##### 









UNITED STATES SECURITIES AND EXCHANGE
COMMISSION

Washington, D.C. 20549




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Form 10-Q



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|                                                   |  |                                                                                            
|-------------------------------------------------- |  | -------------------------------------------------------------------------------------------
|(Mark One)                                         |  |                                                                                            
|þ                                                  |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR
	15(d)
	OF THE SECURITIES EXCHANGE ACT OF 1934. 
|                                                  
|For the quarterly period ended
	September 30, 2001
|                                                  
|or                                                
|                                                  
|o                                                  |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR
	15(d)
	OF THE SECURITIES EXCHANGE ACT OF 1934.
|                                                  
|                                                   |  | For the transition period from
	          to
	          .                                  

Commission file number: 000-26247

VERITAS SOFTWARE CORPORATION

(Exact Name of Registrant as Specified in Its
Charter)


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

350 Ellis Street

Mountain View, California 94043


(650) 527-8000


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




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

The number of shares of the registrants
common stock outstanding as of October 31, 2001 was
400,876,103 shares.



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##### 



VERITAS SOFTWARE CORPORATION

INDEX

|                                |  |                                                                                                                   |    |      |    | 
|------------------------------- |  | ----------------------------------------------------------------------------------------------------------------- | -- | ---- | -- | 
|                                |  |                                                                                                                   |    | Page
|                                |  |                                                                                                                   |    |     
|PART I:  FINANCIAL
	INFORMATION
|Item  1.                        |  | Condensed Consolidated Financial Statements                                                                       |    |      |    | 
|                                |  | Condensed Consolidated Balance Sheets as of
	September 30, 2001 and December 31, 2000                             |    |      | 2  | 
|                                |  | Condensed Consolidated Statements of Operations
	for the Three and Nine Months Ended September 30, 2001 and
	2000 |    |      | 3  | 
|                                |  | Condensed Consolidated Statements of Cash Flows
	for the Nine Months Ended September 30, 2001 and 2000            |    |      | 4  | 
|                                |  | Notes to Condensed Consolidated Financial
	Statements                                                             |    |      | 5  | 
|Item  2.                        |  | Managements Discussion and Analysis of
	Financial Condition and Results of Operations                            |    |      | 11 | 
|Item  3.                        |  | Quantitative and Qualitative Disclosures About
	Market Risk                                                       |    |      | 35 | 
|PART II:  OTHER
	INFORMATION   
|Item  6.                        |  | Exhibits and Reports on Form 8-K                                                                                  |    |      | 38 | 
|Signature                       |  |                                                                                                                   | 40 |     

1



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##### 



PART I:     FINANCIAL
INFORMATION



Item 1.     Condensed Consolidated Financial Statements




VERITAS SOFTWARE CORPORATION


CONDENSED CONSOLIDATED BALANCE
SHEETS

(In thousands)


|                                      |                                                                                                                                |                                            |           |              |           |  |           |            |           | 
|------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------ | ------------------------------------------ | --------- | ------------ | --------- |  | --------- | ---------- | --------- | 
|                                      |                                                                                                                                | September 30,                              |           | December 31,
|                                      |                                                                                                                                | 2001                                       |           | 2000        
|                                      |                                                                                                                                |                                            |           |             
|                                      |                                                                                                                                | (Unaudited)                                |           |             
|ASSETS                               
|Current assets:                       |                                                                                                                                |                                            |           |              |           |  |           |           
|                                      | Cash and cash equivalents                                                                                                      |                                            | $         | 603,356      |           |  | $         | 886,558    |          
|                                      | Short-term investments                                                                                                         |                                            |           | 718,195      |           |  |           | 232,891    |          
|                                      | Accounts receivable, net of allowance for
	doubtful accounts of $12,591 at September 30, 2001 and
	$7,810 at December 31, 2000 |                                            |           | 161,338      |           |  |           | 186,863    |          
|                                      | Deferred income taxes                                                                                                          |                                            |           | 38,017       |           |  |           | 38,017     |          
|                                      | Other current assets                                                                                                           |                                            |           | 43,028       |           |  |           | 38,303     |          
|                                      |                                                                                                                                |                                            |           |              |           |  |           |           
|                                      |                                                                                                                                | Total current assets                       |           |              | 1,563,934 |  |           |            | 1,382,632 | 
|Long-term investments                 |                                                                                                                                |                                            | 267,119   |              |           |  | 136,111   |           
|Property and equipment, net           |                                                                                                                                |                                            | 225,629   |              |           |  | 168,389   |           
|Goodwill and other intangibles, net   |                                                                                                                                |                                            | 1,609,033 |              |           |  | 2,285,320 |           
|Other non-current assets              |                                                                                                                                |                                            | 100,343   |              |           |  | 110,382   |           
|                                      |                                                                                                                                |                                            |           |              |           |  |           |           
|                                      |                                                                                                                                | Total assets                               |           | $            | 3,766,058 |  |           | $          | 4,082,834 | 
|                                      |                                                                                                                                |                                            |           |              |           |  |           |           
|LIABILITIES AND STOCKHOLDERS
	EQUITY
|Current liabilities:                  |                                                                                                                                |                                            |           |              |           |  |           |           
|                                      | Accounts payable                                                                                                               |                                            | $         | 32,902       |           |  | $         | 45,250     |          
|                                      | Accrued compensation and benefits                                                                                              |                                            |           | 66,774       |           |  |           | 63,838     |          
|                                      | Accrued acquisition and restructuring costs                                                                                    |                                            |           | 11,795       |           |  |           | 44,123     |          
|                                      | Other accrued liabilities                                                                                                      |                                            |           | 70,578       |           |  |           | 69,289     |          
|                                      | Income taxes payable                                                                                                           |                                            |           | 41,837       |           |  |           | 34,454     |          
|                                      | Deferred revenue                                                                                                               |                                            |           | 225,573      |           |  |           | 201,001    |          
|                                      |                                                                                                                                |                                            |           |              |           |  |           |           
|                                      |                                                                                                                                | Total current liabilities                  |           |              | 449,459   |  |           |            | 457,955   | 
|Convertible subordinated notes        |                                                                                                                                |                                            | 440,437   |              |           |  | 429,176   |           
|Deferred and other income taxes       |                                                                                                                                |                                            | 167,957   |              |           |  | 213,132   |           
|Stockholders equity:                 |                                                                                                                                |                                            |           |              |           |  |           |           
|                                      | Common stock                                                                                                                   |                                            |           | 420          |           |  |           | 412        |          
|                                      | Additional paid-in capital                                                                                                     |                                            |           | 6,016,037    |           |  |           | 5,847,844  |          
|                                      | Accumulated deficit                                                                                                            |                                            |           | (1,599,227   | )         |  |           | (1,152,166 | )        
|                                      | Accumulated other comprehensive loss                                                                                           |                                            |           | (6,961       | )         |  |           | (11,455    | )        
|                                      | Treasury stock, cost; 18,675 shares at
	September 30, 2001 and December 31, 2000.                                              |                                            |           | (1,702,064   | )         |  |           | (1,702,064 | )        
|                                      |                                                                                                                                |                                            |           |              |           |  |           |           
|                                      |                                                                                                                                | Total stockholders equity                 |           |              | 2,708,205 |  |           |            | 2,982,571 | 
|                                      |                                                                                                                                |                                            |           |              |           |  |           |           
|                                      |                                                                                                                                | Total liabilities and stockholders equity |           | $            | 3,766,058 |  |           | $          | 4,082,834 | 
|                                      |                                                                                                                                |                                            |           |              |           |  |           |           

See accompanying notes to condensed consolidated
financial statements.

2



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##### 



VERITAS SOFTWARE CORPORATION



CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS


(In thousands, except per share
amounts)


(Unaudited)


|                                                                          |                                                 |                          |          |                   |         |      |          |         |         |   |          |         |           |   |          |         |           | 
|------------------------------------------------------------------------- | ----------------------------------------------- | ------------------------ | -------- | ----------------- | ------- | ---- | -------- | ------- | ------- | - | -------- | ------- | --------- | - | -------- | ------- | --------- | 
|                                                                          |                                                 |                          |          |                  
|                                                                          |                                                 | Three Months Ended       |          | Nine Months Ended
|                                                                          |                                                 | September 30,            |          | September 30,    
|                                                                          |                                                 |                          |          |                  
|                                                                          |                                                 | 2001                     |          | 2000              |         | 2001 |          | 2000   
|                                                                          |                                                 |                          |          |                   |         |      |          |        
|Net revenue:                                                              |                                                 |                          |          |                   |         |      |          |         |         |   |          |         |           |   |          |        
|                                                                          | User license fees                               |                          | $        | 240,014           |         |      | $        | 256,925 |         |   | $        | 842,711 |           |   | $        | 686,092 |          
|                                                                          | Services                                        |                          |          | 100,217           |         |      |          | 60,246  |         |   |          | 275,184 |           |   |          | 151,155 |          
|                                                                          |                                                 |                          |          |                   |         |      |          |         |         |   |          |         |           |   |          |        
|                                                                          |                                                 | Total net revenue        |          |                   | 340,231 |      |          |         | 317,171 |   |          |         | 1,117,895 |   |          |         | 837,247   | 
|Cost of revenue:                                                          |                                                 |                          |          |                   |         |      |          |         |         |   |          |         |           |   |          |        
|                                                                          | User license fees                               |                          |          | 7,919             |         |      |          | 9,270   |         |   |          | 28,298  |           |   |          | 29,247  |          
|                                                                          | Services                                        |                          |          | 33,952            |         |      |          | 21,707  |         |   |          | 99,983  |           |   |          | 60,171  |          
|                                                                          | Amortization of developed technology            |                          |          | 15,791            |         |      |          | 15,553  |         |   |          | 47,295  |           |   |          | 46,501  |          
|                                                                          |                                                 |                          |          |                   |         |      |          |         |         |   |          |         |           |   |          |        
|                                                                          |                                                 | Total cost of revenue    |          |                   | 57,662  |      |          |         | 46,530  |   |          |         | 175,576   |   |          |         | 135,919   | 
|                                                                          |                                                 |                          |          |                   |         |      |          |         |         |   |          |         |           |   |          |        
|Gross profit                                                              |                                                 |                          | 282,569  |                   |         |      | 270,641  |         |         |   | 942,319  |         |           |   | 701,328  |        
|Operating expenses:                                                       |                                                 |                          |          |                   |         |      |          |         |         |   |          |         |           |   |          |        
|                                                                          | Selling and marketing                           |                          |          | 138,659           |         |      |          | 116,936 |         |   |          | 427,180 |           |   |          | 310,628 |          
|                                                                          | Research and development                        |                          |          | 61,636            |         |      |          | 46,328  |         |   |          | 177,742 |           |   |          | 120,646 |          
|                                                                          | General and administrative                      |                          |          | 29,687            |         |      |          | 20,465  |         |   |          | 84,077  |           |   |          | 52,971  |          
|                                                                          | Amortization of goodwill and other intangibles  |                          |          | 221,801           |         |      |          | 219,758 |         |   |          | 664,770 |           |   |          | 659,275 |          
|                                                                          | Acquisition and restructuring costs (reversals) |                          |          | (5,000            | )       |      |          |        |         |   |          | (5,000  | )         |   |          |        |          
|                                                                          |                                                 |                          |          |                   |         |      |          |         |         |   |          |         |           |   |          |        
|                                                                          |                                                 | Total operating expenses |          |                   | 446,783 |      |          |         | 403,487 |   |          |         | 1,348,769 |   |          |         | 1,143,520 | 
|                                                                          |                                                 |                          |          |                   |         |      |          |         |         |   |          |         |           |   |          |        
|Loss from operations                                                      |                                                 |                          | (164,214 | )                 |         |      | (132,846 | )       |         |   | (406,450 | )       |           |   | (442,192 | )      
|Interest and other income, net                                            |                                                 |                          | 15,697   |                   |         |      | 15,648   |         |         |   | 51,537   |         |           |   | 39,688   |        
|Interest expense                                                          |                                                 |                          | (7,552   | )                 |         |      | (8,266   | )       |         |   | (21,847  | )       |           |   | (23,314  | )      
|Loss on strategic investments                                             |                                                 |                          | (16,074  | )                 |         |      |         |         |         |   | (16,074  | )       |           |   |         |        
|                                                                          |                                                 |                          |          |                   |         |      |          |         |         |   |          |         |           |   |          |        
|Loss before income taxes                                                  |                                                 |                          | (172,143 | )                 |         |      | (125,464 | )       |         |   | (392,834 | )       |           |   | (425,818 | )      
|Provision (benefit) for income taxes                                      |                                                 |                          | (10,157  | )                 |         |      | 22,642   |         |         |   | 54,227   |         |           |   | 69,012   |        
|                                                                          |                                                 |                          |          |                   |         |      |          |         |         |   |          |         |           |   |          |        
|Net loss                                                                  |                                                 | $                        | (161,986 | )                 |         | $    | (148,106 | )       |         | $ | (447,061 | )       |           | $ | (494,830 | )      
|                                                                          |                                                 |                          |          |                   |         |      |          |         |         |   |          |         |           |   |          |        
|Net loss per share  basic and diluted                                    |                                                 | $                        | (0.40    | )                 |         | $    | (0.37    | )       |         | $ | (1.12    | )       |           | $ | (1.24    | )      
|                                                                          |                                                 |                          |          |                   |         |      |          |         |         |   |          |         |           |   |          |        
|Number of shares used in computing per share
	amounts  basic and diluted |                                                 |                          | 400,455  |                   |         |      | 403,613  |         |         |   | 397,783  |         |           |   | 399,655  |        
|                                                                          |                                                 |                          |          |                   |         |      |          |         |         |   |          |         |           |   |          |        

See accompanying notes to condensed consolidated
financial statements.

3



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##### 



VERITAS SOFTWARE CORPORATION



CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS


(In thousands)


(Unaudited)


|                                                           |                                                                                        |                                                               |                                           |            |         |          |         |          |         |         |  
|---------------------------------------------------------- | -------------------------------------------------------------------------------------- | ------------------------------------------------------------- | ----------------------------------------- | ---------- | ------- | -------- | ------- | -------- | ------- | ------- | -
|                                                           |                                                                                        |                                                              
|                                                           |                                                                                        | Nine Months Ended                                            
|                                                           |                                                                                        | September 30,                                                
|                                                           |                                                                                        |                                                              
|                                                           |                                                                                        | 2001                                                          |                                           | 2000      
|                                                           |                                                                                        |                                                               |                                           |           
|Cash flows from operating activities:                      |                                                                                        |                                                               |                                           |            |         |          |         |         
|                                                           | Net loss                                                                               |                                                               | $                                         | (447,061   | )       |          | $       | (494,830 | )      
|                                                           | Adjustments to reconcile net loss to net cash
	provided by operating activities:       |                                                               |                                           |            |         |          |         |          |        
|                                                           |                                                                                        | Depreciation and amortization                                 |                                           |            | 69,500  |          |         |          | 31,593  |        
|                                                           |                                                                                        | Amortization of goodwill and other intangibles                |                                           |            | 664,770 |          |         |          | 659,275 |        
|                                                           |                                                                                        | Amortization of developed technology                          |                                           |            | 47,295  |          |         |          | 46,501  |        
|                                                           |                                                                                        | Amortization of original issue discount on
	convertible notes |                                           |            | 11,343  |          |         |          | 10,637  |        
|                                                           |                                                                                        | Acquisition and restructuring costs (reversals)               |                                           |            | (5,000  | )        |         |          |        |        
|                                                           |                                                                                        | Loss on strategic investments                                 |                                           |            | 16,074  |          |         |          |        |        
|                                                           |                                                                                        | Tax benefits from stock plans                                 |                                           |            | 83,005  |          |         |          | 107,786 |        
|                                                           |                                                                                        | Deferred income taxes                                         |                                           |            | (45,687 | )        |         |          | (40,445 | )      
|                                                           | Changes in operating assets and liabilities, net
	of effects of business acquisitions: |                                                               |                                           |            |         |          |         |          |        
|                                                           |                                                                                        | Accounts receivable                                           |                                           |            | 25,525  |          |         |          | (36,935 | )      
|                                                           |                                                                                        | Other assets                                                  |                                           |            | 7,629   |          |         |          | (22,219 | )      
|                                                           |                                                                                        | Accounts payable                                              |                                           |            | (12,348 | )        |         |          | 3,058   |        
|                                                           |                                                                                        | Accrued compensation and benefits                             |                                           |            | 2,936   |          |         |          | 23,920  |        
|                                                           |                                                                                        | Accrued acquisition and restructuring costs                   |                                           |            | (27,528 | )        |         |          | (6,115  | )      
|                                                           |                                                                                        | Other accrued liabilities                                     |                                           |            | (12,711 | )        |         |          | 10,124  |        
|                                                           |                                                                                        | Income taxes payable                                          |                                           |            | 7,383   |          |         |          | 1,629   |        
|                                                           |                                                                                        | Deferred revenue                                              |                                           |            | 24,572  |          |         |          | 51,477  |        
|                                                           |                                                                                        |                                                               |                                           |            |         |          |         |         
|                                                           |                                                                                        |                                                               | Net cash provided by operating activities |            |         | 409,697  |         |          |         | 345,456 |  
|Cash flows from investing activities:                      |                                                                                        |                                                               |                                           |            |         |          |         |         
|                                                           | Purchases of investments                                                               |                                                               |                                           | (1,195,468 | )       |          |         | (718,043 | )      
|                                                           | Investment maturities                                                                  |                                                               |                                           | 579,156    |         |          |         | 807,472  |        
|                                                           | Purchases of property and equipment                                                    |                                                               |                                           | (124,318   | )       |          |         | (83,064  | )      
|                                                           | Purchases of businesses and technologies                                               |                                                               |                                           | (24,000    | )       |          |         | (2,520   | )      
|                                                           | Strategic investments in businesses                                                    |                                                               |                                           | (17,110    | )       |          |         | (22,000  | )      
|                                                           |                                                                                        |                                                               |                                           |            |         |          |         |         
|                                                           |                                                                                        |                                                               | Net cash used for investing activities    |            |         | (781,740 | )       |          |         | (18,155 | )
|Cash flows from financing activities:                      |                                                                                        |                                                               |                                           |            |         |          |         |         
|                                                           | Proceeds from issuance of common stock                                                 |                                                               |                                           | 85,114     |         |          |         | 87,008   |        
|                                                           |                                                                                        |                                                               |                                           |            |         |          |         |         
|                                                           |                                                                                        |                                                               | Net cash provided by financing activities |            |         | 85,114   |         |          |         | 87,008  |  
|Effect of exchange rate changes                            |                                                                                        |                                                               | 3,727                                     |            |         |          | (6,253  | )       
|                                                           |                                                                                        |                                                               |                                           |            |         |          |         |         
|Net increase (decrease) in cash and cash
	equivalents      |                                                                                        |                                                               | (283,202                                  | )          |         |          | 408,056 |         
|Cash and cash equivalents at beginning of period           |                                                                                        |                                                               | 886,558                                   |            |         |          | 148,244 |         
|                                                           |                                                                                        |                                                               |                                           |            |         |          |         |         
|Cash and cash equivalents at end of period                 |                                                                                        | $                                                             | 603,356                                   |            |         | $        | 556,300 |         
|                                                           |                                                                                        |                                                               |                                           |            |         |          |         |         
|Supplemental disclosures:                                  |                                                                                        |                                                               |                                           |            |         |          |         |         
|                                                           | Cash paid for interest                                                                 |                                                               | $                                         | 10,318     |         |          | $       | 11,265   |        
|                                                           | Cash paid for income taxes                                                             |                                                               | $                                         | 8,461      |         |          | $       | 376      |        
|Supplemental schedule of non-cash financing
	transactions: |                                                                                        |                                                               |                                           |            |         |          |         |         
|                                                           | Issuance of common stock for conversion of notes                                       |                                                               | $                                         | 82         |         |          | $       | 1,868    |        

See accompanying notes to condensed consolidated
financial statements.

4



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##### 



VERITAS SOFTWARE CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS

(Unaudited)


1.     Basis of
presentation

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

2.     Use of
estimates

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

3.     Comparative
Information

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

4.     Change in
accounting principles

On January 1, 2001, the Company adopted
Statement of Financial Accounting Standard 133, Accounting
for Derivative Instruments and Hedging Activities
(SFAS 133). SFAS 133 requires the
recognition of all derivatives on the balance sheet at fair
value. Derivatives that are not hedges of underlying
transactions are adjusted to fair value through current
earnings. If the derivative is a hedge, depending on the nature
of the hedge, changes in fair value of the derivative are offset
against the change in fair value of the hedged assets,
liabilities or firm commitments through earnings or are
recognized in other comprehensive income until the hedged item
is recognized in earnings. The ineffective portion of a
derivatives fair value is immediately recognized in
current earnings under other income (expense). The adoption of
SFAS 133 did not have a material impact on the Companys
consolidated financial position or operating results.

5.     Strategic
Investments

The Company holds investments in common and
preferred stock of several privately and publicly held
companies, and are included in other non-current assets. These
strategic investments do not represent a greater than 20% voting
interest in any investee and the Company does not have the
ability to significantly influence any investees
management. Accordingly, the investments are accounted for on
the cost basis. Impairment losses are recognized on these
investments when the Company determines that there has been a
decline in the fair value of the investment that is other than
temporary. For the three and nine months ended
September 30, 2001, the Company recorded impairment losses
on strategic investments of $16.1 million. The losses
represented write-downs of the Companys carrying amount of
the investments and were determined by using, among other
factors, an investees significant decline in stock value,
its inability to obtain additional private financing, and the
uncertainty of its financial conditions.

5



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##### 



VERITAS SOFTWARE CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(Unaudited)


6.     Net loss per
share

Basic net loss per share is computed using the
weighted-average number of common shares outstanding during the
period. Diluted net loss per share is computed using the
weighted-average number of common shares and dilutive potential
common shares outstanding during the period. However, dilutive
potential common shares outstanding are not included in the
denominator for the three or nine months ended
September 30, 2001 and 2000, as their effect would be
anti-dilutive. The following table sets forth the computation of
basic and diluted net loss per common share (in thousands,
except per share amounts):

|                                     |                                                                                 |               |       |               |   |      |       |          |   |   |       |          |   |   |       |          |  
|------------------------------------ | ------------------------------------------------------------------------------- | ------------- | ----- | ------------- | - | ---- | ----- | -------- | - | - | ----- | -------- | - | - | ----- | -------- | -
|                                     |                                                                                 |               |       |              
|                                     |                                                                                 | Three Months  |       | Nine Months  
|                                     |                                                                                 | Ended         |       | Ended        
|                                     |                                                                                 | September 30, |       | September 30,
|                                     |                                                                                 |               |       |              
|                                     |                                                                                 | 2001          |       | 2000          |   | 2001 |       | 2000    
|                                     |                                                                                 |               |       |               |   |      |       |         
|Numerator:                           |                                                                                 |               |       |               |   |      |       |          |   |   |       |          |   |   |       |         
|                                     | Net loss                                                                        |               | $     | (161,986      | ) |      | $     | (148,106 | ) |   | $     | (447,061 | ) |   | $     | (494,830 | )
|                                     |                                                                                 |               |       |               |   |      |       |          |   |   |       |          |   |   |       |         
|Denominator:                         |                                                                                 |               |       |               |   |      |       |          |   |   |       |          |   |   |       |         
|                                     | Denominator for basic net loss per share 
	weighted-average shares outstanding |               |       | 400,455       |   |      |       | 403,613  |   |   |       | 397,783  |   |   |       | 399,655  |  
|                                     | Common stock equivalents                                                        |               |       |              |   |      |       |         |   |   |       |         |   |   |       |         |  
|                                     |                                                                                 |               |       |               |   |      |       |          |   |   |       |          |   |   |       |         
|                                     | Denominator for diluted net loss per share                                      |               |       | 400,455       |   |      |       | 403,613  |   |   |       | 397,783  |   |   |       | 399,655  |  
|                                     |                                                                                 |               |       |               |   |      |       |          |   |   |       |          |   |   |       |         
|Basic and diluted net loss per share |                                                                                 | $             | (0.40 | )             |   | $    | (0.37 | )        |   | $ | (1.12 | )        |   | $ | (1.24 | )       
|                                     |                                                                                 |               |       |               |   |      |       |          |   |   |       |          |   |   |       |         

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

|                                                                              |  |               |        |               |  |      |        |      |  |  |        |  |  |  |        | 
|----------------------------------------------------------------------------- |  | ------------- | ------ | ------------- |  | ---- | ------ | ---- |  |  | ------ |  |  |  | ------ | 
|                                                                              |  |               |        |              
|                                                                              |  | Three Months  |        | Nine Months  
|                                                                              |  | Ended         |        | Ended        
|                                                                              |  | September 30, |        | September 30,
|                                                                              |  |               |        |              
|                                                                              |  | 2001          |        | 2000          |  | 2001 |        | 2000
|                                                                              |  |               |        |               |  |      |        |     
|Employee stock options using the treasury stock
	method                       |  |               | 16,439 |               |  |      | 34,928 |      |  |  | 22,222 |  |  |  | 38,085 | 
|Employee stock options with exercise prices
	exceeding the average fair value |  |               | 28,007 |               |  |      | 1,565  |      |  |  | 20,583 |  |  |  | 999    | 
|5.25% convertible subordinated notes                                          |  |               | 6,748  |               |  |      | 10,350 |      |  |  | 6,749  |  |  |  | 10,413 | 
|1.856% convertible subordinated notes                                         |  |               | 12,981 |               |  |      | 12,994 |      |  |  | 12,981 |  |  |  | 13,005 | 

The weighted average exercise prices of the
employee stock options with exercise prices exceeding the
average fair value of the Companys common stock for the
three and nine months ended September 30, 2001 and 2000 are
$80.83, $96.06, $131.50 and $132.43 per share, respectively.

6



---



##### 



VERITAS SOFTWARE CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(Unaudited)


7.     Comprehensive
loss

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

|                                               |                                                  |               |          |               |   |      |          |        |   |   |          |       |   |   |          |        |  
|---------------------------------------------- | ------------------------------------------------ | ------------- | -------- | ------------- | - | ---- | -------- | ------ | - | - | -------- | ----- | - | - | -------- | ------ | -
|                                               |                                                  |               |          |              
|                                               |                                                  | Three Months  |          | Nine Months  
|                                               |                                                  | Ended         |          | Ended        
|                                               |                                                  | September 30, |          | September 30,
|                                               |                                                  |               |          |              
|                                               |                                                  | 2001          |          | 2000          |   | 2001 |          | 2000  
|                                               |                                                  |               |          |               |   |      |          |       
|Net loss                                       |                                                  | $             | (161,986 | )             |   | $    | (148,106 | )      |   | $ | (447,061 | )     |   | $ | (494,830 | )     
|                                               |                                                  |               |          |               |   |      |          |        |   |   |          |       |   |   |          |       
|Other comprehensive income (loss), net of tax: |                                                  |               |          |               |   |      |          |        |   |   |          |       |   |   |          |       
|                                               | Foreign currency translation adjustments         |               |          | (2,636        | ) |      |          | (4,099 | ) |   |          | (262  | ) |   |          | (6,253 | )
|                                               | Derivative financial instrument adjustments      |               |          | 9,563         |   |      |          |       |   |   |          | 3,989 |   |   |          |       |  
|                                               | Unrealized gain or loss on marketable securities |               |          | 583           |   |      |          | 1,574  |   |   |          | 767   |   |   |          | 10,475 |  
|                                               |                                                  |               |          |               |   |      |          |        |   |   |          |       |   |   |          |       
|Comprehensive loss                             |                                                  | $             | (154,476 | )             |   | $    | (150,631 | )      |   | $ | (442,567 | )     |   | $ | (490,608 | )     
|                                               |                                                  |               |          |               |   |      |          |        |   |   |          |       |   |   |          |       

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

|                                            |  |               |         |              |  |   |         |  
|------------------------------------------- |  | ------------- | ------- | ------------ |  | - | ------- | -
|                                            |  | September 30, |         | December 31,
|                                            |  | 2001          |         | 2000        
|                                            |  |               |         |             
|Foreign currency translation adjustments    |  | $             | (10,773 | )            |  | $ | (10,511 | )
|Derivative financial instrument adjustments |  |               | 3,989   |              |  |   |        |  
|Unrealized loss on marketable securities    |  |               | (177    | )            |  |   | (944    | )
|                                            |  |               |         |              |  |   |         |  
|Accumulated other comprehensive loss        |  | $             | (6,961  | )            |  | $ | (11,455 | )
|                                            |  |               |         |              |  |   |         |  

8.     Derivative
financial instruments

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

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

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

Additionally, the Company utilizes foreign
currency forward exchange contracts (forward
contracts) to hedge certain intercompany accounts of its
international subsidiaries. Changes in the fair value of forward
contracts are recognized in other income (expense) as an
offset to the changes in the fair value of the assets or
liabilities being hedged.

7



---



##### 



VERITAS SOFTWARE CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(Unaudited)


9.     Segment
information

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

Geographic information (in thousands):

|                      |               |                   |   |               |         |      |   |         |         |  |   |         |           |  |   |         |         | 
|--------------------- | ------------- | ----------------- | - | ------------- | ------- | ---- | - | ------- | ------- |  | - | ------- | --------- |  | - | ------- | ------- | 
|                      |               |                   |   |              
|                      |               | Three Months      |   | Nine Months  
|                      |               | Ended             |   | Ended        
|                      |               | September 30,     |   | September 30,
|                      |               |                   |   |              
|                      |               | 2001              |   | 2000          |         | 2001 |   | 2000   
|                      |               |                   |   |               |         |      |   |        
|User license fees(1): |               |                   |   |               |         |      |   |         |         |  |   |         |           |  |   |        
|                      | United States |                   | $ | 168,872       |         |      | $ | 188,598 |         |  | $ | 586,232 |           |  | $ | 507,008 |        
|                      | Europe(2)     |                   |   | 44,110        |         |      |   | 49,148  |         |  |   | 175,496 |           |  |   | 124,156 |        
|                      | Other(3)      |                   |   | 27,032        |         |      |   | 19,179  |         |  |   | 80,983  |           |  |   | 54,928  |        
|                      |               |                   |   |               |         |      |   |         |         |  |   |         |           |  |   |        
|                      |               | Total             |   |               | 240,014 |      |   |         | 256,925 |  |   |         | 842,711   |  |   |         | 686,092 | 
|                      |               |                   |   |               |         |      |   |         |         |  |   |         |           |  |   |        
|Services(1):          |               |                   |   |               |         |      |   |         |         |  |   |         |           |  |   |        
|                      | United States |                   |   | 80,053        |         |      |   | 48,633  |         |  |   | 220,711 |           |  |   | 125,248 |        
|                      | Europe(2)     |                   |   | 14,329        |         |      |   | 8,484   |         |  |   | 37,816  |           |  |   | 20,211  |        
|                      | Other(3)      |                   |   | 5,835         |         |      |   | 3,129   |         |  |   | 16,657  |           |  |   | 5,696   |        
|                      |               |                   |   |               |         |      |   |         |         |  |   |         |           |  |   |        
|                      |               | Total             |   |               | 100,217 |      |   |         | 60,246  |  |   |         | 275,184   |  |   |         | 151,155 | 
|                      |               |                   |   |               |         |      |   |         |         |  |   |         |           |  |   |        
|                      |               | Total net revenue |   | $             | 340,231 |      |   | $       | 317,171 |  |   | $       | 1,117,895 |  |   | $       | 837,247 | 
|                      |               |                   |   |               |         |      |   |         |         |  |   |         |           |  |   |        

|                      |               |               |   |              |           |  |   |           |           | 
|--------------------- | ------------- | ------------- | - | ------------ | --------- |  | - | --------- | --------- | 
|                      |               | September 30, |   | December 31,
|                      |               | 2001          |   | 2000        
|                      |               |               |   |             
|Long-lived assets(4): |               |               |   |              |           |  |   |          
|                      | United States |               | $ | 1,790,634    |           |  | $ | 2,423,292 |          
|                      | Europe(2)     |               |   | 31,731       |           |  |   | 22,212    |          
|                      | Other(3)      |               |   | 12,297       |           |  |   | 8,205     |          
|                      |               |               |   |              |           |  |   |          
|                      |               | Total         |   | $            | 1,834,662 |  |   | $         | 2,453,709 | 
|                      |               |               |   |              |           |  |   |          



---



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

|                                |                           |               |           |              |  |   |           |           | 
|------------------------------- | ------------------------- | ------------- | --------- | ------------ |  | - | --------- | --------- | 
|                                |                           | September 30, |           | December 31,
|                                |                           | 2001          |           | 2000        
|                                |                           |               |           |             
|Total long-lived assets         |                           | $             | 1,834,662 |              |  | $ | 2,453,709 |          
|Other assets, including current |                           |               | 1,931,396 |              |  |   | 1,629,125 |          
|                                |                           |               |           |              |  |   |           |          
|                                | Total consolidated assets |               | $         | 3,766,058    |  |   | $         | 4,082,834 | 
|                                |                           |               |           |              |  |   |           |          

8



---



##### 



VERITAS SOFTWARE CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(Unaudited)


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

10.     Credit
facility

During the third and fourth quarters of 2001, the
Company extended and amended the term of its $50.0 million
unsecured credit facility with a syndicate of financial
institutions. At September 30, 2001, 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 1.625% over LIBOR, and are subject to our
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
September 30, 2001.

11.     Commitments
and contingencies



| |                             
| | ----------------------------
| | Facilities lease commitments

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

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

During the third and fourth quarters of 2001, the
Company amended its existing lease agreement, originally signed
in the third quarter of 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 being completed in the fourth quarter of 2002. The
facilities will provide space for research and development and
general corporate functions. The lease term for the first phase
is five years beginning in July 2000, with an option to extend
the lease term for two successive periods of one year each. The
Company has an option to purchase the property (land and first
phase facilities) for $243.0 million or, at the end of the
lease, to arrange for the sale of the property to a third party
with the Company retaining an obligation to the owner for the
difference between the sales price and the guaranteed residual
value up to $220.0 million if the sales price is less than
this amount, subject to certain

9



---



##### 



VERITAS SOFTWARE CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(Unaudited)


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

The three lease agreements listed above require
the Company to maintain specified financial covenants such as
EBITDA, debt on EBITDA and quick ratio, all of which the Company
was in compliance with as of September 30, 2001.

10



---



##### 



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

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

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

Overview

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

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

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

Our services revenue consists of fees derived
mainly from annual maintenance agreements, as well as fees from
consulting and training services. Original equipment
manufacturer maintenance agreements covering our products
provide for technical 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 27% of our total revenue for the
three months ended September 30, 2001 and 25% of our total
revenue for the three months ended September 30, 2000, and
for 28% of our total revenue for the nine months ended
September 30, 2001 and 24% of our total revenue for the
nine months ended September 30, 2000. Our international
revenue

11



---



##### 



increased 14% from $79.9 million for the
three months ended September 30, 2000 to $91.3 million
for the three months ended September 30, 2001, and
increased 52% from $205.0 million for the nine months ended
September 30, 2000 to $311.0 million for the nine
months ended September 30, 2001. User license and service
revenue is attributed to geographic regions based on location of
our customers.


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

Seagate Technology Transaction

On November 22, 2000, we completed a
multi-party transaction with Seagate Technology, Inc.
(Seagate) and Suez Acquisition Company (Cayman)
Limited (SAC), a company formed by a group of
private equity firms led by Silver Lake Partners. The
transaction was structured as a leveraged buyout of Seagate
pursuant to which Seagate sold all of its operating assets to
SAC, and SAC assumed and indemnified Seagate and us for
substantially all liabilities arising in connection with those
operating assets. At the closing, and after the operating assets
and liabilities of Seagate had been transferred to SAC, a
wholly-owned subsidiary of ours merged with and into Seagate,
following which Seagate became our wholly-owned subsidiary and
was renamed VERITAS Software Technology Corporation. We issued
approximately 109.4 million shares of our common stock to
the Seagate stockholders in exchange for approximately
128.1 million shares of our common stock and equity
securities in Gadzoox Networks, Inc. (Gadzoox) held
by Seagate, which represented a decrease of approximately
18.7 million shares of our outstanding common stock. At the
time of the acquisition we recorded the equity securities in
Gadzoox and other assets and liabilities assumed from Seagate at
their fair values, and in the second quarter of 2001 all of the
equity securities in Gadzoox had been sold. In addition to the
net assets acquired in the transaction, we accrued
$40.0 million of direct transaction costs. In the third
quarter of 2001, we reversed $5.0 million of net
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 approving the
settlement of the lawsuit and the subsequent distribution of
$50.0 million of additional consideration to the former
Seagate Technology stockholders that was paid by SAC. As of
September 30, 2001, our other assets included
$70.0 million of indemnification receivable from SAC, our
accrued acquisition and restructuring costs included
$0.6 million of direct transaction costs, and our deferred
and other income taxes included an additional
$135.0 million.We did not acquire Seagates
disc drive business or any other Seagate operating business.

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

|                                      |  |             |       |  
|------------------------------------- |  | ----------- | ----- | -
|                                      |  | Direct     
|                                      |  | Transaction
|                                      |  | Costs      
|                                      |  |            
|Provision accrued at acquisition date |  | $           | 40.0  |  
|Cash payments                         |  |             | (8.6  | )
|                                      |  |             |       |  
|Balance at December 31, 2000.         |  |             | 31.4  |  
|Cash payments                         |  |             | (25.8 | )
|Reversals                             |  |             | (5.0  | )
|                                      |  |             |       |  
|Balance at September 30, 2001.        |  | $           | 0.6   |  
|                                      |  |             |       |  

We anticipate that the remaining
$0.6 million will be utilized in 2002.

12



---



##### 



Business Combinations

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



| |                 
| | ----------------
| | NSMG Acquisition

The NSMG business developed and marketed software
products and provided related services enabling information
technology professionals to manage distributed network resources
and to secure and protect enterprise data. In connection with
the NSMG acquisition, we issued 155,583,486 shares of our common
stock to Seagate Software, Inc. and issued options to purchase
15,626,358 shares of our common stock to our employees who were
former NSMG employees. We accounted for the NSMG acquisition
using the purchase method of accounting, and we are incurring
charges of $221.5 million per quarter primarily related to
the amortization of developed technology, goodwill and other
intangibles over their estimated useful life of four years. The
total NSMG purchase price was $3,464.5 million and included
$3,151.4 million for the issuance of our common stock,
$269.7 million for the exchange of options to purchase our
common stock and $43.4 million of acquisition-related
costs. The purchase price was allocated, based on an independent
valuation, to goodwill of $3,015.8 million, distribution
channels of $233.8 million, original equipment manufacturer
agreements of $23.4 million, developed technology of
$233.7 million, assembled workforce of $12.8 million,
trademarks of $22.8 million, in-process research and
development of $101.2 million, net deferred tax liabilities
of $179.5 million, other intangibles of $1.5 million
and tangible net liabilities assumed of $1.0 million. For
each of the three months ended September 30, 2001 and 2000,
we recorded $206.9 million for the amortization of goodwill
and other intangibles, and $14.6 million for the
amortization of developed technology related to this
acquisition, and for each of the nine months ended
September 30, 2001 and 2000, we recorded
$620.7 million for the amortization of goodwill and other
intangibles, and $43.8 million for the amortization of
developed technology related to this acquisition.

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

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

|                                      |  |                   |       |                        |  |                      |      |       |  |   |       |   |  |   |       |  
|------------------------------------- |  | ----------------- | ----- | ---------------------- |  | -------------------- | ---- | ----- |  | - | ----- | - |  | - | ----- | -
|                                      |  |                   |       | Operating Lease        |  |                      |      |      
|                                      |  | Direct            |       | Commitments on         |  | Involuntary          |      |      
|                                      |  | Transaction Costs |       | Duplicative Facilities |  | Termination Benefits |      | Total
|                                      |  |                   |       |                        |  |                      |      |      
|Provision accrued at acquisition date |  | $                 | 20.0  |                        |  | $                    | 8.2  |       |  | $ | 15.2  |   |  | $ | 43.4  |  
|Cash payments                         |  |                   | (17.4 | )                      |  |                      | (0.3 | )     |  |   | (1.8  | ) |  |   | (19.5 | )
|Non-cash charges                      |  |                   |      |                        |  |                      |     |       |  |   | (11.7 | ) |  |   | (11.7 | )
|                                      |  |                   |       |                        |  |                      |      |       |  |   |       |   |  |   |       |  
|Balance at December 31, 1999.         |  |                   | 2.6   |                        |  |                      | 7.9  |       |  |   | 1.7   |   |  |   | 12.2  |  
|Cash payments                         |  |                   | (1.9  | )                      |  |                      | (1.9 | )     |  |   | (0.9  | ) |  |   | (4.7  | )
|                                      |  |                   |       |                        |  |                      |      |       |  |   |       |   |  |   |       |  
|Balance at December 31, 2000.         |  |                   | 0.7   |                        |  |                      | 6.0  |       |  |   | 0.8   |   |  |   | 7.5   |  
|Cash payments                         |  |                   | (0.7  | )                      |  |                      | (0.1 | )     |  |   | (0.3  | ) |  |   | (1.1  | )
|                                      |  |                   |       |                        |  |                      |      |       |  |   |       |   |  |   |       |  
|Balance at September 30, 2001.        |  | $                 |      |                        |  | $                    | 5.9  |       |  | $ | 0.5   |   |  | $ | 6.4   |  
|                                      |  |                   |       |                        |  |                      |      |       |  |   |       |   |  |   |       |  

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

In addition, we recorded a restructuring charge
of $11.0 million in 1999 as a result of the NSMG
acquisition. This restructuring charge consisted of cancellation
of facilities leases and other contracts of $8.8 million,
involuntary termination benefits relating to the salary and
fringe benefit expense for terminated

13



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##### 



employees in research and development of
$1.3 million and $0.9 million of write-off of
redundant equipment and leasehold improvements. The
involuntarily terminated employees represented 2% of the global
workforce. In the fourth quarter of 2000, mainly as a result of
lower actual exit costs than originally estimated with respect
to duplicative facilities, we reversed $4.3 million of the
restructuring charge.


Restructuring costs are summarized below (in
millions):

|                                      |  |                      |      |                      |  |                        |      |       |  |   |      |   |  |   |      |  
|------------------------------------- |  | -------------------- | ---- | -------------------- |  | ---------------------- | ---- | ----- |  | - | ---- | - |  | - | ---- | -
|                                      |  |                      |      |                      |  | Write-off              |      |      
|                                      |  | Cancellation         |      |                      |  | of Redundant           |      |      
|                                      |  | of Facilities Leases |      | Involuntary          |  | Equipment and          |      |      
|                                      |  | and Other Contracts  |      | Termination Benefits |  | Leasehold Improvements |      | Total
|                                      |  |                      |      |                      |  |                        |      |      
|Provision accrued at acquisition date |  | $                    | 8.8  |                      |  | $                      | 1.3  |       |  | $ | 0.9  |   |  | $ | 11.0 |  
|Cash payments                         |  |                      |     |                      |  |                        | (0.9 | )     |  |   |     |   |  |   | (0.9 | )
|Non-cash charges                      |  |                      |     |                      |  |                        |     |       |  |   | (0.9 | ) |  |   | (0.9 | )
|                                      |  |                      |      |                      |  |                        |      |       |  |   |      |   |  |   |      |  
|Balance at December 31, 1999.         |  |                      | 8.8  |                      |  |                        | 0.4  |       |  |   |     |   |  |   | 9.2  |  
|Cash payments                         |  |                      | (0.2 | )                    |  |                        |     |       |  |   |     |   |  |   | (0.2 | )
|Reversals                             |  |                      | (3.9 | )                    |  |                        | (0.4 | )     |  |   |     |   |  |   | (4.3 | )
|                                      |  |                      |      |                      |  |                        |      |       |  |   |      |   |  |   |      |  
|Balance at December 31, 2000.         |  |                      | 4.7  |                      |  |                        |     |       |  |   |     |   |  |   | 4.7  |  
|Cash payments                         |  |                      | (0.1 | )                    |  |                        |     |       |  |   |     |   |  |   | (0.1 | )
|                                      |  |                      |      |                      |  |                        |      |       |  |   |      |   |  |   |      |  
|Balance at September 30, 2001.        |  | $                    | 4.6  |                      |  | $                      |     |       |  | $ |     |   |  | $ | 4.6  |  
|                                      |  |                      |      |                      |  |                        |      |       |  |   |      |   |  |   |      |  

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



| |                       
| | ----------------------
| | TeleBackup Acquisition

TeleBackup designed, developed and marketed
software products for local and remote backup and recovery of
electronic information stored on networked, remote and mobile
personal computers. TeleBackup became our wholly owned
subsidiary in exchange for the issuance of 6,842,795 shares of
either our common stock or shares exchangeable into our common
stock to the holders of TeleBackup common shares, and the
exchange of options to purchase 154,706 shares of our common
stock to our employees who were former employees of TeleBackup.
We accounted for the TeleBackup acquisition using the purchase
method of accounting, and we are incurring charges of
$9.0 million per quarter, primarily related to the
amortization of developed technology, goodwill and other
intangibles over their estimated useful life of four years. The
total purchase price for TeleBackup was $143.1 million and
included $134.1 million related to the issuance of our
common stock, $2.8 million for the issuance of options to
purchase our common stock and $6.2 million in
acquisition-related costs. The purchase price was allocated,
based on an independent valuation, to goodwill of
$133.1 million, distribution channels of $1.0 million,
original equipment manufacturer agreements of $2.1 million,
developed technology of $6.6 million, assembled workforce
of $0.3 million, trademarks of $1.3 million,
in-process research and development of $1.9 million, net
deferred tax liabilities of $3.0 million and tangible net
liabilities assumed of $0.2 million. For the three months
ended September 30, 2001 and 2000, we recorded
$8.6 million for the amortization of goodwill and other
intangibles, and $0.4 million for the amortization of
developed technology related to this acquisition, and for the
nine months ended September 30, 2001 and 2000, we recorded
$25.8 million for the amortization of goodwill and other
intangibles, and $1.2 million for the amortization of
developed technology related to this acquisition.

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

14



---



##### 



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

|                                      |  |                   |      |                      |  |       |      |   |  |   |      |  
|------------------------------------- |  | ----------------- | ---- | -------------------- |  | ----- | ---- | - |  | - | ---- | -
|                                      |  | Direct            |      | Involuntary          |  |      
|                                      |  | Transaction Costs |      | Termination Benefits |  | Total
|                                      |  |                   |      |                      |  |      
|Provision accrued at acquisition date |  | $                 | 5.6  |                      |  | $     | 0.6  |   |  | $ | 6.2  |  
|Cash payments                         |  |                   | (5.1 | )                    |  |       | (0.2 | ) |  |   | (5.3 | )
|                                      |  |                   |      |                      |  |       |      |   |  |   |      |  
|Balance at December 31, 1999.         |  |                   | 0.5  |                      |  |       | 0.4  |   |  |   | 0.9  |  
|Cash payments                         |  |                   | (0.2 | )                    |  |       | (0.4 | ) |  |   | (0.6 | )
|                                      |  |                   |      |                      |  |       |      |   |  |   |      |  
|Balance at December 31, 2000.         |  |                   | 0.3  |                      |  |       |     |   |  |   | 0.3  |  
|Cash payments                         |  |                   | (0.2 | )                    |  |       |     |   |  |   | (0.2 | )
|                                      |  |                   |      |                      |  |       |      |   |  |   |      |  
|Balance at September 30, 2001.        |  | $                 | 0.1  |                      |  | $     |     |   |  | $ | 0.1  |  
|                                      |  |                   |      |                      |  |       |      |   |  |   |      |  

We anticipate that the remaining
$0.1 million will be utilized in 2001.



| |                   
| | ------------------
| | NuView Acquisition

Under an asset purchase agreement, we acquired
certain assets of NuView for a total cost of approximately
$67.9 million. We accounted for the acquisition using the
purchase method of accounting, and we are incurring charges of
$4.3 million per quarter primarily related to the
amortization of developed technology, goodwill and other
intangibles over their estimated useful life of four years. The
purchase price included $47.7 million related to the
issuance of our common stock, $0.8 million for the issuance
of options to purchase our common stock to former NuView
employees, $0.2 million in acquisition-related costs and
$19.2 million paid in cash. The purchase price was
allocated, based on an independent valuation, to goodwill of
$62.6 million, developed technology of $2.4 million,
assembled workforce of $0.6 million, trademarks of
$0.3 million, covenant-not-to-compete of $0.9 million
and in-process research and development of $1.1 million.
For the three months ended September 30, 2001 and 2000, we
recorded $4.1 million for amortization of goodwill and
other intangibles, and $0.2 million for the amortization of
developed technology related to this acquisition, and for the
nine months ended September 30, 2001 and 2000, we recorded
$12.3 million for amortization of goodwill and other
intangibles, and $0.5 million for the amortization of
developed technology related to this acquisition.



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

For the three and nine months ended
September 30, 2001 and 2000, we incurred net losses due to
the amortization of developed technology, goodwill and other
intangibles mainly related to the acquisitions of the NSMG
business, TeleBackup and NuView. From all of our acquisitions,
we expect to incur charges of $237.6 million in the fourth
quarter of 2001 related to the amortization of developed
technology, goodwill and other intangibles. Because of these
significant quarterly charges, it is likely that we will remain
unprofitable in the fourth quarter of 2001. On January 1,
2002, upon adoption of newly issued Statement of Financial
Accounting Standards, or SFAS, 141, Business Combinations,and SFAS 142, Goodwill and Other Intangible Assets,
the total quarterly charges related to the amortization of
developed technology, goodwill and other intangibles will
change. As extensive effort is needed to comply with adopting
SFAS 141 and SFAS 142, it is not practicable to reasonably
estimate the impact of adopting these Statements on our
financial statements at the date of this report. Refer to the
New Accounting Pronouncementssection on page 21 for
the impacts of the adoption of SFAS 141 and SFAS 142 on our
financial statements.

15



---



##### 



Results of Operations

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

|                                     |                                                 |                          |     |                    |     |                  |     |    |     |  |      |     |    | 
|------------------------------------ | ----------------------------------------------- | ------------------------ | --- | ------------------ | --- | ---------------- | --- | -- | --- |  | ---- | --- | -- | 
|                                     |                                                 |                          |     |                   
|                                     |                                                 | Percentage of            |     |                   
|                                     |                                                 | Total Net Revenue        |     |                   
|                                     |                                                 |                          |     | Period-to-Period  
|                                     |                                                 |                          |     | Percentage Change 
|                                     |                                                 | Three Months Ended       |     |                   
|                                     |                                                 | September 30,            |     | Three Months Ended
|                                     |                                                 |                          |     | September 30, 2001
|                                     |                                                 | 2001                     |     | 2000               |     | Compared to 2000
|                                     |                                                 |                          |     |                    |     |                 
|Net revenue:                         |                                                 |                          |     |                    |     |                  |     |    |     |  |      |    
|                                     | User license fees                               |                          |     | 71                 | %   |                  |     | 81 | %   |  |      | (6  | )%
|                                     | Services                                        |                          |     | 29                 |     |                  |     | 19 |     |  |      | 66  |   
|                                     |                                                 |                          |     |                    |     |                  |     |    |     |  |      |    
|                                     |                                                 | Total revenue            |     |                    | 100 |                  |     |    | 100 |  |      |     | 7  | 
|Cost of revenue:                     |                                                 |                          |     |                    |     |                  |     |    |     |  |      |    
|                                     | User license fees                               |                          |     | 2                  |     |                  |     | 3  |     |  |      | (15 | ) 
|                                     | Services                                        |                          |     | 10                 |     |                  |     | 7  |     |  |      | 56  |   
|                                     | Amortization or developed technology            |                          |     | 5                  |     |                  |     | 5  |     |  |      | 2   |   
|                                     |                                                 |                          |     |                    |     |                  |     |    |     |  |      |    
|                                     |                                                 | Total cost of revenue    |     |                    | 17  |                  |     |    | 15  |  |      |     | 24 | 
|                                     |                                                 |                          |     |                    |     |                  |     |    |     |  |      |    
|Gross profit                         |                                                 |                          | 83  |                    |     |                  | 85  |    |     |  | 4    |    
|Operating expenses:                  |                                                 |                          |     |                    |     |                  |     |    |     |  |      |    
|                                     | Selling and marketing                           |                          |     | 41                 |     |                  |     | 37 |     |  |      | 19  |   
|                                     | Research and development                        |                          |     | 18                 |     |                  |     | 15 |     |  |      | 33  |   
|                                     | General and administrative                      |                          |     | 9                  |     |                  |     | 6  |     |  |      | 45  |   
|                                     | Amortization of goodwill and other intangibles  |                          |     | 65                 |     |                  |     | 69 |     |  |      | 1   |   
|                                     | Acquisition and restructuring costs (reversals) |                          |     | (2                 | )   |                  |     |   |     |  |      |    |   
|                                     |                                                 |                          |     |                    |     |                  |     |    |     |  |      |    
|                                     |                                                 | Total operating expenses |     |                    | 131 |                  |     |    | 127 |  |      |     | 11 | 
|                                     |                                                 |                          |     |                    |     |                  |     |    |     |  |      |    
|Loss from operations                 |                                                 |                          | (48 | )                  |     |                  | (42 | )  |     |  | 24   |    
|Interest and other income, net       |                                                 |                          | 5   |                    |     |                  | 5   |    |     |  |     |    
|Interest expense                     |                                                 |                          | (3  | )                  |     |                  | (3  | )  |     |  | (9   | )  
|Loss on strategic investments        |                                                 |                          | (5  | )                  |     |                  |    |    |     |  |     |    
|                                     |                                                 |                          |     |                    |     |                  |     |    |     |  |      |    
|Loss before income taxes             |                                                 |                          | (51 | )                  |     |                  | (40 | )  |     |  | 37   |    
|Provision (benefit) for income taxes |                                                 |                          | (3  | )                  |     |                  | 7   |    |     |  | (145 | )  
|                                     |                                                 |                          |     |                    |     |                  |     |    |     |  |      |    
|Net loss                             |                                                 |                          | (48 | )%                 |     |                  | (47 | )% |     |  | 9    |    
|                                     |                                                 |                          |     |                    |     |                  |     |    |     |  |      |    

16



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##### 



|                                     |                                                 |                          |     |                    |     |                  |     |    |     |  |     |    |    | 
|------------------------------------ | ----------------------------------------------- | ------------------------ | --- | ------------------ | --- | ---------------- | --- | -- | --- |  | --- | -- | -- | 
|                                     |                                                 |                          |     |                   
|                                     |                                                 | Percentage of            |     |                   
|                                     |                                                 | Total Net Revenue        |     |                   
|                                     |                                                 |                          |     | Period-to-Period  
|                                     |                                                 |                          |     | Percentage Change 
|                                     |                                                 | Nine Months Ended        |     |                   
|                                     |                                                 | September 30,            |     | Nine Months Ended 
|                                     |                                                 |                          |     | September 30, 2001
|                                     |                                                 | 2001                     |     | 2000               |     | Compared to 2000
|                                     |                                                 |                          |     |                    |     |                 
|Net revenue:                         |                                                 |                          |     |                    |     |                  |     |    |     |  |     |   
|                                     | User license fees                               |                          |     | 75                 | %   |                  |     | 82 | %   |  |     | 23 | % 
|                                     | Services                                        |                          |     | 25                 |     |                  |     | 18 |     |  |     | 82 |   
|                                     |                                                 |                          |     |                    |     |                  |     |    |     |  |     |   
|                                     |                                                 | Total revenue            |     |                    | 100 |                  |     |    | 100 |  |     |    | 34 | 
|Cost of revenue:                     |                                                 |                          |     |                    |     |                  |     |    |     |  |     |   
|                                     | User license fees                               |                          |     | 3                  |     |                  |     | 3  |     |  |     | (3 | ) 
|                                     | Services                                        |                          |     | 9                  |     |                  |     | 7  |     |  |     | 66 |   
|                                     | Amortization or developed technology            |                          |     | 4                  |     |                  |     | 6  |     |  |     | 2  |   
|                                     |                                                 |                          |     |                    |     |                  |     |    |     |  |     |   
|                                     |                                                 | Total cost of revenue    |     |                    | 16  |                  |     |    | 16  |  |     |    | 29 | 
|                                     |                                                 |                          |     |                    |     |                  |     |    |     |  |     |   
|Gross profit                         |                                                 |                          | 84  |                    |     |                  | 84  |    |     |  | 34  |   
|Operating expenses:                  |                                                 |                          |     |                    |     |                  |     |    |     |  |     |   
|                                     | Selling and marketing                           |                          |     | 38                 |     |                  |     | 37 |     |  |     | 38 |   
|                                     | Research and development                        |                          |     | 16                 |     |                  |     | 15 |     |  |     | 47 |   
|                                     | General and administrative                      |                          |     | 8                  |     |                  |     | 6  |     |  |     | 59 |   
|                                     | Amortization of goodwill and other intangibles  |                          |     | 60                 |     |                  |     | 79 |     |  |     | 1  |   
|                                     | Acquisition and restructuring costs (reversals) |                          |     | (1                 | )   |                  |     |   |     |  |     |   |   
|                                     |                                                 |                          |     |                    |     |                  |     |    |     |  |     |   
|                                     |                                                 | Total operating expenses |     |                    | 121 |                  |     |    | 137 |  |     |    | 18 | 
|                                     |                                                 |                          |     |                    |     |                  |     |    |     |  |     |   
|Loss from operations                 |                                                 |                          | (37 | )                  |     |                  | (53 | )  |     |  | (8  | ) 
|Interest and other income, net       |                                                 |                          | 5   |                    |     |                  | 5   |    |     |  | 30  |   
|Interest expense                     |                                                 |                          | (2  | )                  |     |                  | (3  | )  |     |  | (6  | ) 
|Loss on strategic investments        |                                                 |                          | (1  | )                  |     |                  |    |    |     |  |    |   
|                                     |                                                 |                          |     |                    |     |                  |     |    |     |  |     |   
|Loss before income taxes             |                                                 |                          | (35 | )                  |     |                  | (51 | )  |     |  | (8  | ) 
|Provision (benefit) for income taxes |                                                 |                          | 5   |                    |     |                  | 8   |    |     |  | (21 | ) 
|                                     |                                                 |                          |     |                    |     |                  |     |    |     |  |     |   
|Net loss                             |                                                 |                          | (40 | )%                 |     |                  | (59 | )% |     |  | (10 | ) 
|                                     |                                                 |                          |     |                    |     |                  |     |    |     |  |     |   

Net
Revenue

Total net revenue increased 7% from
$317.2 million for the three months ended
September 30, 2000 to $340.2 million for the three
months ended September 30, 2001, and increased 34% from
$837.2 million for the nine months ended September 30,
2000 to $1,117.9 million for the nine months ended
September 30, 2001. We believe that the percentage increase
in total revenue achieved in this period is not necessarily
indicative of future results. In 2001, our total net revenue has
been adversely affected by weaker general economic and industry
conditions resulting in reduced capital spending by our
customers and, additionally for the three months ended
September 30, 2001, by the national tragedy on
September 11, 2001. The reduction in customer spending and
the uncertainty arising from the national tragedy on
September 11, 2001 may stagnate or reduce the demand for
our user licenses and services until the economic and industry
conditions improve significantly. We expect total net revenue to
decrease in the fourth quarter of 2001 compared to the fourth
quarter of 2000. Our revenue is comprised of user license fees
and service revenue.

User License Fees.User license fees decreased 6% from
$256.9 million for the three months ended
September 30, 2000 to $240.0 million for the three
months ended September 30, 2001, and increased 23% from
$686.1 million for the nine months ended September 30,
2000 to $842.7 million for the nine months ended
September 30, 2001. The decrease in the three months ended
September 30, 2001 was due to weaker

17



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##### 



general economic and industry conditions and the
national tragedy on September 11, 2001. The increase in the
nine months ended September 30, 2001 was primarily the
result of the continued growth in market acceptance of our
software products, a greater volume of large end-user
transactions, and increased revenue from original equipment
manufacturers in the first half of 2001.


We derive our user license fees mainly from the
sale of three different categories of software products: data
protection, file and volume management, and clustering and
replication. We market and distribute our software products as
individual software products and integrated products suites,
also referred to as application solutions. A portion of the user
license fees generated by application solutions is allocated to
the clustering and replication products. User license fees from
our data protection, file and volume management and application
solutions products decreased 4% from $217.7 million for the
three months ended September 30, 2000 to $209.1 million for
the three months ended September 30, 2001, and increased
24% from $587.5 million for the nine months ended
September 30, 2000 to $729.4 million for the nine months
ended September 30, 2001. The user license fees from our
data protection, file and volume management and application
solutions products accounted for 87% of user license fees for
the three months ended September 30, 2001, and 85% for the
three months ended September 30, 2000, and accounted for
87% of user license fees for the nine months ended
September 30, 2001, and 86% for the nine months ended
September 30, 2000. Our user license fees from our clustering
and replication products decreased 21% from $39.2 million for
the three months ended September 30, 2000 to $30.9 million
for the three months ended September 30, 2001, and
increased 15% from $98.6 million for the nine months ended
September 30, 2000 to $113.3 million for the nine months
ended September 30, 2001.

For the three months ended September 30,
2001, we recorded a smaller volume of large end-user
transactions than in previous quarters, while for the nine
months ended September 30, 2001 we recorded a larger volume
of large end-user transactions. For end-user transactions valued
at $250,000 or more, our user license fees decreased 13% from
$41.6 million for the three months ended September 30,
2000 to $36.4 million for the three months ended September
30, 2001, and increased 38% from $131.1 million for the
nine months ended September 30, 2000 to $180.6 million
for the nine months ended September 30, 2001.

Our user license fees from original equipment
manufacturers decreased 20% from $54.2 million for the
three months ended September 30, 2000 to $43.6 million for
the three months ended September 30, 2001, and increased 7%
from $133.9 million for the nine months ended
September 30, 2000 to $143.6 million for the nine
months ended September 30, 2001. The user license fees from
original equipment manufacturers accounted for 18% of user
license fees for the three months ended September 30, 2001
and 21% for the three months ended September 30, 2000, and
accounted for 17% of user license fees for the nine months ended
September 30, 2001 and 20% for the nine months ended
September 30, 2000.

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 66%
from $60.2 million for the three months ended September 30,
2000 to $100.2 million for the three months ended
September 30, 2001, and increased 82% from
$151.2 million for the nine months ended September 30,
2000 to $275.2 million for the nine months ended
September 30, 2001. These increases were primarily due to
increased sales of service and support contracts on new
licenses, renewal of service and support contracts on existing
licenses and, to a lesser extent, an increase in demand for
consulting and training services. Nevertheless, our service
revenue has been adversely affected in the three months ended
September 30, 2001 by the national tragedy on September 11,
2001, which caused air travel delays or cancellations and caused
many companies to impose air travel restrictions that resulted
in our inability to visit customer sites and in our customers
inability to visit our offices. Service revenue represented 29%
of total net revenue for the three months ended
September 30, 2001 and 25% of total revenue for the nine
months ended September 30, 2001. We expect service revenue
to increase in absolute dollars and to remain close to 29% of
total net revenue in the next few quarters.

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Cost of
Revenue

Cost of revenue increased 24% from
$46.5 million for the three months ended September 30,
2000 to $57.7 million for the three months ended September
30, 2001, and increased 29% from $135.9 million for the
nine months ended September 30, 2000 to $175.6 million
for the nine months ended September 30, 2001. Gross margin
on user license fees, excluding amortization of developed
technology, is substantially higher than gross margin on service
revenue, reflecting the low materials, packaging and other costs
of software products compared with the relatively high personnel
costs associated with providing maintenance, technical support,
consulting and training services. Cost of service revenue varies
depending upon the mix of maintenance, technical support,
consulting and training services. We expect gross margin to
fluctuate in the future, reflecting this mix and the timing
differences between increasing our organizational investments
and the recognition of revenue that we expect as a result of
these investments.

Cost of User License Fees (including
amortization of developed technology).Cost of user license fees consists
primarily of royalties, media, manuals and distribution costs.
Also included in the cost of revenue is the amortization of
developed technology related primarily to the 1999 acquisitions
of NSMG, TeleBackup and NuView. Cost of user license fees
decreased 5% from $24.8 million for the three months ended
September 30, 2000 to $23.7 million for the three
months ended September 30, 2001, and decreased slightly
from $75.7 million for the nine months ended
September 30, 2000 to $75.6 million for the nine
months ended September 30, 2001. Gross margin on user
license fees remained constant at 90% for the three months ended
September 30, 2000 and the three months ended
September 30, 2001, and increased from 89% for the nine
months ended September 30, 2000 to 91% for the nine months
ended September 30, 2001. The increase in gross margin on
user license fees for the nine months ended September 30,
2001 was due mainly to the combination of increases in user
license fees revenue and the stability of the amortization of
developed technology. If we excluded the amortization of
developed technology from the cost of user license fees, the
gross margin on user license fees would have been 96% for the
three months ended September 30, 2000 and 97% for the three
months ended September 30, 2001, and 96% for the nine
months ended September 30, 2000 and 97% for the nine months
ended September 30, 2001. The gross margin on user license
fees may vary from period to period based on the license revenue
mix, because some products carry higher royalty rates than
others. We do not expect gross margin on user license fees to
increase in the future.

Cost of Service Revenue.Cost of service revenue consists
primarily of personnel-related costs in providing maintenance,
technical support, consulting and training to customers. Cost of
service revenue increased 56% from $21.7 million for the three
months ended September 30, 2000 to $34.0 million for
the three months ended September 30, 2001, and increased
66% from $60.2 million for the nine months ended
September 30, 2000 to $100.0 million for the nine
months ended September 30, 2001. Gross margin on service
revenue increased from 64% for the three months ended
September 30, 2000 to 66% for the three months ended
September 30, 2001, and increased from 60% for the nine
months ended September 30, 2000 to 64% for the nine months ended
September 30, 2001. The gross margin improvement for the
three and nine months ended September 30, 2001 was the
result of increased productivity and higher service revenue
growth due to support fees from a larger installed customer
base. We expect the costs of service revenue to continue to
increase in absolute dollars in the next few quarters and we
expect the gross margin on service revenue to remain stable as a
percentage.

Amortization of Developed Technology.Amortization of developed technology
increased 2% from $15.6 million for the three months ended
September 30, 2000 to $15.8 million for the three
months ended September 30, 2001, and increased 2% from
$46.5 million for the nine months ended September 30,
2000 to $47.3 million for the nine months ended
September 30, 2001. These amounts mainly represent the
amortization of the developed technology recorded upon the
acquisitions of NSMG, TeleBackup and NuView in 1999. The useful
life of the developed technology acquired is four years and we
expect the amortization to be approximately $15.8 million
in the fourth quarter of 2001. Refer to the New Accounting
Pronouncementssection on page 21 for the impacts of the
adoption of SFAS 141, Business Combinations,and SFAS
142, Goodwill and Other Intangible Assetson our
financial statements.

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Operating
Expenses

Total operating expenses increased 11% from
$403.5 million for the three months ended
September 30, 2000 to $446.8 million for the three
months ended September 30, 2001, and increased 18% from
$1,143.5 million for the nine months ended
September 30, 2000 to $1,348.8 million for the nine
months ended September 30, 2001. We believe that the
percentage increase in total operating expenses in this period
is not necessarily indicative of future results. Our operating
expenses include selling and marketing expenses, research and
development expenses, general and administrative expenses, and
amortization of goodwill and other intangibles.

Selling and Marketing.Selling and marketing expenses consist
primarily of salaries, related benefits, commissions, consultant
fees and other costs associated with our sales and marketing
efforts. Selling and marketing expenses increased 19% from
$116.9 million for the three months ended
September 30, 2000 to $138.7 million for the three
months ended September 30, 2001, and increased 38% from
$310.6 million for the nine months ended September 30,
2000 to $427.2 million for the nine months ended
September 30, 2001. The increase in absolute dollars for
the three months ended September 30, 2001 was primarily
attributable to increased sales and marketing staffing and, to a
lesser extent, increased costs associated with travel and
entertainment. The increase in absolute dollars for the nine
months ended September 30, 2001 was primarily attributable
to increased sales and marketing staffing and to a lesser extent
to new marketing programs. As a percentage of net revenue,
selling and marketing expenses increased from 37% for the three
months ended September 30, 2000 to 41% for the three months
ended September 30, 2001, and increased slightly from 37%
for the nine months ended September 30, 2000 to 38% for the
nine months ended September 30, 2001. We intend to continue
to expand our global sales and marketing infrastructure, and
accordingly, we expect our selling and marketing expenses to
increase in absolute dollars and to decrease slightly as a
percentage of total net revenue in the next few quarters.

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 33% from $46.3 million
for the three months ended September 30, 2000 to
$61.6 million for the three months ended September 30,
2001, and increased 47% from $120.6 million for the nine months
ended September 30, 2000 to $177.7 million for the
nine months ended September 30, 2001. The increases in
absolute dollars for both the three and nine months ended
September 30, 2001 were 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 and nine
months ended September 30, 2000 to 18% for the three months
ended September 30, 2001 and 16% for the nine months ended
September 30, 2001. We believe that a significant level of
research and development investment is required to remain
competitive, and expect these expenses to continue to increase
in absolute dollars in future periods and to remain stable as a
percentage of net revenue in the next few quarters. 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 45% from
$20.5 million for the three months ended September 30,
2000 to $29.7 million for the three months ended
September 30, 2001, and increased 59% from
$53.0 million for the nine months ended September 30,
2000 to $84.1 million for the nine months ended
September 30, 2001. The increase in absolute dollars for
the three and nine months ended September 30, 2001 was
primarily due to an increase in additional personnel costs, and
to a lesser extent, expenses associated with enhancing our
infrastructure to support expansion of our operations. As a
percentage of net revenue, general and administrative expenses
increased from 6% for the three and nine months ended
September 30, 2000 to 9% for the three months ended
September 30, 2001 and 8% for the nine months ended
September 30, 2001. We expect general and administrative
expenses to increase in absolute dollars and remain stable as a
percentage of net revenue in the next few quarters.

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Amortization of Goodwill and Other
Intangibles.Amortization of goodwill
and other intangibles increased 1% from $219.8 million for
the three months ended September 30, 2000 to
$221.8 million for the three months ended September 30,
2001, and increased 1% from $659.3 million for the nine
months ended September 30, 2000 to $664.8 million for
the nine months ended September 30, 2001. This amount
mainly represents amortization of goodwill, distribution
channels, trademarks and other intangible assets recorded upon
the acquisitions of NSMG, TeleBackup and NuView in 1999. The
estimated useful life of the goodwill and the other intangibles
is four years. We expect the amortization related to goodwill to
be approximately $202.8 million and the amortization
related to other intangibles to be approximately
$19.0 million in the fourth quarter of 2001. Refer to the
New Accounting Pronouncementssection below for the
impacts of the adoption of SFAS 141, Business Combinations,and SFAS 142, Goodwill and Other Intangible Assetson
our financial statements.

Acquisition and Restructuring Costs
(Reversals).In November 2000, we
accrued $40.0 million of acquisition related costs in
connection with the Seagate Technology transaction. In the third
quarter of 2001, we reversed $5.0 million of net attorneys
fees originally accrued in relation with the Delaware lawsuit
captioned In Re Seagate Technology, Inc. Shareholders
Litigation, which we will not have to pay as a result of a
Delaware Chancery Court ruling approving the settlement of the
lawsuit and the subsequent distribution of $50.0 million of
additional consideration to the former Seagate Technology
stockholders that was paid by SAC .

Interest and Other Income, Net.Interest and other income, net
increased slightly from $15.6 million for the three months
ended September 30, 2000 to $15.7 million for the
three months ended September 30, 2001, and increased 30%
from $39.7 million for the nine months ended
September 30, 2000 to $51.5 million for the nine months
ended September 30, 2001. The increase was due to increased
amounts of interest income attributable to the higher level of
funds available for investment, which were primarily from the
net cash provided by operating activities, partially offset by a
lower return on investments due to lower market interest rates.

Interest Expense.Interest expense consisted primarily
of interest recorded under the 1.856% convertible subordinated
notes due 2006 issued in August 1999 and the 5.25% convertible
subordinated notes due 2004 issued in October 1997. Interest
expense decreased 9% from $8.3 million for the three months
ended September 30, 2000 to $7.6 million for the three
months ended September 30, 2001, and decreased 6% from
$23.3 million for the nine months ended September 30,
2000 to $21.8 million for the nine months ended September
30, 2001. The decrease was primarily due to the interest expense
savings that has been realized with the conversion of
approximately $35.5 million of the 5.25% convertible
subordinated notes that occurred in the third quarter of 2000.

Loss on strategic investments.With the recent decline in the
economy, many companies have experienced extreme volatility and
instability in their business and operating results. During the
third quarter of 2001, we recognized impairment losses on these
investments when we determined that there had been a decline in
the fair value of the investment that was other than temporary.
For the three and nine months ended September 30, 2001, we
recorded impairment losses on strategic investments of
$16.1 million. The losses represented write-downs of the
carrying amount of our investments and were determined by using,
among other factors, an investees significant decline in
stock value, its inability to obtain additional private
financing, and the uncertainty of its financial conditions.

Income Taxes.We had
effective tax rates of negative 6% for the three months ended
September 30, 2001, compared to positive 18% for the three
months ended September 30, 2000. We also had effective tax
rates of positive 14% for the nine months ended
September 30, 2001, compared to positive 16% for the nine
months ended September 30, 2000. Our September 30,
2001 and 2000 effective tax rates differed from the combined
federal and state statutory rates primarily due to differences
attributable to acquisition-related charges that were
non-deductible for tax purposes.

New Accounting Pronouncements.In July 2001, the Financial Accounting
Standards Board, or FASB, issued SFAS 141, Business
Combinations,and SFAS 142, Goodwill and Other Intangible
Assets.SFAS 141 requires that the purchase method of
accounting be used for all business combinations initiated after
June 30,

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2001. SFAS 141 also specifies criteria intangible
assets acquired in a purchase method business combination must
meet to be recognized and reported apart from goodwill, noting
that any purchase price allocable to an assembled workforce may
not be accounted for separately. SFAS 142 will require that
goodwill and intangible assets with indefinite useful lives no
longer be amortized, but instead be tested for impairment at
least annually in accordance with the provisions of
SFAS 142. SFAS 142 will also require that intangible
assets with estimable useful lives be amortized over their
respective estimated useful lives to their estimated residual
values, and reviewed for impairment in accordance with
SFAS 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of.


We are required to adopt the provisions of
SFAS 141 immediately and SFAS 142 will become
effective January 1, 2002. Furthermore, goodwill and
intangible assets determined to have an indefinite useful life
acquired in a purchase business combination completed after
June 30, 2001, but before SFAS 142 is adopted in full
will not be amortized, but will continue to be evaluated for
impairment in accordance with the appropriate pre-SFAS 142
accounting literature. Goodwill and intangible assets acquired
in business combinations completed before July 1, 2001 will
continue to be amortized and tested for impairment in accordance
with the appropriate pre-SFAS 142 accounting requirements
prior to the adoption of SFAS 142.

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

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

As of the date of adoption, we expect to have
unamortized goodwill in the amount of approximately
$1,163 million and unamortized other identifiable
intangible assets in the amount of approximately
$208 million, all of which will be subject to the
transition provisions of SFAS 141 and 142. The quarterly
amortization expense related to goodwill is expected to be
$202.8 million in the fourth quarter of 2001. As extensive
effort is needed to comply with adopting SFAS 141 and 142,
it is not practicable to reasonably estimate the impact of
adopting these statements on our financial statements at the
date of this report, including whether it will be required to
recognize any transitional impairment losses as a cumulative
effect of a change in accounting principle.

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 establishes a single
accounting model for long-lived assets to

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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 will be required to implement the
provisions of SFAS 144 as of the beginning of our 2002
fiscal year. We do not believe that SFAS 144 will have a
material impact on our financial position, results of operations
or cash flows.


Liquidity and Capital Resources



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

Our cash, cash equivalents, short-term
investments and long-term investments totaled
$1,588.7 million at September 30, 2001 and represented
73.7% of our net tangible assets. Cash and cash equivalents are
highly liquid with original maturities of ninety days or less.
Short-term and long-term investments consist mainly of
investment grade commercial paper, medium-term notes, corporate
notes, government securities and market auction preferreds. At
September 30, 2001, we had $440.4 million of
convertible subordinated notes, $168.0 million of deferred
and other income taxes, of which $135.0 million is related
to the Seagate Technology transaction and which is partially
offset by $70.0 million of indemnification receivable from
SAC, and stockholders equity was approximately
$2,708.2 million.

Net cash provided by operating activities was
$409.7 million in the nine months ended September 30,
2001, and $345.5 million in the nine months ended
September 30, 2000. For the nine months ended
September 30, 2001, cash provided by operating activities
resulted primarily from income after adjustments to exclude
non-cash charges, including amortization of intangibles related
to acquisition activities, tax benefits from stock plans, a
decrease in accounts receivables and an increase in deferred
revenue, partially offset by decreases in accrued acquisition
and restructuring costs and deferred income taxes. For the nine
months ended September 30, 2000, cash provided by operating
activities resulted primarily from income after adjustments to
exclude non-cash charges, including amortization of intangibles
related to acquisition activities, tax benefits from stock
plans, increases in deferred revenue and accrued compensation
and benefits, partially offset by a decrease in deferred income
taxes and increases in accounts receivable and other assets.

Our investing activities used cash of
$781.7 million in the nine months ended September 30,
2001, and $18.2 million in the nine months ended
September 30, 2000. For the nine months ended
September 30, 2001, the primary use of cash was for the net
purchases of short-term and long-term investments of
$616.3 million, and for property and equipment of
$124.3 million. For the nine months ended
September 30, 2000, the primary use of cash was to purchase
property and equipment of $83.1 million and strategic
investments of $22.0 million, partially offset by the net
decrease in short-term and long-term investments of
$89.4 million.

Financing activities provided cash of
$85.1 million in the nine months ended September 30,
2001, and $87.0 million in the nine months ended
September 30, 2000 from the issuance of common stock under
our employee stock plans.



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

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

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

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



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

During the third and fourth quarters of 2001, we
extended and amended the term of our $50.0 million
unsecured credit facility with a syndicate of financial
institutions. At September 30, 2001, 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 1.625% over LIBOR, and are subject to our
compliance with financial and other covenants. The credit
agreement requires us to maintain specified financial covenants
such as earnings before interest, taxes, depreciation and
amortization (EBITDA), debt on EBITDA and quick
ratio, all of which we were in compliance with as of
September 30, 2001.

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

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

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During the third and fourth quarters of 2001, we
amended our existing lease agreement, originally signed in the
third quarter of 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 being
completed in the fourth quarter of 2002. The facilities will
provide space for research and development and general corporate
functions. The lease term for the first phase is five years
beginning in July 2000, with an option to extend the lease term
for two successive periods of one year each. We have the option
to purchase the property (land and first phase facilities) for
$243.0 million or, at the end of the lease, to arrange for
the sale of the property to a third party 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. We anticipate
occupying the new campus facilities and beginning the lease
payments in the fourth quarter of 2002 for the first phase. 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.

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 September 30, 2001.

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

Factors That May Affect Future
Results

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



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

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



| |   |                                                                                                                                                                                                                                        
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the possibility that our customers may cancel,
	defer or limit purchases as a result of reduced information
	technology budgets or the current weak or uncertain general
	economic and industry conditions;                            
|
| |  | the timing and magnitude of sales through our
	original equipment manufacturer customers, including
	Hewlett-Packard, IBM, Microsoft, Oracle and Sun Microsystems;                                                                     
|
| |  | the possibility that a slowdown in sales by our
	original equipment manufacturer customers could result in
	reduced demand for our products and services;                                                                              
|
| |  | the unpredictability of the timing and magnitude
	of sales to the retail channel by our resellers and sales by our
	direct sales force, which tend to generate sales later in our
	quarters than original equipment manufacturer sales;
|
| |  | the timing and magnitude of direct sales to
	end-user customers;                                                                                                                                                                       
|
| |  | the timing of revenue recognition for sales of
	software products and services;                                                                                                                                                        
|
| |  | the introduction, timing and market acceptance of
	new products and services;                                                                                                                                                          

25



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##### 





| |   |                                                                                                                                                                                                                                                                                                                                   
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | changes in data storage and networking technology
	or introduction of new operating system upgrades by our original
	equipment manufacturer customers, which could require us to
	modify our products and services or to develop new products and
	services;                                                                      
|
| |  | the relative growth rates of the Windows NT, UNIX
	and Linux markets;                                                                                                                                                                                                                                                             
|
| |  | the rate of adoption of storage area networks and
	the timing and magnitude of sales of our storage area networking
	products and services;                                                                                                                                                                                       
|
| |  | the rate of adoption of network attached storage
	appliance technology and the timing and magnitude of sales of
	our network attached storage appliance products and services;                                                                                                                                                    
|
| |  | the extent to which our customers renew their
	service and maintenance contracts with us;                                                                                                                                                                                                                                         
|
| |  | changes in our pricing policies and distribution
	terms;                                                                                                                                                                                                                                                                          
|
| |  | the timing and amount of revenue attributable to
	our end-user customers whose businesses are substantially
	dependent on the Internet or the telecommunications markets,
	whose ability to purchase our products may be adversely affected
	by their inability to raise additional capital or to meet their
	business objectives;
|
| |  | the possibility that our customers may defer
	purchases in anticipation of new products or product updates by
	us or by our competitors;                                                                                                                                                                                          
|
| |  | the 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;                                                                                                                        
|
| |  | 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;                      
|
| |  | the overall demand for data availability products
	and services, which is likely to be lower in weak or uncertain
	general economic and industry conditions; and                                                                                                                                                                  
|
| |  | the possibility of a worsening of the current
	weak or uncertain general economic and industry conditions.                                                                                                                                                                                                                        

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



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

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

26



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##### 



the timing of these large orders, which makes it
difficult for us to predict that revenue. The factors that could
delay these large orders include:




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



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

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



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

We have committed a significant amount of money
to obtaining additional facilities to accommodate our current
and future anticipated growth. To the extent that this
anticipated growth does not occur or occurs more slowly that we
anticipate, we may not be able to reduce expenses to the same
degree. If we incur operating expenses out of proportion to
revenue in any given quarter, our operating results could be
adversely impacted.



| |                                                         
| | --------------------------------------------------------
| | We may be unable to hire and retain
	qualified employees

Our future growth and success depends on our
ability to hire and retain qualified employees as needed, and to
manage our employee base effectively. If we are unable to hire
and retain qualified employees, our business and operating
results could be adversely affected. Conversely, if we fail to
manage employee performance or reduce staffing levels when
necessary, our costs would be excessive and our business and
operating results could be adversely affected. Our personnel
needs generally are more acute than those facing most companies.
We need to hire and retain sales, technical and senior
management personnel to support the planned expansion of our
business and to meet the anticipated increased customer demand
for our products and services. Competition for people with the
skills we require is intense, particularly in the San Francisco
Bay area where our headquarters are located, and the high cost
of living in this area make our recruiting and compensation
costs higher. As a result, we expect to continue to experience
increases in compensation costs. In addition, the exercise of
stock options in the U.S. and certain foreign jurisdictions may
result in substantial

27



---



##### 



increases in our employer payroll tax
liabilities. We cannot assure you that we will be successful in
hiring or retaining new personnel. Even if we are successful in
hiring and retaining new personnel, the resulting growth is
likely to be disruptive to our business and could have an
adverse effect on our ability to maintain our anticipated growth.




| |                                                               
| | --------------------------------------------------------------
| | The loss of key personnel could adversely
	affect our business

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



| |                                               
| | ----------------------------------------------
| | We face intense competition on several
	fronts

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

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



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

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

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



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

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

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



| |   |                                                                   
| | - | ------------------------------------------------------------------
| |  | longer sales cycles for direct sales efforts;                     
|
| |  | our need to hire, train, retain and motivate our
	sales force; and

28



---



##### 





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

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



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

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



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

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



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

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

29



---



##### 





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

We derive and expect to derive a substantial
majority of our revenue from a limited number of software
products. If many customers do not purchase these products as a
result of competition, technological change, budget constraints
or other factors, our revenue would decrease and our business
and operating results would be adversely affected. For the nine
months ended September 30, 2001 and 2000, we derived
approximately $720 million, or 85%, and $575 million,
or 84%, respectively, of our license revenue from storage
management products, including VERITAS Volume Manager, VERITAS
File System, VERITAS NetBackup and VERITAS Backup Exec.



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

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



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

Our future success depends on our ability to
address the rapidly changing needs of our customers by
developing and introducing new products, product updates and
services on a timely basis, by extending the operation of our
products on new platforms and by keeping pace with technological
developments and emerging industry standards. In order to grow
our business, we are committing substantial resources to
developing new software products and services, including
software products and services for the storage area networking
market and the network attached storage appliance market. Each
of these markets is new and unproven, and industry standards for
these markets are evolving and changing. If these markets do not
develop as anticipated, or demand for our products and services
in these markets does not materialize or occurs more slowly 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 foreign sales and operations create
	special problems that could adversely affect our operating
	results

An investment in our securities is riskier than
an investment in many businesses because we expect to derive an
increasing percentage of our revenue from customers located
outside of the U.S. We have significant operations outside of
the U.S., including engineering, sales, customer support and
production operations, and we plan to expand our international
operations. As of September 30, 2001, we had approximately
1,001 employees in Europe, 675 employees in the
Asia-Pacific region, and 102 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;                                                                                                                                                                

30



---



##### 





| |   |                                                                                                                                                                                                                                                                 
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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, whether related to
	the United States actions in Afghanistan or otherwise,
	particularly in areas in which we have facilities.                                                                                                  

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



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

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

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



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

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



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

In November 2000, in the leveraged buyout and
merger transaction involving VERITAS and Seagate Technology,
Seagate Technology sold all of its operating assets to Suez
Acquisition (Cayman) Company, and Seagate Technology became our
subsidiary. As part of the transaction, Suez Acquisition Company
assumed and agreed to indemnify our subsidiary and us for
substantially all liabilities arising in connection with
Seagates operations prior to the transaction. However,
governmental organizations or other third parties may seek
recourse against our subsidiary or us for these liabilities.
Prior to the transaction, Seagate was a large, multinational
enterprise that owned or leased facilities and offices in
numerous states and foreign countries

31



---



##### 



and employed over 60,000 people worldwide. As a
result, our subsidiary could receive claims related to a wide
range of possible liabilities. Some areas of potential liability
include:




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

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



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

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



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

A court could also proceed against the
consideration paid to Seagates stockholders in the merger,
or against Seagates tax refunds and credits otherwise
payable to Seagates former stockholders following the
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 revenue and
income before taxes. We are also subject to changing tax laws in
multiple jurisdictions in which we operate. We do not have a
history of audit activity from various taxing authorities and
while we believe we are in compliance with all federal, state
and international tax laws, there are various interpretations of
their application that could result in additional tax
assessments. In addition, in November 2000, we acquired Seagate
Technology, which has significant tax audit and tax litigation
activity. We believe that we have meritorious defense against
asserted deficiencies and that the likely outcome of a
re-determination of these asserted deficiencies by the United
States Tax Court and tax settlement authorities will not result
in an additional provision for income taxes. We have an
indemnification agreement with Suez Acquisition (Cayman) Company
for these deficiencies. If Suez Acquisition (Cayman) Company is
unable to or is

32



---



##### 



unwilling to indemnify our subsidiary or us under
the indemnification agreement for any of these deficiencies, we
could experience a material adverse effect on our business and
operating results.




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

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



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



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

The significant costs of integration associated
with the NSMG, TeleBackup and NuView acquisitions in 1999
increase the risk that we will not realize the anticipated
benefits of those acquisitions. Because we accounted for these
three acquisitions using the purchase method of accounting, we
recorded goodwill and other intangible assets of approximately
$3,754.9 million in 1999. This amount is being amortized
over four years, and is resulting in charges to operations of
approximately $234.8 million in the fourth quarter of 2001.
As a result of these charges, we expect to continue to have net
losses in the fourth quarter of 2001. On January 1, 2002,
upon adoption of newly issued SFAS 141, Business
Combinations,and SFAS 142, Goodwill and Other
Intangible Assets,the quarterly charges related to the
amortization of developed technology, goodwill and other
intangibles will change. As extensive effort is needed to comply
with adopting SFAS 141 and 142, it is not practicable to
reasonably estimate the impact of adopting these statements on
our financial statements at the date of this report.



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

In October 1997, we issued $100.0 million in
aggregate principal amount of 5.25% convertible subordinated
notes due 2004, of which $64.5 million was outstanding as
of September 30, 2001. In August 1999, we issued
$465.8 million aggregate principal amount at maturity of
1.856% convertible subordinated notes due 2006, of which
$464.7 million was outstanding as of September 30,
2001. As of September 30, 2001, the annual interest
payments on our outstanding 5.25% notes were $3.4 million
and the annual interest payments on our outstanding 1.856% notes
were $8.6 million, all of which we plan to fund from cash
flows from operations. We 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, the notes could be declared immediately due
and payable if we do not make timely payments. Our substantial
leverage could also increase our vulnerability to general
adverse economic and industry conditions because it makes it
more difficult for us to raise capital if needed.



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

33



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##### 



information adequately. In addition, because we
license the source code for some of our products, there is a
higher likelihood of misappropriation or other misuse of our
intellectual property. We also license some of our products
under shrink wrap license agreements that are not signed by
licensees and therefore may be unenforceable under the laws of
some jurisdictions. Despite our efforts to protect our
proprietary rights, unauthorized parties may attempt to copy our
products or to obtain or use information that we regard as
proprietary.




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

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



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

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



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

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



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

We must protect our business and our network
infrastructure against damage from earthquake, flood, hurricane
and similar events, as well as from power outages. Many of our
operations are subject to these risks, particularly our
operations located in California. We have already experienced
temporary power losses in our California facilities due to power
shortages that have disrupted our operations, and we expect in
the future to experience additional power losses that could
disrupt our operations. While the impact to our business and
operating results has not been material, we cannot assure you
that power losses will not adversely affect our business in the
future, or that the cost of acquiring sufficient power to run
our business will not increase

34



---



##### 



significantly. Since we do not have sufficient
redundancy in our networking infrastructure, a natural disaster
or other unanticipated problem at our primary data center could
have an adverse effect on our business, including both our
internal operations and our ability to communicate with our
customers or sell our products over the Internet.




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

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



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

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



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

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



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

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

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).

35



---



##### 



Our outstanding forward contracts as of
September 30, 2001 are presented in the table below. All
forward contract amounts are representative of the expected
payments to be made under these instruments. All forward
contracts mature in 89 days or less as of
September 30, 2001 (dollars in thousands):

|                       |  |                 |                 |                 |  |                       |              |  |  |  |        |  
|---------------------- |  | --------------- | --------------- | --------------- |  | --------------------- | ------------ |  |  |  | ------ | -
|                       |  |                 |                 |                 |  | Fair Market Value    
|                       |  | Local Currency  |                 |                 |  | at September 30, 2001
|                       |  | Contract Amount |                 | Contract Amount |  | (US $)               
|                       |  |                 |                 |                 |  |                      
|Contracts to Sell US $ |  |                 |                 |                 |  |                       |              |  |  |  |        |  
|British pound          |  |                 | 7,986.8 GBP     |                 |  |                       | 11,778.4 USD |  |  |  | (21.6  | )
|Danish krone           |  |                 | 1,000.0 DKK     |                 |  |                       | 124.0 USD    |  |  |  | (1.5   | )
|Euro                   |  |                 | 58,610.8 EUR    |                 |  |                       | 53,992.2 USD |  |  |  | (721.2 | )
|Norwegian kroner       |  |                 | 1,500.0 NOK     |                 |  |                       | 171.7 USD    |  |  |  | (2.9   | )
|Swedish krona          |  |                 | 4,613.5 SEK     |                 |  |                       | 429.1 USD    |  |  |  | 2.4    |  
|                      
|Contracts to Buy US $  |  |                 |                 |                 |  |                       |              |  |  |  |        |  
|Australian dollar      |  |                 | 7,000.0 AUD     |                 |  |                       | 3,416.4 USD  |  |  |  | (20.7  | )
|Brazilian reals        |  |                 | 2,100.0 BRL     |                 |  |                       | 791.0 USD    |  |  |  | 21.5   |  
|Canadian dollar        |  |                 | 2,000.0 CAD     |                 |  |                       | 1,271.4 USD  |  |  |  | 4.8    |  
|Japanese yen           |  |                 | 1,182,600.0 JPY |                 |  |                       | 10,064.2 USD |  |  |  | 125.9  |  
|Mexican peso           |  |                 | 11,000.0 MXN    |                 |  |                       | 1,146.3 USD  |  |  |  | (0.8   | )
|                      
|Contracts to Buy Euro  |  |                 |                 |                 |  |                       |              |  |  |  |        |  
|Australian dollar      |  |                 | 8,900.0 AUD     |                 |  |                       | 4,723.7 EUR  |  |  |  | (86.9  | )
|British pound          |  |                 | 15,480.0 GBP    |                 |  |                       | 24,696.5 EUR |  |  |  | (298.8 | )
|Indian rupee           |  |                 | 30,200.0 INR    |                 |  |                       | 670.9 EUR    |  |  |  | (15.6  | )
|Japanese yen           |  |                 | 285,388.0 JPY   |                 |  |                       | 2,628.4 EUR  |  |  |  | (3.4   | )
|Swiss franc            |  |                 | 4,650.0 CHF     |                 |  |                       | 3,153.8 EUR  |  |  |  | (3.2   | )

Interest Rate Risk

Our exposure to market risk for changes in
interest rates relates primarily to our investment portfolio and
long-term debt obligations. Our primary investment objective is
to preserve principal while at the same time maximizing yields
without significantly increasing risk. Our portfolio includes
money markets funds, commercial paper, medium-term notes,
corporate notes, government securities and market auction
preferreds. The diversity of our portfolio helps us to achieve
our investment objective. As of September 30, 2001,
approximately 62% of our investment portfolio is composed of
investments with original maturities of one year or less and
approximately 29% of our investment portfolio matures less than
90 days from the date of purchase.

Long-term debt of $440.4 million consists of
5.25% convertible subordinated notes due 2004 of
$64.5 million (the 5.25% notes) and 1.856%
convertible subordinated notes due 2006 of $375.9 million
(the 1.856% notes). The interest rate of 1.856% on
the 1.856% notes, together with the accrual of original issue
discount, represents a yield to maturity of 6.5%. The nominal
interest rate on these notes is fixed and the notes provide for
semi-annual interest payments of approximately $1.7 million
each May 1 and November 1 for the 5.25% notes and approximately
$4.3 million each February 13 and August 13 for
the 1.856% notes. The notes are convertible into our common
stock at any time prior to the close of business on the maturity
date, unless previously redeemed or repurchased, subject to
adjustment in certain events.

The following table presents the amounts of our
cash equivalents, investments and long-term debt that may be
subject to interest rate risk and the average interest rates as
of September 30, 2001 by year of maturity.

36



---



##### 



At September 30, 2001, amortized cost
approximated fair value for all cash equivalents and investments
(dollars in thousands):


|                                                   |                       |      |   |            |   |            |   |            |   |            |   |           |   |  |   |           |   |  |   |         |  
|-------------------------------------------------- | --------------------- | ---- | - | ---------- | - | ---------- | - | ---------- | - | ---------- | - | --------- | - |  | - | --------- | - |  | - | ------- | -
|                                                   |                       |      |   | 2002 and   |   |            |   | Fair Value |   |           
|                                                   |                       | 2001 |   | Thereafter |   | 2001 Total |   | Total 2001 |   | Total 2000
|                                                   |                       |      |   |            |   |            |   |            |   |           
|Cash equivalents and short-term Investments:       |                       |      |   |            |   |            |   |            |   |            |   |           |   |  |   |           |   |  |   |        
|                                                   | Fixed rate            |      | $ | 443,563    |   |            | $ | 397,940    |   |            | $ | 841,503   |   |  | $ | 850,654   |   |  | $ | 790,276 |  
|                                                   | Average fixed rate    |      |   | 3.68       | % |            |   | 4.57       | % |            |   | 4.10      | % |  |   | 4.05      | % |  |   | 6.46    | %
|                                                   | Variable rate         |      | $ | 177,830    |   |            |   |           |   |            | $ | 177,830   |   |  | $ | 177,830   |   |  | $ | 24,040  |  
|                                                   | Average variable rate |      |   | 3.14       | % |            |   |           |   |            |   | 3.14      | % |  |   | 3.14      | % |  |   | 6.56    | %
|Total cash equivalents and short-term investments: |                       |      |   |            |   |            |   |            |   |            |   |           |   |  |   |           |   |  |   |        
|                                                   | Investments           |      | $ | 621,393    |   |            | $ | 397,940    |   |            | $ | 1,019,333 |   |  | $ | 1,028,484 |   |  | $ | 814,316 |  
|                                                   | Average rate          |      |   | 3.52       | % |            |   | 4.57       | % |            |   | 3.93      | % |  |   | 3.90      | % |  |   | 6.46    | %
|Long-term investments:                             |                       |      |   |            |   |            |   |            |   |            |   |           |   |  |   |           |   |  |   |        
|                                                   | Fixed rate            |      |   |           |   |            | $ | 267,119    |   |            | $ | 267,119   |   |  | $ | 271,333   |   |  | $ | 125,966 |  
|                                                   | Average fixed rate    |      |   |           |   |            |   | 4.81       | % |            |   | 4.81      | % |  |   | 4.73      | % |  |   | 6.89    | %
|                                                   | Variable rate         |      |   |           |   |            |   |           |   |            |   |          |   |  |   |          |   |  | $ | 1,500   |  
|                                                   | Average fixed rate    |      |   |           |   |            |   |           |   |            |   |          |   |  |   |          |   |  |   | 6.63    | %
|Total long-term investments:                       |                       |      |   |            |   |            |   |            |   |            |   |           |   |  |   |           |   |  |   |        
|                                                   | Investments           |      |   |           |   |            | $ | 267,119    |   |            | $ | 267,119   |   |  | $ | 267,587   |   |  | $ | 127,466 |  
|                                                   | Average variable rate |      |   |           |   |            |   | 4.81       | % |            |   | 4.81      | % |  |   | 4.74      | % |  |   | 6.89    | %
|Long-term debt:                                    |                       |      |   |            |   |            |   |            |   |            |   |           |   |  |   |           |   |  |   |        
|                                                   | Fixed rate            |      |   |           |   |            | $ | 440,437    |   |            | $ | 440,437   |   |  | $ | 505,170   |   |  | $ | 459,812 |  
|                                                   | Average fixed rate    |      |   |           |   |            |   | 6.32       | % |            |   | 6.32      | % |  |   | 6.32      | % |  |   | 6.23    | %

In September 2000, we entered into a three year
cross currency interest rate swap transaction (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 at September 30,
2001, twenty-three monthly payments of EUR 4,316.3 million
remained to be swapped at a forward exchange rate 0.89070
U.S. dollar per Euro. The fair market value of the swap at
September 30, 2001 was $(1.2) 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, we are still subject to
fluctuations in U.S. dollar interest rates. As of
September 30, 2001 the impact of these fluctuations was not
significant.

Equity Price Risk

We are exposed to equity price risk on the
marketable portion of our portfolio of equity securities
investments. We typically do not attempt to reduce or eliminate
our market exposure on these equity securities. These
investments are in companies in the high-technology industry. As
of September 30, 2001, we held one marketable equity security,
representing a total market value of $0.9 million. Assuming
a 10% adverse change, our marketable equity securities
investments would decrease in value by approximately
$0.1 million. If our marketable equity security investments
as of September 30, 2001 had been valued using prices as of
October 31, 2001, the value of these securities would have
increased by approximately $0.2 million, or 27%. This
estimate is not necessarily indicative of future performance and
actual results may differ materially.

37



---



##### 



We also have begun to make investments in
development-stage companies that we believe provide strategic
opportunities for us. We intend that these investments will
provide access to new technologies and emerging markets, and
create opportunities for additional sales of our products and
services. During the third quarter of 2001, we recognized
impairment losses on our strategic investments when we
determined that there has been a decline in the fair value of
the investment that was other than temporary. For the three and
nine months ended September 30, 2001, we recorded
impairment losses on strategic investments of
$16.1 million. The losses represented write-downs of the
carrying amount of our investments and were determined by using,
among other factors, an investees significant decline in
stock value, its inability to obtain additional private
financing, and the uncertainty of its financial conditions. 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

|        |       |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|------- | ----- | ----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |       |            
|Number  |       | Description
|        |       |            
|        | 10.01 |             |  | Fourth Amendment and Restatement of Certain
	Operative Agreements dated as of September 26, 2001 among
	VERITAS Software Global Corporation (VSGC), the
	various parties to the participation agreement and other
	operative agreements from time to time, Wells Fargo Bank
	Northwest, National Association, as Owner Trustee,
	the various banks and other lending institutions which are
	parties to the participation agreement and other operative
	agreements from time to time as Holders, the various
	banks and other lending institutions which are parties to the
	participation agreement and other operative agreements from time
	to time as Lenders and Bank of America, N.A., as the
	Agent for the secured parties.
|        | 10.02 |             |  | Third Amendment and Restatement of Certain
	Operative Agreements dated as of September 26, 2001 among
	VSGC, the various parties to the participation agreement and
	other operative agreements from time to time, Wells Fargo Bank
	Northwest, National Association, as Owner Trustee,
	the various banks and other lending institutions which are
	parties to the participation agreement and other operative
	agreements from time to time as Holders, the various
	banks and other lending institutions which are parties to the
	participation agreement and other operative agreements from time
	to time as Lenders and Bank of America, N.A., as the
	Agent for the secured parties.                                          
|        | 10.03 |             |  | VERITAS Participation Agreement First Amendment
	dated as of September 27, 2001 by and among VSGC, the
	various parties thereto from time to time, Wells Fargo Bank
	Northwest, National Association as Owner Trustee,
	the various banks and other lending institutions which are
	parties thereto from time to time as Holders or
	Lenders and ABN Amro Bank N.V. as Agent.                                                                                                                                                                                                                                                                                                                                                         
|        | 10.04 |             |  | Amended and Restated Credit Agreement dated as of
	September  27, 2001 among VSGC, the various parties thereto
	from time to time, ABN Amro Bank N.V., Credit Suisse
	First Boston and Credit Lyonnais Los Angeles Branch.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|        | 10.05 |             |  | Fifth Amendment and Restatement of Certain
	Operative Agreements, dated as of November 2, 2001 among
	VSGC, the various parties to the participation agreement and
	other operative agreements from time to time, Wells Fargo Bank
	Northwest, National Association, as Owner Trustee,
	the various banks and other lending institutions which are
	parties to the participation agreement and other operative
	agreements from time to time as Holders, the various
	banks and other lending institutions which are parties to the
	participation agreement and other operative agreements from time
	to time as Lenders, and Bank of America, N.A., as the
	Agent for the secured parties.                                           

38



---



##### 



|        |       |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|------- | ----- | ----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |       |            
|Number  |       | Description
|        |       |            
|        | 10.06 |             |  | Fourth Amendment and Restatement of Certain
	Operative agreements, dated as of November 2, 2001 among
	VSGC, the various parties to the participation agreement and
	other operative agreements from time to time, Wells Fargo Bank
	Northwest, National Association, as Owner Trustee,
	the various banks and other lending institutions which are
	parties to the participation agreement and other operative
	agreements from time to time as Holders, the various
	banks and other lending institutions which are parties to the
	participation agreement and other operative agreements from time
	to time as Lenders, and Bank of America, N.A., as
	the Agent for the secured parties.
|        | 10.07 |             |  | VERITAS Participation Agreement Second Amendment
	dated as of November 7, 2001 by and among VSGC, the various
	parties thereto from time to time, Wells Fargo Bank Northwest,
	National Association as Owner Trustee, the various
	banks and other lending institutions which are parties thereto
	from time to time as Holders or Lenders
	and ABN Amro Bank N.V. as Agent.                                                                                                                                                                                                                                                                                                                 
|        | 10.08 |             |  | First Amendment to the Amended and Restated
	Credit Agreement dated as of November 7, 2001 by and among
	VSGC, the various parties thereto from time to time, each of the
	financial institutions from time to time listed in
	Schedule I thereto, as amended from time to time as
	Lenders, Credit Suisse First Boston as
	Documentation Agent, Credit Lyonnais Los Angeles
	Branch as Syndication Agent, and ABN Amro Bank N.V.
	as Administrative Agent.                                                                                                                                                                                                                                  

(b)  Reports on Form 8-K

|               |         |         |  |             |     |  |  |                                                                                                                 
|-------------- | ------- | ------- |  | ----------- | --- |  |  | ----------------------------------------------------------------------------------------------------------------
|Date of Report |         | Item(s) |  | Description
|               |         |         |  |            
|               | 7/17/01 |         |  |             | 5.7 |  |  | VERITAS announced financial results for its
	second quarter ended June 30, 2001 and included the press
	release.

39



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##### 



SIGNATURE

Pursuant to the requirements of the Securities
Exchange Act of 1934, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly
authorized, on November 14, 2001



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

40



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##### 



EXHIBIT INDEX

|        |       |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|------- | ----- | ----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |       |            
|Number  |       | Description
|        |       |            
|        | 10.01 |             |  | Fourth Amendment and Restatement of Certain
	Operative Agreements dated as of September 26, 2001 among
	VERITAS Software Global Corporation (VSGC), the
	various parties to the participation agreement and other
	operative agreements from time to time, Wells Fargo Bank
	Northwest, National Association, as Owner Trustee,
	the various banks and other lending institutions which are
	parties to the participation agreement and other operative
	agreements from time to time as Holders, the various
	banks and other lending institutions which are parties to the
	participation agreement and other operative agreements from time
	to time as Lenders and Bank of America, N.A., as the
	Agent for the secured parties.
|        | 10.02 |             |  | Third Amendment and Restatement of Certain
	Operative Agreements dated as of September 26, 2001 among
	VSGC, the various parties to the participation agreement and
	other operative agreements from time to time, Wells Fargo Bank
	Northwest, National Association, as Owner Trustee,
	the various banks and other lending institutions which are
	parties to the participation agreement and other operative
	agreements from time to time as Holders, the various
	banks and other lending institutions which are parties to the
	participation agreement and other operative agreements from time
	to time as Lenders and Bank of America, N.A., as the
	Agent for the secured parties.                                          
|        | 10.03 |             |  | VERITAS Participation Agreement First Amendment
	dated as of September 27, 2001 by and among VSGC, the
	various parties thereto from time to time, Wells Fargo Bank
	Northwest, National Association as Owner Trustee,
	the various banks and other lending institutions which are
	parties thereto from time to time as Holders or
	Lenders and ABN Amro Bank N.V. as Agent.                                                                                                                                                                                                                                                                                                                                                         
|        | 10.04 |             |  | Amended and Restated Credit Agreement dated as of
	September  27, 2001 among VSGC, the various parties thereto
	from time to time, ABN Amro Bank N.V., Credit Suisse
	First Boston and Credit Lyonnais Los Angeles Branch.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|        | 10.05 |             |  | Fifth Amendment and Restatement of Certain
	Operative Agreements, dated as of November 2, 2001 among
	VSGC, the various parties to the participation agreement and
	other operative agreements from time to time, Wells Fargo Bank
	Northwest, National Association, as Owner Trustee,
	the various banks and other lending institutions which are
	parties to the participation agreement and other operative
	agreements from time to time as Holders, the various
	banks and other lending institutions which are parties to the
	participation agreement and other operative agreements from time
	to time as Lenders, and Bank of America, N.A., as the
	Agent for the secured parties.                                           
|        | 10.06 |             |  | Fourth Amendment and Restatement of Certain
	Operative agreements, dated as of November 2, 2001 among
	VSGC, the various parties to the participation agreement and
	other operative agreements from time to time, Wells Fargo Bank
	Northwest, National Association, as Owner Trustee,
	the various banks and other lending institutions which are
	parties to the participation agreement and other operative
	agreements from time to time as Holders, the various
	banks and other lending institutions which are parties to the
	participation agreement and other operative agreements from time
	to time as Lenders, and Bank of America, N.A., as
	the Agent for the secured parties.                                         
|        | 10.07 |             |  | VERITAS Participation Agreement Second Amendment
	dated as of November 7, 2001 by and among VSGC, the various
	parties thereto from time to time, Wells Fargo Bank Northwest,
	National Association as Owner Trustee, the various
	banks and other lending institutions which are parties thereto
	from time to time as Holders or Lenders
	and ABN Amro Bank N.V. as Agent.                                                                                                                                                                                                                                                                                                                                                          
|        | 10.08 |             |  | First Amendment to the Amended and Restated
	Credit Agreement dated as of November 7, 2001 by and among
	VSGC, the various parties thereto from time to time, each of the
	financial institutions from time to time listed in
	Schedule I thereto, as amended from time to time as
	Lenders, Credit Suisse First Boston as
	Documentation Agent, Credit Lyonnais Los Angeles
	Branch as Syndication Agent, and ABN Amro Bank N.V.
	as Administrative Agent.                                                                                                                                                                                                                                                                           

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