFAS 142
effective January 1, 2002. Furthermore, goodwill and
intangible assets determined to have

19



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SFAS 141 will require upon adoption of SFAS 142, that we
evaluate our existing intangible assets and goodwill that were
acquired in a prior purchase business combination, and to make
any necessary reclassifications in order to conform with the new
criteria in SFAS 141 for recognition apart from goodwill.
Upon adoption of SFAS 142, we will be required to reassess
the useful lives and residual values of all intangible assets
acquired, and make any necessary amortization period adjustments
by the end of the first interim period after adoption. In
addition, to the extent an intangible asset is identified as
having an indefinite useful life, we will be required to test
the intangible asset for impairment in accordance with the
provisions of SFAS 142 within the first interim period. Any
impairment loss will be measured as of the date of adoption and
recognized as the cumulative effect of a change in accounting
principle in the first interim period.

In connection with SFAS 142s transitional goodwill
impairment evaluation, the Statement will require us to perform
an assessment of whether there is an indication that goodwill is
impaired as of the date of adoption. To accomplish this, we must
identify our reporting units and determine the carrying value of
each reporting unit by assigning the assets and liabilities,
including the existing goodwill and intangible assets, to those
reporting units as of the date of adoption. We will then have up
to six months from the date of adoption to determine the fair
value of each reporting unit and compare it to the reporting
units carrying amount. To the extent a reporting
units carrying amount exceeds its fair value, an
indication exists that the reporting units goodwill may be
impaired and we must perform the second step of the transitional
impairment test. In the second step, we must compare the implied
fair value of the reporting units goodwill, determined by
allocating the reporting units fair value to all of its
assets (recognized and unrecognized) and liabilities in a manner
similar to a purchase price allocation in accordance with SFAS
141, to its carrying amount, both of which would be measured as
of the date of adoption. This second step is required to be
completed as soon as possible, but no later than the end of the
year of adoption. Any transitional impairment loss will be
recognized as the cumulative effect of a change in accounting
principle in our statement of operations.

As of the date of adoption, we expect to have unamortized
goodwill in the amount of $1,159.9 million and unamortized
other identifiable intangible assets in the amount of
$208.7 million, all of which will be subject to the
transition provisions of SFAS 141 and 142. The quarterly
amortization expense related to goodwill is expected to be
$202.8 million for each of the third and fourth quarter of
2001. As extensive effort is needed to comply with adopting SFAS
141 and 142, it is not practicable to reasonably estimate the
impact of adopting these Statements on our financial statements
at the date of this report, including whether it will be
required to recognize any transitional impairment losses as a
cumulative effect of a change in accounting principle.

Liquidity and Capital Resources

Cash Flows

Our cash, cash equivalents and short-term investments totaled
$1,208.3 million at June 30, 2001 and represented 57.8% of
our net tangible assets. Cash and cash equivalents are highly
liquid with original maturities of ninety days or less.
Short-term investments consist mainly of investment grade
commercial paper, medium-term notes, corporate notes, government
securities and market auction preferreds. At June 30, 2001,
we had $436.5 million of convertible subordinated notes,
$135.0 million of other income taxes related to the Seagate
Technology transaction, which is partially offset by
$70.0 million of indemnification receivable from SAC, and
stockholders equity was approximately
$2,835.9 million.

Net cash provided from operating activities was
$301.2 million in the six months ended June 30, 2001,
and $244.8 million in the six months ended June 30,
2000. For the six months ended June 30, 2001, cash provided
by operating activities resulted primarily from income after
adjustments to exclude non-cash charges, including amortization
of intangibles related to acquisition activities, tax benefits
from stock plans and an

20



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Our investing activities used cash of $374.0 million in the
six months ended June 30, 2001, and $30.4 million in
the six months ended June 30, 2000. For the six months
ended June 30, 2001, the primary use of cash was for the
net purchases of short-term and long-term investments of
$252.7 million, and for property and equipment of
$87.2 million. For the six months ended June 30, 2000,
the primary use of cash was for the purchase of property and
equipment of $48.1 million and from strategic investments
in businesses of $12.0 million, offset by the net decrease
in short-term and long-term investments of $32.2 million.

Financing activities provided cash of $57.5 million in the
six months ended June 30, 2001, and $63.2 million in
the three months ended June 30, 2000 from the issuance of
common stock under our employee stock plans.

Convertible Subordinated Notes

In October 1997, we issued $100.0 million of 5.25%
convertible subordinated notes due 2004 (the 5.25%
notes), for which we received net proceeds of
$97.5 million. We and our wholly owned subsidiary, VERITAS
Operating Corporation, are co-obligors on the 5.25% notes and
are unconditionally, jointly and severally liable for all
payments under the notes. At June 30, 2001, a total
principal amount at maturity of $35.5 million was converted
into approximately 3.7 million shares of our common stock.
Based on the aggregate principal amount at maturity of
$64.5 million outstanding as of June 30, 2001, the
5.25% notes provide for semi-annual interest payments of
$1.7 million each May 1 and November 1. The 5.25% notes are
convertible into shares of our common stock at any time prior to
the close of business on the maturity date, unless previously
redeemed or repurchased, at a conversion price of $9.56 per
share, subject to adjustment in certain events, equivalent to a
conversion rate of 104.65 shares of common stock per $1,000
principal amount at maturity. On or after November 5, 2002,
the 5.25% notes will be redeemable over a period of time until
maturity at our option at declining premiums to par. The debt
issuance costs are being amortized over the term of the 5.25%
notes using the interest method.

In August 1999, we and our wholly-owned subsidiary, VERITAS
Operating Corporation, issued $465.8 million, aggregate
principal amount at maturity, of 1.856% convertible subordinated
notes due 2006 (the 1.856% notes) for which we
received net proceeds of approximately $334.1 million. The
interest rate of 1.856%, together with the accrual of original
issue discount, represents a yield to maturity of 6.5%. We and
VERITAS Operating Corporation are co-obligors on the 1.856%
notes and are unconditionally, jointly and severally liable for
all payments under the notes. At June 30, 2001, a total
principal amount at maturity of $1.1 million was converted
into approximately 29,400 shares of our common stock. Based on
the aggregate principal amount at maturity of $464.7 million
outstanding as of June 30, 2001, the 1.856% notes provide
for semi-annual interest payments of $4.3 million each
February 13 and August 13. The 1.856% notes are
convertible into shares of our common stock at any time prior to
the close of business on the maturity date, unless previously
redeemed or repurchased, at a conversion price of $35.80 per
share, subject to adjustment in certain events, equivalent to a
conversion rate of 27.934 shares of common stock per $1,000
principal amount at maturity. On or after August 16, 2002,
the 1.856% notes will be redeemable over a period of time until
maturity at our option at the issuance price plus accrued
original issue discount and any accrued interest. The debt
issuance costs are being amortized over the term of the 1.856%
notes using the interest method.

We will require substantial amounts of cash to fund scheduled
payments of principal and interest on our indebtedness,
including the 5.25% notes and the 1.856% notes, future capital
expenditures and any increased working capital requirements. If
we are unable to meet our cash requirements out of cash flow
from operations, we cannot assure you that we will be able to
obtain alternative financing. The degree to which we will be
leveraged could impair our ability to obtain financing necessary
for working capital, acquisitions or other purposes, and could
make us more vulnerable to industry downturns and competitive
pressure.

21



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Commitments

During the third quarter of 2000, we signed a $50.0 million
unsecured credit facility with a syndicate of financial
institutions. At June 30, 2001, no amount was outstanding.
The credit facility is due to expire in September 2001.
Borrowings under the credit facility bear interest at 1.0% to
1.5% over LIBOR, and are subject to our compliance with
financial and other covenants. The credit agreement requires us
to maintain specified financial covenants such as earnings
before interest, taxes, depreciation and amortization
(EBITDA), debt on EBITDA and quick ratio, all of
which we were in compliance with as of June 30, 2001.

During the first quarter of 2001, we amended our existing lease
agreement, originally signed in the second quarter of 1999, for
new corporate campus facilities in Mountain View, California.
These facilities will replace certain facilities that we are
currently leasing in Mountain View. The new corporate campus
facilities were developed in one phase for a total of 425,000
square feet and provide space for sales, marketing,
administration and research and development functions. The lease
term for these facilities is five years beginning in
March 2000, with an option to extend the lease term for two
successive periods of one year each. We have the option to
purchase the property (land and facilities) for
$147.8 million or, at the end of the lease, to arrange for
the sale of the property to a third party if we retain an
obligation to the owner for the difference between the sales
price and the guaranteed residual value up to
$130.8 million if the sales price is less than this amount,
subject to certain provisions of the lease. We now occupy a
portion of the new corporate campus facilities and began making
the lease payments in the second quarter of 2001.

During the first quarter of 2001, we amended our existing lease
agreement, originally signed in the first quarter of 2000 for
its existing facilities in Roseville, Minnesota. We improved and
expanded our existing facilities of 62,000 square feet and
developed adjacent property adding 260,000 square feet to the
campus, with the first phase of 142,000 square feet completed in
the second quarter of 2001. The facilities provide space for
research and development functions. The lease term for these
facilities is five years beginning in March 2000, with an option
to extend the lease term for two successive periods of one year
each. We have the option to purchase the property (land and
facilities) for $41.5 million or, at the end of the lease,
to arrange for the sale of the property to a third party if we
retain an obligation to the owner for the difference between the
sales price and the guaranteed residual value up to
$36.0 million if the sales price is less than this amount,
subject to certain provisions of the lease. We now occupy the
new campus facilities and began making lease payments in the
second quarter of 2001.

During the third quarter of 2000, we signed a lease agreement
for the lease of 65 acres of land and subsequent improvements
for new research and development campus facilities in Milpitas,
California. We plan to develop the site in two phases, with the
first phase of 466,000 square feet being completed in the fourth
quarter of 2002. The facilities will provide space for research
and development functions. The lease term for the first phase is
five years beginning in July 2000, with an option to extend the
lease term for two successive periods of one year each. We have
the option to purchase the property (land and first phase
facilities) for $243.0 million or, at the end of the lease,
to arrange for the sale of the property to a third party if we
retain an obligation to the owner for the difference between the
sales price and the guaranteed residual value up to
$220.0 million if the sales price is less than this amount,
subject to certain provisions of the lease. We anticipate that
we will occupy the new campus facilities and beginning the lease
payments in the second quarter of 2002 for the first phase. We
are analyzing our construction schedule for the second phase of
the campus, but at this time no commitments have been made with
respect to the start of construction.

The three lease agreements listed above require that we maintain
specified financial covenants such as earnings before interest,
taxes, depreciation and amortization (EBITDA), debt
on EBITDA and quick ratio, all of which we were compliance with
as of June 30, 2001.

We believe that our current cash, cash equivalents and
short-term investment balances and cash flow from operations
will be sufficient to meet our working capital and capital
expenditure requirements for at least the next 12 months.
After that time, we may require additional funds to support our
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. We cannot assure you that
additional financing will be available at all or that if
available, we will be able to obtain it on terms favorable to us.

22



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Factors That May Affect Future Results

In addition to other information in this Quarterly Report on
Form 10-Q, you should carefully consider the following
factors when evaluating VERITAS and our business.

Our revenue may fluctuate significantly, which could cause
the market price of our securities to decline

We may experience a shortfall in revenue in any given quarter.
Any such shortfall in revenue could cause the market price of
securities to fall substantially. Our revenue in general, and
our license revenue in particular, are difficult to forecast and
are likely to fluctuate significantly from quarter to quarter
due to a number of factors, many of which are outside of our
control. These factors include:



| |   |                                                                                                                                                                                                                                                                                                                                   
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the possibility that our customers may cancel, defer or limit
	purchases as a result of reduced information technology budgets
	or the current weak or uncertain general economic and industry
	conditions;                                                                                                                       
|
| |  | the timing and magnitude of sales through our original equipment
	manufacturer customers, including Hewlett-Packard, IBM,
	Microsoft, Oracle and Sun Microsystems;                                                                                                                                                                
|
| |  | the possibility that a slowdown in sales by our original
	equipment manufacturer customers could result in reduced demand
	for our products and services;                                                                                                                                                                         
|
| |  | the unpredictability of the timing and magnitude of sales to the
	retail channel by our resellers and sales by our direct sales
	force, which tend to generate sales later in our quarters than
	original equipment manufacturer sales;                                                                                           
|
| |  | the timing and magnitude of direct sales to end-user customers;                                                                                                                                                                                                                                                                   
|
| |  | the timing of revenue recognition for sales of software products
	and services;                                                                                                                                                                                                                                                   
|
| |  | the introduction, timing and market acceptance of new products
	and services;                                                                                                                                                                                                                                                     
|
| |  | changes in data storage and networking technology or
	introduction of new operating system upgrades by our original
	equipment manufacturer customers, which could require us to
	modify our products and services or to develop new products and
	services;                                                                      
|
| |  | the relative growth rates of the Windows NT, UNIX and Linux
	markets;                                                                                                                                                                                                                                                             
|
| |  | the rate of adoption of storage area networks and the timing and
	magnitude of sales of our storage area networking products and
	services;                                                                                                                                                                                       
|
| |  | the rate of adoption of network attached storage appliance
	technology and the timing and magnitude of sales of our network
	attached storage appliance products and services;                                                                                                                                                    
|
| |  | the extent to which our customers renew their service and
	maintenance contracts with us;                                                                                                                                                                                                                                         
|
| |  | changes in our pricing policies and distribution terms;                                                                                                                                                                                                                                                                           
|
| |  | the timing and amount of revenue attributable to our end-user
	customers whose businesses are substantially dependent on the
	Internet or the telecommunications markets, whose ability to
	purchase our products may be adversely affected by their
	inability to raise additional capital or to meet their business
	objectives;
|
| |  | the possibility that our customers may defer purchases in
	anticipation of new products or product updates by us or by our
	competitors;                                                                                                                                                                                          
|
| |  | the overall demand for data availability products and services,
	which is likely to be lower in weak or uncertain general
	economic and industry conditions; and                                                                                                                                                                  
|
| |  | the possibility of a worsening of the current weak or uncertain
	general economic and industry conditions.                                                                                                                                                                                                                        

23



---



In the current weak or uncertain general economic and industry
conditions, our revenue, and our license revenue in particular,
are extremely difficult to forecast and will likely be less
predictable from quarter to quarter. You should not rely on the
results of any prior periods as an indication of our future
performance. If we have a shortfall in revenue in any given
quarter, we probably will not be able to reduce our operating
expenses quickly in response. Therefore, any significant
shortfall in revenue could have an immediate adverse effect on
our operating results for that quarter. In addition, it is
possible that in some future periods our operating results may
be below the expectations of public-market analysts or
investors. If this occurs some of our common stock maybe
adversely affected.

Our revenue may fluctuate because we depend on large
orders from end-user customers for a significant portion of our
revenue

We depend on large orders for a significant portion of our
revenue, which include lengthy sales cycles from end-user
customers. Our revenue for a quarter could fluctuate
significantly based on whether a large sale near the end of a
quarter is closed or delayed. Our end-user customer sales
generally range in value from a few thousand to several million
dollars. In recent quarters, increases in revenue were partially
attributable to a greater number of these large end-user
transactions. This trend may not continue. The effort to close
these large sales is typically complex and lengthy. Therefore,
our revenue for a given period is likely to be affected by the
timing of these large orders, which makes it difficult for us to
predict that revenue. The factors that could delay these large
orders include:



| |   |                                                                                                                                               
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------
| |  | time needed for end-user customers to evaluate our software;                                                                                  
|
| |  | customer budget restrictions or more lengthy approval processes,
	particularly in weak or uncertain general economic and industry
	conditions;
|
| |  | customer internal review and testing procedures; and                                                                                          
|
| |  | engineering work needed to integrate our software with
	customers systems.                                                                   

Our business could be adversely affected if we fail to
manage our growth effectively

If we fail to manage our growth effectively, our business and
operating results could be adversely affected, which could cause
the market price of our securities to fall. We expect to
continue to grow our operations domestically and
internationally, and to increase our headcount. The growth in
our operations and headcount has placed, and will continue to
place, a significant strain on our management systems and
resources. If we fail to manage this growth and our future
anticipated growth, we may experience higher operating expenses,
and we may be unable to meet the expectations of securities
analysts or investors with respect to future operating results.
To manage this growth we must continue to:



| |   |                                                                                  
| | - | ---------------------------------------------------------------------------------
| |  | improve our financial and management controls, reporting systems
	and procedures;
|
| |  | add and integrate new senior management personnel;                               
|
| |  | improve our licensing models and procedures;                                     
|
| |  | improve our proprietary information controls and procedures;                     
|
| |  | hire, train and retain qualified employees;                                      
|
| |  | manage employee performance;                                                     
|
| |  | reduce organizational inefficiencies and eliminate redundancies;                 
|
| |  | control expenses;                                                                
|
| |  | integrate geographically dispersed operations; and                               
|
| |  | invest in our internal networking infrastructure and facilities.                 

We have committed a significant amount of money to obtaining
additional facilities to accommodate our current and future
anticipated growth. To the extent that this anticipated growth
does not occur or occurs

24



---





We may be unable to hire and retain qualified
employees

Our future growth and success depends on our ability to hire and
retain qualified employees as needed, and to manage our employee
base effectively. If we are unable to hire and retain qualified
employees, our business and operating results could be adversely
affected. Conversely, if we fail to manage employee performance
or reduce staffing levels when necessary, our costs would be
excessive and our business and operating results could be
adversely affected. Our personnel needs generally are more acute
than those facing most companies. We need to hire and retain
sales, technical and senior management personnel to support the
planned expansion of our business and to meet the anticipated
increased customer demand for our products and services.
Competition for people with the skills we require is intense,
particularly in the San Francisco Bay area where our
headquarters are located, and the high cost of living in this
area make our recruiting and compensation costs higher. As a
result, we expect to continue to experience increases in
compensation costs. In addition, the exercise of stock options
in the U.S. and certain foreign jurisdictions may result in
substantial increases in our employer payroll tax liabilities.
We cannot assure you that we will be successful in hiring or
retaining new personnel. Even if we are successful in hiring and
retaining new personnel, the resulting growth is likely to be
disruptive to our business and could have an adverse effect on
our ability to maintain our anticipated growth.

The loss of key personnel could adversely affect our
business

Our future anticipated growth and success depends on the
continued service of our key sales, technical and senior
management personnel. Many of our senior personnel have been
with the company or its predecessors for a number of years, and
we cannot assure you that we will be able to retain them. The
loss of senior personnel can result in significant disruption to
our ongoing operations, and new senior personnel must spend a
significant amount of time learning our business and our systems
in addition to performing their regular duties. Even though we
have entered into employment agreements with some key management
personnel, these agreements cannot prevent their departure. We
do not have key person life insurance covering any of our
personnel, nor do we currently intend to obtain any of this
insurance.

We face intense competition on several fronts

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

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

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

We sell our products through original equipment manufacturers
through direct sales and a retail distribution channel. If we
fail to manage our distribution channels successfully, they may
conflict with one another or otherwise not function as we
anticipate, and our business and operating results could be
adversely affected.

25



---



Retail distribution.Some of our software products are
sold primarily in the retail channel, posing different
challenges than we face in selling most of our products. For
example:



| |   |                                                                                                                       
| | - | ----------------------------------------------------------------------------------------------------------------------
| |  | the VERITAS brand does not have high recognition in the retail
	channel;                                              
|
| |  | retail distribution typically involves shorter product life
	cycles; and                                              
|
| |  | the retail channel has higher risks of product returns, higher
	marketing expenses and less predictable market demand.

Moreover, our retail distributors have no obligation to continue
selling our products and may terminate their relationships with
us at any time.

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



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

Original equipment manufacturers.We expect a portion of
our revenue to come from our original equipment manufacturer
customers that incorporate our data availability software into
systems they sell. Risks associated with our original equipment
manufacturer customers include:



| |   |                                                                                                                                                                                                   
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | we have no control over the shipping dates or volumes of systems
	they ship;                                                                                                                      
|
| |  | they have no obligation to recommend or offer our software
	products;                                                                                                                             
|
| |  | they have no minimum sales requirements and can terminate our
	relationship at any time;                                                                                                          
|
| |  | to the extent they do not already do so, they could choose to
	develop or market their own data availability products and
	incorporate those products into their systems instead of our
	products;
|
| |  | they could develop enhancements to and derivative products from
	our products; and                                                                                                                
|
| |  | they could change their own base products, which could make it
	difficult for us to adapt our products to theirs.                                                                                 

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

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

We have important original equipment manufacturer agreements
with Hewlett-Packard, IBM, Microsoft and Sun Microsystems.
Unlike some of our other original equipment manufacturer
agreements under which we sell off-the-shelf versions of our
products, under these agreements we develop unique or
lite versions of our products to be included in
these original equipment manufacturers systems software
and products. If we are unable to leverage these relationships
to increase product sales, we will have expended significant
resources without generating corresponding revenue, which could
adversely affect our business and our operating results. We
expect to leverage the inclusion of our products in these
systems software and products to generate sales of additional
products to the customers of the original equipment
manufacturers. These relationships require our personnel to
develop expertise with respect to the original equipment
manufacturers products and markets and to cooperate
closely with their personnel. We cannot assure you that we will
be able to attract and retain qualified employees to work with
our original equipment manufacturer customers or to develop and
improve the products designed for these customers.

26



---



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

Many of our products operate primarily on the UNIX computer
operating system. We expect to continue to devote resources for
redesigning, or porting, these products to operate on the
Windows NT operating system. We are also developing new products
for UNIX and for Windows NT. In addition, we entered into an
agreement with IBM under which we will port our complete set of
data availability products to AIX/ Monterey for IBM POWER and
the Intel IA-64 processor-system. We may not be able to
accomplish any of this work quickly or cost-effectively, and it
is not clear what the relative growth rates of these operation
systems are. These activities require substantial capital
investment, the devotion of substantial employee resources and
the cooperation of the owners of the operating systems to or for
which the products are being ported or developed. For example,
our porting and development work for the Windows NT market has
required us to hire additional personnel with expertise on these
platforms and to devote engineering resources to these projects.
For some operating systems, we must obtain from the operating
system owners a source code license to portions of the operating
system software to port some of our products to or develop
products for the operating system. Operating system owners have
no obligation to assist in these porting or development efforts.
If they do not grant us a license or if they do not renew our
license, we may not be able to expand our product line into
other areas.

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

We derive and expect to derive a substantial majority of our
revenue from a limited number of software products. If many
customers do not purchase these products as a result of
competition, technological change, budget constraints or other
factors, our revenue would decrease and our business and
operating results would be adversely affected. For the six
months ended June 30, 2001 and 2000, we derived
approximately $515.2 million, or 85%, and
$358.5 million, or 84%, respectively, of our license
revenue from storage management products, including VERITAS
Volume Manager, VERITAS File System, VERITAS NetBackup and
VERITAS Backup Exec.

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

Although for the six months ended June 30, 2001 and 2000 no
single customer accounted for greater than 10% of our total net
revenue, we typically derive significant revenue from a small
number of customers, including our original equipment
manufacturer customers. If any of them were to reduce purchases
of products or services from us, our business would be adversely
affected unless we were able to increase sales to other
customers substantially. Many of these customers have recently
announced that their own businesses are slowing, which could
adversely affect their demand for our products and services. We
do not have a contract with any of these customers that requires
the customer to purchase any specified number of software
licenses from us. Therefore, we cannot be sure that these
customers will continue to purchase our products at current
levels.

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

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

27



---



Our foreign sales and operations create special problems
that could adversely affect our operating results

An investment in our securities is riskier than an investment in
many businesses because we expect to derive an increasing
percentage of our revenue from customers located outside of the
U.S. We have significant operations outside of the U.S.,
including engineering, sales, customer support and production
operations, and we plan to expand our international operations.
As of June 30, 2001, we had approximately 1,024 employees
in Europe, 654 employees in the Asia-Pacific region, and 93
employees in Japan. Our foreign operations are subject to risks,
including:



| |   |                                                                                                                                                                                                                                                                          
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | potential loss of proprietary information due to piracy,
	misappropriation or weaker laws regarding intellectual property
	protection;                                                                                                                                   
|
| |  | imposition of foreign laws and other governmental controls,
	including trade restrictions;                                                                                                                                                                               
|
| |  | fluctuations in currency exchange rates and economic instability
	such as higher interest rates and inflation, which could reduce
	our customers ability to obtain financing for software
	products or which could make our products more expensive in
	those countries;
|
| |  | difficulties in hedging foreign currency transaction exposures;                                                                                                                                                                                                          
|
| |  | longer payment cycles for sales in foreign countries and
	difficulties in collecting accounts receivable;                                                                                                                                                                
|
| |  | difficulties in staffing and managing our foreign operations,
	including difficulties related to administering our stock option
	plan in foreign countries and difficulties related to the new
	organizational structure in Europe that we implemented in 2001;          
|
| |  | difficulties in coordinating the activities of our
	geographically dispersed and culturally diverse operations;                                                                                                                                                          
|
| |  | seasonal reductions in business activity in the summer months in
	Europe and other countries;                                                                                                                                                                            
|
| |  | costs and delays associated with developing software in multiple
	languages; and                                                                                                                                                                                         
|
| |  | political unrest, particularly in areas in which we have
	facilities.                                                                                                                                                                                                    

In addition, our foreign sales are denominated in local
currency, creating risk of foreign currency translation gains
and losses that could adversely affect our business and
operating results. We receive significant tax benefits from
sales to our non-U.S. customers. These benefits are contingent
upon existing tax regulations in both the U.S. and in the
countries in which our international customers are located.
Future changes in domestic or international tax regulations
could affect our anticipated ability to continue to realize
these tax benefits.

Our growth strategy is risky because it includes business
acquisitions

As part of our growth strategy, we have in the past and expect
in the future to acquire other businesses, business units and
technologies.

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



| |   |                                                                                                                                                                                                         
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | diversion of management attention from our core business;                                                                                                                                               
|
| |  | integration of acquired business operations and employees with
	our existing business, including coordination of geographically
	dispersed operations;                                                  
|
| |  | incorporation of acquired business technology into our existing
	product lines, including consolidating technology with
	duplicative functionality or designed on different technological
	architecture;
|
| |  | loss or termination of employees, including costly litigation
	resulting from the termination of those employees;                                                                                       
|
| |  | dilution of our then-current stockholders percentage
	ownership;                                                                                                                                       

28



---





| |   |                                                                                                                                                
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------
| |  | assumption of liabilities of the acquired business , including
	costly litigation related to alleged liabilities of the acquired
	business; and
|
| |  | presentation of a unified corporate image to our customers and
	our employees.                                                                 

In the past, our integration of the operations of acquired
businesses took longer and was more difficult than we
anticipated.

Our subsidiary following the Seagate Technology leveraged
buyout and merger transaction will remain liable to third
parties after the leveraged buyout and the merger

In November 2000, in the leveraged buyout and merger transaction
involving VERITAS and Seagate Technology, Seagate Technology
sold all of its operating assets to Suez Acquisition (Cayman)
Company, and Seagate Technology became our subsidiary. As part
of the transaction, Suez Acquisition Company assumed and agreed
to indemnify our subsidiary and us for substantially all
liabilities arising in connection with Seagates operations
prior to the transaction. However, governmental organizations or
other third parties may seek recourse against our subsidiary or
us for these liabilities. Prior to the transaction, Seagate was
a large, multinational enterprise that owned or leased
facilities and offices in numerous states and foreign countries
and employed over 60,000 people worldwide. As a result, our
subsidiary could receive claims related to a wide range of
possible liabilities. Some areas of potential liability include:



| |   |                                                                                                                                                              
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | environmental cleanup costs and liabilities for claims made
	under federal, state or foreign environmental laws;                                             
|
| |  | tax liabilities;                                                                                                                                             
|
| |  | obligations under federal, state and foreign pension and
	retirement benefit laws;                                                                           
|
| |  | future litigation relating to the leveraged buyout or the merger
	transaction;                                                                               
|
| |  | existing and future litigation arising from the restructuring
	that Seagate commenced last year, including litigation initiated
	by terminated employees; and
|
| |  | existing and future patent litigation.                                                                                                                       

Any such claim, with or without merit, could be time consuming
to defend, result in costly litigation and divert management
attention from our core business. Moreover, if Suez Acquisition
Company is unable or unwilling to indemnify our subsidiary or us
under the indemnification agreement for any of these
liabilities, we could experience a material adverse effect on
our business and operating results.

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

The leveraged buyout and merger transaction involving VERITAS
and Seagate Technology may be subject to review under state or
federal fraudulent transfer laws in the event that a bankruptcy
case or lawsuit is commenced by or on behalf of unpaid creditors
of Suez Acquisition Company or any of its affiliates. Under
bankruptcy laws, a court could attempt to proceed against the
consideration paid to Seagates stockholders in the merger,
or direct that amounts deposited with the trustee administering
the distributions of Seagates tax refunds and credits be
held for the benefit of creditors. A court might take one or
more of these actions if it determined that when the leveraged
buyout was completed, Seagates operating assets were sold
for less then fair value and at that time Seagate, Suez
Acquisitions Company and their affiliates:



| |   |                                                                                                                                         
| | - | ----------------------------------------------------------------------------------------------------------------------------------------
| |  | were or became insolvent;                                                                                                               
|
| |  | were engaged in a business or transaction for which their
	unencumbered assets constituted unreasonably small capital; or               
|
| |  | intended to incur or reasonably should have believed that they
	would incur debts beyond their ability to repay as those debts
	matured.

A court could also proceed against the consideration paid to
Seagates stockholders in the merger, or against
Seagates tax refunds and credits otherwise payable to
Seagates former stockholders following the

29



---





Our effective tax rate may increase

Our effective tax rate could be adversely affected by several
factors, many of which are outside of our control. Our effective
tax rate is directly affected by the relative proportions of
domestic and international revenue and income before taxes. We
are also subject to changing tax laws in multiple jurisdictions
in which we operate. We do not have a history of audit activity
from various taxing authorities and while we believe we are in
compliance with all federal, state and international tax laws,
there are various interpretations of their application that
could result in additional tax assessments. In addition, in
November 2000, we acquired Seagate Technology, which has
significant tax audit and tax litigation activity. We believe
that we have meritorious defense against asserted deficiencies
and that the likely outcome of a re-determination of these
asserted deficiencies by the United States Tax Court and tax
settlement authorities will not result in an additional
provision for income taxes. We have an indemnification agreement
with Suez Acquisition (Cayman) Company for these deficiencies.
If Suez Acquisition (Cayman) Company is unable to or is
unwilling to indemnify our subsidiary or us under the
indemnification agreement for any of these deficiencies, we
could experience a material adverse effect on our business and
operating results.

Our strategy of investing in development-stage companies
involves a number of risks and uncertainties

An investment in our securities is riskier than investments in
many other companies because we plan to pursue our strategy of
investing in development-stage companies. Each of these
investments involves risks and uncertainties, including:



| |   |                                                                                                        
| | - | -------------------------------------------------------------------------------------------------------
| |  | diversion of management attention from our core business;                                              
|
| |  | failure to leverage our relationship with these companies to
	access new technologies and new markets; 
|
| |  | inability to value investments appropriately or to predict
	changes to the future value of investments;
|
| |  | inability to manage investments effectively; and                                                       
|
| |  | loss of cash invested or the write-off of the value of
	investments.                                   

We are incurring significant accounting charges in
connection with our acquisitions that are creating net losses
immediately and in the future

The significant costs of integration associated with the NSMG,
TeleBackup and NuView acquisitions in 1999 increase the risk
that we will not realize the anticipated benefits of those
acquisitions. Because we accounted for these three acquisitions
using the purchase method of accounting, we recorded goodwill
and other intangible assets of approximately
$3,754.9 million in 1999. This amount is being amortized
over four years, and is resulting in charges to operations of
approximately $234.8 million per quarter. As a result of
these charges, we expect to continue to have net losses at least
through the fourth quarter of 2001. On January 1, 2002,
upon adoption of newly issued SFAS No. 141, Business
Combinations, and SFAS No. 142, Goodwill and Other
Intangible Assets, the quarterly charges related to the
amortization of developed technology, goodwill and other
intangibles will change. As extensive effort is needed to comply
with adopting SFAS 141 and 142, it is not practicable
to reasonably estimate the impact of adopting these Statements
on our financial statements at the date of this report.

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

In October 1997, we issued $100.0 million in aggregate
principal amount of 5.25% convertible subordinated notes due
2004, of which $64.5 million was outstanding as of
June 30, 2001. In August 1999, we issued
$465.8 million aggregate principal amount at maturity of
1.856% convertible subordinated notes due 2006, of which
$464.7 million was outstanding as of June 30, 2001. As
of June 30, 2001, the annual interest payments on our
outstanding 5.25% notes were $3.4 million and the annual
interest payments on our outstanding 1.856% notes were
$8.6 million, all of which we plan to fund from cash flows
from operations. We

30



---





We may not be able to protect our proprietary
information

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

Third parties may claim that we infringe their proprietary
rights

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



| |   |                                                                                                                                                                           
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | be time consuming to defend;                                                                                                                                              
|
| |  | result in costly litigation;                                                                                                                                              
|
| |  | divert managements attention from our core business;                                                                                                                     
|
| |  | require us to stop selling, to delay shipping or to redesign our
	product; and                                                                                            
|
| |  | require us to pay monetary amounts as damages, for royalty or
	licensing arrangements, or to satisfy indemnification
	obligations that we have with some of our customers.

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

We might experience significant defects in our
products

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

31



---





Natural disasters or power outages could disrupt our
business

We must protect our business and our network infrastructure
against damage from earthquake, flood, hurricane and similar
events, as well as from power outages. Many of our operations
are subject to these risks, particularly our operations located
in California. We have already experienced temporary power
losses in our California facilities due to power shortages that
have disrupted our operations, and we expect in the future to
experience additional power losses that could disrupt our
operations. While the impact to our business and operating
results has not been material, we cannot assure you that power
losses will not adversely affect our business in the future, or
that the cost of acquiring sufficient power to run our business
will not increase significantly. Since we do not have sufficient
redundancy in our networking infrastructure, a natural disaster
or other unanticipated problem at our primary data center could
have an adverse effect on our business, including both our
internal operations and our ability to communicate with our
customers or sell our products over the Internet.

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

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



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

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

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

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



| |   |                                                                                                                                                              
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | announcements of our quarterly operating results and
	forward-looking guidance or those of our competitors or our
	original equipment manufacturer customers;
|
| |  | changes in earnings estimates by securities analysts;                                                                                                        
|
| |  | announcements of planned acquisitions by us or by our
	competitors;                                                                                          
|
| |  | the gain or loss of a significant customer;                                                                                                                  
|
| |  | announcements of new products by us, our competitors or our
	original equipment manufacturer customers; and                                                  
|
| |  | slowdowns in the economy generally.                                                                                                                          

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

32



---



Item 3. Quantitative and Qualitative Disclosures
about Market Risk

Foreign Currency Risk

We transact business in various foreign currencies and we have
established a foreign currency hedging program, utilizing
foreign currency forward exchange contracts (forward
contracts) to hedge certain foreign currency transaction
exposures. Under this program, increases or decreases in our
foreign currency transactions are offset by gains and losses on
the forward contracts, so as to mitigate the possibility of
foreign currency transaction gains and losses. We do not use
forward contracts for speculative or trading purposes. All
foreign currency transactions and all outstanding forward
contracts are marked-to-market at the end of the period with
unrealized gains and losses included in other income (expense).
The unrealized gain (loss) on the outstanding forward
contracts at June 30, 2001 was immaterial to our
consolidated financial statements.

Our outstanding forward contracts as of June 30, 2001 are
presented in the table below. All forward contract amounts are
representative of the expected payments to be made under these
instruments. All forward contracts mature in 34 days or
less as of June 30, 2001 (dollars in thousands):

|                       |  |                 |                 |                 |  |                   |              |  |  |   |        |  
|---------------------- |  | --------------- | --------------- | --------------- |  | ----------------- | ------------ |  |  | - | ------ | -
|                       |  |                 |                 |                 |  | Fair Market Value
|                       |  | Local Currency  |                 |                 |  | at June 30, 2001 
|                       |  | Contract Amount |                 | Contract Amount |  | (US $)           
|                       |  |                 |                 |                 |  |                  
|Contracts to Sell US $ |  |                 |                 |                 |  |                   |              |  |  |   |        |  
|                      
|                      
|                      
|                      
|Australian dollar      |  |                 | 1,200.0 AUD     |                 |  |                   | 623.4 USD    |  |  | $ | (11.0  | )
|                      
|                      
|                      
|                      
|British pound          |  |                 | 7,400.0 GBP     |                 |  |                   | 10,450.0 USD |  |  |   | (49.2  | )
|                      
|                      
|                      
|                      
|Danish krone           |  |                 | 1,000.0 DKK     |                 |  |                   | 115.9 USD    |  |  |   | (1.9   | )
|                      
|                      
|                      
|                      
|Euro                   |  |                 | 56,900.0 EUR    |                 |  |                   | 49,080.2 USD |  |  |   | (675.3 | )
|                      
|                      
|                      
|                      
|Norwegian kroner       |  |                 | 1,500.0 NOK     |                 |  |                   | 163.5 USD    |  |  |   | (2.6   | )
|                      
|                      
|                      
|                      
|Swedish krona          |  |                 | 4,400.0 SEK     |                 |  |                   | 410.5 USD    |  |  |   | (5.2   | )
|                      
|                      
|                      
|                      
|Swiss franc            |  |                 | 1,200.0 CHF     |                 |  |                   | 680.0 USD    |  |  |   | (10.9  | )
|                      
|                      
|                      
|                      
|Contracts to Buy US $  |  |                 |                 |                 |  |                   |              |  |  |   |        |  
|                      
|                      
|                      
|                      
|Argentina peso         |  |                 | 1,900.0 ARP     |                 |  |                   | 1,896.8 USD  |  |  |   | 40.9   |  
|                      
|                      
|                      
|                      
|Australian dollar      |  |                 | 12,200.0 AUD    |                 |  |                   | 6,298.9 USD  |  |  |   | 77.2   |  
|                      
|                      
|                      
|                      
|Japanese yen           |  |                 | 1,200,000.0 YEN |                 |  |                   | 9,674.3 USD  |  |  |   | 24.1   |  
|                      
|                      
|                      
|                      
|Contracts to Buy Euro  |  |                 |                 |                 |  |                   |              |  |  |   |        |  
|                      
|                      
|                      
|                      
|Australian dollar      |  |                 | 5,700.0 AUD     |                 |  |                   | 3,408.3 EUR  |  |  |   | (14.5  | )
|                      
|                      
|                      
|                      
|British pound          |  |                 | 8,000.0 GBP     |                 |  |                   | 13,129.8 EUR |  |  |   | (152.1 | )
|                      
|                      
|                      
|                      
|Swiss franc            |  |                 | 2,600.0 CHF     |                 |  |                   | 1,708.7 EUR  |  |  |   | 0.4    |  

Interest Rate Risk

Our exposure to market risk for changes in interest rates
relates primarily to our investment portfolio and long-term debt
obligations. Our primary investment objective is to preserve
principal while at the same time maximizing yields without
significantly increasing risk. Our portfolio includes money
markets funds, commercial paper, medium-term notes, corporate
notes, government securities and market auction preferreds. The
diversity of our portfolio helps us to achieve our investment
objective. As of June 30, 2001, approximately 58% of our
investment portfolio is composed of investments with original
maturities of one year or less and approximately 38% of our
investment portfolio matures less than 90 days from the
date of purchase.

Long-term debt of $436.5 million consists of 5.25%
convertible subordinated notes due 2004 of $64.5 million
(the 5.25% notes) and 1.856% convertible
subordinated notes due 2006 of $372.0 million (the
1.856% notes). The interest rate of 1.856% on the
1.856% notes, together with the accrual of original issue
discount, represents a yield to maturity of 6.5%. The nominal
interest rate on these notes is fixed and the notes provide for
semi-annual interest payments of approximately $1.7 million
each May 1 and November 1 for the 5.25% notes and
approximately $4.3 million each February 13 and
August 13 for the 1.856% notes. The notes are convertible
into our common stock at any time prior to the close of business
on the maturity date, unless previously redeemed or repurchased,
subject to adjustment in certain events.

33



---



The following table presents the amounts of our cash
equivalents, investments and long-term debt that may be subject
to interest rate risk and the average interest rates as of
June 30, 2001 by year of maturity. At June 30, 2001,
amortized cost approximated fair value for all cash equivalents
and investments (dollars in thousands):

|                                                   |                       |      |   |            |   |            |   |            |   |            |   |         |   |  |   |           |   |  |   |         |  
|-------------------------------------------------- | --------------------- | ---- | - | ---------- | - | ---------- | - | ---------- | - | ---------- | - | ------- | - |  | - | --------- | - |  | - | ------- | -
|                                                   |                       |      |   | 2002 and   |   |            |   | Fair Value |   |           
|                                                   |                       | 2001 |   | Thereafter |   | 2001 Total |   | Total 2001 |   | Total 2000
|                                                   |                       |      |   |            |   |            |   |            |   |           
|Cash equivalents and short-term investments:       |                       |      |   |            |   |            |   |            |   |            |   |         |   |  |   |           |   |  |   |        
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | Fixed rate            |      | $ | 393,505    |   |            | $ | 144,773    |   |            | $ | 538,278 |   |  | $ | 539,629   |   |  | $ | 823,681 |  
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | Average fixed rate    |      |   | 4.34       | % |            |   | 5.38       | % |            |   | 4.62    | % |  |   | 4.61      | % |  |   | 6.45    | %
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | Variable rate         |      | $ | 83,874     |   |            |   |           |   |            | $ | 83,874  |   |  | $ | 83,874    |   |  | $ | 26,382  |  
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | Average variable rate |      |   | 3.92       | % |            |   |           |   |            |   | 3.92    | % |  |   | 3.92      | % |  |   | 6.51    | %
|                                                  
|                                                  
|                                                  
|                                                  
|Total cash equivalents and short-term investments: |                       |      |   |            |   |            |   |            |   |            |   |         |   |  |   |           |   |  |   |        
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | Investments           |      | $ | 477,379    |   |            | $ | 144,773    |   |            | $ | 622,152 |   |  | $ | 623,503   |   |  | $ | 850,063 |  
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | Average rate          |      |   | 4.27       | % |            |   | 5.38       | % |            |   | 4.53    | % |  |   | 4.52      | % |  |   | 6.45    | %
|                                                  
|                                                  
|                                                  
|                                                  
|Long-term investments:                             |                       |      |   |            |   |            |   |            |   |            |   |         |   |  |   |           |   |  |   |        
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | Fixed rate            |      |   |           |   |            | $ | 281,379    |   |            | $ | 281,379 |   |  | $ | 285,895   |   |  | $ | 56,138  |  
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | Average fixed rate    |      |   |           |   |            |   | 5.77       | % |            |   | 5.77    | % |  |   | 5.68      | % |  |   | 6.58    | %
|                                                  
|                                                  
|                                                  
|                                                  
|Long-term debt:                                    |                       |      |   |            |   |            |   |            |   |            |   |         |   |  |   |           |   |  |   |        
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | Fixed rate            |      |   |           |   |            | $ | 436,459    |   |            | $ | 436,459 |   |  | $ | 1,346,869 |   |  | $ | 456,587 |  
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | Average fixed rate    |      |   |           |   |            |   | 6.32       | % |            |   | 6.32    | % |  |   | 6.32      | % |  |   | 6.23    | %

In September 2000, we entered into a three year cross currency
interest rate swap transaction for the purpose of hedging fixed
interest rate, foreign currency denominated cash flows under an
inter-company loan receivable. As of June 30, 2001, the
fair market value of the cross currency interest rate swap was
$(5.6) million. Under the terms of this derivative
financial instrument, EURO denominated fixed principal and
interest payments to be received under the inter-company loan
will be swapped for U.S. dollar fixed principal and interest
payments. As a result of entering into the cross currency
interest rate swap, we have mitigated our exposure to foreign
currency exchange rate fluctuations. The gains or losses on the
foreign currency loan receivable will be offset by the gains or
losses on the cross currency interest rate swap. Because we are
receiving fixed interest payments under the cross currency
interest rate swap transaction, we are still subject to
fluctuations in U.S. dollar interest rates. As of June 30,
2001 the impact of these fluctuations was not significant.

Equity Price Risk

We are exposed to equity price risk on the marketable portion of
our portfolio of equity securities investments. We typically do
not attempt to reduce or eliminate our market exposure on these
equity securities. These investments are in companies in the
high-technology industry. As of June 30, 2001, we held one
marketable equity security, representing a total market value of
$3.7 million. Assuming a 10% adverse change, our
marketable equity securities investments would decrease in value
by approximately $0.4 million. Subsequent to June 30,
2001, many high-technology stocks have experienced a significant
decrease in value. If our marketable equity security investments
as of June 30, 2001 had been valued using prices as of
July 31, 2001, the value of these securities would have
decreased by approximately $2.4 million, or 63.2%. This
estimate is not necessarily indicative of future performance and
actual results may differ materially. We also have begun to make
investments in development-stage companies that we believe
provide strategic opportunities for us. We intend that these
investments will complement our own research and development
efforts, provide access to new technologies and emerging
markets, and create opportunities for additional sales of our
products and services. We cannot assure you that this initiative
will have the above mentioned desired results, or even that we
will not lose all or any part of these investments.

34



---



PART II:  OTHER INFORMATION

Item 4. Submission of Matters to a Vote of Security
Holders

At the annual meeting of stockholders held by the Registrant on
June 21, 2001 (the Annual Meeting), each of the
following individuals was elected to the Registrants
classified board of directors as Class C directors to hold
office for a term of three years or until his successor is duly
elected or qualified or until his resignation or removal:

|                   |  |                |             |                |  |  |            | 
|------------------ |  | -------------- | ----------- | -------------- |  |  | ---------- | 
|                   |  | Votes in Favor |             | Votes Withheld
|                   |  |                |             |               
|Fred van den Bosch |  |                | 302,180,784 |                |  |  | 47,012,614 | 
|                  
|                  
|                  
|                  
|Steven Brooks      |  |                | 345,610,016 |                |  |  | 3,583,382  | 
|                  
|                  
|                  
|                  
|Stephen J. Luczo   |  |                | 290,613,532 |                |  |  | 58,579,866 | 

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



| |            
| | -----------
| | Mark Leslie









The following proposal was also approved at the Annual Meeting:

|                                                                                                                |  |           |             |               |  |             |            |           |  |  |           |  |  |  |   | 
|--------------------------------------------------------------------------------------------------------------- |  | --------- | ----------- | ------------- |  | ----------- | ---------- | --------- |  |  | --------- |  |  |  | - | 
|                                                                                                                |  |           |             |               |  |             |            | Broker   
|                                                                                                                |  | Votes For |             | Votes Against |  | Abstensions |            | Non-Votes
|                                                                                                                |  |           |             |               |  |             |            |          
|1. Ratify the appointment of KPMG LLP as
	independent accountants for the fiscal year ending
	December 31, 2001 |  |           | 334,650,500 |               |  |             | 12,893,880 |           |  |  | 1,649,018 |  |  |  |  | 

Item 6. Exhibits and Reports on Form 8-K

(a)Exhibits

|        |       |                     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |  |       |      |        |  |          |  |  |       |  |  |  |  | 
|------- | ----- | ------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ----- | ---- | ------ |  | -------- |  |  | ----- |  |  |  |  | 
|        |       |                     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |  |      
|        |       |                     |  | Incorporated by Reference                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |  |      
|Exhibit |       |                     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |  | Filed
|Number  |       | Exhibit Description |  | Form                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  | Date  |      | Number |  | Herewith
|        |       |                     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |  |       |      |        |  |         
|        | 10.01 |                     |  | Third Amendment and Restatement of Certain
	Operative Agreements and Other Agreements dated April 5,
	2001 among VERITAS Software Global Corporation, the various
	parties to the participation agreement and other operative
	agreements from time to time, First Security Bank, National
	Association, as Owner Trustee, the various banks and
	other lending institutions which are parties to the
	participation agreement and other operative agreements from time
	to time as Holders, the various banks and other
	lending institutions which are parties to the participation
	agreement and other operative agreements from time to time as
	Lenders, and Bank of America, N.A., as the
	Agent for the secured parties (Mountain
	View, CA) |  |       | 10-Q |        |  | 05/11/01 |  |  | 10.03 |  |  |  |  | 

35



---



|        |       |                     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |  |       |      |        |  |          |  |  |       |  |  |  |  | 
|------- | ----- | ------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----- | ---- | ------ |  | -------- |  |  | ----- |  |  |  |  | 
|        |       |                     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |  |      
|        |       |                     |  | Incorporated by Reference                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |      
|Exhibit |       |                     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |  | Filed
|Number  |       | Exhibit Description |  | Form                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |  | Date  |      | Number |  | Herewith
|        |       |                     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |  |       |      |        |  |         
|        | 10.02 |                     |  | Second Amendment and Restatement of Certain
	Operative Agreements and Other Agreements dated April 5,
	2001 among VERITAS Software Global Corporation, the various
	parties to the participation agreement and other operative
	agreements from time to time, First Security Bank, National
	Association, as Owner Trustee, the various banks and
	other lending institutions which are parties to the
	participation agreement and other operative agreements from time
	to time as Holders, the various banks and other
	lending institutions which are parties to the participation
	agreement and other operative agreements from time to time as
	Lenders, and Bank of America, N.A., as the
	Agent for the secured parties (Roseville, MN) |  |       | 10-Q |        |  | 05/11/01 |  |  | 10.04 |  |  |  |  | 

(b)  Reports on Form 8-K

|               |          |         |  |             |         |  |  |                                                                                                                                                                                  
|-------------- | -------- | ------- |  | ----------- | ------- |  |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Date of Report |          | Item(s) |  | Description
|               |          |         |  |            
|               | 04/17/01 |         |  |             | 4, 5, 7 |  |  | The Registrant announced a change in its
	certifying accountant, and announced the financial results for
	its first quarter ended March 31, 2001 and included the
	press release.

36



---



SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on
August 13, 2001



| |                                             
| | --------------------------------------------
| | VERITAS SOFTWARE CORPORATION                
|
| | /s/KENNETH E. LONCHAR                       
| |                                             
| | Kenneth E. Lonchar                          
| | Executive Vice President and                
| | Chief Financial Officer                     
| | (Principal Financial and Accounting Officer)

37