##### Table of Contents









UNITED STATES SECURITIES AND EXCHANGE
COMMISSION

Washington, D.C. 20549




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Form 10-Q



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|                                                  |  |                                                                                                  
|------------------------------------------------- |  | -------------------------------------------------------------------------------------------------
|(Mark One)                                        |  |                                                                                                  
|þ                                                 |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR
    15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934. 
|                                                 
|For the quarterly period ended March 31,
    2002
|                                                 
|or                                               
|                                                 
|o                                                 |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR
    15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934.
|                                                 
|                                                  |  | For the transition period
    from           to           .                                      

Commission file number: 000-26247

Veritas Software Corporation

(Exact Name of Registrant as Specified in Its
Charter)


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

350 Ellis Street

Mountain View, California 94043


(650) 527-8000


(Address, including Zip Code, of
Registrants Principal Executive Offices and
Registrants Telephone Number, including Area
Code)




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Indicate by check mark whether the registrant:
(1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports and
(2) has been subject to such filing requirements for the
past
90 days.     Yes þ          No o

The number of shares of the registrants
common stock outstanding as of April 30, 2002 was
409.2 million shares.



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TABLE OF CONTENTS



|                              |                                                                                               |                                                      |  |  |  |  |  | 
|----------------------------- | --------------------------------------------------------------------------------------------- | ---------------------------------------------------- |  |  |  |  |  | 
|PART I: FINANCIAL INFORMATION
|                              | Item 1. Condensed Consolidated Financial Statements                                          
|                              |                                                                                               | CONDENSED CONSOLIDATED BALANCE SHEETS               
|                              |                                                                                               | CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS     
|                              |                                                                                               | CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS     
|                              |                                                                                               | NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|                              | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                              | Item 3. Quantitative and Qualitative Disclosures about Market Risk                           
|PART II: OTHER INFORMATION   
|                              | Item 6. Exhibits and Reports on Form 8-K                                                     
|SIGNATURE                    
|EXHIBIT INDEX                
|Exhibit 10.01                
|Exhibit 10.02                



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##### Table of Contents



VERITAS SOFTWARE CORPORATION

INDEX

|                                   |  |                                                                                                        |    |      |    | 
|---------------------------------- |  | ------------------------------------------------------------------------------------------------------ | -- | ---- | -- | 
|                                   |  |                                                                                                        |    | Page
|                                   |  |                                                                                                        |    |     
|PART I:  FINANCIAL
    INFORMATION
|Item 1.                            |  | Condensed Consolidated Financial Statements                                                            |    |      |    | 
|                                   |  | Condensed Consolidated Balance Sheets as of
    March 31, 2002 and December 31, 2001                   |    |      | 2  | 
|                                   |  | Condensed Consolidated Statements of Operations
    for the Three Months Ended March 31, 2002 and 2001 |    |      | 3  | 
|                                   |  | Condensed Consolidated Statements of Cash Flows
    for the Three Months Ended March 31, 2002 and 2001 |    |      | 4  | 
|                                   |  | Notes to Condensed Consolidated Financial
    Statements                                               |    |      | 5  | 
|Item 2.                            |  | Managements Discussion and Analysis of
    Financial Condition and Results of Operations              |    |      | 13 | 
|Item 3.                            |  | Quantitative and Qualitative Disclosures About
    Market Risk                                         |    |      | 39 | 
|PART II:  OTHER
    INFORMATION   
|Item 6.                            |  | Exhibits and Reports on Form 8-K                                                                       |    |      | 41 | 
|Signature                          |  |                                                                                                        | 42 |     

1



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##### Table of Contents






PART I:     FINANCIAL
INFORMATION






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

VERITAS SOFTWARE CORPORATION






CONDENSED CONSOLIDATED BALANCE
SHEETS


(In thousands)


|                                         |                                                                                                                                    |                                            |           |              |           |  |           |            |           | 
|---------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | --------- | ------------ | --------- |  | --------- | ---------- | --------- | 
|                                         |                                                                                                                                    | March 31,                                  |           | December 31,
|                                         |                                                                                                                                    | 2002                                       |           | 2001        
|                                         |                                                                                                                                    |                                            |           |             
|                                         |                                                                                                                                    | (Unaudited)                                |           |             
|ASSETS                                  
|Current assets:                          |                                                                                                                                    |                                            |           |              |           |  |           |           
|                                         | Cash and cash equivalents                                                                                                          |                                            | $         | 899,389      |           |  | $         | 538,419    |          
|                                         | Short-term investments                                                                                                             |                                            |           | 1,014,968    |           |  |           | 1,156,441  |          
|                                         | Accounts receivable, net of allowance for
    doubtful accounts of $11,946 at March 31, 2002 and $12,616
    at December 31, 2001. |                                            |           | 124,974      |           |  |           | 176,635    |          
|                                         | Deferred income taxes                                                                                                              |                                            |           | 124,374      |           |  |           | 124,527    |          
|                                         | Other current assets                                                                                                               |                                            |           | 59,360       |           |  |           | 66,466     |          
|                                         |                                                                                                                                    |                                            |           |              |           |  |           |           
|                                         |                                                                                                                                    | Total current assets                       |           |              | 2,223,065 |  |           |            | 2,062,488 | 
|Property and equipment, net              |                                                                                                                                    |                                            | 216,791   |              |           |  | 225,763   |           
|Other intangibles, net                   |                                                                                                                                    |                                            | 174,263   |              |           |  | 209,722   |           
|Goodwill, net                            |                                                                                                                                    |                                            | 1,202,814 |              |           |  | 1,202,814 |           
|Other non-current assets                 |                                                                                                                                    |                                            | 55,458    |              |           |  | 52,451    |           
|Deferred income taxes                    |                                                                                                                                    |                                            | 58,530    |              |           |  | 45,375    |           
|                                         |                                                                                                                                    |                                            |           |              |           |  |           |           
|                                         |                                                                                                                                    | Total assets                               |           | $            | 3,930,921 |  |           | $          | 3,798,613 | 
|                                         |                                                                                                                                    |                                            |           |              |           |  |           |           
|LIABILITIES AND STOCKHOLDERS
    EQUITY
|Current liabilities:                     |                                                                                                                                    |                                            |           |              |           |  |           |           
|                                         | Accounts payable                                                                                                                   |                                            | $         | 33,226       |           |  | $         | 32,244     |          
|                                         | Accrued compensation and benefits                                                                                                  |                                            |           | 62,005       |           |  |           | 89,637     |          
|                                         | Accrued acquisition and restructuring costs                                                                                        |                                            |           | 12,058       |           |  |           | 12,093     |          
|                                         | Other accrued liabilities                                                                                                          |                                            |           | 75,846       |           |  |           | 80,833     |          
|                                         | Income taxes payable                                                                                                               |                                            |           | 80,881       |           |  |           | 63,735     |          
|                                         | Deferred revenue                                                                                                                   |                                            |           | 273,955      |           |  |           | 239,110    |          
|                                         |                                                                                                                                    |                                            |           |              |           |  |           |           
|                                         |                                                                                                                                    | Total current liabilities                  |           |              | 537,971   |  |           |            | 517,652   | 
|Convertible subordinated notes           |                                                                                                                                    |                                            | 447,878   |              |           |  | 444,408   |           
|Deferred and other income taxes          |                                                                                                                                    |                                            | 113,100   |              |           |  | 113,100   |           
|                                         |                                                                                                                                    |                                            |           |              |           |  |           |           
|                                         |                                                                                                                                    | Total liabilities                          |           |              | 1,098,949 |  |           |            | 1,075,160 | 
|Stockholders equity:                    |                                                                                                                                    |                                            |           |              |           |  |           |           
|                                         | Common stock                                                                                                                       |                                            |           | 427          |           |  |           | 423        |          
|                                         | Additional paid-in capital                                                                                                         |                                            |           | 6,296,629    |           |  |           | 6,228,914  |          
|                                         | Accumulated deficit                                                                                                                |                                            |           | (1,759,062   | )         |  |           | (1,803,528 | )        
|                                         | Accumulated other comprehensive loss                                                                                               |                                            |           | (3,958       | )         |  |           | (292       | )        
|                                         | Treasury stock, at cost; 18,675 shares at
    March 31, 2002 and at December 31, 2001.                                             |                                            |           | (1,702,064   | )         |  |           | (1,702,064 | )        
|                                         |                                                                                                                                    |                                            |           |              |           |  |           |           
|                                         |                                                                                                                                    | Total stockholders equity                 |           |              | 2,831,972 |  |           |            | 2,723,453 | 
|                                         |                                                                                                                                    |                                            |           |              |           |  |           |           
|                                         |                                                                                                                                    | Total liabilities and stockholders equity |           | $            | 3,930,921 |  |           | $          | 3,798,613 | 
|                                         |                                                                                                                                    |                                            |           |              |           |  |           |           

See accompanying notes to condensed consolidated
financial statements.

2



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##### Table of Contents



VERITAS SOFTWARE CORPORATION






CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS


(In thousands, except per share
amounts)


|                                                                   |                                      |                          |         |         |         |   |          |         |         | 
|------------------------------------------------------------------ | ------------------------------------ | ------------------------ | ------- | ------- | ------- | - | -------- | ------- | ------- | 
|                                                                   |                                      |                         
|                                                                   |                                      | Three Months Ended      
|                                                                   |                                      | March 31,               
|                                                                   |                                      |                         
|                                                                   |                                      | 2002                     |         | 2001   
|                                                                   |                                      |                          |         |        
|                                                                   |                                      |                         
|                                                                   |                                      | (Unaudited)             
|Net revenue:                                                       |                                      |                          |         |         |         |   |          |        
|                                                                   | User license fees                    |                          | $       | 259,711 |         |   | $        | 309,017 |        
|                                                                   | Services                             |                          |         | 110,738 |         |   |          | 78,424  |        
|                                                                   |                                      |                          |         |         |         |   |          |        
|                                                                   |                                      | Total net revenue        |         |         | 370,449 |   |          |         | 387,441 | 
|Cost of revenue:                                                   |                                      |                          |         |         |         |   |          |        
|                                                                   | User license fees                    |                          |         | 9,194   |         |   |          | 10,668  |        
|                                                                   | Services                             |                          |         | 41,155  |         |   |          | 31,670  |        
|                                                                   | Amortization of developed technology |                          |         | 16,903  |         |   |          | 15,791  |        
|                                                                   |                                      |                          |         |         |         |   |          |        
|                                                                   |                                      | Total cost of revenue    |         |         | 67,252  |   |          |         | 58,129  | 
|                                                                   |                                      |                          |         |         |         |   |          |        
|Gross profit                                                       |                                      |                          | 303,197 |         |         |   | 329,312  |        
|Operating expenses:                                                |                                      |                          |         |         |         |   |          |        
|                                                                   | Selling and marketing                |                          |         | 126,963 |         |   |          | 142,805 |        
|                                                                   | Research and development             |                          |         | 65,184  |         |   |          | 56,225  |        
|                                                                   | General and administrative           |                          |         | 33,113  |         |   |          | 25,904  |        
|                                                                   | Amortization of other intangibles    |                          |         | 18,016  |         |   |          | 18,046  |        
|                                                                   | Amortization of goodwill             |                          |         |        |         |   |          | 203,180 |        
|                                                                   |                                      |                          |         |         |         |   |          |        
|                                                                   |                                      | Total operating expenses |         |         | 243,276 |   |          |         | 446,160 | 
|                                                                   |                                      |                          |         |         |         |   |          |        
|Income (loss) from operations                                      |                                      |                          | 59,921  |         |         |   | (116,848 | )      
|Interest and other income, net                                     |                                      |                          | 13,153  |         |         |   | 18,628   |        
|Interest expense                                                   |                                      |                          | (7,921  | )       |         |   | (6,969   | )      
|                                                                   |                                      |                          |         |         |         |   |          |        
|Income (loss) before income taxes                                  |                                      |                          | 65,153  |         |         |   | (105,189 | )      
|Provision for income taxes                                         |                                      |                          | 20,687  |         |         |   | 50,909   |        
|                                                                   |                                      |                          |         |         |         |   |          |        
|Net income (loss)                                                  |                                      | $                        | 44,466  |         |         | $ | (156,098 | )      
|                                                                   |                                      |                          |         |         |         |   |          |        
|Net income (loss) per share  basic                                |                                      | $                        | 0.11    |         |         | $ | (0.40    | )      
|                                                                   |                                      |                          |         |         |         |   |          |        
|Number of shares used in computing per share
    amounts  basic   |                                      |                          | 406,086 |         |         |   | 394,829  |        
|                                                                   |                                      |                          |         |         |         |   |          |        
|Net income (loss) per share 
    diluted                          |                                      | $                        | 0.11    |         |         | $ | (0.40    | )      
|                                                                   |                                      |                          |         |         |         |   |          |        
|Number of shares used in computing per share
    amounts  diluted |                                      |                          | 421,709 |         |         |   | 394,829  |        
|                                                                   |                                      |                          |         |         |         |   |          |        

See accompanying notes to condensed consolidated
financial statements.

3



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VERITAS SOFTWARE CORPORATION






CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS


(In thousands)


|                                                              |                                                                                              |                                                                  |                                                          |          |         |         |           |          |         |         |  
|------------------------------------------------------------- | -------------------------------------------------------------------------------------------- | ---------------------------------------------------------------- | -------------------------------------------------------- | -------- | ------- | ------- | --------- | -------- | ------- | ------- | -
|                                                              |                                                                                              |                                                                 
|                                                              |                                                                                              | Three Months Ended                                              
|                                                              |                                                                                              | March 31,                                                       
|                                                              |                                                                                              |                                                                 
|                                                              |                                                                                              | 2002                                                             |                                                          | 2001    
|                                                              |                                                                                              |                                                                  |                                                          |         
|                                                              |                                                                                              |                                                                 
|                                                              |                                                                                              | (Unaudited)                                                     
|Cash flows from operating activities:                         |                                                                                              |                                                                  |                                                          |          |         |         |           |         
|                                                              | Net income (loss)                                                                            |                                                                  | $                                                        | 44,466   |         |         | $         | (156,098 | )      
|                                                              | Adjustments to reconcile net income
    (loss) to net cash provided by operating activities: |                                                                  |                                                          |          |         |         |           |          |        
|                                                              |                                                                                              | Depreciation and amortization                                    |                                                          |          | 24,809  |         |           |          | 19,633  |        
|                                                              |                                                                                              | Amortization of other intangibles                                |                                                          |          | 18,016  |         |           |          | 18,046  |        
|                                                              |                                                                                              | Amortization of goodwill                                         |                                                          |          |        |         |           |          | 203,180 |        
|                                                              |                                                                                              | Amortization of developed technology                             |                                                          |          | 16,903  |         |           |          | 15,791  |        
|                                                              |                                                                                              | Amortization of original issue discount on
    convertible notes |                                                          |          | 3,970   |         |           |          | 3,538   |        
|                                                              |                                                                                              | Provision for doubtful accounts                                  |                                                          |          | (670    | )       |           |          | (1,180  | )      
|                                                              |                                                                                              | Tax benefits from stock plans                                    |                                                          |          | 15,920  |         |           |          | 63,341  |        
|                                                              |                                                                                              | Deferred income taxes                                            |                                                          |          | (13,120 | )       |           |          | (13,482 | )      
|                                                              | Changes in operating assets and liabilities, net
    of effects of business acquisitions:    |                                                                  |                                                          |          |         |         |           |          |        
|                                                              |                                                                                              | Accounts receivable                                              |                                                          |          | 52,331  |         |           |          | 24,492  |        
|                                                              |                                                                                              | Other assets                                                     |                                                          |          | 3,510   |         |           |          | 761     |        
|                                                              |                                                                                              | Accounts payable                                                 |                                                          |          | 982     |         |           |          | (735    | )      
|                                                              |                                                                                              | Accrued compensation and benefits                                |                                                          |          | (27,632 | )       |           |          | (14,204 | )      
|                                                              |                                                                                              | Accrued acquisition and restructuring costs                      |                                                          |          | (35     | )       |           |          | (25,970 | )      
|                                                              |                                                                                              | Other accrued liabilities                                        |                                                          |          | 2,280   |         |           |          | (13,471 | )      
|                                                              |                                                                                              | Income taxes payable                                             |                                                          |          | 17,146  |         |           |          | (528    | )      
|                                                              |                                                                                              | Deferred revenue                                                 |                                                          |          | 34,845  |         |           |          | 14,126  |        
|                                                              |                                                                                              |                                                                  |                                                          |          |         |         |           |         
|                                                              |                                                                                              |                                                                  | Net cash provided by operating activities                |          |         | 193,721 |           |          |         | 137,240 |  
|Cash flows from investing activities:                         |                                                                                              |                                                                  |                                                          |          |         |         |           |         
|                                                              | Purchases of investments                                                                     |                                                                  |                                                          | (299,369 | )       |         |           | (222,410 | )      
|                                                              | Sales and maturities of investments                                                          |                                                                  |                                                          | 435,659  |         |         |           | 237,493  |        
|                                                              | Purchases of property and equipment                                                          |                                                                  |                                                          | (15,297  | )       |         |           | (35,898  | )      
|                                                              | Business acquisitions                                                                        |                                                                  |                                                          |         |         |         |           | (21,000  | )      
|                                                              | Strategic investments in businesses                                                          |                                                                  |                                                          |         |         |         |           | (8,100   | )      
|                                                              | Payments made for 2001 businesses acquisitions                                               |                                                                  |                                                          | (7,267   | )       |         |           |         |        
|                                                              |                                                                                              |                                                                  |                                                          |          |         |         |           |         
|                                                              |                                                                                              |                                                                  | Net cash provided by (used for) investing
    activities |          |         | 113,726 |           |          |         | (49,915 | )
|Cash flows from financing activities:                         |                                                                                              |                                                                  |                                                          |          |         |         |           |         
|                                                              | Proceeds from issuance of common stock                                                       |                                                                  |                                                          | 51,299   |         |         |           | 36,879   |        
|                                                              |                                                                                              |                                                                  |                                                          |          |         |         |           |         
|                                                              |                                                                                              |                                                                  | Net cash provided by financing activities                |          |         | 51,299  |           |          |         | 36,879  |  
|Effect of exchange rate changes                               |                                                                                              |                                                                  | 2,224                                                    |          |         |         | (46       | )       
|                                                              |                                                                                              |                                                                  |                                                          |          |         |         |           |         
|Net increase in cash and cash equivalents                     |                                                                                              |                                                                  | 360,970                                                  |          |         |         | 124,158   |         
|Cash and cash equivalents at beginning of period              |                                                                                              |                                                                  | 538,419                                                  |          |         |         | 886,558   |         
|                                                              |                                                                                              |                                                                  |                                                          |          |         |         |           |         
|Cash and cash equivalents at end of period                    |                                                                                              | $                                                                | 899,389                                                  |          |         | $       | 1,010,716 |         
|                                                              |                                                                                              |                                                                  |                                                          |          |         |         |           |         
|Supplemental disclosures:                                     |                                                                                              |                                                                  |                                                          |          |         |         |           |         
|                                                              | Cash paid for interest                                                                       |                                                                  | $                                                        | 4,312    |         |         | $         | 4,312    |        
|                                                              | Cash paid for income taxes                                                                   |                                                                  | $                                                        | 3,273    |         |         | $         | 1,379    |        
|Supplemental schedule of non-cash financing
    transactions: |                                                                                              |                                                                  |                                                          |          |         |         |           |         
|                                                              | Issuance of common stock for conversion of notes                                             |                                                                  | $                                                        | 500      |         |         | $         | 61       |        

See accompanying notes to condensed consolidated
financial statements.

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##### Table of Contents



VERITAS SOFTWARE CORPORATION




NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS

(Unaudited)


1.     Basis of
Presentation

The accompanying unaudited condensed consolidated
financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by
generally accepted accounting principles for annual financial
statements. In the opinion of management, all adjustments,
consisting only of normal recurring adjustments, considered
necessary for a fair presentation have been included. The
results for the interim periods presented are not necessarily
indicative of the results that may be expected for any future
period. The following information should be read in conjunction
with the consolidated financial statements and notes thereto
included in VERITAS Software Corporations Annual Report on
Form 10-K for the year ended December 31, 2001.

2.     Use of
Estimates

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

3.     Comparative
Information

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

4.     Change in
Accounting Principals

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

SFAS 142 requires that goodwill and intangible
assets with indefinite useful lives no longer be amortized, but
instead be tested for impairment at least annually.
SFAS 142 also requires that intangible assets with
estimable useful lives be amortized over their respective
estimated useful lives to their estimated residual values, and
reviewed for impairment in accordance with SFAS 144. The
Company expects to complete the transitional goodwill impairment
test by June 30, 2002. The Company does not expect to
record an impairment charge upon completion of the test, but
there can be no assurance that at the time the test is completed
a significant impairment charge may not be recorded.

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

Topic D-103 requires companies to record certain
reimbursements received for out-of-pocket expenses as revenue
instead of an offset to the related expense. Upon application of
Topic D-103, comparative financial statements for prior
periods must be reclassified to comply with the guidance in this
announcement. The

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VERITAS SOFTWARE CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

adoption of Topic D-103 did not have a
material impact on the Companys financial position,
results of operations or cash flows, and as a result, the
Company did not reclassify prior period results.

5.     Net Income
(Loss) Per Share

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

|                                    |                                                                                             |                    |      |         |  |   |       |          |  
|----------------------------------- | ------------------------------------------------------------------------------------------- | ------------------ | ---- | ------- |  | - | ----- | -------- | -
|                                    |                                                                                             |                   
|                                    |                                                                                             | Three Months Ended
|                                    |                                                                                             | March 31,         
|                                    |                                                                                             |                   
|                                    |                                                                                             | 2002               |      | 2001   
|                                    |                                                                                             |                    |      |        
|Numerator:                          |                                                                                             |                    |      |         |  |   |       |         
|                                    | Net income (loss)                                                                           |                    | $    | 44,466  |  |   | $     | (156,098 | )
|                                    |                                                                                             |                    |      |         |  |   |       |         
|Denominator:                        |                                                                                             |                    |      |         |  |   |       |         
|                                    | Denominator for basic net income (loss) per
    share  weighted-average shares outstanding |                    |      | 406,086 |  |   |       | 394,829  |  
|                                    | Potential common shares                                                                     |                    |      | 15,623  |  |   |       |         |  
|                                    |                                                                                             |                    |      |         |  |   |       |         
|                                    | Denominator for diluted net income
    (loss) per share                                     |                    |      | 421,709 |  |   |       | 394,829  |  
|                                    |                                                                                             |                    |      |         |  |   |       |         
|Basic net income (loss) per share   |                                                                                             | $                  | 0.11 |         |  | $ | (0.40 | )       
|                                    |                                                                                             |                    |      |         |  |   |       |         
|Diluted net income (loss) per share |                                                                                             | $                  | 0.11 |         |  | $ | (0.40 | )       
|                                    |                                                                                             |                    |      |         |  |   |       |         

For the three months ended March 31, 2002,
potential common shares consist of employee stock options using
the treasury method and do not include 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. Additionally, for the three months ended
March 31, 2001, potential common shares do not include
employee stock options outstanding as their effect would be
antidilutive. The following table sets forth the potential
common shares that were excluded from the net income
(loss) per share computations (in thousands):

|                                      |  |              |        |      |  |  |        | 
|------------------------------------- |  | ------------ | ------ | ---- |  |  | ------ | 
|                                      |  |             
|                                      |  | Three Months
|                                      |  | Ended       
|                                      |  | March 31,   
|                                      |  |             
|                                      |  | 2002         |        | 2001
|                                      |  |              |        |     
|Employee stock options outstanding(1) |  |              | 20,727 |      |  |  | 52,864 | 
|5.25% convertible subordinated notes  |  |              | 6,695  |      |  |  | 6,748  | 
|1.856% convertible subordinated notes |  |              | 12,981 |      |  |  | 12,982 | 



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | At March 31, 2002, 20,727 employee stock
    options were excluded from the computation of diluted net income
    per share because the exercise price of these options was
    greater than the average market price of the Companys
    common stock during the period, and therefore the effect is
    anti-dilutive. At March 31, 2001, 52,864 employee stock
    options were excluded from the computation of diluted net loss
    per share because the effect would have been anti-dilutive.

The weighted average exercise price of the
employee stock options with exercise prices exceeding the
average fair value of the Companys common stock for the
three months ended March 31, 2002 was $90.95 per share. The
weighted average exercise price of all employee stock options
outstanding for the three months ended March 31, 2001 was
$44.84 per share.

6



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##### Table of Contents



VERITAS SOFTWARE CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

6.     Goodwill and
Other Intangible Assets

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

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

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

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

|                                              |  |                |         |              |  |              |         |  |  |   |         | 
|--------------------------------------------- |  | -------------- | ------- | ------------ |  | ------------ | ------- |  |  | - | ------- | 
|                                              |  |               
|                                              |  | March 31, 2002
|                                              |  |               
|                                              |  | Gross Carrying |         | Accumulated  |  | Net Carrying
|                                              |  | Amount         |         | Amortization |  | Amount      
|                                              |  |                |         |              |  |             
|Developed technology                          |  | $              | 258,027 |              |  | $            | 176,328 |  |  | $ | 81,699  | 
|Distribution channels                         |  |                | 234,800 |              |  |              | 166,317 |  |  |   | 68,483  | 
|Trademarks                                    |  |                | 24,350  |              |  |              | 17,246  |  |  |   | 7,104   | 
|Other intangible assets                       |  |                | 29,700  |              |  |              | 20,604  |  |  |   | 9,096   | 
|                                              |  |                |         |              |  |              |         |  |  |   |         | 
|Intangibles related to business acquisitions  |  |                | 546,877 |              |  |              | 380,495 |  |  |   | 166,382 | 
|Convertible subordinated notes issuance costs |  |                | 14,506  |              |  |              | 6,625   |  |  |   | 7,881   | 
|                                              |  |                |         |              |  |              |         |  |  |   |         | 
|Total other intangibles assets                |  | $              | 561,383 |              |  | $            | 387,120 |  |  | $ | 174,263 | 
|                                              |  |                |         |              |  |              |         |  |  |   |         | 

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

7



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##### Table of Contents



VERITAS SOFTWARE CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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

|                        |  |                    |        |      |  |   |         | 
|----------------------- |  | ------------------ | ------ | ---- |  | - | ------- | 
|                        |  |                   
|                        |  | Three Months Ended
|                        |  | March 31,         
|                        |  |                   
|                        |  | 2002               |        | 2001
|                        |  |                    |        |     
|Goodwill                |  | $                  |       |      |  | $ | 203,180 | 
|Developed technology    |  |                    | 16,903 |      |  |   | 15,791  | 
|Distribution channels   |  |                    | 14,675 |      |  |   | 14,675  | 
|Trademarks              |  |                    | 1,522  |      |  |   | 1,522   | 
|Other intangible assets |  |                    | 1,819  |      |  |   | 1,849   | 
|                        |  |                    |        |      |  |   |         | 
|Total amortization      |  | $                  | 34,919 |      |  | $ | 237,017 | 
|                        |  |                    |        |      |  |   |         | 

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

|      |  |              |         | 
|----- |  | ------------ | ------- | 
|      |  | Future      
|Year  |  | Amortization
|      |  |             
|2002  |  | $            | 104,899 | 
|2003  |  |              | 60,238  | 
|2004  |  |              | 1,245   | 
|      |  |              |         | 
|Total |  | $            | 166,382 | 
|      |  |              |         | 

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

|                                                |                          |                    |        |      |  |   |          |         | 
|----------------------------------------------- | ------------------------ | ------------------ | ------ | ---- |  | - | -------- | ------- | 
|                                                |                          |                   
|                                                |                          | Three Months Ended
|                                                |                          | March 31,         
|                                                |                          |                   
|                                                |                          | 2002               |        | 2001
|                                                |                          |                    |        |     
|Net income (loss)                               |                          | $                  | 44,466 |      |  | $ | (156,098 | )      
|Add back:                                       |                          |                    |        |      |  |   |          |        
|                                                | Amortization of goodwill |                    |        |     |  |   |          | 203,180 | 
|                                                |                          |                    |        |      |  |   |          |        
|Adjusted net income                             |                          | $                  | 44,466 |      |  | $ | 47,082   |        
|                                                |                          |                    |        |      |  |   |          |        
|Basic and diluted net income (loss) per share   |                          | $                  | 0.11   |      |  | $ | (0.40    | )      
|Add back:                                       |                          |                    |        |      |  |   |          |        
|                                                | Amortization of goodwill |                    |        |     |  |   |          | 0.51    | 
|                                                |                          |                    |        |      |  |   |          |        
|Adjusted basic and diluted net income per share |                          | $                  | 0.11   |      |  | $ | 0.11     |        
|                                                |                          |                    |        |      |  |   |          |        

8



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##### Table of Contents



VERITAS SOFTWARE CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

7.     Comprehensive
Income (Loss)

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

|                                               |                                             |                    |        |        |   |   |          |        |  
|---------------------------------------------- | ------------------------------------------- | ------------------ | ------ | ------ | - | - | -------- | ------ | -
|                                               |                                             |                   
|                                               |                                             | Three Months Ended
|                                               |                                             | March 31,         
|                                               |                                             |                   
|                                               |                                             | 2002               |        | 2001  
|                                               |                                             |                    |        |       
|Net income (loss)                              |                                             | $                  | 44,466 |        |   | $ | (156,098 | )     
|Other comprehensive income (loss), net of tax: |                                             |                    |        |        |   |   |          |       
|                                               | Foreign currency translation adjustments    |                    |        | 733    |   |   |          | (46    | )
|                                               | Derivative financial instrument adjustments |                    |        | 1,491  |   |   |          | 847    |  
|                                               | Unrealized loss on marketable securities    |                    |        | (5,890 | ) |   |          | (2,096 | )
|                                               |                                             |                    |        |        |   |   |          |       
|Comprehensive income (loss)                    |                                             | $                  | 40,800 |        |   | $ | (157,393 | )     
|                                               |                                             |                    |        |        |   |   |          |       

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

|                                            |  |           |        |              |  |   |        |  
|------------------------------------------- |  | --------- | ------ | ------------ |  | - | ------ | -
|                                            |  | March 31, |        | December 31,
|                                            |  | 2002      |        | 2001        
|                                            |  |           |        |             
|Foreign currency translation adjustments    |  | $         | (8,096 | )            |  | $ | (8,829 | )
|Derivative financial instrument adjustments |  |           | 3,837  |              |  |   | 2,346  |  
|Unrealized gain on marketable securities    |  |           | 301    |              |  |   | 6,191  |  
|                                            |  |           |        |              |  |   |        |  
|Accumulated other comprehensive loss        |  | $         | (3,958 | )            |  | $ | (292   | )
|                                            |  |           |        |              |  |   |        |  

8.     Derivative
Financial Instruments

In September 2000, the Company entered into a
three-year cross currency interest rate swap transaction
(swap) for the purpose of hedging fixed interest
rate, foreign currency denominated cash flows under an
inter-company loan receivable. Under the terms of this
derivative financial instrument, Euro denominated fixed
principal and interest payments to be received under the
inter-company loan will be swapped for U.S. dollar-fixed
principal and interest payments. As of March 31, 2002,
eighteen monthly payments of $4.3 million remained to be
swapped at a forward exchange rate of 0.89070 U.S. dollar per
Euro. The fair market value of the swap at March 31, 2002
was $2.4 million. As a result of entering into the swap,
the Company has mitigated its exposure to foreign currency
exchange rate fluctuations. The gains or losses on the foreign
currency loan receivable will be offset by the gains or losses
on the swap. Because the Company is receiving fixed interest
payments under the swap, it is still subject to fluctuations in
value due to changes in U.S. dollar interest rates. As of
March 31, 2002 the impact of these fluctuations was not
significant. This hedge was deemed to be perfectly effective as
of March 31, 2002.

In January 2002, the Company entered into two
three-year pay fixed, receive floating, interest rate swaps for
the purpose of hedging variable interest rate debt of its
build-to-suit lease agreements. Under the terms of these
interest rate swaps, the Company makes payments based on a
stated fixed rate and will receive interest payments based on
the 3-month London Inter Bank Offer Rate (LIBOR).
The Companys payments on its build-to-suit lease
agreements are based upon a 3-month LIBOR plus a credit spread.
If the Companys credit spread remains consistent and other
critical terms of the interest rate swap or the hedged item do
not change, the interest rate swap will be considered perfectly
effective with all changes in the fair value included in other
comprehensive income. If the Companys credit spread
changes or other critical terms of the interest rate swap or the
hedged item change, the hedge may become partially or fully
ineffective, which could result in all or a portion of the
changes in fair value of the derivative recorded in the
statement of operations. The interest rate swaps settle the
first day of January, April, July and October until expiration.
As of March 31, 2002, the fair value of the interest rate
swaps was $0.9 million. As a result of entering into the
interest rate swaps, the Company has mitigated its exposure to
interest rate fluctuations. Because the rental payments on the
leases are based on the 3-month LIBOR and the Company receives
3-month LIBOR from the interest rate swap

9



---



##### Table of Contents



VERITAS SOFTWARE CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

counter-party, the Company has eliminated any
impact to raising interest rates related to its rent payments
under the build-to-suit lease agreements.

9.     Segment
Information

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

Geographic information (in thousands):

|                      |                   |                    |         |         |  |   |         |         | 
|--------------------- | ----------------- | ------------------ | ------- | ------- |  | - | ------- | ------- | 
|                      |                   |                   
|                      |                   | Three Months Ended
|                      |                   | March 31,         
|                      |                   |                   
|                      |                   | 2002               |         | 2001   
|                      |                   |                    |         |        
|User license fees(1): |                   |                    |         |         |  |   |         |        
|United States         |                   | $                  | 168,389 |         |  | $ | 221,038 |        
|Europe(2)             |                   |                    | 60,236  |         |  |   | 63,044  |        
|Other(3)              |                   |                    | 31,086  |         |  |   | 24,935  |        
|                      |                   |                    |         |         |  |   |         |        
|                      | Total             |                    |         | 259,711 |  |   |         | 309,017 | 
|                      |                   |                    |         |         |  |   |         |        
|Services(1):          |                   |                    |         |         |  |   |         |        
|United States         |                   |                    | 86,742  |         |  |   | 63,937  |        
|Europe(2)             |                   |                    | 17,707  |         |  |   | 9,559   |        
|Other(3)              |                   |                    | 6,289   |         |  |   | 4,928   |        
|                      |                   |                    |         |         |  |   |         |        
|                      | Total             |                    |         | 110,738 |  |   |         | 78,424  | 
|                      |                   |                    |         |         |  |   |         |        
|                      | Total net revenue |                    | $       | 370,449 |  |   | $       | 387,441 | 
|                      |                   |                    |         |         |  |   |         |        

|                      |               |           |   |              |           |  |   |           |           | 
|--------------------- | ------------- | --------- | - | ------------ | --------- |  | - | --------- | --------- | 
|                      |               | March 31, |   | December 31,
|                      |               | 2002      |   | 2001        
|                      |               |           |   |             
|Long-lived assets(4): |               |           |   |              |           |  |   |          
|                      | United States |           | $ | 1,546,737    |           |  | $ | 1,592,060 |          
|                      | Europe(2)     |           |   | 35,602       |           |  |   | 33,945    |          
|                      | Other(3)      |           |   | 11,529       |           |  |   | 12,294    |          
|                      |               |           |   |              |           |  |   |          
|                      |               | Total     |   | $            | 1,593,868 |  |   | $         | 1,638,299 | 
|                      |               |           |   |              |           |  |   |          



---



|    |                                                                                                                                                                                                     
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | License and services revenues are attributed to
    geographic regions based on location of customers.                                                                                              
|   
|(2) | Europe includes the Middle East and Africa.                                                                                                                                                         
|   
|(3) | Other includes Canada, Latin America, Japan and
    the Asia Pacific region.                                                                                                                        
|   
|(4) | Long-lived assets include all long-term assets
    except those specifically excluded under SFAS 131, such as
    deferred income taxes. Reconciliation to total assets reported
    (in thousands):

|                                |                           |           |           |              |  |   |           |           | 
|------------------------------- | ------------------------- | --------- | --------- | ------------ |  | - | --------- | --------- | 
|                                |                           | March 31, |           | December 31,
|                                |                           | 2002      |           | 2001        
|                                |                           |           |           |             
|Total long-lived assets         |                           | $         | 1,593,868 |              |  | $ | 1,638,299 |          
|Other assets, including current |                           |           | 2,337,053 |              |  |   | 2,160,314 |          
|                                |                           |           |           |              |  |   |           |          
|                                | Total consolidated assets |           | $         | 3,930,921    |  |   | $         | 3,798,613 | 
|                                |                           |           |           |              |  |   |           |          

10



---



##### Table of Contents



VERITAS SOFTWARE CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

No customer represented 10% or more of the
Companys net revenue for each of the three months ended
March 31, 2002 or 2001.

User license fees information:

The Company markets and distributes its software
products both as individual software products and as integrated
product suites, also referred to as application solutions. The
Company derives its user license fees from the sale of its core
technologies, including data protection and file system and
volume management products, from its emerging technologies,
including cluster and replication and SAN products, and from its
application solutions, which include technologies from both its
core and emerging technologies. User license fees from core
technologies were $225.8 million for the three months ended
March 31, 2002 and $258.3 million for the three months
ended March 31, 2001. User license fees from emerging
technologies were $33.9 million for the three months ended
March 31, 2002 and $50.7 million for the three months
ended March 31, 2001.

User license fees from application solutions, as
stand-alone products, were $52.8 million for the three
months ended March 31, 2002 and $71.4 million for the
three months ended March 31, 2001. User license fees
generated by application solutions are allocated between core
technology products and emerging technology products.

10.     Credit
Facility

During 2001, the Company extended and amended the
terms of its $50.0 million unsecured credit facility, which
it holds with a syndicate of financial institutions. At
March 31, 2002, no amount was outstanding and the credit
facility is due to expire in September 2002. Borrowings under
the credit facility bear interest at 1.0% to 1.5% over LIBOR,
and are subject to the Companys compliance with financial
and other covenants. The credit agreement requires 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 March 31,
2002.

During the first quarter of 2002, the
Companys Japanese subsidiary entered into a short-term
credit facility with a multinational Japanese bank in the amount
of 1.0 billion Japanese yen ($7.5 million USD). At
March 31, 2002, no amount was outstanding. The short-term
credit facility is due to expire March 11, 2003. Borrowings
under the short-term credit facility bear interest at Tokyo
Inter Bank Offer Rate (TIBOR) plus 0.5%. There are
no covenants on the credit facility and the loan has been
guaranteed by VERITAS Software Global Corporation, a
wholly-owned subsidiary of the Company.

11.     Commitments
and Contingencies



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

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

During 2001, the Company amended its existing
lease agreement, originally signed in 1999, for new corporate
campus facilities in Mountain View, California. The facilities
of 425,000 square feet provide space for sales, marketing,
administration and research and development functions. The lease
term for these facilities is five years beginning in March 2000,
with an option to extend the lease term for two successive
periods of one year each, if agreed to by the financial
institutions. The Company has the option to purchase the
property (land and facilities) for the termination value of
$145.5 million or, at the end of the lease, to arrange for
the sale of the property to a third party while the Company
retains an obligation to the owner for the difference between
the sales price and the guaranteed residual value up to
$129.0 million if the sales price is less than this amount,
subject to certain provisions of the lease. In addition, the
Company is entitled to any proceeds from a sale of the property
in excess of the termination value. The Company occupies these
facilities

11



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##### Table of Contents



VERITAS SOFTWARE CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

and began making lease payments in the second
quarter of 2001. Monthly lease payments under this operating
lease are based on LIBOR using 30-day to 180-day LIBOR contracts.

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

During 2001, the Company amended its existing
lease agreement, originally signed in 2000, for the lease of 65
acres of land and subsequent improvements for new research and
development campus facilities in Milpitas, California. The
Company plans to develop the site in two phases, with the first
phase of 466,000 square feet to be 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, if agreed to by the financial institutions. The
Company has the option to purchase the property (land and first
phase facilities) for the termination value of
$243.0 million or, at the end of the lease, to arrange for
the sale of the property to a third party while the Company
retains an obligation to the owner for the difference between
the sales price and the guaranteed residual value up to
$220.0 million if the sales price is less than this amount,
subject to certain provisions of the lease. In addition, the
Company is entitled to any proceeds from a sale of the property
in excess of the termination value. The Company anticipates
beginning the lease payments in the third quarter of 2002 for
the first phase and to commence occupying the new campus
facilities in the fourth quarter of 2002. Monthly lease payments
under this operating lease are based on LIBOR using 30-day to
180-day LIBOR contracts. 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 Company has evaluated the expected fair value
of the properties at the end of the lease terms by reviewing
current real estate market conditions and indicators of
expectations for the market in the future. In the event that the
Company determines it is probable that the expected fair value
of any of the properties at the end of the lease terms will be
less than the respective termination values, the Company will
accrue the expected loss on a straight-line basis over the
remaining lease term. Currently, the Company does not believe it
is probable that the fair market value of the properties at the
end of the lease terms will be less than the termination values.

The three lease agreements listed above require
that the Company maintain specified financial covenants such as
EBITDA, debt on EBITDA and quick ratio, all of which the Company
was in compliance with as of March 31, 2002. In addition,
all the properties covered by the leases are subject to a deed
of trust in favor of the lessor in order to secure the
Companys obligations under the leases.

12



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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, which
involve numerous risks and uncertainties. These forward-looking
statements including effects of business combinations and
acquisitions, new and critical accounting policies, products and
services revenue, revenue mix, products and services gross
margin, expense and amortization estimates, liquidity, and
commitments. In some cases, forward-looking statements are
identified by word such as believe,
anticipate, expect, intend,
plan, will, may and similar
expressions. In addition, these forward-looking statements
include statements regarding our expectations, beliefs, plans,
intentions or strategies regarding the future. All these
forward-looking statements are based on information available to
us at this time, and we assume no obligation to update any of
these statements. The actual results that we achieve may differ
materially from those anticipated by any forward-looking
statement due to risks and uncertainties including those
described below under Factors That May Affect Future
Results.

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

Overview

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

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

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

International Sales and Operations

Our international sales are generated primarily
through our international sales subsidiaries. International
revenue, most of which is collectible in foreign currencies,
accounted for approximately 31% of our total revenue for the
three months ended March 31, 2002 and 26% of our total
revenue for the three months ended March 31, 2001. Our
international revenue increased 13% from $102.5 million for
the three months ended March 31, 2001 to
$115.3 million for the three months ended March 31,
2002. User license and service revenue is attributed to
geographic regions based on location of our customers.

We believe that our success depends upon
continued expansion of our international operations. We
currently have sales and service offices and resellers located
in North America, Europe, Asia-Pacific, South

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America and the Middle East, and a development
center in India. International expansion will require us to
establish additional foreign offices, hire additional personnel
and recruit new international resellers, resulting in the
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, which would have an adverse
effect on our business, operating results and financial
condition.


Seagate Technology Transaction

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

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

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

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

In 2001, we reversed $5.0 million of
attorneys fees originally accrued in relation to the
Delaware lawsuit captioned In re Seagate Technology, Inc.
Shareholders Litigation,which we will not have to pay as a
result of a Delaware Chancery Court ruling that approved the
settlement of the lawsuit and the subsequent distribution of
$50.0 million of additional consideration to the former
Seagate stockholders that was paid by SAC. We anticipate that
the remaining $0.4 million of accrued acquisition-related
costs will be paid in 2002.

For the three months ended March 31, 2002
and 2001, the transaction had no impact on our consolidated
statement of operations. For the three months ended
March 31, 2002 the decrease of approximately
18.7 million shares of our common stock outstanding on the
number of shares used in computing the net income per share
resulted in an incremental basic and diluted net gain per share
of $0.01. For the three months ended March 31, 2001 the
transaction resulted in an incremental basic and diluted net
loss per share of $0.02.

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



| |   |                                                                                                   
| | - | --------------------------------------------------------------------------------------------------
| |  | other current assets included $21.3 million
    of indemnification receivable from SAC;           
|
| |  | other non-current assets included
    $18.0 million of indemnification receivable from SAC;       
|
| |  | accrued acquisition and restructuring costs
    included $0.4 million of direct transaction costs;
|
| |  | income taxes payable included an additional
    $21.3 million; and                                
|
| |  | deferred and other income taxes included an
    additional $113.1 million.                        

As of March 31, 2002 and December 31,
2001, deferred and other income taxes payable recorded in
connection with the Seagate transaction totaled
$134.4 million and related to certain tax liabilities that
we expect to pay after the merger. Certain of Seagates
federal and state tax returns for various fiscal years are under
examination by tax authorities. We believe that adequate amounts
for tax liabilities have been provided for any final assessments
that may result from these examinations.

Business Combinations

As of March 31, 2002, as a result of the
acquisition of Network & Storage Management Group
business of Seagate Software, Inc. (NSMG) in 1999
and three acquisitions of privately-held companies in 2001, we
had the following acquisition-related accruals(in millions):

|                                      |  |      |       |              |  |       |      |   |  |   |       |  
|------------------------------------- |  | ---- | ----- | ------------ |  | ----- | ---- | - |  | - | ----- | -
|                                      |  |      |       | 2001         |  |      
|                                      |  | NSMG |       | Acquisitions |  | Total
|                                      |  |      |       |              |  |      
|Provision accrued at acquisition date |  | $    | 43.4  |              |  | $     |     |   |  | $ | 43.4  |  
|Cash payments                         |  |      | (19.5 | )            |  |       |     |   |  |   | (19.5 | )
|Non-cash charges                      |  |      | (11.7 | )            |  |       |     |   |  |   | (11.7 | )
|                                      |  |      |       |              |  |       |      |   |  |   |       |  
|Balance at December 31, 1999.         |  |      | 12.2  |              |  |       |     |   |  |   | 12.2  |  
|Cash payments                         |  |      | (4.7  | )            |  |       |     |   |  |   | (4.7  | )
|                                      |  |      |       |              |  |       |      |   |  |   |       |  
|Balance at December 31, 2000.         |  |      | 7.5   |              |  |       |     |   |  |   | 7.5   |  
|Provision accrued at acquisition date |  |      |      |              |  |       | 1.9  |   |  |   | 1.9   |  
|Cash payments                         |  |      | (1.2  | )            |  |       | (1.1 | ) |  |   | (2.3  | )
|                                      |  |      |       |              |  |       |      |   |  |   |       |  
|Balance at December 31, 2001.         |  |      | 6.3   |              |  |       | 0.8  |   |  |   | 7.1   |  
|Cash payments                         |  |      |      |              |  |       | (0.3 | ) |  |   | (0.3  | )
|                                      |  |      |       |              |  |       |      |   |  |   |       |  
|Balance at March 31, 2002.            |  | $    | 6.3   |              |  | $     | 0.5  |   |  | $ | 6.8   |  
|                                      |  |      |       |              |  |       |      |   |  |   |       |  

The remaining acquisition-related costs accrual
of $6.8 million is anticipated to be utilized primarily for
servicing operating lease payments or negotiated buyout of
operating lease commitments, the lease terms of which will
expire at various times through the year 2013.

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

15



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Restructuring costs are summarized below (in
millions):

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

We anticipate that the remaining restructuring
charge accrual of $4.7 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.



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

For the three months ended March 31, 2001,
we incurred net losses due to the amortization of developed
technology, goodwill and other intangibles mainly related to the
acquisitions of NSMG, TeleBackup Systems, Inc.
(TeleBackup) and NuView Inc., (NuView)
in 1999. On January 1, 2002, upon adoption of
SFAS 142, Goodwill and Other Intangible Assets,the
total quarterly charges related to the amortization of developed
technology, goodwill and other intangibles have changed. Because
of this change, we no longer amortize goodwill related to
business combinations and as a result we became profitable in
the three months ended March 31, 2002. Refer to the
New Accounting Pronouncements section in this
Item 2 for a discussion on the impacts of the adoption of
SFAS 142 on our financial statements.

Critical Accounting Policies

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



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

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

16



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

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

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

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

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

Maintenance includes updates (unspecified product
upgrades and enhancements) on a when-and-if-available basis,
telephone support and bug fixes or patches. Maintenance revenue
is recognized ratably over the maintenance term. Training
consists of courses taught by our instructors at our facility or
at the customers site. Various courses are offered that
are specific to the licensed products. Training fees are based
on a per course basis and revenue is recognized when the
customer has completed the course. Consulting consists primarily
of product installation, which does not involve customization of
the software. Installation services provided by us are not
mandatory. Installation can be performed by the customer, a
third party or us. Consulting fees are based on a daily rate.

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

We define revenue recognition criteria as follows:

Persuasive Evidence of an Arrangement Exists.It is our customary practice to have a
written contract, which is signed by both the customer and us,
or a purchase order or amendment to the written contract from
those customers that have previously negotiated a standard
end-user license arrangement or volume purchase agreement, prior
to recognizing revenue on an arrangement.

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

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

Collection is Probable.Probability of collection is assessed
on a customer-by-customer basis. We typically sell to customers
with whom we have a history of successful collection. New
customers are subject to a credit review process that evaluates
the customers financial position and ultimately its
ability to pay. If it is

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determined from the outset of an arrangement that
collection is not probable based upon our credit review process,
revenue is recognized on a cash-collected basis.


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

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

Impairment of
Goodwill

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

In connection with SFAS 142s transitional
goodwill impairment test, we perform an assessment of whether
there is an indication that goodwill is impaired as of
January 1, 2002 in a two-step process as follows:

Step 1.We will
identify our reporting units and determine the carrying amount
of each reporting unit by assigning the assets and liabilities,
including the existing goodwill and intangible assets, to those
reporting units as of January 1, 2002. We have until
June 30, 2002 to determine the fair value of each reporting
unit and compare it to the reporting units carrying
amount. If a reporting units carrying amount exceeds its
fair value, an indication exists that the reporting units
goodwill may be impaired and we will perform the second step of
the transitional impairment test. If the reporting units
fair value exceeds its carrying value, no further work is needed.

Step 2.We will
compare the implied fair value of the reporting units
goodwill, determined by allocating the reporting units
fair value to all of its assets and its liabilities in a manner
similar to a purchase price allocation, to its carrying amount.
The implied fair value and the carrying amount would be measured
as of January 1, 2002. This second step is required to be
completed as soon as possible, but no later than
December 31, 2002. Any transitional impairment loss will be
recognized as the cumulative effect of a change in accounting
principle in our statement of operations.

We expect to complete the transitional goodwill
impairment test by June 30, 2002. We do not expect to record an
impairment charge upon completion of the test, but there can be
no assurance that at the time the test is completed a
significant impairment charge may not be recorded.

Subsequent to the transitional goodwill
impairment test, we will review our goodwill for impairment at
least once a year, at the same time every year, or when an event
or a change in facts and circumstances would more likely than
not reduce the fair value of a reporting unit below its carrying
amount. Events or changes in facts and circumstances that we
consider as impairment indicators include the following:



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

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The goodwill impairment test, very similar to the
transitional goodwill impairment test above, will consist of the
two-step process as follows:

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

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

We have not yet determined the date of the annual
goodwill impairment test.



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

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



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

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

As of March 31, 2002, we had not recorded an
impairment loss on our long-lived assets. We do not expect to
record an impairment loss on these assets in the near future.



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

We are required to estimate our income taxes in
each federal, state and international jurisdiction in which we
operate. This process requires that we estimate the current tax
exposure as well as assess temporary differences between the
accounting and tax treatment of assets and liabilities,
including items such as reserves and accruals not currently
deductible for tax purposes. The income tax effects of the
differences we identify are classified as current or long-term
deferred tax assets and liabilities in our consolidated balance
sheets. We must also assess the likelihood that deferred tax
assets will be realized from future taxable income and, based on
this assessment, establish a valuation allowance if required. As
of March 31, 2002, we determined the valuation allowance to
be $71.4 million based upon uncertainties related to our
ability to recover two main components of our deferred tax
assets. These two components are tax benefits of certain assets
acquired in the NSMG acquisition and tax benefits from employee
stock option activity.

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

19



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

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



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

At March 31, 2002, we determined that the
there was no impairment in our investments.

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Results of Operations

The following table sets forth the percentage of
total net revenue represented by specified items from our
condensed consolidated statement of operations for the three
months ended March 31, 2002 and 2001, respectively, and the
percentage changes between the comparable periods:

|                                  |                                      |                          |    |                    |     |                  |     |    |     |  |      |      |     |  
|--------------------------------- | ------------------------------------ | ------------------------ | -- | ------------------ | --- | ---------------- | --- | -- | --- |  | ---- | ---- | --- | -
|                                  |                                      |                          |    |                   
|                                  |                                      | Percentage of            |    |                   
|                                  |                                      | Total Net                |    |                   
|                                  |                                      | Revenue                  |    |                   
|                                  |                                      |                          |    |                   
|                                  |                                      |                          |    | Period-to-Period  
|                                  |                                      | Three Months             |    | Percentage Change 
|                                  |                                      | Ended                    |    |                   
|                                  |                                      | March 31,                |    | Three Months Ended
|                                  |                                      |                          |    | March 31, 2002    
|                                  |                                      | 2002                     |    | 2001               |     | Compared to 2001
|                                  |                                      |                          |    |                    |     |                 
|Net revenue:                      |                                      |                          |    |                    |     |                  |     |    |     |  |      |     
|                                  | User license fees                    |                          |    | 70                 | %   |                  |     | 80 | %   |  |      | (16  | )% 
|                                  | Services                             |                          |    | 30                 |     |                  |     | 20 |     |  |      | 41   |    
|                                  |                                      |                          |    |                    |     |                  |     |    |     |  |      |     
|                                  |                                      | Total net revenue        |    |                    | 100 |                  |     |    | 100 |  |      |      | (4  | )
|Cost of revenue:                  |                                      |                          |    |                    |     |                  |     |    |     |  |      |     
|                                  | User license fees                    |                          |    | 2                  |     |                  |     | 3  |     |  |      | (14  | )  
|                                  | Services                             |                          |    | 11                 |     |                  |     | 8  |     |  |      | 30   |    
|                                  | Amortization of developed technology |                          |    | 5                  |     |                  |     | 4  |     |  |      | 7    |    
|                                  |                                      |                          |    |                    |     |                  |     |    |     |  |      |     
|                                  |                                      | Total cost of revenue    |    |                    | 18  |                  |     |    | 15  |  |      |      | 16  |  
|                                  |                                      |                          |    |                    |     |                  |     |    |     |  |      |     
|Gross profit                      |                                      |                          | 82 |                    |     |                  | 85  |    |     |  | (8   | )   
|Operating expenses:               |                                      |                          |    |                    |     |                  |     |    |     |  |      |     
|                                  | Selling and marketing                |                          |    | 34                 |     |                  |     | 37 |     |  |      | (11  | )  
|                                  | Research and development             |                          |    | 18                 |     |                  |     | 15 |     |  |      | 16   |    
|                                  | General and administrative           |                          |    | 9                  |     |                  |     | 6  |     |  |      | 28   |    
|                                  | Amortization of other intangibles    |                          |    | 5                  |     |                  |     | 5  |     |  |      |     |    
|                                  | Amortization of goodwill             |                          |    |                   |     |                  |     | 52 |     |  |      | (100 | )  
|                                  |                                      |                          |    |                    |     |                  |     |    |     |  |      |     
|                                  |                                      | Total operating expenses |    |                    | 66  |                  |     |    | 115 |  |      |      | (45 | )
|                                  |                                      |                          |    |                    |     |                  |     |    |     |  |      |     
|Income (loss) from operations     |                                      |                          | 16 |                    |     |                  | (30 | )  |     |  | (151 | )   
|Interest and other income, net    |                                      |                          | 4  |                    |     |                  | 5   |    |     |  | (29  | )   
|Interest expense                  |                                      |                          | (2 | )                  |     |                  | (2  | )  |     |  | 14   |     
|                                  |                                      |                          |    |                    |     |                  |     |    |     |  |      |     
|Income (loss) before income taxes |                                      |                          | 18 |                    |     |                  | (27 | )  |     |  | (162 | )   
|Provision for income taxes        |                                      |                          | 6  |                    |     |                  | 13  |    |     |  | (59  | )   
|                                  |                                      |                          |    |                    |     |                  |     |    |     |  |      |     
|Net income (loss)                 |                                      |                          | 12 | %                  |     |                  | (40 | )% |     |  | (129 | )   
|                                  |                                      |                          |    |                    |     |                  |     |    |     |  |      |     



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

Total net revenue decreased 4% from
$387.4 million for the three months ended March 31,
2001 to $370.4 million for the three months ended
March 31, 2002. We believe that the percentage decrease in
total revenue experienced in this period is not necessarily
indicative of future results. We expect total net revenue to
decrease in the second quarter of 2002 compared to the first
quarter of 2002. Our revenue is comprised of user license fees
and service revenue.

User License Fees.User license fees decreased 16% from
$309.0 million for the three months ended March 31,
2001 to $259.7 million for the three months ended
March 31, 2002. The decrease was primarily due to weaker
general economic conditions. In the second quarter of 2002, we
expect user license fees to decrease.

We market and distribute our software products
both as individual software products and as integrated products
suites, also referred to as application solutions. We derive our
user license fees from the sale of our

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core technologies, including data protection and
file system and volume management products, from our emerging
technologies, including cluster and replication and SAN
products, and from our application solutions, which include
technologies from both our core and emerging technologies. User
license fees from our core technologies decreased 13% from
$258.3 million for the three months ended March 31,
2001 to $225.8 million for the three months ended
March 31, 2002. User license fees from our core
technologies accounted for 87% of user license fees for the
three months ended March 31, 2002 and 84% for the three
months ended March 31, 2001 User license fees from our
emerging technologies decreased 33% from $50.7 million for
the three months ended March 31, 2001 to $33.9 million
for the three months ended March 31, 2002. User license
fees from our emerging technologies accounted for 13% of user
license fees for the three months ended March 31, 2002 and
16% for the three months ended March 31, 2001.


As a result of our research and development
efforts to create additional integrated products suites and of
our sales and marketing efforts to market and sell these
integrated products suites, we expect user license fees from our
application solutions to increase in dollars and as a percentage
of total user license fees in the future. User license fees from
our application solutions decreased 26% from $71.4 million
for the three months ended March 31, 2001 to
$52.8 million for the three months ended March 31,
2002. The user license fees generated by application solutions
are allocated between core technology and emerging technology
products. Most of our application solutions include a major
component of emerging technologies. We also expect user license
fees from our emerging technology products to increase in
dollars and as a percentage of total user license fees in the
future.

In the first quarters of 2002 and 2001, we
recorded a large volume of large end-user transactions. For
end-user transactions valued at $250,000 or more, our user
license fees decreased 18% from $102.7 million for the
three months ended March 31, 2001 to $83.8 million for
the three months ended March 31, 2002.

Our user license fees from original equipment
manufacturers decreased 11% from $47.4 million for the
three months ended March 31, 2001 to $41.9 million for
the three months ended March 31, 2002. User license fees
from original equipment manufacturers accounted for 16% of user
license fees for the three months ended March 31, 2002, and
15% for the three months ended March 31, 2001.

Service Revenue.We
derive our service revenue primarily from contracts for software
maintenance and technical support and, to a lesser extent, from
consulting and training services. Service revenue increased 41%
from $78.4 million for the three months ended
March 31, 2001 to $110.7 million for the three months
ended March 31, 2002. The increase was primarily due to
increased demand for our consulting services and a high renewal
rate on our maintenance agreements. Service revenue represented
30% of total net revenue for the three months ended
March 31, 2002. In the second quarter of 2002, we expect
service revenue to continue to increase in absolute dollars.



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

Cost of revenue increased 16% from
$58.1 million for the three months ended March 31,
2001 to $67.3 million for the three months ended
March 31, 2002. Gross margin on user license fees,
excluding amortization of developed technology, is substantially
higher than gross margin on service revenue, reflecting the low
materials, packaging and other costs of software products
compared with the relatively high personnel costs associated
with providing maintenance, technical support, consulting and
training services. 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 amortization of developed technology, royalties,
media, manuals and distribution costs. The amortization of
developed technology is related primarily to the acquisitions of
NSMG, TeleBackup and NuView in 1999. Cost of user license fees
decreased slightly from $26.5 million for the three months
ended March 31, 2001 to $26.1 million for the three
months ended March 31, 2002. Gross margin on user license
fees decreased from 91% for the three months ended
March 31, 2001 to 90% for the three months ended
March 31, 2002. The decrease in gross margin on user
license fees was due to increased amortization of

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developed technology related to a 2001 business
acquisition. If we excluded the amortization of developed
technology from the cost of user license fees, the gross margin
on user license fees would have been 97% for both of the three
months ended March 31, 2002 and 2001. The gross margin on
user license fees may vary from period to period based on the
license revenue mix, because some products carry higher royalty
rates than others. In the second quarter of 2002, we expect
gross margin on user license fees to remain stable as a
percentage of user license fee revenue.


Cost of Service Revenue.Cost of service revenue consists
primarily of personnel-related costs in providing maintenance,
technical support, consulting and training to customers. Cost of
service revenue increased 30% from $31.7 million for the
three months ended March 31, 2001 to $41.2 million for
the three months ended March 31, 2002. Gross margin on
service revenue increased from 60% for the three months ended
March 31, 2001 to 63% for the three months ended
March 31, 2002. The gross margin improvement for the three
months ended March 31, 2002 was the result of increased
productivity and higher service revenue growth due to
maintenance and technical support fees from a larger installed
customer base. In the second quarter of 2002, we expect the
costs of service revenue to continue to increase in absolute
dollars and we expect the gross margin on service revenue to
remain stable as a percentage of service revenue.

Amortization of Developed Technology.Amortization of developed technology
increased 7% from $15.8 million for the three months ended
March 31, 2001 to $16.9 million for the three months
ended March 31, 2002. These amounts mainly represent the
amortization of the developed technology recorded upon the
acquisitions of NSMG, TeleBackup and NuView in 1999. The
increase in 2002 relates to an acquisition that occurred in the
fourth quarter of 2001. The useful life of the developed
technology acquired is two to four years and we expect the
amortization to be approximately $16.9 million per quarter
through the first quarter of 2003.



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

Total operating expenses decreased 45% from
$446.2 million for the three months ended March 31,
2001 to $243.3 million for the three months ended
March 31, 2002. We believe that the percentage decrease in
total operating expenses in this period is not necessarily
indicative of future results. Our operating expenses include
selling and marketing expenses, research and development
expenses, general and administrative expenses, and amortization
of goodwill and other intangibles.

Selling and Marketing.Selling and marketing expenses consist
primarily of salaries, related benefits, commissions, consultant
fees and other costs associated with our sales and marketing
efforts. Selling and marketing expenses decreased 11% from
$142.8 million for the three months ended March 31,
2001 to $127.0 million for the three months ended
March 31, 2002. The decrease in absolute dollars for the
three months ended March 31, 2002 was primarily
attributable to decreased sales commissions and, to a lesser
extent, decreased advertising and promotion costs. As a
percentage of net revenue, selling and marketing expenses
decreased from 37% for the three months ended March 31,
2001 to 34% for the three months ended March 31, 2002. In
the second quarter of 2002, we intend to continue to maintain
our investments in sales and marketing and accordingly, we
expect our selling and marketing expenses to remain consistent
in absolute dollars and to increase slightly as a percentage of
total net revenue.

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 16% from $56.2 million
for the three months ended March 31, 2001 to
$65.2 million for the three months ended March 31,
2002. The increase in absolute dollars for the three months
ended March 31, 2002 was due primarily to increased
staffing levels associated with new hires and, to a lesser
extent, costs associated with depreciation and amortization of
new equipment purchased for expansion of development efforts for
new technology. As a percentage of net revenue, research and
development expenses increased from 15% for the three months
ended March 31, 2001 to 18% for the three months ended
March 31, 2002. We believe that a significant level of
research and development investment is required for us to remain
competitive. In the second quarter of 2002, we expect these
expenses to continue to increase in absolute dollars and to
increase

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slightly as a percentage of total 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 28% from
$25.9 million for the three months ended March 31,
2001 to $33.1 million for the three months ended
March 31, 2002. The increase in absolute dollars for the
three months ended March 31, 2002 was primarily due to an
increase in additional personnel costs, and to a lesser extent,
expenses associated with outside services. As a percentage of
net revenue, general and administrative expenses increased from
6% for the three months ended March 31, 2001 to 9% for the
three months ended March 31, 2002. In the second quarter of
2002, we expect general and administrative expenses to increase
in absolute dollars and to increase slightly as a percentage of
total net revenue.

Amortization of Other Intangibles.Amortization of other intangibles was
$18.0 million for the three months ended March 31,
2001 and 2002. This amount mainly represents amortization of
distribution channels, trademarks and other intangible assets
recorded upon the acquisitions of NSMG, TeleBackup and NuView in
1999. The estimated useful life of our other intangibles is two
to four years. We expect the amortization related to other
intangibles to be approximately $18.1 million per quarter
through the first quarter of 2003.

Amortization of Goodwill.Amortization of goodwill decreased
from $203.2 million for the three months ended
March 31, 2001 to zero for the three months ended
March 31, 2002. Effective January 1, 2002, we adopted
the provisions of SFAS 142, Goodwill and Other
Intangible Assets.SFAS 142 requires that goodwill and
other intangible assets determined to have an indefinite useful
life are no longer amortized, but will continue to be evaluated
for impairment in accordance with SFAS 142. Refer to the
New Accounting Pronouncementssection in this Item 2
for the impacts of the adoption of SFAS 142 on our
financial statements.

Interest and Other Income, Net.Interest and other income, net
decreased from $18.6 million for the three months ended
March 31, 2001 to $13.2 million for the three months
ended March 31, 2002. The decrease was due to the fall in
short-term interest rates in 2002. The decrease in short-term
interest rates offset the interest income earned on the higher
level of funds we had available for investment, which were
generated primarily from the net cash provided by operating
activities.

Interest Expense.Interest expense consisted primarily
of interest recorded under the 1.856% convertible subordinated
notes due 2006 issued in August 1999 and the 5.25% convertible
subordinated notes due 2004 issued in October 1997. Interest
expense increased 14% from $7.0 million for the three
months ended March 31, 2001 to $7.9 million for the
three months ended March 31, 2002. The increase was due
primarily to amortization of the original issue discount on the
1.856% convertible notes.

Income Taxes.We had
effective tax rates of positive 32% for the three months ended
March 31, 2002, compared to negative 48% for the three
months ended March 31, 2001. The change in the effective
tax rate from negative in 2001 to positive in 2002 is due
primarily to the effect of the amortization of goodwill, which
is no longer expensed. Refer to the New Accounting
Pronouncementssection in this Item 2 for the impacts
of the adoption of SFAS 142 on our financial statements.
Our March 31, 2002 and 2001 effective tax rates differed
from the combined federal and state statutory rates due
primarily to differences attributable to acquisition-related
charges that were non-deductible for tax purposes.

New Accounting Pronouncements

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

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

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


SFAS 142 requires that goodwill and
intangible assets with indefinite useful lives no longer be
amortized, but instead be tested for impairment at least
annually in accordance with the provisions of SFAS 142.
SFAS 142 also requires that intangible assets with
estimable useful lives be amortized over their respective
estimated useful lives to their estimated residual values, and
reviewed for impairment in accordance with SFAS 144,
Accounting for the Impairment or Disposal of Long-Lived
Assets.

In connection with SFAS 142s
transitional goodwill impairment test, we intend to perform an
assessment of whether there is an indication that goodwill is
impaired as of the date of adoption in a two-step process as
follows:

Step 1.We will
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 January 1, 2002. We have until
June 30, 2002 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, we will perform the second
step of the transitional impairment test. If the reporting
units fair value exceeds its carrying value, no further
work is needed.

Step 2.We will
compare the implied fair value of the reporting units
goodwill, determined by allocating the reporting units
fair value to all of its assets, both 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
January 1, 2002. This second step is required to be
completed as soon as possible, but no later than
December 31, 2002. Any transitional impairment loss will be
recognized as the cumulative effect of a change in accounting
principle in our statement of operations.

We expect to complete the transitional goodwill
impairment test by June 30, 2002. We do not expect to
record an impairment charge upon completion of the test, but
there can be no assurance that at the time the test is completed
a significant impairment charge may not be recorded. The
amortization of goodwill represented approximately
$203.2 million per quarter prior to the adoption of
SFAS 142. We do not believe that SFAS 142 will have a
material impact on our financial position or cash flows.
However, because of the implementation of SFAS 142 on
January 1, 2002, we became profitable in the first quarter
of 2002.

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

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

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Liquidity and Capital Resources



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

Our cash, cash equivalents and short-term
investments totaled $1,914.4 million at March 31, 2002
and represented 75% of our net tangible assets. Our cash, cash
equivalents and short-term investments totaled
$1,694.9 million at December 31, 2001 and represented
71% of our net tangible assets. Cash and cash equivalents are
highly liquid with original maturities of ninety days or less.
Short-term investments consist mainly of money market funds,
investment grade commercial paper, medium-term notes, corporate
notes and bonds, government securities (taxable and
non-taxable), asset-backed securities and market auction
preferreds.

Operating activities provided cash of
$193.7 million in the three months ended March 31,
2002, primarily from income after adjustments to exclude
non-cash charges, including amortization of intangibles related
to acquisition activities, tax benefits from stock plans, an
increase in deferred revenue, an increase in income taxes
payable and a decrease in accounts receivable. These elements
were partially offset by a decrease in accrued compensation and
benefits. Operating activities provided cash of
$137.2 million for the three months ended March 31,
2001, primarily from income after adjustments to exclude
non-cash charges, including amortization of intangibles related
to acquisition activities, tax benefits from stock plans, a
decrease in accounts receivable and an increase in deferred
revenue. These elements were partially offset by decreases in
accrued compensation and benefits, accrued restructuring and
acquisition costs, and other accrued liabilities.

Investing activities provided cash of
$113.7 million in the three months ended March 31,
2002, due primarily to the net decrease in short-term
investments of $136.3 million offset by purchases of
property and equipment of $15.3 million and payments for
2001 business acquisitions of $7.3 million. Investing
activities used cash of $49.9 million in the three months
ended March 31, 2001 due primarily to purchases of property
and equipment of $35.9 million and business acquisitions of
$21.0 million.

Financing activities provided cash of
$51.3 million in the three months ended March 31,
2002, and $36.9 million in the three months ended
March 31, 2001, arising primarily from the issuance of
common stock under our employee stock plans.



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

In October 1997, we issued $100.0 million,
aggregate principal amount at maturity, of 5.25% convertible
subordinated notes due in 2004 (the 5.25% notes),
for which we received net proceeds of $97.5 million. We and
our wholly-owned subsidiary, VERITAS Operating Corporation, are
co-obligors on the 5.25% notes and are unconditionally, jointly
and severally liable for all payments under the notes. As of
March 31, 2002, a total principal amount of
$36.0 million had been converted into approximately
3.7 million shares of our common stock. Based on the
aggregate principal amount at maturity of $64.0 million
outstanding as of March 31, 2002, the 5.25% notes provide
for semi-annual interest payments of $1.7 million each
May 1 and November 1. The 5.25% notes are convertible
into shares of our common stock at any time prior to the close
of business on the maturity date, unless previously redeemed or
repurchased, at a conversion price of $9.56 per share, subject
to adjustment in certain events, equivalent to a conversion rate
of 104.65 shares of common stock per $1,000 principal amount at
maturity. On 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 in 2006 (the
1.856% notes) for which we received net proceeds of
approximately $334.1 million. The interest rate of 1.856%,
together with the accrual of original issue discount, represent
a yield to maturity of 6.5%. We and VERITAS Operating
Corporation are co-obligors on the 1.856% notes and are
unconditionally, jointly and severally liable for all payments
under the notes. As of March 31, 2002, a total principal
amount of $1.1 million had been 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 March 31, 2002, the 1.856% notes provide
for semi-annual interest payments of $4.3 million each
February 13 and August 13. The 1.856% notes

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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.



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

During 2001, we extended and amended the terms of
our $50.0 million unsecured credit facility, which we hold
with a syndicate of financial institutions. At March 31,
2002, no amount was outstanding and the credit facility is due
to expire in September 2002. 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 that we maintain specified
financial covenants such as EBITDA, debt on EBITDA and quick
ratio, all of which we were in compliance with as of
March 31, 2002.

During the first quarter of 2002, our Japanese
subsidiary entered into a short-term credit facility with a
multinational Japanese bank in the amount of 1.0 billion
Japanese yen ($7.5 million USD). At March 31, 2002, no
amount was outstanding. The short-term credit facility is due to
expire March 11, 2003. Borrowings under the short-term
credit facility bear interest at TIBOR plus 0.5%. There are no
covenants on the credit facility and the loan has been
guaranteed by VERITAS Software Global Corporation, our
wholly-owned subsidiary.

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

During 2001, we amended our existing lease
agreement, originally signed in the second quarter of 1999, for
new corporate campus facilities in Mountain View, California.
The facilities of 425,000 square feet provide space for sales,
marketing, administration and research and development
functions. The lease term for these facilities is five years
beginning in March 2000, with an option to extend the lease term
for two successive periods of one year each, if agreed to by the
financial institutions. We have the option to purchase the
property (land and facilities) for the termination value of
$145.5 million or, at the end of the lease, to arrange for
the sale of the property to a third party while we retain an
obligation to the owner for the difference between the sales
price and the guaranteed residual value up to
$129.0 million if the sales price is less than this amount,
subject to certain provisions of the lease. In addition, we are
entitled to any proceeds from a sale of the property in excess
of the termination value. We occupy these facilities and began
making lease payments in the second quarter of 2001. Monthly
lease payments under this operating lease are based on LIBOR
using 30-day to 180-day LIBOR contracts.

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

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party while we retain an obligation to the owner
for the difference between the sales price and the guaranteed
residual value up to $35.1 million if the sales price is
less than this amount, subject to certain provisions of the
lease. In addition, we are entitled to any proceeds from a sale
of the property in excess of the termination value. We now
occupy these facilities and began making lease payments in 2001.
Monthly lease payments under this operating lease are based on
LIBOR using 30-day to 180-day LIBOR contracts.


During 2001, we amended our existing lease
agreement, originally signed in 2000, for the lease of
65 acres of land and subsequent improvements for new
research and development campus facilities in Milpitas,
California. We plan to develop the site in two phases, with the
first phase of 466,000 square feet to be 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, if agreed to by the financial institutions. We
have the option to purchase the property (land and first phase
facilities) for the termination value of $243.0 million or,
at the end of the lease, to arrange for the sale of the property
to a third party while we retain an obligation to the owner for
the difference between the sales price and the guaranteed
residual value up to $220.0 million if the sales price is
less than this amount, subject to certain provisions of the
lease. In addition, we are entitled to any proceeds from a sale
of the property in excess of the termination value. We
anticipate to begin the lease payments in the third quarter of
2002 for the first phase and to commence occupying the new
campus facilities in the fourth quarter of 2002. Monthly lease
payments under this operating lease are based on LIBOR using
30-day to 180-day LIBOR contracts. We are currently 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.

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

The three lease agreements listed above require
that we maintain specified financial covenants such as EBITDA,
debt on EBITDA and quick ratio, all of which we were in
compliance with as of March 31, 2002. In addition, all the
properties covered by the leases are subject to a deed of trust
in favor of the lessor in order to secure our obligations under
the leases.

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

Factors That May Affect Future
Results

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

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| |                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------
| | Our revenue and revenue and earnings
    expectations may fluctuate, causing the market price of our
    securities to decline

We may experience a shortfall in revenue in any
given quarter or lower our published expectations about future
revenue or earnings. Any such development 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 economic and
    industry conditions;                                                                                                                                     
|
| |  | the possibility of a worsening of weak 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, both of which tend to generate sales later
    in a quarter than original equipment manufacturer sales;                                                                                            
|
| |  | 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 or
    services;                                                                          
|
| |  | the overall demand for our products and services,
    which is likely to be lower in weak or uncertain economic and
    industry conditions;                                                                                                                                                                                                     
|
| |  | the relative growth rates of the Windows NT, UNIX
    and Linux markets;                                                                                                                                                                                                                                                                         
|
| |  | the rate of adoption of storage area networks and
    network attached storage appliance technology and the timing and
    magnitude of sales of our storage area networking products and
    services that incorporate these;                                                                                                                   
|
| |  | 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 our by our competitors;                                                                                                                                                                                                  
|
| |  | the possibility that our customers may cancel,
    defer or limit purchases as a result of the threat of terrorism
    or military actions taken by the United States or its allies in
    reaction to that threat; and                                                                                                                          

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| |   |                                                                                                                                                                                                                                                                                                                            
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the possibility that air travel delays or
    cancellations and air travel restrictions imposed by many
    companies could adversely affect our licensing efforts or our
    services revenue, as they result in our inability to visit
    customer sites and result in our customers inability to visit
    our offices.

In the current uncertain economic environment,
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 securities analysts or investors.
If this occurs, the price of our common stock may decline.



| |                                                                                                                                     
| | ------------------------------------------------------------------------------------------------------------------------------------
| | 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 from end-user
customers, which entail lengthy sales cycles, for a significant
portion of our revenue. Our revenue for a quarter could
fluctuate significantly based on whether a large sale near the
end of a quarter is completed or delayed. Sales to our end-user
customers generally range in value from a few thousand to
several million dollars. 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. In previous quarters, increases in revenue were
partially attributable to a greater number of these large
end-user transactions. This trend may not continue. For example,
in the three months ended March 31, 2002, large end-user
transactions contributed to our revenue to a lesser extent than
they had in prior periods. 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 uncertain 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. 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:



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

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| |                                                                            
| | ---------------------------------------------------------------------------
| | To grow our business, we need to attract
    and retain qualified employees

Our future growth and success depends on our
ability to hire and retain qualified employees and to manage our
employee base effectively. If we are unable to hire and retain
qualified employees, our business and operating results could be
adversely affected. Conversely, if we fail to manage employee
performance or reduce staffing levels when necessary, our costs
would be excessive and our business and operating results could
be adversely affected. We need to hire additional sales,
technical, and senior management personnel 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 makes our recruiting and compensation costs higher. We
cannot assure you that we will be successful in hiring or
retaining new personnel.



| |                                                                  
| | -----------------------------------------------------------------
| | 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 us 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 nor do
we intend to obtain key person life insurance covering any of
our personnel.



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

We have a number of competitors in the markets
for our various products. If existing or new competitors gain
market share in any of these markets, our business and operating
results could be adversely affected. Our principal competitors
are internal development groups 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 system 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 through 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.

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



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

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| |   |                                                                                                                                               
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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
    direct sales force; and       
|
| |  | the length of time it takes our new sales
    representatives to become productive.

Original equipment manufacturers.A portion of our revenue comes from
our original equipment manufacturer customers that incorporate
our storage 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;                                                                                                                                   
|
| |  | a significant period of time may elapse before we
    realize any associated revenue, due to development work that we
    must generally undertake under the agreement with our original
    equipment manufacturer customers;
|
| |  | significant time may be needed for the sales and
    marketing organizations within these customers and distributors
    to become familiar with and gain confidence in our products;                                         
|
| |  | they could choose to develop their own storage
    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 limited functionality 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. 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.



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

Many of our products operate primarily on the
UNIX computer operating system. We are currently redesigning, or
porting, these products to operate on the Windows NT operating
system. We are also developing new products for UNIX and for
Windows NT. In addition, we entered into an agreement with IBM
under which we will port our complete set of storage products to
AIX/ Monterey for

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IBM POWER PC 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 operating systems will be. These
activities require substantial capital investment, the devotion
of substantial employee resources and the cooperation of the
owners of the operating systems to or for which the products are
being ported or developed. For example, our porting and
development work for the Windows NT market 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 owner of the
operating system a source code license to portions of the
operating system software to port some of our products to or
develop products for the operating system. Operating system
owners have no obligation to assist in these porting or
development efforts. If they do not grant us a license or if
they do not renew our license, we may not be able to expand our
product line into other areas.




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

We derive and expect to derive a substantial
majority of our revenue from a limited number of software
products. For the three months ended March 31, 2002, we
derived approximately $225.8 million, or 87%, of our user
license fees from our core technologies, including data
protection and file system and volume management products. If
our customers do not continue to purchase these products as a
result of competition, technological change, budget constraints
or other factors, our revenue would decrease and our business
and operating results would be adversely affected.



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

Although for the three month periods ended
March 31, 2002 and 2001, no single customer accounted for
greater than 10% of our total net revenue, we typically derive
significant revenue from a small number of customers, including
our original equipment manufacturer customers. If any of these
customers were to reduce purchases of products or services from
us, our business would be adversely affected unless we were able
to increase sales to other customers substantially. Many of
these customers have 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 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 than
we expect, we will have expended substantial resources and
capital without realizing sufficient revenue, and our business
and operating results could be adversely affected.



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

An investment in our securities may be riskier
than an investment in other 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 March 31, 2002, we had
approximately

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1,030 employees in Europe, 750 employees in the
Asia-Pacific region, and 120 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 or terrorism, 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s 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;                                                                                                                                             
|
| |  | assumption of liabilities of the acquired
    business, including costly litigation related to alleged
    liabilities of the acquired business;                                                                 
|
| |  | presentation of a unified corporate image to our
    customers and our employees; and                                                                                                                            
|
| |  | risk of impairment charges related to potential
    write-down of acquired assets in future acquisitions.                                                                                                        

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

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

In November 2000, in the leveraged buyout and
merger transaction involving us 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;                                                                              
|
| |  | existing or 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 us 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 Acquisition 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
merger, if the court found that Seagate effected the leveraged
buyout with an actual intent to hinder, delay or defraud its
creditors.



| |                                        
| | ---------------------------------------
| | 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

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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 defenses against asserted deficiencies
and that the likely outcome of a re-determination of these
asserted deficiencies by the tax settlement authorities will not
result in an additional provision for income taxes. We have an
indemnification agreement with Suez Acquisition Company for
these deficiencies. If Suez Acquisition 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

We plan to pursue a strategy of investing in
development-stage companies. Each of these investments involves
risks and uncertainties, including:



| |   |                                                                                                           
| | - | ----------------------------------------------------------------------------------------------------------
| |  | diversion of managements 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.                                                                                    



| |                                                                                                                                                                              
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We are incurring significant accounting
    charges in connection with our acquisitions that created net
    losses in the past and could create net losses in the
    future

In 1999, we accounted for the acquisitions of
NSMG, TeleBackup and NuView using the purchase method of
accounting. As a result, we recorded goodwill and other
intangible assets of approximately $3,754.9 million in
1999. For the three months ended March 31, 2001, we
incurred net losses due to the amortization of goodwill and
other intangibles related to these and other smaller
acquisitions. On January 1, 2002, under SFAS 142,
Goodwill and Other Intangible Assets,the total quarterly
charges related to the amortization of developed technology,
goodwill and other intangibles have changed. As a result, we no
longer amortize goodwill related to business combinations but
will test it for impairment annually or whenever events or
changes in circumstances suggest that the carrying amount may
not be recoverable. While we do not expect to record impairment
charges, we cannot be sure that we will not have to record
significant impairment charges in the future. For additional
information on the impacts of the adoption of SFAS 142 on
our financial statements, please refer to the New
Accounting Pronouncementsin this Item 2.



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

In October 1997, we issued $100.0 million in
aggregate principal amount at maturity of 5.25% convertible
subordinated notes due 2004, of which $64.0 million was
outstanding as of March 31, 2002. In August 1999, we issued
$465.8 million in aggregate principal amount at maturity of
1.856% convertible subordinated notes due 2006, of which
$383.9 million was outstanding as of March 31, 2002.
As of March 31, 2002, the annual interest payments on our
outstanding 5.25% notes were $3.4 million and the annual
interest payments on our outstanding 1.856% notes were
$8.6 million, all of which we plan to fund from cash flows
from operations. We will need to generate substantial amounts of
cash from our operations to fund interest payments and to repay
the principal amount of debt when it matures, while at the same
time funding capital expenditures and our other working capital
needs. If we do not have sufficient cash to pay our debts as
they come due, we could be in default of those debts. For
example, if we do not make timely payments, the notes could be
declared immediately due and payable. Our substantial leverage
could also increase our vulnerability to adverse economic and
industry conditions because it makes it more difficult for us to
raise capital if needed. In

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addition, any changes in accounting rules
regarding our operating leases and built-to-suit facilities may
affect our debt levels and operating expenses in the future.




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

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



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

We may from time to time receive claims that we
have infringed the intellectual property rights of others. As
the number of products in the software industry increases and
the functionality of these products further overlap, we believe
that we may become increasingly subject to infringement claims,
including patent and copyright infringement claims. We have
received several trademark claims in the past and may receive
more claims in the future based on the name VERITAS, which is a
word commonly used in trade names throughout Europe and the
western hemisphere. 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 significant delays
in the release of new products or new versions of products, or
if customers were dissatisfied with product functionality or
performance, we could lose revenue or be subject to liability
for service or warranty costs, and our business and operating
results could be adversely affected.

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| |                                                                  
| | -----------------------------------------------------------------
| | 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 previously experienced
temporary power losses in our California facilities due to power
shortages, which have disrupted our operations, and we may in
the future experience additional power losses, which 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. A natural disaster
or other unanticipated problem could adversely affect our
business, including both our primary data center and other
internal operations and our ability to communicate with our
customers or sell our products over the Internet.



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

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



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

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



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

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



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

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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 March 31, 2002 was immaterial to our
consolidated financial statements.

Our outstanding forward contracts as of
March 31, 2002 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 30 days or less as of March 31,
2002 (dollars in thousands):

|                            |  |                 |             |                 |  |                   |  |                   |          |  |  |     |  |  |        |  
|--------------------------- |  | --------------- | ----------- | --------------- |  | ----------------- |  | ----------------- | -------- |  |  | --- |  |  | ------ | -
|                            |  |                 |             |                 |  |                   |  | Fair Market Value
|                            |  | Local Currency  |             |                 |  | at March 31, 2002
|                            |  | Contract Amount |             | Contract Amount |  | (US $)           
|                            |  |                 |             |                 |  |                  
|                            |  |                 |             |                 |  |                   |  |                   |          | 
|Contracts to Sell US $      |  |                 |             |                 |  |                   |  |                   |          |  |  |     |  |  |        |  
|British pound               |  |                 | 32,100.0    |                 |  | GBP               |  |                   | 45,720.8 |  |  | USD |  |  | 339.5  |  
|Euro                        |  |                 | 67,366.0    |                 |  | EUR               |  |                   | 58,977.1 |  |  | USD |  |  | (52.0  | )
|Swedish krona               |  |                 | 17,849.0    |                 |  | SEK               |  |                   | 1,976.8  |  |  | USD |  |  | 108.8  |  
|Contracts to Buy US $       |  |                 |             |                 |  |                   |  |                   |          |  |  |     |  |  |        |  
|Australian dollar           |  |                 | 427.0       |                 |  | AUD               |  |                   | 225.0    |  |  | USD |  |  | (2.2   | )
|Brazilian reals             |  |                 | 4,000.0     |                 |  | BRL               |  |                   | 1,687.8  |  |  | USD |  |  | (34.2  | )
|Japanese yen                |  |                 | 622,858.0   |                 |  | JPY               |  |                   | 4,696.7  |  |  | USD |  |  | 13.5   |  
|Mexican peso                |  |                 | 19,140.0    |                 |  | MXN               |  |                   | 2,111.7  |  |  | USD |  |  | (10.3  | )
|Contracts to Buy Euro
     |  |                 |             |                 |  |                   |  |                   |          |  |  |     |  |  |        |  
|Australian dollar           |  |                 | 9,536.0     |                 |  | AUD               |  |                   | 5,739.2  |  |  | EUR |  |  | (56.0  | )
|British pound               |  |                 | 40,810.0    |                 |  | GBP               |  |                   | 66,305.0 |  |  | EUR |  |  | (591.8 | )
|Hong Kong dollar            |  |                 | 4,110.0     |                 |  | HKD               |  |                   | 600.9    |  |  | EUR |  |  | (1.5   | )
|Japanese yen                |  |                 | 1,131,885.0 |                 |  | JPY               |  |                   | 9,743.8  |  |  | EUR |  |  | 13.2   |  
|South African rand          |  |                 | 10,834.0    |                 |  | ZAR               |  |                   | 1,072.2  |  |  | EUR |  |  | (18.6  | )
|UAE dirham                  |  |                 | 3,484.0     |                 |  | AED               |  |                   | 1,082.8  |  |  | EUR |  |  | (1.5   | )

Interest Rate Risk

We are exposed to interest rate risk, primarily
on our investment portfolio and long-term debt obligations. Our
primary investment objective is to preserve principal while at
the same time maximizing yields without significantly increasing
risk. Our portfolio includes money markets funds, investment
grade commercial paper, medium-term notes, corporate notes and
bonds, government agency securities (taxable and non-taxable),
asset-backed securities and market auction preferreds. The
diversity of our portfolio helps us to achieve our investment
objective. As of March 31, 2002, approximately 67% of our
investment portfolio is composed of investments with original
maturities of one year or less and approximately 56% of our
investment portfolio matures less than 90 days from the
date of purchase.

Long-term debt of $447.9 million consists of
our 5.25% notes of $64.0 million and our 1.856% notes of
$383.9 million. The interest rate of 1.856% on the 1.856%
notes, together with the accrual of original issue discount,
represents a yield to maturity of 6.5%. The nominal interest
rate on these notes is fixed and the notes provide for
semi-annual interest payments of approximately $1.7 million
each May 1 and November 1 for the 5.25% notes and
approximately $4.3 million each February 13 and
August 13 for the 1.856% notes. The notes

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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.


The following table presents the amounts of our
cash equivalents, investments and long-term debt, according to
maturity date, that may be subject to interest rate risk and the
average interest rates as of March 31, 2002 by year of
maturity (dollars in thousands):



|                                                   |                       |                     |   |            |   |       |   |            |   |           |   |           |   |  |   |           |   |  |   |         |  
|-------------------------------------------------- | --------------------- | ------------------- | - | ---------- | - | ----- | - | ---------- | - | --------- | - | --------- | - |  | - | --------- | - |  | - | ------- | -
|                                                   |                       |                     |   |            |   |      
|                                                   |                       | 2002 Amortized Cost |   |            |   |      
|                                                   |                       |                     |   |            |   |      
|                                                   |                       |                     |   | Due in     |   |       |   |            |   | 2001     
|                                                   |                       | Due in              |   | 2003 and   |   |       |   | 2002       |   | Amortized
|                                                   |                       | 2002                |   | Thereafter |   | Total |   | Fair Value |   | Cost     
|                                                   |                       |                     |   |            |   |       |   |            |   |          
|Cash equivalents and short-term Investments:       |                       |                     |   |            |   |       |   |            |   |           |   |           |   |  |   |           |   |  |   |        
|                                                   | Fixed rate            |                     | $ | 1,141,732  |   |       | $ | 496,454    |   |           | $ | 1,638,186 |   |  | $ | 1,633,791 |   |  | $ | 477,833 |  
|                                                   | Average fixed rate    |                     |   | 2.39       | % |       |   | 3.49       | % |           |   | 2.72      | % |  |   | 2.73      | % |  |   | 5.72    | %
|                                                   | Variable rate         |                     | $ | 187,475    |   |       |   |           |   |           | $ | 187,475   |   |  | $ | 187,475   |   |  | $ | 12,200  |  
|                                                   | Average variable rate |                     |   | 1.94       | % |       |   |           |   |           |   | 1.94      | % |  |   | 1.94      | % |  |   | 5.11    | %
|Total cash equivalents and short-term investments: |                       |                     |   |            |   |       |   |            |   |           |   |           |   |  |   |           |   |  |   |        
|                                                   | Investments           |                     | $ | 1,329,207  |   |       | $ | 496,454    |   |           | $ | 1,825,661 |   |  | $ | 1,821,266 |   |  | $ | 490,033 |  
|                                                   | Average rate          |                     |   | 2.33       | % |       |   | 3.49       | % |           |   | 3.93      | % |  |   | 2.65      | % |  |   | 5.70    | %
|Long-term investments:                             |                       |                     |   |            |   |       |   |            |   |           |   |           |   |  |   |           |   |  |   |        
|                                                   | Fixed rate            |                     |   |           |   |       |   |           |   |           |   |          |   |  |   |          |   |  | $ | 119,816 |  
|                                                   | Average fixed rate    |                     |   |           |   |       |   |           |   |           |   |          |   |  |   |          |   |  |   | 6.36    | %
|Long-term debt:                                    |                       |                     |   |            |   |       |   |            |   |           |   |           |   |  |   |           |   |  |   |        
|                                                   | Fixed rate            |                     |   |           |   |       | $ | 447,878    |   |           | $ | 447,878   |   |  | $ | 895,434   |   |  | $ | 432,653 |  
|                                                   | Average fixed rate    |                     |   |           |   |       |   | 6.32       | % |           |   | 6.32      | % |  |   | 6.32      | % |  |   | 6.31    | %

In September 2000, we entered into a three-year
cross currency interest rate swap for the purpose of hedging
fixed interest rate, foreign currency denominated cash flows
under an inter-company loan receivable. Under the terms of this
derivative financial instrument, Euro denominated fixed
principal and interest payments to be received under the
inter-company loan will be swapped for U.S. dollar-fixed
principal and interest payments. As of March 31, 2002,
18 monthly payments of
4.3 million
remained to be swapped at a forward exchange rate of 0.89070
U.S. dollar per Euro. The fair market value of the swap at
March 31, 2002 was $2.4 million. As a result of
entering into the swap, we have mitigated our exposure to
foreign currency exchange rate fluctuations. The gains or losses
on the foreign currency loan receivable will be offset by the
gains or losses on the swap. Because we are receiving fixed
interest payments under the swap, it is still subject to
fluctuations in value due to changes in U.S. dollar interest
rates. As of March 31, 2002, the impact of these
fluctuations was not significant. This hedge was deemed to be
perfectly effective as of March 31, 2002.

In January 2002, we entered into two three-year
pay fixed, receive floating, interest rate swaps for the purpose
of hedging variable interest rate debt of our build-to-suit
lease agreements. Under the terms of these interest rate swaps,
we make payments based on the fixed rate and will receive
interest payments based on the 3-month LIBOR. The payments on
our build-to-suit lease agreements are based upon a 3-month
LIBOR plus a credit spread. If our credit spread remains
consistent and other critical terms of the interest rate swap or
the hedged item do not change, the interest rate swap will be
considered perfectly effective with all changes in the fair
value included in other comprehensive income. If our credit
spread changes or other critical terms of the interest rate swap
or the hedged item change, the hedge may become partially or
fully ineffective, which could result in all or a portion of the
changes in fair value of the derivative recorded in the
statement of operations. The interest rate swaps settle the
first day of January, April, July and October until expiration.
As of March 31, 2002, the fair value of the interest rate
swaps was $0.9 million. As a result of entering into the
interest rate swaps, we have mitigated our exposure to interest
rate fluctuations. Because the rental payments on the leases are
based on the 3-month LIBOR and the Company receives 3-month
LIBOR from the interest

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rate swap counter-party, we have eliminated any
impact to raising interest rates related to our rent payments
under the build-to-suit lease agreements.


Equity Price Risk

We are exposed to equity price risk on the
marketable portion of our portfolio of equity securities
investments. We typically do not attempt to reduce or eliminate
our market exposure on these equity securities. These
investments are in companies in the high-technology industry. As
of March 31, 2002, we held one marketable equity security,
representing a total market value of $0.8 million. Assuming
a 10% adverse change, our marketable equity securities
investments would decrease in value by less than
$0.1 million. If our marketable equity security investments
as of March 31, 2002 had been valued using prices as of
April 30, 2002, the value of these securities would have
decreased by approximately $0.1 million, or 17%. This
estimate is not necessarily indicative of future performance and
actual results may differ materially.

We also make investments in development-stage
companies that we believe provide strategic opportunities for
us. We intend that these investments will provide access to new
technologies and emerging markets, and create opportunities for
additional sales of our products and services. We recognize
impairment losses on our strategic investments when we determine
that there has been a decline in the fair value of the
investment that was other than temporary. For the three months
ended March 31, 2002, we did not record any impairment
losses on strategic investments. We cannot assure you that our
investments will have the above mentioned results, or even that
we will not lose all or any part of these investments.




PART II:     OTHER
INFORMATION




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 |                     |  | Lease Supplement No. 3 dated
    February 27, 2002 among Wells Fargo Bank Northwest,
    National Association as Owner Trustee and VERITAS
    Software Corporation                                                                                                         |  |       |  |        |  |          |  |  |  |  |  |  |  |  | X | 
|        | 10.02 |                     |  | Agreement on Bank Transactions dated
    October 3, 2001 by and between VERITAS Software, KK and
    Fugi Bank and Guaranty by VERITAS Software Global Corporation,
    VERITAS Operating Corporation and VERITAS Software Corporation
    in favor of The Fugi Bank, Limited |  |       |  |        |  |          |  |  |  |  |  |  |  |  | X | 

(b) Reports on Form 8-K

|               |         |         |  |             |      |  |  |                                                                                                                           
|-------------- | ------- | ------- |  | ----------- | ---- |  |  | --------------------------------------------------------------------------------------------------------------------------
|Date of Report |         | Item(s) |  | Description
|               |         |         |  |            
|               | 1/30/02 |         |  |             | 5, 7 |  |  | VERITAS announced financial results for its
    fourth quarter ended December 31, 2001 and included the
    press release.

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##### Table of Contents






SIGNATURE

Pursuant to the requirements of the Securities
Exchange Act of 1934, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly
authorized, on May 14, 2002



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

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##### Table of Contents






EXHIBIT INDEX

|        |       |                     |  |                                                                                                                                                                                                                                                                                |  |       |  |        |  |          |  |  |  |  |  |  |  |  |   | 
|------- | ----- | ------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ----- |  | ------ |  | -------- |  |  |  |  |  |  |  |  | - | 
|        |       |                     |  |                                                                                                                                                                                                                                                                                |  |      
|        |       |                     |  | Incorporated by Reference                                                                                                                                                                                                                                                      |  |      
|Exhibit |       |                     |  |                                                                                                                                                                                                                                                                                |  | Filed
|Number  |       | Exhibit Description |  | Form                                                                                                                                                                                                                                                                           |  | Date  |  | Number |  | Herewith
|        |       |                     |  |                                                                                                                                                                                                                                                                                |  |       |  |        |  |         
|        | 10.01 |                     |  | Lease Supplement No. 3 dated
    February 27, 2002 among Wells Fargo Bank Northwest,
    National Association as Owner Trustee and VERITAS
    Software Corporation                                                                                                          |  |       |  |        |  |          |  |  |  |  |  |  |  |  | X | 
|        | 10.02 |                     |  | Agreement on Bank Transactions dated
    October 3, 2001 by and between VERITAS Software, KK and
    Fugi Bank and Guaranty by VERITAS Software Global Corporation,
    VERITAS Operating Corporation and VERITAS Software Corporation
    in favor of The Fugi Bank, Limited. |  |       |  |        |  |          |  |  |  |  |  |  |  |  | X | 

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