##### Table of Contents









UNITED STATES SECURITIES AND EXCHANGE
COMMISSION

Washington, D.C. 20549




---

Form 10-Q



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|           |  |                                                                                                 
|---------- |  | ------------------------------------------------------------------------------------------------
|(Mark One) |  |                                                                                                 
|þ          |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR
    15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934 
|          
|           |  | For the quarterly period ended March 31,
    2003                                               
|          
|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(State or Other Jurisdiction of
    Incorporation or Organization) |  | 77-0507675(I.R.S. Employer
    Identification No.)

350 Ellis Street

Mountain View, California 94043


(650) 527-8000


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


Registrants Telephone Number, including
Area Code)




---

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

Indicate by check mark whether the registrant is
an accelerated filer (as defined in Rule 12b-2 of the
Exchange
Act).     Yes þ          No o

The number of shares of the registrants
common stock outstanding as of April 30, 2003 was
414,790,342 shares.



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TABLE OF CONTENTS



|                                      |                                                                                               |                                                      |  |  |  |  |  | 
|------------------------------------- | --------------------------------------------------------------------------------------------- | ---------------------------------------------------- |  |  |  |  |  | 
|PART I: FINANCIAL INFORMATION        
|                                      | Item 1. Condensed Consolidated Financial Statements                                          
|                                      |                                                                                               | CONDENSED CONSOLIDATED BALANCE SHEETS               
|                                      |                                                                                               | CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS     
|                                      |                                                                                               | CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS     
|                                      |                                                                                               | NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|                                      | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                                      | Item 3. Quantitative and Qualitative Disclosures About Market Risk                           
|                                      | Item 4. Controls and Procedures                                                              
|PART II: OTHER INFORMATION           
|                                      | Item 1. Legal Proceedings                                                                    
|                                      | Item 4. Submission of Matters to a Vote of Security Holders                                  
|                                      | Item 6. Exhibits and Reports on Form 8-K                                                     
|SIGNATURE                            
|CHIEF EXECUTIVE OFFICER CERTIFICATION
|CHIEF FINANCIAL OFFICER CERTIFICATION
|EXHIBIT INDEX                        
|EXHIBIT 10.01                        
|EXHIBIT 99.01                        



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##### Table of Contents



VERITAS SOFTWARE CORPORATION

INDEX

|                              |  |                                                                                                    |    |      |    |  |  | 
|----------------------------- |  | -------------------------------------------------------------------------------------------------- | -- | ---- | -- |  |  | 
|                              |  |                                                                                                    |    | Page
|                              |  |                                                                                                    |    |     
|PART I: FINANCIAL INFORMATION
|Item 1.                       |  | Condensed Consolidated Financial Statements:                                                       |    |      |    | 
|                              |  | Condensed Consolidated Balance Sheets as of March 31, 2003 and December 31, 2002                   |    |      | 2  | 
|                              |  | Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2003 and 2002 |    |      | 3  | 
|                              |  | Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2003 and 2002 |    |      | 4  | 
|                              |  | Notes to Condensed Consolidated Financial Statements                                               |    |      | 5  | 
|Item 2.                       |  | Managements Discussion and Analysis of Financial Condition and Results of Operations              |    |      | 18 | 
|Item 3.                       |  | Quantitative and Qualitative Disclosures About Market Risk                                         |    |      | 49 | 
|Item 4.                       |  | Controls and Procedures                                                                            |    |      | 51 | 
|PART II: OTHER INFORMATION   
|Item 1.                       |  | Legal Proceedings                                                                                  |    |      | 53 | 
|Item 4.                       |  | Submission of Matters to a Vote of Security Holders                                                |    |      | 54 | 
|Item 6.                       |  | Exhibits and Reports on Form 8-K                                                                   |    |      | 54 | 
|Signature                     |  |                                                                                                    | 56 |     
|Certifications                |  |                                                                                                    | 57 |     

1



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##### Table of Contents






PART I: FINANCIAL INFORMATION






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

VERITAS SOFTWARE CORPORATION






CONDENSED CONSOLIDATED BALANCE
SHEETS


(In thousands)


|                                            |                                                                                                                                  |                            |           |              |           |   |           |            |           | 
|------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------- | -------------------------- | --------- | ------------ | --------- | - | --------- | ---------- | --------- | 
|                                            |                                                                                                                                  | March 31,                  |           | December 31,
|                                            |                                                                                                                                  | 2003                       |           | 2002        
|                                            |                                                                                                                                  |                            |           |             
|                                            |                                                                                                                                  | (Unaudited)                |           |             
|ASSETS                                     
|Current assets:                             |                                                                                                                                  |                            |           |              |           |   |           |           
|                                            | Cash and cash equivalents                                                                                                        |                            | $         | 1,031,404    |           |   | $         | 764,062    |          
|                                            | Short-term investments                                                                                                           |                            |           | 1,362,703    |           |   |           | 1,477,259  |          
|                                            | Accounts receivable, net of allowance for
    doubtful accounts of $9,573 at March 31, 2003 and $11,308
    at December 31, 2002 |                            |           | 78,277       |           |   |           | 170,204    |          
|                                            | Other current assets                                                                                                             |                            |           | 75,230       |           |   |           | 74,178     |          
|                                            | Deferred income taxes                                                                                                            |                            |           | 60,070       |           |   |           | 59,995     |          
|                                            |                                                                                                                                  |                            |           |              |           |   |           |           
|                                            |                                                                                                                                  | Total current assets       |           |              | 2,607,684 |   |           |            | 2,545,698 | 
|Property and equipment, net                 |                                                                                                                                  |                            | 222,844   |              |           |   | 230,261   |           
|Other intangibles, net                      |                                                                                                                                  |                            | 49,766    |              |           |   | 72,594    |           
|Goodwill, net                               |                                                                                                                                  |                            | 1,239,909 |              |           |   | 1,196,593 |           
|Other non-current assets                    |                                                                                                                                  |                            | 14,311    |              |           |   | 26,624    |           
|Deferred income taxes                       |                                                                                                                                  |                            | 136,891   |              |           |   | 127,863   |           
|                                            |                                                                                                                                  |                            |           |              |           |   |           |           
|                                            |                                                                                                                                  | $                          | 4,271,405 |              |           | $ | 4,199,633 |           
|                                            |                                                                                                                                  |                            |           |              |           |   |           |           
|                                           
|LIABILITIES AND STOCKHOLDERS
    EQUITY   
|Current liabilities:                        |                                                                                                                                  |                            |           |              |           |   |           |           
|                                            | Accounts payable                                                                                                                 |                            | $         | 32,738       |           |   | $         | 33,823     |          
|                                            | Accrued compensation and benefits                                                                                                |                            |           | 66,957       |           |   |           | 97,233     |          
|                                            | Accrued acquisition and restructuring costs                                                                                      |                            |           | 38,843       |           |   |           | 37,742     |          
|                                            | Other accrued liabilities                                                                                                        |                            |           | 79,856       |           |   |           | 92,431     |          
|                                            | Income taxes payable                                                                                                             |                            |           | 155,285      |           |   |           | 123,569    |          
|                                            | Deferred revenue                                                                                                                 |                            |           | 298,117      |           |   |           | 280,314    |          
|                                            |                                                                                                                                  |                            |           |              |           |   |           |           
|                                            |                                                                                                                                  | Total current liabilities  |           |              | 671,796   |   |           |            | 665,112   | 
|Convertible subordinated notes              |                                                                                                                                  |                            | 464,497   |              |           |   | 460,252   |           
|Accrued acquisition and restructuring costs |                                                                                                                                  |                            | 74,433    |              |           |   | 77,402    |           
|Deferred and other income taxes             |                                                                                                                                  |                            | 113,100   |              |           |   | 113,100   |           
|                                            |                                                                                                                                  |                            |           |              |           |   |           |           
|                                            |                                                                                                                                  | Total liabilities          |           |              | 1,323,826 |   |           |            | 1,315,866 | 
|Stockholders equity:                       |                                                                                                                                  |                            |           |              |           |   |           |           
|                                            | Common stock                                                                                                                     |                            |           | 432          |           |   |           | 431        |          
|                                            | Additional paid-in capital                                                                                                       |                            |           | 6,357,619    |           |   |           | 6,334,581  |          
|                                            | Accumulated deficit                                                                                                              |                            |           | (1,703,186   | )         |   |           | (1,745,712 | )        
|                                            | Deferred stock-based compensation                                                                                                |                            |           | (4,939       | )         |   |           |           |          
|                                            | Accumulated other comprehensive loss                                                                                             |                            |           | (283         | )         |   |           | (3,469     | )        
|                                            | Treasury stock, at cost; 18,675 shares at
    March 31, 2003 and December 31, 2002                                               |                            |           | (1,702,064   | )         |   |           | (1,702,064 | )        
|                                            |                                                                                                                                  |                            |           |              |           |   |           |           
|                                            |                                                                                                                                  | Total stockholders equity |           |              | 2,947,579 |   |           |            | 2,883,767 | 
|                                            |                                                                                                                                  |                            |           |              |           |   |           |           
|                                            |                                                                                                                                  | $                          | 4,271,405 |              |           | $ | 4,199,633 |           
|                                            |                                                                                                                                  |                            |           |              |           |   |           |           

See accompanying notes to condensed consolidated
financial statements.

2



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##### Table of Contents



VERITAS SOFTWARE CORPORATION






CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS


(In thousands, except per share
amounts)


|                                                                   |                                      |                          |                            |            |         |         |         |         |         |         |        | 
|------------------------------------------------------------------ | ------------------------------------ | ------------------------ | -------------------------- | ---------- | ------- | ------- | ------- | ------- | ------- | ------- | ------ | 
|                                                                   |                                      |                         
|                                                                   |                                      | Three Months Ended      
|                                                                   |                                      | March 31,               
|                                                                   |                                      |                         
|                                                                   |                                      | 2003                     |                            | 2002      
|                                                                   |                                      |                          |                            |           
|                                                                   |                                      |                         
|                                                                   |                                      | (Unaudited)             
|Net revenue:                                                       |                                      |                          |                            |            |         |         |         |        
|                                                                   | User license fees                    |                          | $                          | 254,564    |         |         | $       | 259,711 |        
|                                                                   | Services                             |                          |                            | 139,822    |         |         |         | 110,738 |        
|                                                                   |                                      |                          |                            |            |         |         |         |        
|                                                                   |                                      | Total net revenue        |                            |            | 394,386 |         |         |         | 370,449 |        
|Cost of revenue:                                                   |                                      |                          |                            |            |         |         |         |        
|                                                                   | User license fees                    |                          |                            | 11,418     |         |         |         | 9,194   |        
|                                                                   | Services                             |                          |                            | 47,789     |         |         |         | 41,155  |        
|                                                                   | Amortization of developed technology |                          |                            | 14,782     |         |         |         | 16,903  |        
|                                                                   |                                      |                          |                            |            |         |         |         |        
|                                                                   |                                      | Total cost of revenue    |                            |            | 73,989  |         |         |         | 67,252  |        
|                                                                   |                                      |                          |                            |            |         |         |         |        
|                                                                   |                                      |                          | Gross profit               |            |         | 320,397 |         |         |         | 303,197 |       
|Operating expenses:                                                |                                      |                          |                            |            |         |         |         |        
|                                                                   | Selling and marketing                |                          |                            | 122,047    |         |         |         | 126,963 |        
|                                                                   | Research and development             |                          |                            | 71,383     |         |         |         | 65,184  |        
|                                                                   | General and administrative           |                          |                            | 38,153     |         |         |         | 33,113  |        
|                                                                   | Amortization of other intangibles    |                          |                            | 18,191     |         |         |         | 18,016  |        
|                                                                   | In-process research and development  |                          |                            | 4,100      |         |         |         |        |        
|                                                                   |                                      |                          |                            |            |         |         |         |        
|                                                                   |                                      | Total operating expenses |                            |            | 253,874 |         |         |         | 243,276 |        
|                                                                   |                                      |                          |                            |            |         |         |         |        
|                                                                   |                                      |                          | Income from operations     |            |         | 66,523  |         |         |         | 59,921  |       
|Interest and other income, net                                     |                                      |                          | 8,395                      |            |         |         | 13,153  |        
|Interest expense                                                   |                                      |                          | (7,738                     | )          |         |         | (7,921  | )      
|Loss on strategic investments                                      |                                      |                          | (3,518                     | )          |         |         |        |        
|                                                                   |                                      |                          |                            |            |         |         |         |        
|                                                                   |                                      |                          | Income before income taxes |            |         | 63,662  |         |         |         | 65,153  |       
|Provision for income taxes                                         |                                      |                          | 21,136                     |            |         |         | 20,687  |        
|                                                                   |                                      |                          |                            |            |         |         |         |        
|                                                                   |                                      |                          |                            | Net income |         | $       | 42,526  |         |         | $       | 44,466 | 
|                                                                   |                                      |                          |                            |            |         |         |         |        
|Net income per share  basic                                       |                                      | $                        | 0.10                       |            |         | $       | 0.11    |        
|                                                                   |                                      |                          |                            |            |         |         |         |        
|Number of shares used in computing per share
    amounts  basic   |                                      |                          | 412,916                    |            |         |         | 406,086 |        
|                                                                   |                                      |                          |                            |            |         |         |         |        
|Net income per share  diluted                                     |                                      | $                        | 0.10                       |            |         | $       | 0.11    |        
|                                                                   |                                      |                          |                            |            |         |         |         |        
|Number of shares used in computing per share
    amounts  diluted |                                      |                          | 419,380                    |            |         |         | 421,709 |        
|                                                                   |                                      |                          |                            |            |         |         |         |        

See accompanying notes to condensed consolidated
financial statements.

3



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##### Table of Contents



VERITAS SOFTWARE CORPORATION






CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS


(In thousands)


|                                                              |                                                                                       |                                                                                           |                                             |                                           |         |         |         |          |         |         |         | 
|------------------------------------------------------------- | ------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------- | ------------------------------------------- | ----------------------------------------- | ------- | ------- | ------- | -------- | ------- | ------- | ------- | 
|                                                              |                                                                                       |                                                                                          
|                                                              |                                                                                       | Three Months Ended                                                                       
|                                                              |                                                                                       | March 31,                                                                                
|                                                              |                                                                                       |                                                                                          
|                                                              |                                                                                       | 2003                                                                                      |                                             | 2002                                     
|                                                              |                                                                                       |                                                                                           |                                             |                                          
|                                                              |                                                                                       |                                                                                          
|                                                              |                                                                                       | (Unaudited)                                                                              
|Cash flows from operating activities:                         |                                                                                       |                                                                                           |                                             |                                           |         |         |         |         
|                                                              | Net income                                                                            |                                                                                           | $                                           | 42,526                                    |         |         | $       | 44,466   |        
|                                                              | Adjustments to reconcile net income to net cash
    provided by operating activities: |                                                                                           |                                             |                                           |         |         |         |          |        
|                                                              |                                                                                       | Depreciation and amortization                                                             |                                             |                                           | 24,611  |         |         |          | 24,809  |        
|                                                              |                                                                                       | Amortization of other intangibles                                                         |                                             |                                           | 18,191  |         |         |          | 18,016  |        
|                                                              |                                                                                       | Amortization of developed technology                                                      |                                             |                                           | 14,782  |         |         |          | 16,903  |        
|                                                              |                                                                                       | Amortization of original issue discount on
    convertible notes                          |                                             |                                           | 4,245   |         |         |          | 3,970   |        
|                                                              |                                                                                       | In-process research and development                                                       |                                             |                                           | 4,100   |         |         |          |        |        
|                                                              |                                                                                       | Provision for doubtful accounts                                                           |                                             |                                           | 724     |         |         |          | 988     |        
|                                                              |                                                                                       | Stock-based compensation                                                                  |                                             |                                           | 449     |         |         |          |        |        
|                                                              |                                                                                       | Tax benefits from stock plans                                                             |                                             |                                           | 1,642   |         |         |          | 15,920  |        
|                                                              |                                                                                       | Loss on strategic investments                                                             |                                             |                                           | 3,518   |         |         |          |        |        
|                                                              |                                                                                       | Deferred income taxes                                                                     |                                             |                                           | (13,397 | )       |         |          | (13,120 | )      
|                                                              |                                                                                       | Changes in operating assets and liabilities, net
    of effects of business acquisitions: |                                             |                                           |         |         |         |          |         |        
|                                                              |                                                                                       |                                                                                           | Accounts receivable                         |                                           |         | 91,203  |         |          |         | 50,673  |        
|                                                              |                                                                                       |                                                                                           | Other assets                                |                                           |         | 8,373   |         |          |         | 3,510   |        
|                                                              |                                                                                       |                                                                                           | Accounts payable                            |                                           |         | (1,295  | )       |          |         | 982     |        
|                                                              |                                                                                       |                                                                                           | Accrued compensation and benefits           |                                           |         | (30,381 | )       |          |         | (27,632 | )      
|                                                              |                                                                                       |                                                                                           | Accrued acquisition and restructuring costs |                                           |         | (4,945  | )       |          |         | (35     | )      
|                                                              |                                                                                       |                                                                                           | Other accrued liabilities                   |                                           |         | (10,611 | )       |          |         | 2,280   |        
|                                                              |                                                                                       |                                                                                           | Income taxes payable                        |                                           |         | 31,716  |         |          |         | 17,146  |        
|                                                              |                                                                                       |                                                                                           | Deferred revenue                            |                                           |         | 17,803  |         |          |         | 34,845  |        
|                                                              |                                                                                       |                                                                                           |                                             |                                           |         |         |         |         
|                                                              |                                                                                       |                                                                                           |                                             | Net cash provided by operating activities |         |         | 203,254 |          |         |         | 193,721 | 
|Cash flows from investing activities:                         |                                                                                       |                                                                                           |                                             |                                           |         |         |         |         
|                                                              | Purchases of investments                                                              |                                                                                           |                                             | (414,876                                  | )       |         |         | (299,369 | )      
|                                                              | Sales and maturities of investments                                                   |                                                                                           |                                             | 528,653                                   |         |         |         | 435,659  |        
|                                                              | Purchases of property and equipment                                                   |                                                                                           |                                             | (16,336                                   | )       |         |         | (15,297  | )      
|                                                              | Business acquisitions, net of cash acquired                                           |                                                                                           |                                             | (54,579                                   | )       |         |         |         |        
|                                                              | Payments made for prior year business and
    technology acquisitions                 |                                                                                           |                                             | (2,106                                    | )       |         |         | (7,267   | )      
|                                                              |                                                                                       |                                                                                           |                                             |                                           |         |         |         |         
|                                                              |                                                                                       |                                                                                           |                                             | Net cash provided by investing activities |         |         | 40,756  |          |         |         | 113,726 | 
|Cash flows from financing activities:                         |                                                                                       |                                                                                           |                                             |                                           |         |         |         |         
|                                                              | Proceeds from issuance of common stock                                                |                                                                                           |                                             | 19,950                                    |         |         |         | 51,299   |        
|                                                              |                                                                                       |                                                                                           |                                             |                                           |         |         |         |         
|                                                              |                                                                                       |                                                                                           |                                             | Net cash provided by financing activities |         |         | 19,950  |          |         |         | 51,299  | 
|Effect of exchange rate changes                               |                                                                                       |                                                                                           | 3,382                                       |                                           |         |         | 2,224   |         
|                                                              |                                                                                       |                                                                                           |                                             |                                           |         |         |         |         
|                                                              | Net increase in cash and cash equivalents                                             |                                                                                           |                                             | 267,342                                   |         |         |         | 360,970  |        
|Cash and cash equivalents at beginning of period              |                                                                                       |                                                                                           | 764,062                                     |                                           |         |         | 538,419 |         
|                                                              |                                                                                       |                                                                                           |                                             |                                           |         |         |         |         
|                                                              | Cash and cash equivalents at end of period                                            |                                                                                           | $                                           | 1,031,404                                 |         |         | $       | 899,389  |        
|                                                              |                                                                                       |                                                                                           |                                             |                                           |         |         |         |         
|Supplemental disclosures:                                     |                                                                                       |                                                                                           |                                             |                                           |         |         |         |         
|                                                              | Cash paid for interest                                                                |                                                                                           | $                                           | 4,312                                     |         |         | $       | 4,312    |        
|                                                              |                                                                                       |                                                                                           |                                             |                                           |         |         |         |         
|                                                              | Cash paid for income taxes                                                            |                                                                                           | $                                           | 1,469                                     |         |         | $       | 3,273    |        
|                                                              |                                                                                       |                                                                                           |                                             |                                           |         |         |         |         
|Supplemental schedule of non-cash financing
    transactions: |                                                                                       |                                                                                           |                                             |                                           |         |         |         |         
|                                                              | Issuance of common stock for conversion of notes                                      |                                                                                           | $                                           |                                          |         |         | $       | 500      |        
|                                                              |                                                                                       |                                                                                           |                                             |                                           |         |         |         |         

See accompanying notes to condensed consolidated
financial statements.

4



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##### Table of Contents



VERITAS SOFTWARE CORPORATION






NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS


(Unaudited)




|   |                      
|-- | ---------------------
|1. | Basis of Presentation

The accompanying unaudited condensed consolidated
financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by
generally accepted accounting principles for annual financial
statements. In the opinion of management, all adjustments,
consisting only of normal recurring adjustments, considered
necessary for a fair presentation have been included. The
results for the interim periods presented are not necessarily
indicative of the results that may be expected for any future
period. The following information should be read in conjunction
with the consolidated financial statements and accompanying
notes included in VERITAS Software Corporations Annual
Report on Form 10-K for the year ended December 31,
2002.



|   |                 
|-- | ----------------
|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. | Accounting for Stock-Based
    Compensation

The Company accounts for employee stock-based
compensation in accordance with Accounting Principles Board
(APB) Opinion 25, Accounting for Stock
Issued to Employeesand related interpretations. Since the
exercise price of options granted under such plans is generally
equal to the market value on the date of grant, no compensation
cost has been recognized for grants under its stock option plans
and stock purchase plans. In accordance with APB 25, the Company
does not recognize compensation cost related to its employee
stock purchase plan. If compensation cost for the Companys
stock-based compensation plans had been determined consistent
with Statement of Financial Accounting Standards
(SFAS) No. 123, Accounting for Stock Based
Compensation, the Companys net income and net income
per share would have been reduced to the pro forma amounts
indicated below (in thousands, except per share amounts):

|                   |             |                                                                                                                                 |   |         |        |  |   |         |        | 
|------------------ | ----------- | ------------------------------------------------------------------------------------------------------------------------------- | - | ------- | ------ |  | - | ------- | ------ | 
|                   |             |                                                                                                                                
|                   |             | Three Months Ended                                                                                                             
|                   |             | March 31,                                                                                                                      
|                   |             |                                                                                                                                
|                   |             | 2003                                                                                                                            |   | 2002   
|                   |             |                                                                                                                                 |   |        
|Net income (loss): |             |                                                                                                                                 |   |         |        |  |   |        
|                   | As reported |                                                                                                                                 | $ | 42,526  |        |  | $ | 44,466  |       
|                   | Add:        |                                                                                                                                 |   |         |        |  |   |         |       
|                   |             | Stock-based employee compensation expense
    included in net income, net of tax                                                |   |         | 301    |  |   |         |       | 
|                   | Less:       |                                                                                                                                 |   |         |        |  |   |         |       
|                   |             | Total stock-based employee compensation expense
    determined under the fair value based method for all awards, net
    of tax |   |         | 74,997 |  |   |         | 71,918 | 
|                   |             |                                                                                                                                 |   |         |        |  |   |        
|                   | Pro forma   |                                                                                                                                 | $ | (32,170 | )      |  | $ | (27,452 | )     
|                   |             |                                                                                                                                 |   |         |        |  |   |        

5



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##### Table of Contents



VERITAS SOFTWARE CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                                 |             |                    |   |       |   |  |   |       |  
|-------------------------------- | ----------- | ------------------ | - | ----- | - |  | - | ----- | -
|                                 |             |                   
|                                 |             | Three Months Ended
|                                 |             | March 31,         
|                                 |             |                   
|                                 |             | 2003               |   | 2002 
|                                 |             |                    |   |      
|Basic income (loss) per share:   |             |                    |   |       |   |  |   |      
|                                 | As reported |                    | $ | 0.10  |   |  | $ | 0.11  |  
|                                 |             |                    |   |       |   |  |   |      
|                                 | Pro forma   |                    | $ | (0.08 | ) |  | $ | (0.07 | )
|                                 |             |                    |   |       |   |  |   |      
|Diluted income (loss) per share: |             |                    |   |       |   |  |   |      
|                                 | As reported |                    | $ | 0.10  |   |  | $ | 0.11  |  
|                                 |             |                    |   |       |   |  |   |      
|                                 | Pro forma   |                    | $ | (0.08 | ) |  | $ | (0.07 | )
|                                 |             |                    |   |       |   |  |   |      

For the pro forma amounts determined under
SFAS No. 123, as set forth above, the fair value of
each stock option grant under the stock option plans is
estimated on the date of grant using the Black-Scholes
option-pricing model with the following weighted-average
assumptions used for grants during the three months ended
March 31, 2003 and 2002: risk-free interest rates averaging
2.91% and 4.46% for the three months ended March 31, 2003
and 2002, respectively; a dividend yield of 0.0% for all
periods; a weighted-average expected life of 5 years for
all periods; and a volatility factor of the expected market
price of the Companys common stock of 0.90 for the three
months ended March 31, 2003 and 2002.

The fair value of the employees purchase
rights under the employee purchase plan is estimated on the date
of grant using the Black-Scholes option-pricing model with the
following assumptions for these rights granted during the three
months ended March 31, 2003 and 2002: a dividend yield of
0.0% for all periods; an expected life ranging from 6 to
24 months; an expected volatility factor of 0.90 for the
three months ended March 31, 2003 and 2002; and risk-free
interest rates ranging from 1.20% to 1.66% for the three months
ended March 31, 2003 and ranging from 1.87% to 2.98% for
the three months ended March 31, 2002.



|   |                              
|-- | -----------------------------
|5. | New Accounting Pronouncements

In June 2001, the Financial Accounting Standards
Board (FASB) issued SFAS No. 143,
Accounting for Asset Retirement Obligations.
SFAS 143 addresses the financial accounting and reporting
for obligations associated with the retirement of tangible
long-lived assets and the associated asset retirement costs.
SFAS 143 applies to legal obligations associated with the
retirement of long-lived assets that result from the
acquisition, construction, development or normal use of the
assets. SFAS 143 requires that the fair value of a
liability for an asset retirement obligation be recognized in
the period in which it is incurred if a reasonable estimate of
fair value can be made. The fair value of the liability is added
to the carrying amount of the associated asset, and this
additional carrying amount is expensed over the life of the
asset. The Company adopted SFAS 143 effective
January 1, 2003. The adoption of SFAS 143 did not have
a material effect on the Companys financial position,
results of operations or cash flows.

In June 2002, the FASB issued
SFAS No. 146, Accounting for Costs Associated with
Exit or Disposal Activities. SFAS 146 supersedes
Emerging Issues Task Force Issue (EITF)
No. 94-3, Liability Recognition for Certain Employee
Termination Benefits and other Costs to Exit an Activity
(Including Certain Costs Incurred in a Restructuring).
SFAS 146 addresses the recognition, measurement, and
reporting of costs that are associated with exit and disposal
activities. These costs include those related to terminating a
contract that is not a capital lease and termination benefits
that employees who are involuntarily terminated receive under
the terms of a one-time benefit arrangement that is not an
ongoing benefit arrangement or an individual
deferred-compensation contract. The provisions of SFAS 146
require that the liability for costs associated with an exit or
disposal activity be recorded at fair value and that they be
recognized when the liability is incurred rather than at the
date of the commitment to an exit plan as prescribed under
EITF 94-3. SFAS 146 is applied prospectively for exit
or disposal activities that are initiated after
December 31, 2002 and accordingly,

6



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##### Table of Contents



VERITAS SOFTWARE CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

liabilities recognized prior to the initial
application of SFAS 146 will continue to be accounted for
in accordance with EITF 94-3. The Company adopted
SFAS 146 effective January 1, 2003. The adoption of
SFAS 146 for exit and disposal activities did not have a
material impact on the Companys financial position,
results of operations or cash flows.

In November 2002, the FASB issued FASB
Interpretation (FIN) No. 45,
Guarantors Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of
Others. FIN 45 requires that the Company recognize the
fair value for guarantee and indemnification arrangements issued
or modified by the Company after December 31, 2002, if
these arrangements are within the scope of the Interpretation.
In addition, the Company must continue to monitor the conditions
that are subject to the guarantees and indemnifications, as
required under previously existing generally accepted accounting
principles, in order to identify if a loss has occurred. If the
Company determines it is probable that a loss has occurred then
any such estimable loss would be recognized under those
guarantees and indemnifications. Some of the software licenses
granted by the Company contain provisions that indemnify
licensees of the Companys software from damages and costs
resulting from claims alleging that the Companys software
infringes the intellectual property rights of a third party. The
Company has historically received only a limited number of
requests for indemnification under these provisions and has not
been required to make material payments pursuant to these
provisions. Accordingly, the Company has not recorded a
liability related to these indemnification provisions. The
Company does not have any guarantees or indemnification
arrangements other than the indemnification clause in some of
its software licenses, the guarantee on a credit facility
discussed in Note 14 and the guarantee on its three
build-to-suit lease agreements for buildings in Mountain View,
Roseville and Milpitas discussed in Note 15. The Company
adopted FIN 45 effective January 1, 2003. The adoption
of FIN 45 did not have a material impact on the
Companys financial position, results of operations or cash
flows.

In January 2003, the FASB issued FIN 46,
Consolidation of Variable Interest Entities, which
addresses the consolidation of variable interest entities.
FIN 46 provides guidance for determining when an entity
that is the primary beneficiary of a variable interest entity or
equivalent structure should consolidate the variable interest
entity into the entitys financial statements. The
provisions of FIN 46 are to be applied as of the beginning
of the first interim or annual reporting period beginning after
June 15, 2003 for variable interest entities created before
February 1, 2003 and still existing on June 15, 2003.
The Company currently has three build-to-suit operating leases,
commonly referred to as synthetic leases, which were entered
into prior to February 1, 2003. Each synthetic lease is
owned by a trust that has no voting rights, no employees, no
financing activity other than the lease with the Company, no
ability to absorb losses and no right to participate in gains
realized on the sale of the related property. If the trusts
under the Companys leasing structures qualify as variable
interest entities for purposes of FIN 46, the Company would
be considered the primary beneficiary and would be required to
consolidate these entities into the Companys financial
statements beginning July 1, 2003. This would require the
Company to recognize the assets and liabilities of the trusts on
the Companys consolidated balance sheet and a cumulative
adjustment for the accounting change in the Companys
consolidated statement of operations. Alternatively, the Company
may choose to purchase the properties by exercising the
Companys purchase option or seek to restructure the
synthetic leases with entities that would not qualify as
variable interest entities under FIN 46. The purchase price
of these properties would be equal to the termination value of
the facilities under the respective operating leases and in the
aggregate would be approximately $380.8 million. The
Company is currently evaluating the impact that would result
from adopting FIN 46 on the Companys financial
statements.

7



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##### Table of Contents



VERITAS SOFTWARE CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|   |                     
|-- | --------------------
|6. | Net Income Per Share

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

|                             |                                                                                      |                                              |      |         |         |   |      |         |         | 
|---------------------------- | ------------------------------------------------------------------------------------ | -------------------------------------------- | ---- | ------- | ------- | - | ---- | ------- | ------- | 
|                             |                                                                                      |                                             
|                             |                                                                                      | Three Months Ended                          
|                             |                                                                                      | March 31,                                   
|                             |                                                                                      |                                             
|                             |                                                                                      | 2003                                         |      | 2002   
|                             |                                                                                      |                                              |      |        
|Numerator:                   |                                                                                      |                                              |      |         |         |   |      |        
|                             | Net income                                                                           |                                              | $    | 42,526  |         |   | $    | 44,466  |        
|                             |                                                                                      |                                              |      |         |         |   |      |        
|Denominator:                 |                                                                                      |                                              |      |         |         |   |      |        
|                             | Denominator for basic net income per
    share  weighted-average shares outstanding |                                              |      | 412,916 |         |   |      | 406,086 |        
|                             | Potential common shares                                                              |                                              |      | 6,464   |         |   |      | 15,623  |        
|                             |                                                                                      |                                              |      |         |         |   |      |        
|                             |                                                                                      | Denominator for diluted net income per share |      |         | 419,380 |   |      |         | 421,709 | 
|                             |                                                                                      |                                              |      |         |         |   |      |        
|Basic net income per share   |                                                                                      | $                                            | 0.10 |         |         | $ | 0.11 |        
|                             |                                                                                      |                                              |      |         |         |   |      |        
|Diluted net income per share |                                                                                      | $                                            | 0.10 |         |         | $ | 0.11 |        
|                             |                                                                                      |                                              |      |         |         |   |      |        

For the three months ended March 31, 2003
and 2002, potential common shares consist of employee stock
options using the treasury method. The following table sets
forth the potential common shares that were excluded from the
net income per share computations as their effect would be
antidilutive (in thousands):

|                                         |  |                 |        |      |  |  |        | 
|---------------------------------------- |  | --------------- | ------ | ---- |  |  | ------ | 
|                                         |  |                
|                                         |  | Three Months   
|                                         |  | Ended March 31,
|                                         |  |                
|                                         |  | 2003            |        | 2002
|                                         |  |                 |        |     
|Employee stock options outstanding(1)    |  |                 | 40,953 |      |  |  | 20,727 | 
|5.25% convertible subordinated notes(2)  |  |                 | 6,695  |      |  |  | 6,695  | 
|1.856% convertible subordinated notes(2) |  |                 | 12,981 |      |  |  | 12,981 | 



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | For the three months ended March 31, 2003
    and 2002, 40,953 and 20,727 employee stock options,
    respectively, were excluded from the computation of diluted net
    income per share because the exercise price of these options was
    greater than the average market price of the Companys
    common stock during the respective periods, and therefore the
    effect is antidilutive.                                                                                                                                                              
|   
|(2) | For each of the three months ended March 31,
    2003 and 2002, 6,695 potential common shares related to the
    Companys 5.25% convertible subordinated notes and 12,981
    potential common shares related to the Companys 1.856%
    convertible subordinated notes were excluded from the
    computation of diluted net income per share because the impact
    of adding back the after tax impact of the interest expense
    associated with the convertible subordinated notes, and
    including the potential common shares, would be antidilutive.

The weighted average exercise prices of the
employee stock options with exercise prices exceeding the
average fair value of the Companys common stock was $56.04
per share for the three months ended March 31, 2003 and
$90.95 per share for the three months ended March 31, 2002.



|   |                      
|-- | ---------------------
|7. | Business Combinations

On January 27, 2003, the Company acquired
all of the outstanding capital stock of Jareva Technologies,
Inc. (Jareva), a privately held provider of
automated server provisioning products that enable businesses to
automatically deploy additional servers without manual
intervention. The Company acquired Jareva to

8



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##### Table of Contents



VERITAS SOFTWARE CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

integrate Jarevas technology into the
Companys software products to enable the Companys
customers to optimize their investments in server hardware by
deploying new server resources on demand. The Jareva acquisition
was accounted for using the purchase accounting method for total
purchase consideration of $63.3 million, which included
$58.7 million of cash, $1.4 million for the issuance
of options to purchase 426,766 shares of the Companys
common stock and $3.2 million of acquisition-related costs.
The purchase price was allocated, based on independent
valuation, to goodwill of $43.3 million, developed
technology of $9.1 million, other intangibles of
$1.9 million, in-process research and development of
$4.1 million, net deferred tax liabilities of
$4.3 million, deferred stock-based compensation of
$5.4 million and net tangible assets of $3.8 million.
For the three months ended March 31, 2003, the Company
recorded amortization of developed technology of
$0.3 million, amortization of other intangibles of
$0.2 million and, included in research and development
expense, stock-based compensation expense of $0.4 million.
The acquired in-process research and development of
$4.1 million was written off and the related charge is
included in income from operations for the three months ended
March 31, 2003. Acquisition-related costs consist of
$2.7 million associated with terminating and satisfying
remaining lease commitments, partially offset by sublease income
net of related sublease costs and direct transaction costs of
$0.5 million for legal and other professional fees. Total
cash outlays for acquisition-related costs were not significant
as of March 31, 2003. The results of operations of Jareva
are included in the Companys consolidated financial
statements from the date of acquisition. The pro forma impact on
the Companys results of operations for the three months
ended March 31, 2002 was not significant.

On December 19, 2002, the Company announced
that it signed an agreement to acquire Precise Software
Solutions Ltd. (Precise), a provider of application
performance management products, for an aggregate preliminary
purchase price of approximately $590.0 million, including
approximately $497.0 million of cash and common stock to be
issued, $85.0 million in fair value of stock options to be
assumed and $8.0 million of acquisition-related costs. The
Company expects to complete this acquisition during the second
quarter of 2003.

8.     Goodwill and
Other Intangible Assets

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

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

|          |                          |                                 |   |              |           |  |   |           |           | 
|--------- | ------------------------ | ------------------------------- | - | ------------ | --------- |  | - | --------- | --------- | 
|          |                          | March 31,                       |   | December 31,
|          |                          | 2003                            |   | 2002        
|          |                          |                                 |   |             
|Goodwill: |                          |                                 |   |              |           |  |   |          
|          | Gross carrying amount    |                                 | $ | 3,328,774    |           |  | $ | 3,285,455 |          
|          | Accumulated amortization |                                 |   | 2,088,865    |           |  |   | 2,088,862 |          
|          |                          |                                 |   |              |           |  |   |          
|          |                          | Net carrying amount of goodwill |   | $            | 1,239,909 |  |   | $         | 1,196,593 | 
|          |                          |                                 |   |              |           |  |   |          

As of March 31, 2003, goodwill includes
$43.3 million related to the acquisition of Jareva on
January 27, 2003.

9



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##### Table of Contents



VERITAS SOFTWARE CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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

|                                              |                                              |                                |         |              |         |              |         |         |         |   |        |        |        | 
|--------------------------------------------- | -------------------------------------------- | ------------------------------ | ------- | ------------ | ------- | ------------ | ------- | ------- | ------- | - | ------ | ------ | ------ | 
|                                              |                                              |                               
|                                              |                                              | March 31, 2003                
|                                              |                                              |                               
|                                              |                                              | Gross                          |         |             
|                                              |                                              | Carrying                       |         | Accumulated  |         | Net Carrying
|                                              |                                              | Amount                         |         | Amortization |         | Amount      
|                                              |                                              |                                |         |              |         |             
|Developed technology                          |                                              | $                              | 244,608 |              |         | $            | 215,238 |         |         | $ | 29,370 |       
|Distribution channels                         |                                              |                                | 234,800 |              |         |              | 225,017 |         |         |   | 9,783  |       
|Trademarks                                    |                                              |                                | 24,350  |              |         |              | 23,335  |         |         |   | 1,015  |       
|Other intangible assets                       |                                              |                                | 31,420  |              |         |              | 27,793  |         |         |   | 3,627  |       
|                                              |                                              |                                |         |              |         |              |         |         |         |   |        |       
|                                              | Intangibles related to business acquisitions |                                |         | 535,178      |         |              |         | 491,383 |         |   |        | 43,795 |       
|Convertible subordinated notes issuance costs |                                              |                                | 14,506  |              |         |              | 8,535   |         |         |   | 5,971  |       
|                                              |                                              |                                |         |              |         |              |         |         |         |   |        |       
|                                              |                                              | Total other intangibles assets |         | $            | 549,684 |              |         | $       | 499,918 |   |        | $      | 49,766 | 
|                                              |                                              |                                |         |              |         |              |         |         |         |   |        |       

|                                              |                                              |                                |         |              |         |              |         |         |         |   |        |        |        | 
|--------------------------------------------- | -------------------------------------------- | ------------------------------ | ------- | ------------ | ------- | ------------ | ------- | ------- | ------- | - | ------ | ------ | ------ | 
|                                              |                                              |                               
|                                              |                                              | December 31, 2002             
|                                              |                                              |                               
|                                              |                                              | Gross                          |         |             
|                                              |                                              | Carrying                       |         | Accumulated  |         | Net Carrying
|                                              |                                              | Amount                         |         | Amortization |         | Amount      
|                                              |                                              |                                |         |              |         |             
|Developed technology                          |                                              | $                              | 235,508 |              |         | $            | 200,140 |         |         | $ | 35,368 |       
|Distribution channels                         |                                              |                                | 234,800 |              |         |              | 210,342 |         |         |   | 24,458 |       
|Trademarks                                    |                                              |                                | 24,350  |              |         |              | 21,813  |         |         |   | 2,537  |       
|Other intangible assets                       |                                              |                                | 29,520  |              |         |              | 25,737  |         |         |   | 3,783  |       
|                                              |                                              |                                |         |              |         |              |         |         |         |   |        |       
|                                              | Intangibles related to business acquisitions |                                |         | 524,178      |         |              |         | 458,032 |         |   |        | 66,146 |       
|Convertible subordinated notes issuance costs |                                              |                                | 14,506  |              |         |              | 8,058   |         |         |   | 6,448  |       
|                                              |                                              |                                |         |              |         |              |         |         |         |   |        |       
|                                              |                                              | Total other intangibles assets |         | $            | 538,684 |              |         | $       | 466,090 |   |        | $      | 72,594 | 
|                                              |                                              |                                |         |              |         |              |         |         |         |   |        |       

The total amortization expense of intangible
assets related to business acquisitions is set forth in the
table below (in thousands):

|                        |                    |                    |        |        |  |   |        |        | 
|----------------------- | ------------------ | ------------------ | ------ | ------ |  | - | ------ | ------ | 
|                        |                    |                   
|                        |                    | Three Months Ended
|                        |                    | March 31,         
|                        |                    |                   
|                        |                    | 2003               |        | 2002  
|                        |                    |                    |        |       
|Developed technology    |                    | $                  | 15,098 |        |  | $ | 16,903 |       
|Distribution channels   |                    |                    | 14,675 |        |  |   | 14,675 |       
|Trademarks              |                    |                    | 1,522  |        |  |   | 1,522  |       
|Other intangible assets |                    |                    | 2,056  |        |  |   | 1,819  |       
|                        |                    |                    |        |        |  |   |        |       
|                        | Total amortization |                    | $      | 33,351 |  |   | $      | 34,919 | 
|                        |                    |                    |        |        |  |   |        |       

For the three months ended March 31, 2003,
the total amortization expense for developed technology and
other intangibles includes $0.3 million and
$0.1 million, respectively, that is included in cost of
user license fees.

10



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##### Table of Contents



VERITAS SOFTWARE CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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

|     |       |              |        |        | 
|---- | ----- | ------------ | ------ | ------ | 
|     |       | Future      
|Year |       | Amortization
|     |       |             
|2003 |       | $            | 27,906 |       
|2004 |       |              | 4,797  |       
|2005 |       |              | 4,751  |       
|2006 |       |              | 4,111  |       
|2007 |       |              | 2,060  |       
|2008 |       |              | 170    |       
|     |       |              |        |       
|     | Total |              | $      | 43,795 | 
|     |       |              |        |       

9.     Strategic
Investments

The Company holds investments in common and
preferred stock of several privately-held and publicly traded
companies. The total carrying amount of the Companys
strategic investments was $5.6 million at March 31,
2003 and $10.3 million at December 31, 2002. These
strategic investments are included in other non-current assets.
During the three months ended March 31, 2003, the Company
recorded impairment losses on strategic investments of
$3.5 million. The losses realized represent write-downs of
the Companys carrying amount of the investments and were
determined by using, among other factors, the market value of
the investees stock, its inability to obtain additional
private financing, its cash position and current burn rate, the
status and competitive position of the investees products
and the uncertainty of its financial condition.

10.     Facility
Restructure Reserve

In the fourth quarter of 2002, the Companys
board of directors approved a facility restructuring plan to
exit and consolidate certain of its facilities located in 17
metropolitan areas worldwide related to facilities that were or
are expected to be vacated. In connection with this facilities
restructuring plan, the Company recorded a restructuring charge
to operating expenses of $98.2 million. This restructuring
charge is comprised of $86.9 million associated with
terminating and satisfying remaining lease commitments,
partially offset by sublease income net of related sublease
costs and $11.3 for asset write-offs. Total cash outlays under
this restructuring plan are expected to be approximately
$86.9 million.

Restructuring costs will generally be paid over
the remaining lease terms, ending at various dates through 2021,
or over a shorter period as the Company may negotiate with its
lessors. The Company expects the majority of costs will be paid
by the year ended December 31, 2008.

The Company began vacating facilities during the
fourth quarter of 2002 and expects to vacate all excess
facilities associated with this restructuring by
October 31, 2003. The Company anticipates that it will
realize cost savings beginning during the third quarter of 2003.
The Company is in the process of seeking suitable subtenants for
these facilities. The Companys estimates of the facility
restructure charge may vary significantly, depending in part, on
factors that are beyond the Companys control, including
the commercial real estate market in the applicable metropolitan
areas, the Companys ability to obtain subleases related to
these facilities and the time period to do so, the sublease
rental market rates and the outcome of negotiations with lessors
regarding terminations of some of the leases. Adjustments to the
facility restructure reserve will be made if actual lease exit
costs or sublease income differ from amounts currently expected.
As a portion of the facilities restructure reserve relates to
international locations, the reserve will be affected by
exchange rate fluctuations. The impact of exchange rate
fluctuations is reflected in accumulated other comprehensive
loss on the balance sheet.

11



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##### Table of Contents



VERITAS SOFTWARE CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The portion of the reserve expected to be
utilized through March 31, 2004 of $26.0 million has
been classified in the current portion of accrued acquisition
and restructuring charges. The portion of the reserve expected
to be utilized in periods subsequent to March 31, 2004 of
$69.5 million has been classified in the non-current
portion of accrued acquisition and restructuring charges. The
components of the restructuring reserve and movements within
these components through March 31, 2003 were as follows (in
millions):

|                         |                              |             |      |            |  |       |      |      |  |   |      |      | 
|------------------------ | ---------------------------- | ----------- | ---- | ---------- |  | ----- | ---- | ---- |  | - | ---- | ---- | 
|                         |                              | Net Rent    |      | Asset      |  |      
|                         |                              | Commitments |      | Write-Offs |  | Total
|                         |                              |             |      |            |  |      
|Provision accrued        |                              | $           | 86.9 |            |  | $     | 11.3 |      |  | $ | 98.2 |     
|Cash payments            |                              |             | (0.2 | )          |  |       |     |      |  |   | (0.2 | )   
|Impact of exchange rates |                              |             | 0.6  |            |  |       | 0.1  |      |  |   | 0.7  |     
|                         |                              |             |      |            |  |       |      |      |  |   |      |     
|                         | Balance at December 31, 2002 |             |      | 87.3       |  |       |      | 11.4 |  |   |      | 98.7 | 
|Cash payments            |                              |             | (2.7 | )          |  |       |     |      |  |   | (2.7 | )   
|Adjustment               |                              |             | 0.8  |            |  |       | (0.8 | )    |  |   |     |     
|Impact of exchange rates |                              |             | (0.4 | )          |  |       | (0.1 | )    |  |   | (0.5 | )   
|                         |                              |             |      |            |  |       |      |      |  |   |      |     
|                         | Balance at March 31, 2003    |             | $    | 85.0       |  |       | $    | 10.5 |  |   | $    | 95.5 | 
|                         |                              |             |      |            |  |       |      |      |  |   |      |     

11.     Comprehensive
Income

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

|                                        |                                             |                      |        |       |        |   |        |        |        | 
|--------------------------------------- | ------------------------------------------- | -------------------- | ------ | ----- | ------ | - | ------ | ------ | ------ | 
|                                        |                                             |                     
|                                        |                                             | Three Months Ended  
|                                        |                                             | March 31,           
|                                        |                                             |                     
|                                        |                                             | 2003                 |        | 2002 
|                                        |                                             |                      |        |      
|Net income                              |                                             | $                    | 42,526 |       |        | $ | 44,466 |       
|Other comprehensive income, net of tax: |                                             |                      |        |       |        |   |        |       
|                                        | Foreign currency translation adjustments    |                      |        | 4,043 |        |   |        | 733    |       
|                                        | Derivative financial instrument adjustments |                      |        | (660  | )      |   |        | 1,491  |       
|                                        | Unrealized loss on marketable securities    |                      |        | (197  | )      |   |        | (5,890 | )     
|                                        |                                             |                      |        |       |        |   |        |       
|                                        |                                             | Comprehensive income |        | $     | 45,712 |   |        | $      | 40,800 | 
|                                        |                                             |                      |        |       |        |   |        |       

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

|                                            |                                      |           |         |              |   |   |        |        |  
|------------------------------------------- | ------------------------------------ | --------- | ------- | ------------ | - | - | ------ | ------ | -
|                                            |                                      | March 31, |         | December 31,
|                                            |                                      | 2003      |         | 2002        
|                                            |                                      |           |         |             
|Foreign currency translation adjustments    |                                      | $         | 7,056   |              |   | $ | 3,013  |       
|Derivative financial instrument adjustments |                                      |           | (10,466 | )            |   |   | (9,806 | )     
|Unrealized gain on marketable securities    |                                      |           | 3,127   |              |   |   | 3,324  |       
|                                            |                                      |           |         |              |   |   |        |       
|                                            | Accumulated other comprehensive loss |           | $       | (283         | ) |   | $      | (3,469 | )
|                                            |                                      |           |         |              |   |   |        |       

12.     Derivative
Financial Instruments

In September 2000, the Company entered into a
three-year cross currency interest rate swap transaction, or
swap, for the purpose of hedging fixed interest rate, foreign
currency denominated cash flows under an inter-company loan
receivable. Under the terms of this derivative financial
instrument, Euro denominated fixed principal and interest
payments to be received under the inter-company loan will be
swapped for U.S. dollar-fixed principal and interest
payments. As of March 31, 2003, six monthly payments of
 4.3  million
remained to be swapped at a forward exchange rate of 0.89070
U.S. dollar per Euro. The fair market value of the swap at

12



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##### Table of Contents



VERITAS SOFTWARE CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

March 31, 2003 was $(8.8) million. As a
result of entering into the swap, the Company has mitigated its
exposure to foreign currency exchange rate fluctuations. The
gains or losses on the foreign currency loan receivable will be
offset by the gains or losses on the swap. Because the Company
is receiving fixed interest payments under the swap, it is still
subject to fluctuations in value due to changes in U.S. dollar
interest rates. As of March 31, 2003, the impact of these
fluctuations was not significant. This hedge was deemed to be
highly effective as of March 31, 2003.

In January 2002, the Company entered into two
three-year pay fixed, receive floating, interest rate swaps for
the purpose of hedging cash flows on variable interest rate debt
of its build-to-suit lease agreements. Under the terms of these
interest rate swaps, the Company makes payments based on the
fixed rate and will receive interest payments based on the
3-month London Inter Bank Offered Rate (LIBOR). The
Companys payments on its build-to-suit lease agreements
are based upon a 3-month LIBOR plus a credit spread. If the
Companys credit spread remains consistent and other
critical terms of the interest rate swap or the hedged item do
not change, the interest rate swap will be considered to be
highly effective with all changes in the fair value included in
other comprehensive income. If the Companys credit spread
changes or other critical terms of the interest rate swap or the
hedged item change, the hedge may become partially or fully
ineffective, which could result in all or a portion of the
changes in fair value of the derivative recorded in the
statement of operations. The interest rate swaps settle the
first day of January, April, July and October until expiration.
As of March 31, 2003, the fair value of the interest rate
swaps were $(11.1) million. As a result of entering into
the interest rate swaps, the Company has mitigated its exposure
to variable cash flows associated with interest rate
fluctuations. Because the rental payments on the leases are
based on the 3-month LIBOR and the Company receives 3-month
LIBOR from the interest rate swap counter-party, the Company has
eliminated any impact to raising interest rates related to its
rent payments under the build-to-suit lease agreements.

As of March 31, 2003, the total gross
notional amount of the Companys forward contracts was
approximately $141.0 million, all hedging intercompany
accounts of certain of its international subsidiaries. The
forward contracts had a term of thirty-one days or less and
settled on April 30, 2003. 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. The unrealized gain
(loss) on the outstanding forward contracts at
March 31, 2003 was immaterial to the Companys
consolidated financial statements.

13.     Segment
Information

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



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

|                      |               |                         |   |         |         |  |   |         |         | 
|--------------------- | ------------- | ----------------------- | - | ------- | ------- |  | - | ------- | ------- | 
|                      |               |                        
|                      |               | Three Months Ended     
|                      |               | March 31,              
|                      |               |                        
|                      |               | 2003                    |   | 2002   
|                      |               |                         |   |        
|                      |               |                        
|                      |               | (In thousands)         
|User license fees(1): |               |                         |   |         |         |  |   |        
|                      | United States |                         | $ | 164,251 |         |  | $ | 168,389 |        
|                      | Europe(2)     |                         |   | 58,984  |         |  |   | 60,236  |        
|                      | Other(3)      |                         |   | 31,329  |         |  |   | 31,086  |        
|                      |               |                         |   |         |         |  |   |        
|                      |               | Total user license fees |   |         | 254,564 |  |   |         | 259,711 | 
|                      |               |                         |   |         |         |  |   |        

13



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##### Table of Contents



VERITAS SOFTWARE CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|             |               |                    |                   |        |         |         |  |        |         |         | 
|------------ | ------------- | ------------------ | ----------------- | ------ | ------- | ------- |  | ------ | ------- | ------- | 
|             |               |                   
|             |               | Three Months Ended
|             |               | March 31,         
|             |               |                   
|             |               | 2003               |                   | 2002  
|             |               |                    |                   |       
|             |               |                   
|             |               | (In thousands)    
|Services(1): |               |                    |                   |        |         |         |  |       
|             | United States |                    |                   | 98,781 |         |         |  | 86,742 |        
|             | Europe(2)     |                    |                   | 29,203 |         |         |  | 17,707 |        
|             | Other(3)      |                    |                   | 11,838 |         |         |  | 6,289  |        
|             |               |                    |                   |        |         |         |  |       
|             |               | Total services     |                   |        | 139,822 |         |  |        | 110,738 |        
|             |               |                    |                   |        |         |         |  |       
|             |               |                    | Total net revenue |        | $       | 394,386 |  |        | $       | 370,449 | 
|             |               |                    |                   |        |         |         |  |       

|                      |               |                |   |              |           |  |   |           |           | 
|--------------------- | ------------- | -------------- | - | ------------ | --------- |  | - | --------- | --------- | 
|                      |               | March 31,      |   | December 31,
|                      |               | 2003           |   | 2002        
|                      |               |                |   |             
|                      |               |               
|                      |               | (In thousands)
|Long-lived assets(4): |               |                |   |              |           |  |   |          
|                      | United States |                | $ | 1,445,566    |           |  | $ | 1,429,261 |          
|                      | Europe(2)     |                |   | 51,202       |           |  |   | 55,049    |          
|                      | Other(3)      |                |   | 15,751       |           |  |   | 15,138    |          
|                      |               |                |   |              |           |  |   |          
|                      |               | Total          |   | $            | 1,512,519 |  |   | $         | 1,499,448 | 
|                      |               |                |   |              |           |  |   |          



---



|    |                                                                                                                                                                                                                                                                                  
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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 No. 131,
    Disclosures about Segments of an Enterprise and Related
    Information, such as deferred income taxes. Reconciliation
    to total assets reported (in thousands):

|                                |                           |           |           |              |  |   |           |           | 
|------------------------------- | ------------------------- | --------- | --------- | ------------ |  | - | --------- | --------- | 
|                                |                           | March 31, |           | December 31,
|                                |                           | 2003      |           | 2002        
|                                |                           |           |           |             
|Total long-lived assets         |                           | $         | 1,512,519 |              |  | $ | 1,499,448 |          
|Other assets, including current |                           |           | 2,758,886 |              |  |   | 2,700,185 |          
|                                |                           |           |           |              |  |   |           |          
|                                | Total consolidated assets |           | $         | 4,271,405    |  |   | $         | 4,199,633 | 
|                                |                           |           |           |              |  |   |           |          

For the three months ended March 31, 2003,
Ingram Micro, Inc. a distributor that sells the Companys
products and services through resellers, accounted for 10% of
the Companys net revenue. No customer represented 10% or
more of the Companys net revenue for the three months
ended March 31, 2002.



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

The Company derives its user license fees from
the sale of its core technology products, including data
protection and file system and volume management products and
from its emerging technology products, including cluster and
replication and storage area networking products. User license
fees from core technology products were $208.9 million for
the three months ended March 31, 2003 and
$225.8 million for the three months ended March 31,
2002. User license fees from emerging technology products were
$45.7 million for the three months ended March 31,
2003 and $33.9 million for the three months ended
March 31, 2002.

14



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##### Table of Contents



VERITAS SOFTWARE CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|    |                
|--- | ---------------
|14. | Credit Facility

During 2002, the Companys Japanese
subsidiary entered into a short-term credit facility with a
multinational Japanese bank in the amount of 1.0 billion
Japanese yen ($8.3 million USD). At March 31, 2003, no
amount was outstanding. The short-term credit facility was
renewed in March 2003 and is due to expire in March 2004.
Borrowings under the short-term credit facility bear interest at
Tokyo Inter Bank Offered Rate (TIBOR) plus 0.5%.
There are no covenants on the short-term credit facility and the
loan has been guaranteed by VERITAS Software Global Corporation,
a wholly-owned subsidiary of the Company.



|    |                              
|--- | -----------------------------
|15. | Commitments and Contingencies



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

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

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

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

During 2001 and 2002, the Company amended its
existing lease agreement, originally signed in 2000, for the
lease of 65 acres of land and subsequent improvements for new
research and development campus facilities in Milpitas,
California. The Company plans to develop the site in two phases.
The first phase of the project, comprising 466,000 square feet
and consisting of one completed building and two additional
structures, was completed in the third quarter of 2002. The
facilities will provide space for research and development and
general corporate functions. The lease term for the first phase
is five years beginning in July 2000, with an option to extend
the lease term for two successive periods of one year each, if
agreed to by the financial institutions. The Company has the
option to purchase the property (land and first phase
facilities) for

15



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VERITAS SOFTWARE CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

the termination value of $194.3 million or,
at the end of the lease, to arrange for the sale of the property
to a third party while the Company retains an obligation to the
owner for the difference between the sales price and the
guaranteed residual value up to $180.5 million if the sales
price is less than this amount, subject to certain provisions of
the lease. In addition, the Company is entitled to any proceeds
from a sale of the property in excess of the termination value.
The Company began paying the lease payments in the third quarter
of 2002 and will commence occupying a portion of the new campus
facilities in the second quarter of 2003. The Company is
currently analyzing its development schedule for the second
phase of the campus, and at this time no commitments have been
made with respect to the start of construction.

Lease payments under the Companys three
build-to-suit lease agreements are generally paid quarterly and
are equal to the termination value of the outstanding lease
obligations multiplied by the Companys cost of funds,
which is based on LIBOR using 30-day to 180-day LIBOR contracts
and adjusted for the Companys credit spread. In January
2002, the Company entered into two three-year pay fixed, receive
floating, interest rate swaps for the purpose of hedging the
cash payments related to the Roseville, Minnesota and Mountain
View, California lease agreements. Under the terms of these
interest rate swaps, the Company makes payments based on the
fixed rate and will receive interest payments based on the
3-month LIBOR rate. For the three months ended March 31,
2003, the Companys aggregate lease payments, including the
payments on the interest rate swaps, were $4.1 million.

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

The agreements for the facilities described above
require that the Company maintain specified financial covenants,
all of which the Company was in compliance with as of
March 31, 2003. The specified financial covenants require
the Company to maintain a minimum rolling four quarter EBITDA of
$400 million, a minimum ratio of cash and cash equivalents
to current liabilities of 1.2 to 1, and a leverage ratio of
total funded indebtedness to rolling four quarter EBITDA of not
more than 2.5 to 1. For purposes of these financial covenants,
EBITDA represents the Companys net income for the
applicable period, plus interest expense, taxes, depreciation
and amortization and all non-cash restructuring charges for
acquisitions occurring within a four year period, less software
development expenses classified as capital expenditures. In
order to secure the obligation under each agreement, each of the
facilities is subject to a deed of trust in favor of the
financial institutions that financed the development and
acquisition of the respective facility. Bank of America, N.A.
was the agent for the syndicate of banks that funded the
development of the Mountain View, California and Roseville,
Minnesota facilities, and ABN AMRO Bank, N.V. was the agent for
the syndicate of banks that funded the development of the
Milpitas, California facility.



| |                    
| | -------------------
| | Acquired Technology

On October 1, 2002, we acquired volume
replicator software technology for $6.0 million and
contingent payments of up to another $6.0 million based on
future revenues generated by the acquired technology. The
payments will be paid quarterly over 40 quarters, in amounts
between $150,000 and $300,000. The Company issued a promissory
note payable in the principal amount of $5.0 million,
representing the present value of the Companys minimum
payment obligations under the purchase agreement for the
acquired technology, which are payable quarterly commencing in
the first quarter of 2003 and ending in the fourth quarter of
2012. The contingent payments in excess of the quarterly minimum
obligations will be paid as they may become due. The balance
outstanding of the note payable was $4.9 million as of
March 31, 2003 and $5.0 million as of
December 31, 2002 and is included in non-current accrued
acquisition and restructuring costs.

16



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##### Table of Contents



VERITAS SOFTWARE CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |                  
| | -----------------
| | Legal Proceedings

After the Company announced in January 2003 that
it would restate financial results as a result of transactions
entered into with America Online, or AOL, in September 2000,
numerous separate complaints purporting to be class actions were
filed in the United States District Court for the Northern
District of California alleging that the Company and some of its
officers and directors violated provisions of the Securities
Exchange Act of 1934. The complaints contain varying
allegations, including that the Company made materially false
and misleading statements with respect to the Companys
2000, 2001 and 2002 financial results included in the
Companys filings with the SEC, press releases and other
public disclosures. These complaints have been consolidated and,
on May 2, 2003, a lead plaintiff and lead counsel were
appointed. In addition, several complaints purporting to be
derivative actions have been filed in California state court
against some of the Companys directors and officers. These
complaints are based on the same facts and circumstances as the
class actions and generally allege that the named directors and
officers breached their fiduciary duties by failing to oversee
adequately the Companys financial reporting. All of the
complaints generally seek an unspecified amount of damages. The
cases are still in the preliminary stages, and it is not
possible for the Company to quantify the extent of its potential
liability, if any. An unfavorable outcome in any of these cases
could have a material adverse effect on the Companys
business, financial condition, results of operations and cash
flow. In addition, the expense of defending any litigation may
be costly and divert managements attention from the
day-to-day operations of the Companys business.

On January 10, 2003, Raytheon Company sued
the Company along with Brocade Communications Systems, Oracle
Corporation, Overland Storage Inc., Qualstar Corp., QLogic
Corporation, Ricoh Corporation and Spectra Logic Corporation in
the United States District Court for the Eastern District of
Texas. Raytheon is alleging infringement of US Patent
No. 5,412,791 (the  791 Patent),
entitled Mass Data Storage Library, and is seeking damages and
an injunction against all defendants. The Company believes that
it has numerous defenses and counterclaims to the claims of
infringement asserted against it and intends to defend itself
vigorously. The Company filed an answer to Raytheons
complaint on March 7, 2003, denying all material
allegations in the complaint and asserting counterclaims seeking
to have the 791 patent declared invalid and not infringed
by the Company.

On October 23, 2001, Storage Computer
Corporation initiated litigation against the Company in the
United States District Court for the Northern District of Texas
alleging infringement of one of Storage Computer
Corporations patents. Currently, Storage Computer
Corporation is alleging the Company infringes two of their US
patents. The Company has denied all material allegations in the
complaints and has filed counterclaims for declaratory judgment
of invalidity and non-infringement of the patents-in-suit and
has alleged Storage Computers infringement of one of the
Companys patents. Storage Computer Corporation is seeking
unspecified damages, treble damages, costs of suit and
attorneys fees and a permanent injunction from further
alleged infringement. The Company believes that it has numerous
defenses and counterclaims relative to the claims of
infringement asserted against it and intends to vigorously
defend this action.

The Company is also party to various other legal
proceedings that have arisen in the ordinary course of its
business. While the Company currently believes that the ultimate
outcome of these proceedings, individually and in the aggregate,
will not have a material adverse effect on its financial
position or overall trends in results of operations, litigation
is subject to inherent uncertainties. Were an unfavorable ruling
to occur, there exists the possibility of a material adverse
impact on the results of operations of the period in which the
ruling occurs. The estimate of the potential impact on the
Companys financial position or overall results of
operations for the above legal proceedings could change in the
future.

For each of the matters noted, the Company does
not believe that it is probable that a liability has been
incurred nor does it believe that the amount of any loss can be
reasonably estimated. Accordingly, no liability has been accrued
for these matters.

17



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##### Table of Contents








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

This quarterly report on Form 10-Q
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 about our revenue, revenue mix,
gross margin, operating expense levels, financial outlook,
commitments under existing leases, research and development
initiatives, sales and marketing initiatives and competition. In
some cases, forward-looking statements are identified by words
such as believe, anticipate,
expect, intend, plan,
will, may and similar expressions. You
should not place undue reliance on these forward-looking
statements, which speak only as of the date of this quarterly
report on Form 10-Q. These forward-looking statements are
based on information available to us at this time, and we assume
no obligation to update any of these statements. Actual results
could differ from those projected in these forward-looking
statements as a result of many factors, including those
identified below in the section titled Factors That May
Affect Future Results and elsewhere. We urge you to review
and consider the various disclosures made by us in this report,
and those detailed from time to time in our filings with the
Securities and Exchange Commission, that attempt to advise you
of the risks and factors that may affect our future
results.

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

Overview

VERITAS is a leading independent supplier of
storage software products and services. Storage software
includes storage management, data protection and high
availability software. We develop and sell products for most
popular operating systems, including various versions of
Windows, UNIX and Linux. We also develop and sell products that
support a wide variety of servers, storage devices, databases,
applications and network solutions. Our customers include many
leading global corporations and small and medium enterprises
around the world operating in a wide variety of industries. We
also provide a full range of services to assist our customers in
assessing, architecting and implementing their storage software
solutions.

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

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

International Sales and Operations

Our international sales are generated primarily
through our international sales subsidiaries. International
revenue, most of which is collectible in foreign currencies,
accounted for approximately 33% of our total revenue for the
three months ended March 31, 2003 and 31% of our total
revenue for the three months ended March 31, 2002. Our
international revenue increased 14% to $131.4 million for
the three months ended March 31, 2003 from
$115.3 million for the three months ended March 31,
2002. We expect that our international revenue will increase
relative to total revenue as a result of the lower penetration
of our products existing in these markets and our increasing
focus on developing international revenue opportunities, although

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the potential future effect of the Severe Acute
Respiratory Syndrome, or SARS, on our business is difficult to
predict.


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, Africa
and the Middle East, and a research and development center in
India. International expansion will require us to establish
additional foreign offices, hire additional personnel and
recruit new international resellers, resulting in the diversion
of significant management attention and the expenditure of
financial resources. To the extent that we are unable to meet
these additional requirements, growth in international sales
will be limited, which would have an adverse effect on our
business, operating results and financial condition.

Seagate Technology Transaction

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

We issued approximately 109.4 million shares
of our common stock to the Seagate stockholders in exchange for
approximately 128.1 million shares of our common stock and
certain non-operating assets and liabilities held by Seagate.
The transaction resulted in a decrease of approximately
18.7 million shares of our outstanding common stock. At the
closing of the transaction we recorded the non-operating assets
and liabilities assumed from Seagate at their fair values. In
addition, we accrued $40.0 million of direct transaction
costs, of which $0.3 million are remaining in accrued
acquisition and restructuring costs as of March 31, 2003.
We anticipate that the remaining $0.3 million of
acquisition-related costs will be utilized by the second quarter
of 2003.

For the three months ended March 31, 2003
and 2002, the Seagate transaction had no significant impact on
our net income.

As a result of the decrease of approximately
18.7 million shares of our common stock outstanding on the
number of shares used in computing our net income per share, the
transaction resulted in incremental net income per share of
$0.01 for the three months ended March 31, 2002. The
transaction did not affect net income per share for the three
months ended March 31, 2003.

As of March 31, 2003 and December 31,
2002, the transaction affected our consolidated balance sheet,
as follows:



| |   |                                                                                            
| | - | -------------------------------------------------------------------------------------------
| |  | other current assets included $21.3 million
    of indemnification receivable from SAC;    
|
| |  | other non-current assets included
    $18.0 million of indemnification receivable from SAC;
|
| |  | income taxes payable included an additional
    $21.3 million; and                         
|
| |  | deferred and other income taxes included an
    additional $113.1 million.                 

As of March 31, 2003 and December 31,
2002, deferred and other income taxes payable recorded in
connection with the Seagate transaction totaled
$134.4 million, and related to certain tax liabilities that
we expect to pay. Certain of Seagates federal and state
tax returns for various fiscal years are under examination by
tax authorities. We believe that adequate amounts for tax
liabilities have been provided for any final assessments that
may result from these examinations. The timing of the settlement
of these examinations is uncertain. To the extent the
settlements of these audits and the amounts reimbursed by SAC
are different

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from the amounts recorded, the difference will be
recorded as a component of income tax expense or benefit and may
significantly affect our effective tax rate for the period in
which the settlements take place.


Business Combinations

On May 28, 1999, we acquired the Network
Storage Management Group business of Seagate Software, Inc., or
NSMG. We incurred acquisition-related costs of
$43.4 million. In addition, as a result of the NSMG
acquisition, we recorded a restructure charge of
$11.0 million in 1999 related to exit costs associated with
duplicative facilities that we planned to vacate. In the fourth
quarter of 2002, we recorded an additional reserve of
$4.2 million due to a decline in real estate market
conditions that resulted in higher actual exit costs than
estimated associated with these duplicative facilities.

Acquisition and acquisition-related restructuring
costs as of March 31, 2003 relating to the NSMG acquisition
are summarized below (in millions):

|                         |                              |             |       |             |  |             |      |       |  |   |       |     |  |   |       |      | 
|------------------------ | ---------------------------- | ----------- | ----- | ----------- |  | ----------- | ---- | ----- |  | - | ----- | --- |  | - | ----- | ---- | 
|                         |                              |             |       | Duplicative |  |             |      |      
|                         |                              | Direct      |       | Facility    |  | Involuntary |      |      
|                         |                              | Transaction |       | Related     |  | Termination |      |      
|                         |                              | Costs       |       | Costs       |  | Benefits    |      | Total
|                         |                              |             |       |             |  |             |      |      
|Provision accrued        |                              | $           | 20.0  |             |  | $           | 17.9 |       |  | $ | 16.5  |     |  | $ | 54.4  |     
|Cash payments            |                              |             | (17.4 | )           |  |             | (0.3 | )     |  |   | (2.7  | )   |  |   | (20.4 | )   
|Non-cash charges         |                              |             |      |             |  |             | (0.9 | )     |  |   | (11.7 | )   |  |   | (12.6 | )   
|                         |                              |             |       |             |  |             |      |       |  |   |       |     |  |   |       |     
|                         | Balance at December 31, 1999 |             |       | 2.6         |  |             |      | 16.7  |  |   |       | 2.1 |  |   |       | 21.4 | 
|Cash payments            |                              |             | (1.9  | )           |  |             | (2.1 | )     |  |   | (0.9  | )   |  |   | (4.9  | )   
|Reversal                 |                              |             |      |             |  |             | (3.9 | )     |  |   | (0.4  | )   |  |   | (4.3  | )   
|                         |                              |             |       |             |  |             |      |       |  |   |       |     |  |   |       |     
|                         | Balance at December 31, 2000 |             |       | 0.7         |  |             |      | 10.7  |  |   |       | 0.8 |  |   |       | 12.2 | 
|Cash payments            |                              |             | (0.7  | )           |  |             | (0.2 | )     |  |   | (0.3  | )   |  |   | (1.2  | )   
|                         |                              |             |       |             |  |             |      |       |  |   |       |     |  |   |       |     
|                         | Balance at December 31, 2001 |             |       |            |  |             |      | 10.5  |  |   |       | 0.5 |  |   |       | 11.0 | 
|Additions                |                              |             |      |             |  |             | 4.2  |       |  |   |      |     |  |   | 4.2   |     
|Cash payments            |                              |             |      |             |  |             | (2.5 | )     |  |   |      |     |  |   | (2.5  | )   
|Non-cash charges         |                              |             |      |             |  |             | (1.7 | )     |  |   |      |     |  |   | (1.7  | )   
|Reversal                 |                              |             |      |             |  |             |     |       |  |   | (0.5  | )   |  |   | (0.5  | )   
|                         |                              |             |       |             |  |             |      |       |  |   |       |     |  |   |       |     
|                         | Balance at December 31, 2002 |             |       |            |  |             |      | 10.5  |  |   |       |    |  |   |       | 10.5 | 
|Cash payments            |                              |             |      |             |  |             | (1.0 | )     |  |   |      |     |  |   | (1.0  | )   
|Impact of exchange rates |                              |             |      |             |  |             | (0.2 | )     |  |   |      |     |  |   | (0.2  | )   
|                         |                              |             |       |             |  |             |      |       |  |   |       |     |  |   |       |     
|                         | Balance at March 31, 2003    |             | $     |            |  |             | $    | 9.3   |  |   | $     |    |  |   | $     | 9.3  | 
|                         |                              |             |       |             |  |             |      |       |  |   |       |     |  |   |       |     

The impact of exchange rates shown for the first
quarter of 2003 is the result of transferring the acquisition
and acquisition-related restructuring charge accrual to a
foreign subsidiary. The remaining acquisition and
acquisition-related restructuring charge accrual of
$9.3 million is anticipated to be utilized for servicing
operating lease payments or negotiated buyouts of operating
lease commitments, the lease terms of which will expire at
various times through the year 2013.

On January 27, 2003, we acquired all of the
outstanding capital stock of Jareva Technologies, Inc., or
Jareva, a privately held provider of automated server
provisioning products that enable businesses to automatically
deploy additional servers without manual intervention. We
acquired Jareva to integrate its technology into our products
and to enable our customers to optimize their investments in
server hardware by deploying new server resources on demand. The
Jareva acquisition was accounted for using the purchase
accounting method for total purchase consideration of
$63.3 million, which included $58.7 million of cash,
$1.4 million for the issuance of options to purchase
426,766 shares of our common stock and $3.2 million of
acquisition-related costs. The purchase price was allocated,
based on independent valuation, to goodwill of
$43.3 million, developed technology of $9.1 million,
other intangibles of $1.9 million, in-process research and

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development of $4.1 million, net deferred
tax liabilities of $4.3 million, deferred stock-based
compensation of $5.4 million and net tangible assets of
$3.8 million. For the three months ended March 31,
2003, we recorded amortization of developed technology of
$0.3 million, amortization of other intangibles of
$0.2 million and stock-based compensation expense of
$0.4 million. The acquired in-process research and
development of $4.1 million was written off and the related
charge is included in operating income for the three months
ended March 31, 2003. The results of operations of Jareva
are included in our consolidated financial statements from the
date of acquisition. Acquisition-related costs consist of
$2.7 million associated with terminating and satisfying
remaining lease commitments, partially offset by sublease income
net of related sublease costs and direct transaction costs of
$0.5 million for legal and other professional fees. Total
cash outlays for acquisition-related costs were not significant
as of March 31, 2003.


On December 19, 2002, we announced that we
signed an agreement to acquire Precise Software Solutions Ltd.,
or Precise, for an aggregate preliminary purchase price of
approximately $590.0 million, including approximately
$497.0 million of cash and common stock to be issued,
$85.0 million of fair value of stock options to be assumed
and $8.0 million of acquisition-related costs. Precise,
which is publicly traded on the Nasdaq National Market, is a
provider of application performance management products. We
expect to complete this acquisition during the second quarter of
2003.

Facility Restructure Reserve

In the fourth quarter of 2002, our board of
directors approved a facility restructuring plan to exit and
consolidate certain of our facilities located in 17 metropolitan
areas worldwide. The facility restructuring plan was adopted to
address overcapacity in our facilities as a result of lower than
planned headcount growth in these metropolitan areas. In
connection with this facility restructuring plan, we recorded a
restructuring charge to operating expenses of
$98.2 million. This restructuring charge is comprised of
$86.9 million associated with terminating and satisfying
remaining lease commitments, partially offset by sublease income
net of related sublease costs and $11.3 million for asset
write-offs. Total cash outlays under this restructuring plan are
expected to be approximately $86.9 million.

Restructuring costs will generally be paid over
the remaining lease terms, ending at various dates through 2021,
or over a shorter period as we may negotiate with our lessors.
We expect the majority of costs will be paid by the year ended
December 31, 2008.

During the fourth quarter of 2002, we began
vacating excess facilities and expect to vacate all excess
facilities associated with this restructuring by
October 31, 2003. We anticipate realizing savings beginning
during the third quarter of 2003. We are in the process of
seeking suitable subtenants for these facilities. Our estimates
of the facility restructure charge may vary significantly,
depending in part, on factors that are beyond our control,
including the commercial real estate market in the applicable
metropolitan areas, our ability to obtain subleases related to
these facilities and the time period to do so, the sublease
rental market rates and the outcome of negotiations with lessors
regarding terminations of some of the leases. Adjustments to the
facility restructure reserve will be made if actual lease exit
costs or sublease income differ from amounts currently expected.
Because a portion of the facilities restructure reserve relates
to international locations, the reserve will be affected by
exchange rate fluctuations.

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The components of the restructuring reserve and
movements within these components through March 31, 2003
were as follows (in millions):

|                         |                              |             |      |            |  |       |      |      |  |   |      |      | 
|------------------------ | ---------------------------- | ----------- | ---- | ---------- |  | ----- | ---- | ---- |  | - | ---- | ---- | 
|                         |                              | Net Rent    |      | Asset      |  |      
|                         |                              | Commitments |      | Write-Offs |  | Total
|                         |                              |             |      |            |  |      
|Provision accrued        |                              | $           | 86.9 |            |  | $     | 11.3 |      |  | $ | 98.2 |     
|Cash payments            |                              |             | (0.2 | )          |  |       |     |      |  |   | (0.2 | )   
|Impact of exchange rates |                              |             | 0.6  |            |  |       | 0.1  |      |  |   | 0.7  |     
|                         |                              |             |      |            |  |       |      |      |  |   |      |     
|                         | Balance at December 31, 2002 |             |      | 87.3       |  |       |      | 11.4 |  |   |      | 98.7 | 
|Cash payments            |                              |             | (2.7 | )          |  |       |     |      |  |   | (2.7 | )   
|Adjustment               |                              |             | 0.8  |            |  |       | (0.8 | )    |  |   |     |     
|Impact of exchange rates |                              |             | (0.4 | )          |  |       | (0.1 | )    |  |   | (0.5 | )   
|                         |                              |             |      |            |  |       |      |      |  |   |      |     
|                         | Balance at March 31, 2003    |             | $    | 85.0       |  |       | $    | 10.5 |  |   | $    | 95.5 | 
|                         |                              |             |      |            |  |       |      |      |  |   |      |     

Critical Accounting Policies

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



| |   |                                                 
| | - | ------------------------------------------------
| |  | Revenue recognition;                            
|
| |  | Impairment of long-lived assets;                
|
| |  | Restructuring expenses and related accruals; and
|
| |  | Accounting for income taxes.                    

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



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

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

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

For software arrangements involving multiple
elements, we allocate and defer revenue for the undelivered
elements based on their relative fair value and recognize the
difference between the total arrangement fee and the amount
deferred for the undelivered elements as revenue. The
determination of fair value of each element in multiple element
arrangements is based on the price charged when the same element
is sold separately. To determine the price when sold separately,
for the maintenance and technical support elements, we use
historical renewal rates for per-copy deals and stated renewal
rates for site licenses.

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

Maintenance and technical support includes
updates (unspecified product upgrades and enhancements) on a
when-and-if-available basis, telephone support, and bug fixes or
patches. Maintenance and technical support revenue is recognized
ratably over the maintenance term. Training consists of courses
taught by our instructors at our facility or at the
customers site. Various courses are offered specific to
the license products.

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Training fees are based on a per course basis or
on an annual value-pass, which allows for unlimited courses to
be taken by one individual over a one-year term. Revenue is
recognized when the customer has completed the course. For
value-passes, the revenue is recognized ratably over the
one-year term. Consulting consists primarily of product
installation services, which does not involve customization of
the software. Installation services provided by us are not
mandatory and can be performed by the customer, a third party,
or us. Consulting fees are based on a computed daily rate.


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

We define revenue recognition criteria as follows:

Persuasive Evidence of an Arrangement Exists.It is our customary practice to have a
written contract, which is signed by both the customer and us,
or a purchase order prior to recognizing revenue on an
arrangement.

Delivery Has Occurred.Our software is usually physically
delivered to our customers with standard transfer terms as FOB
shipping point. It is occasionally delivered electronically,
through an FTP download or a load and leave, where a
VERITAS employee physically loads the software and does not
leave any tangible property with the customer. If undelivered
products or services exist that are essential to the
functionality of the delivered product in an arrangement,
delivery is not considered to have occurred.

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

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

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

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

Certain of our customers are also our suppliers.
Occasionally, in the normal course of business, we purchase and
use goods or services for our operations from these suppliers at
or about the same time we license our software to them. We
identify and review the significant transactions to confirm that
they are

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separately negotiated at terms we considered to
be arms length. In cases where the transactions are not
separately negotiated, we assess the fair value of either of the
goods or services involved in the transaction to support the
recognition of the transaction. If we cannot determine fair
value of either of the goods or services involved within
reasonable limits, we record the transaction on a net basis. Our
non-monetary transactions have not been material to our
financial statements.




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

We review our goodwill for impairment when events
indicate that its carrying amount may not be recoverable or at
least once a year. We are required to test our goodwill for
impairment at the reporting unit level. We have determined that
we have only one reporting unit. The test for goodwill
impairment is a two-step process:



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Step 1  We compare the carrying amount
    of our reporting unit, which is the book value of our entire
    company, to the fair value of our reporting unit, which
    corresponds to our market capitalization. If the carrying amount
    of our reporting unit exceeds its fair value, we have to perform
    the second step of the process. If not, no further work is
    needed.                                                                                                                
|
| | Step 2  We allocate the fair value of
    our reporting unit to all assets and liabilities of our
    reporting unit as if the reporting unit had been acquired in a
    business combination at the date of the impairment test. We then
    compare the implied fair value of our reporting unit goodwill to
    its carrying amount. If the carrying amount of our reporting
    units goodwill exceeds its fair value, an impairment loss
    will be recognized in an amount equal to that excess.

We completed this test during the fourth quarter
of 2002 and were not required to record an impairment loss on
goodwill.

We review our long-lived assets, including
property and equipment and other intangibles, for impairment
when events indicate that their carrying amount may not be
recoverable. When we determine that one or more impairment
indicators are present for an asset, we compare the carrying
amount of the asset to net future undiscounted cash flows that
the asset is expected to generate. If the carrying amount of the
asset is greater than the net future undiscounted cash flows
that the asset is expected to generate, we would compare the
fair value to the book value of the asset. If the fair value is
less than the book value, we would recognize an impairment loss.
The impairment loss would be the excess of the carrying amount
of the asset over its fair value.

Some of the events that we consider as impairment
indicators for our long-lived assets, including goodwill, are:



| |   |                                                                                        
| | - | ---------------------------------------------------------------------------------------
| |  | significant underperformance of our company
    relative to expected operating results;
|
| |  | our net book value compared to our market
    capitalization;                          
|
| |  | significant adverse economic and industry trends;                                      
|
| |  | significant decrease in the market value of the
    asset;                             
|
| |  | the extent that we use an asset or changes in the
    manner that we use it; and       
|
| |  | significant changes to the asset since we
    acquired it.                             

We do not expect to record an impairment loss on
our long-lived assets in the near future.

Restructuring
Expenses and Related Accruals

We monitor and regularly evaluate our
organizational structure and associated operating expenses.
Depending on events and circumstances, we may decide to
restructure our operations to reduce operating costs.

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We applied the provisions of Emerging Issues Task
Force, or EITF, No. 94-3, Liability Recognized for
Certain Employee Termination Benefits and other Costs to Exit an
Activity (Including Certain Costs Incurred in a Restructuring)and EITF No. 88-10, Costs Associated with Lease
Modification or Terminationto all of our restructuring
activities initiated before January 1, 2003. For exit
restructuring activities initiated on January 1, 2003 or
after, we will apply the provisions of Statement of Financial
Accounting Standards, or SFAS, No. 146, Accounting for
Costs Associated with Exit or Disposal Activities, outlined
in our New Accounting Pronouncementssection
in Note 5 of the notes to the condensed consolidated
financial statements, which appears elsewhere in this quarterly
report on Form 10-Q.

Our restructuring costs and any resulting
accruals involve significant estimates made by management using
the best information available at the time the estimates are
made, some of which may be provided by third parties. These
estimates include facility exit costs, such as lease
terminations costs, and timing and market conditions of sublease
income and related sublease expense costs, such as brokerage
fees.

We regularly evaluate a number of factors to
determine the appropriateness and reasonableness of our
restructuring accruals. These factors include, but are not
limited to, our ability to enter into sublease or lease
termination agreements and market data about lease rates, timing
and term of potential subleases and costs associated with
terminating certain leases on vacated facilities.

Our estimates involve a number of risks and
uncertainties, some of which are beyond our control, including
future real estate market conditions and our ability to
successfully enter into subleases or lease termination
agreements upon terms as favorable as those assumed under our
restructuring plan. Actual results may differ significantly from
our estimates and may require adjustments to our restructuring
accruals and operating results in future periods. For example,
if actual proceeds from sublease agreements were to differ from
our estimate of proceeds from sublease agreements included in
our facility restructuring plan by 10%, the facility
restructuring charge recorded in operating expenses during the
fourth quarter of 2002 would have been different by
approximately $6 million.



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

We are required to estimate our income taxes in
each federal, state and international jurisdiction in which we
operate. This process requires that we estimate the current tax
exposure as well as assess temporary differences between the
accounting and tax treatment of assets and liabilities,
including items such as accruals and allowances not currently
deductible for tax purposes. The income tax effects of the
differences we identify are classified as current or long-term
deferred tax assets and liabilities in our consolidated balance
sheets. We must also assess the likelihood that deferred tax
assets will be realized from future taxable income and, based on
this assessment, establish a valuation allowance if required. As
of March 31, 2003, we determined the valuation allowance to
be $80.1 million based upon uncertainties related to our
ability to recover certain deferred tax assets. These deferred
tax assets are in specific geographical or jurisdictional
locations or are related to losses on strategic investments that
will only be realized with the generation of future capital
gains within a limited time period.

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

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Results of Operations



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

|                  |                   |                                   |       |       |  |          |       |       |  |  |    |    |  
|----------------- | ----------------- | --------------------------------- | ----- | ----- |  | -------- | ----- | ----- |  |  | -- | -- | -
|                  |                   |                                   |       |      
|                  |                   | Three Months                      |       |      
|                  |                   | Ended March 31,                   |       |      
|                  |                   |                                   |       |      
|                  |                   | 2003                              |       | 2002  |  | % Change
|                  |                   |                                   |       |       |  |         
|                  |                   |                                  
|                  |                   | (In millions, except percentages)
|User license fees |                   | $                                 | 254.6 |       |  | $        | 259.7 |       |  |  | (2 | )%
|Services          |                   |                                   | 139.8 |       |  |          | 110.7 |       |  |  | 26 | % 
|                  |                   |                                   |       |       |  |          |       |       |  |  |    |   
|                  | Total net revenue |                                   | $     | 394.4 |  |          | $     | 370.4 |  |  |    | 6  | %
|                  |                   |                                   |       |       |  |          |       |       |  |  |    |   

In the first quarter of 2003 and 2002, our total
net revenue was impacted by continued weak general economic and
market conditions resulting in reduced capital spending by our
customers. During the first quarter of 2003, the weaker economy
negatively impacted growth in our license revenues, while
service revenue grew 26%, resulting in a 6% increase in total
net revenues in the first quarter of 2003 compared to the first
quarter of 2002. Reductions in our customers capital
spending may decrease the demand for our user licenses and
services until economic and market conditions improve
significantly. While we believe that the percentage increase in
total revenue achieved in the first quarter of 2003 compared to
the first quarter of 2002 is not necessarily indicative of
future results, we expect total net revenue to continue to
increase slightly during 2003 reflecting the continued growth of
our services revenue, increased penetration of international
markets and the benefit of new product offerings, as well as our
expectation that general economic conditions could begin to
stabilize in the second half of 2003. However, the potential
future effect of the Severe Acute Respiratory Syndrome, or SARS,
on our net revenues is difficult to predict.



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

|                               |  |                                   |       |      |  |          |       |   |  |  |    |   
|------------------------------ |  | --------------------------------- | ----- | ---- |  | -------- | ----- | - |  |  | -- | --
|                               |  |                                   |       |     
|                               |  | Three Months                      |       |     
|                               |  | Ended March 31,                   |       |     
|                               |  |                                   |       |     
|                               |  | 2003                              |       | 2002 |  | % Change
|                               |  |                                   |       |      |  |         
|                               |  |                                  
|                               |  | (In millions, except percentages)
|User license fees              |  | $                                 | 254.6 |      |  | $        | 259.7 |   |  |  | (2 | )%
|As a percentage of net revenue |  |                                   | 65    | %    |  |          | 70    | % |  |  |    |   

We derive user license fees from the sale of our
core technology products, including data protection and file
system and volume management products, and from our emerging
technology products, including cluster and replication, storage
area networking and network attached storage products. Revenue
from core technology products comprises the majority of user
license fees and was 82% of total user license fees for the
first quarter of 2003 and 87% of user license fees for the first
quarter of 2002.

The decline in user license fees in the first
quarter of 2003 compared to the first quarter of 2002 reflects
weaker general economic and market conditions resulting in
deferred buying decisions and a reduction of capital spending by
our customers, particularly in the U.S. The reduction in capital
spending by our customers during the first quarter of 2003
resulted in a decline in user license fees from our core
technology products, partially offset by an increase in demand
during the first quarter of 2003 for our emerging technology
products, which comprise a smaller percentage of total user
license fees compared to user license fees from core technology
products. We expect user license fees as a percentage of total
net revenue to remain relatively constant or decline slightly in
2003, reflecting the continued growth of service revenue
relative to total net revenue, increased penetration of
international markets and the benefit of new product offerings,
as well as our expectation that general economic conditions
could begin to stabilize in the second half of 2003.

26



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|                                      |                       |                                       |   |       |       |          |   |       |       |   |  |    |    |   
|------------------------------------- | --------------------- | ------------------------------------- | - | ----- | ----- | -------- | - | ----- | ----- | - |  | -- | -- | --
|                                      |                       |                                       |   |      
|                                      |                       | Three Months                          |   |      
|                                      |                       | Ended March 31,                       |   |      
|                                      |                       |                                       |   |      
|                                      |                       | 2003                                  |   | 2002  |       | % Change
|                                      |                       |                                       |   |       |       |         
|                                      |                       |                                      
|                                      |                       | (In millions, except percentages)    
|User license fees:                    |                       |                                       |   |       |       |          |   |       |       |   |  |   
|                                      | Core technologies     |                                       | $ | 208.9 |       |          | $ | 225.8 |       |   |  | (7 | )%
|                                      | Emerging technologies |                                       |   | 45.7  |       |          |   | 33.9  |       |   |  | 35 | % 
|                                      |                       |                                       |   |       |       |          |   |       |       |   |  |   
|                                      |                       | Total user license fees               |   | $     | 254.6 |          |   | $     | 259.7 |   |  |    | (2 | )%
|                                      |                       |                                       |   |       |       |          |   |       |       |   |  |   
|As a percentage of user license fees: |                       |                                       |   |       |       |          |   |       |       |   |  |   
|                                      | Core technologies     |                                       |   | 82    | %     |          |   | 87    | %     |   |  |    |   
|                                      | Emerging technologies |                                       |   | 18    | %     |          |   | 13    | %     |   |  |    |   
|                                      |                       |                                       |   |       |       |          |   |       |       |   |  |   
|                                      |                       | Total percentage of user license fees |   |       | 100   | %        |   |       | 100   | % |  |    |    |   
|                                      |                       |                                       |   |       |       |          |   |       |       |   |  |   

The decrease in user license fees from core
technologies during the first quarter of 2003 compared to the
first quarter of 2002 is commensurate with the overall decrease
in user license fees from the first quarter of 2002 to the first
quarter of 2003 reflecting weaker general economic and market
conditions. The revenue growth in emerging technologies during
the first quarter of 2003 compared to the first quarter of 2002
reflects increased penetration of our emerging technology
products, particularly our clustering and replication products.

Our user license fees from original equipment
manufacturers decreased 16% during the first quarter of 2003 to
$35.0 million from $41.9 million during the first
quarter of 2002. The user license fees from original equipment
manufacturers accounted for 14% of user license fees in the
first quarter of 2003 and 16% of user license fees in the first
quarter of 2002. The decrease in the first quarter of 2003
compared to the first quarter of 2002 reflects reduced hardware
sales by original equipment manufacturers as their customers
reduced technology spending in the weaker economic environment.



| |                
| | ---------------
| | Service Revenue

|                               |  |                                   |       |      |  |          |       |   |  |  |    |  
|------------------------------ |  | --------------------------------- | ----- | ---- |  | -------- | ----- | - |  |  | -- | -
|                               |  |                                   |       |     
|                               |  | Three Months                      |       |     
|                               |  | Ended March 31,                   |       |     
|                               |  |                                   |       |     
|                               |  | 2003                              |       | 2002 |  | % Change
|                               |  |                                   |       |      |  |         
|                               |  |                                  
|                               |  | (In millions, except percentages)
|Service revenue                |  | $                                 | 139.8 |      |  | $        | 110.7 |   |  |  | 26 | %
|As a percentage of net revenue |  |                                   | 35    | %    |  |          | 30    | % |  |  |    |  

We derive our service revenue primarily from
contracts for software maintenance and technical support and, to
a lesser extent, consulting and training services. The increase
in the first quarter of 2003 compared to the first quarter of
2002 was due primarily to renewal of service and support
contracts on existing licenses, growth in international service
revenue and, to a lesser extent, an increase in demand for
consulting and training services. We expect our service revenue
to increase in absolute dollars and as a percentage of net
revenue primarily as a result of our continued focus on
increasing renewals of maintenance and technical support
contracts on existing licenses, an increasing demand for our
consulting and training services and the impact of the weaker
general economic and industry conditions on our user license fee
revenue.



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

|                               |  |                                   |      |      |  |          |      |   |  |  |    |  
|------------------------------ |  | --------------------------------- | ---- | ---- |  | -------- | ---- | - |  |  | -- | -
|                               |  |                                   |      |     
|                               |  | Three Months                      |      |     
|                               |  | Ended March 31,                   |      |     
|                               |  |                                   |      |     
|                               |  | 2003                              |      | 2002 |  | % Change
|                               |  |                                   |      |      |  |         
|                               |  |                                  
|                               |  | (In millions, except percentages)
|Cost of revenue                |  | $                                 | 74.0 |      |  | $        | 67.3 |   |  |  | 10 | %
|As a percentage of net revenue |  |                                   | 19   | %    |  |          | 18   | % |  |  |    |  

27



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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 and technical support, consulting and
training services. Cost of service revenue varies depending upon
the mix of maintenance and technical support, consulting and
training services. We expect gross margin to fluctuate in the
future, reflecting changes in royalty rates on licensed
technologies, the mix of license and service revenue and the
timing differences between increasing our organizational
investments and the recognition of revenue that we expect as a
result of these investments. In the near term, we expect service
revenue to grow faster than user license fee revenue, which
could result in slight declines in gross margin percentages.



| |                                                                               
| | ------------------------------------------------------------------------------
| | Cost of User License Fees (including
    amortization of developed technology)

|                           |                                                                      |                                   |   |      |      |          |   |      |      |  |  |     |    | 
|-------------------------- | -------------------------------------------------------------------- | --------------------------------- | - | ---- | ---- | -------- | - | ---- | ---- |  |  | --- | -- | 
|                           |                                                                      |                                   |   |     
|                           |                                                                      | Three Months                      |   |     
|                           |                                                                      | Ended March 31,                   |   |     
|                           |                                                                      |                                   |   |     
|                           |                                                                      | 2003                              |   | 2002 |      | % Change
|                           |                                                                      |                                   |   |      |      |         
|                           |                                                                      |                                  
|                           |                                                                      | (In millions, except percentages)
|Cost of user license fees: |                                                                      |                                   |   |      |      |          |   |      |      |  |  |    
|                           | User license fees                                                    |                                   | $ | 11.4 |      |          | $ | 9.2  |      |  |  | 24  | % 
|                           | Amortization of developed technology                                 |                                   |   | 14.8 |      |          |   | 16.9 |      |  |  | (12 | )%
|                           |                                                                      |                                   |   |      |      |          |   |      |      |  |  |    
|                           |                                                                      | Total cost of user license fees   |   | $    | 26.2 |          |   | $    | 26.1 |  |  |     |   | 
|                           |                                                                      |                                   |   |      |      |          |   |      |      |  |  |    
|Gross margin:              |                                                                      |                                   |   |      |      |          |   |      |      |  |  |    
|                           | User license fees including amortization of
    developed technology |                                   |   | 90   | %    |          |   | 90   | %    |  |  |     |   

Cost of user license fees consists primarily of
amortization of developed technology, royalties, media, manuals
and distribution costs. The amortization of developed technology
is related primarily to the acquisition of NSMG and the other
acquisitions completed during 1999 and the first quarter of
2003. During the second and fourth quarters of 2002, we sold
some of our technology and wrote-off the related net book value
of developed technology, resulting in a decrease in the
amortization of developed technology from the first quarter of
2002 to the first quarter of 2003. 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 each of the three-month periods ended
March 31, 2003 and 2002. The gross margin on user license
fees may vary from period to period based on the license revenue
mix because some of our products carry higher royalty rates than
others. Excluding the amortization of developed technology, we
expect gross margins on user license fees to remain relatively
constant or decrease slightly in 2003 as a result of increases
in royalty rates we pay on our licensed technologies.



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

|                        |  |                                   |      |      |  |          |      |   |  |  |    |  
|----------------------- |  | --------------------------------- | ---- | ---- |  | -------- | ---- | - |  |  | -- | -
|                        |  |                                   |      |     
|                        |  | Three Months                      |      |     
|                        |  | Ended March 31,                   |      |     
|                        |  |                                   |      |     
|                        |  | 2003                              |      | 2002 |  | % Change
|                        |  |                                   |      |      |  |         
|                        |  |                                  
|                        |  | (In millions, except percentages)
|Cost of service revenue |  | $                                 | 47.8 |      |  | $        | 41.2 |   |  |  | 16 | %
|Gross margin            |  |                                   | 66   | %    |  |          | 63   | % |  |  |    |  

Cost of service revenue consists primarily of
personnel-related costs in providing maintenance and technical
support, consulting and training to customers. The gross margin
improvement during the first quarter of 2003 compared to the
first quarter of 2002 was the result of our increased
productivity and higher service revenue growth due to support
fees from a larger installed customer base. We expect gross
margin on service revenue to remain stable or increase slightly
as a result of reductions in labor costs associated with
technical support services by increasing our use of lower cost
personnel located in our facilities in India.

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| |                                     
| | ------------------------------------
| | Amortization of Developed Technology

|                                     |  |                                   |      |      |  |          |      |   |  |  |     |   
|------------------------------------ |  | --------------------------------- | ---- | ---- |  | -------- | ---- | - |  |  | --- | --
|                                     |  |                                   |      |     
|                                     |  | Three Months                      |      |     
|                                     |  | Ended March 31,                   |      |     
|                                     |  |                                   |      |     
|                                     |  | 2003                              |      | 2002 |  | % Change
|                                     |  |                                   |      |      |  |         
|                                     |  |                                  
|                                     |  | (In millions, except percentages)
|Amortization of developed technology |  | $                                 | 14.8 |      |  | $        | 16.9 |   |  |  | (12 | )%
|As a percentage of net revenue       |  |                                   | 4    | %    |  |          | 5    | % |  |  |     |   

The amortization of the developed technology is
related primarily to the acquisition of NSMG and the other
acquisitions completed during 1999 and the first quarter of
2003. The decrease during the first quarter of 2003 compared to
the first quarter of 2002 reflects the disposal of developed
technology during 2002. The useful life of the developed
technology acquired is two to five years. Developed technology
resulting from our 1999 acquisitions will be fully amortized
during the second quarter of 2003. We expect amortization of
developed technology and other intangibles to decline in the
third quarter of 2003 to approximately $7.0 million to
$10.0 million per quarter, including the amortization
related to the January 2003 acquisition of Jareva and the
expected impact of our pending acquisition of Precise based on
our preliminary purchase price allocation.



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

|                               |  |                                   |       |      |  |          |       |   |  |  |   |  
|------------------------------ |  | --------------------------------- | ----- | ---- |  | -------- | ----- | - |  |  | - | -
|                               |  |                                   |       |     
|                               |  | Three Months                      |       |     
|                               |  | Ended March 31,                   |       |     
|                               |  |                                   |       |     
|                               |  | 2003                              |       | 2002 |  | % Change
|                               |  |                                   |       |      |  |         
|                               |  |                                  
|                               |  | (In millions, except percentages)
|Operating expenses             |  | $                                 | 253.9 |      |  | $        | 243.3 |   |  |  | 4 | %
|As a percentage of net revenue |  |                                   | 64    | %    |  |          | 66    | % |  |  |   |  

The increase in total operating expenses during
the first quarter of 2003 compared to the first quarter of 2002
was primarily the result of increases in research and
development and general and administrative expenses and the
write-off of in-process research and development of
$4.1 million related to the acquisition of Jareva,
partially offset by a decrease in selling and marketing
expenses. During the second quarter of 2003, we expect operating
margins to remain consistent or decrease slightly compared to
the first quarter of 2003, reflecting our efforts to contain
costs while investing for future growth. Our operating expenses
include selling and marketing expenses, research and development
expenses, general and administrative expenses, amortization of
goodwill and other intangibles, and in-process research and
development.



| |                      
| | ---------------------
| | Selling and Marketing

|                               |  |                                   |       |      |  |          |       |   |  |  |    |   
|------------------------------ |  | --------------------------------- | ----- | ---- |  | -------- | ----- | - |  |  | -- | --
|                               |  |                                   |       |     
|                               |  | Three Months                      |       |     
|                               |  | Ended March 31,                   |       |     
|                               |  |                                   |       |     
|                               |  | 2003                              |       | 2002 |  | % Change
|                               |  |                                   |       |      |  |         
|                               |  |                                  
|                               |  | (In millions, except percentages)
|Selling and marketing          |  | $                                 | 122.0 |      |  | $        | 127.0 |   |  |  | (4 | )%
|As a percentage of net revenue |  |                                   | 31    | %    |  |          | 34    | % |  |  |    |   

Selling and marketing expenses consist primarily
of salaries, related benefits, commissions, consultant fees and
other costs associated with our sales and marketing efforts. The
decrease during the first quarter of 2003 compared to the first
quarter of 2002 is primarily the result of a decrease in
staffing levels, leading to a reduction in other employee costs,
primarily outside recruiting and employee events, and travel and
entertainment expenses. The decrease in the first quarter of
2003 also reflects our efforts to contain costs and control
discretionary spending. For the remainder of 2003, we expect
selling and marketing expenses to remain stable in absolute
dollars, as recent reductions in staffing levels in the United
States will be offset by investments in international sales and
marketing efforts.

29



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##### Table of Contents





| |                         
| | ------------------------
| | Research and Development

|                               |  |                                   |      |      |  |          |      |   |  |  |    |  
|------------------------------ |  | --------------------------------- | ---- | ---- |  | -------- | ---- | - |  |  | -- | -
|                               |  |                                   |      |     
|                               |  | Three Months                      |      |     
|                               |  | Ended March 31,                   |      |     
|                               |  |                                   |      |     
|                               |  | 2003                              |      | 2002 |  | % Change
|                               |  |                                   |      |      |  |         
|                               |  |                                  
|                               |  | (In millions, except percentages)
|Research and development       |  | $                                 | 71.4 |      |  | $        | 65.2 |   |  |  | 10 | %
|As a percentage of net revenue |  |                                   | 18   | %    |  |          | 18   | % |  |  |    |  

Research and development expenses consist
primarily of salaries, related benefits, third-party consultant
fees and other engineering related costs. The increase during
the first quarter of 2003 compared to the first quarter of 2002
is primarily the result of an increase in compensation and
benefits and, to a lesser extent, costs associated with outside
services, primarily for intellectual property protection. The
increase in compensation and benefits during the first quarter
of 2003 reflects the acquisition of Jareva on January 27,
2003 and a general increase in compensation levels for research
and development personnel. We believe that a significant level
of research and development investment is required to remain
competitive, but expect research and development expenses to
remain relatively stable for the remainder of 2003 as a result
of increased use of research and development personnel in India,
where labor costs are lower.



| |                           
| | --------------------------
| | General and Administrative

|                               |  |                                   |      |      |  |          |      |   |  |  |    |  
|------------------------------ |  | --------------------------------- | ---- | ---- |  | -------- | ---- | - |  |  | -- | -
|                               |  |                                   |      |     
|                               |  | Three Months                      |      |     
|                               |  | Ended March 31,                   |      |     
|                               |  |                                   |      |     
|                               |  | 2003                              |      | 2002 |  | % Change
|                               |  |                                   |      |      |  |         
|                               |  |                                  
|                               |  | (In millions, except percentages)
|General and administrative     |  | $                                 | 38.2 |      |  | $        | 33.1 |   |  |  | 15 | %
|As a percentage of net revenue |  |                                   | 10   | %    |  |          | 9    | % |  |  |    |  

General and administrative expenses consist
primarily of salaries, related benefits and fees for
professional services, such as legal and accounting services.
The increase during the first quarter of 2003 compared to the
first quarter of 2002 is primarily the result of an increase in
staffing levels, expenses associated with outside services,
primarily legal and consulting, and increases in facility costs
related to new facilities in Milpitas, California and Reading,
UK. We expect general and administrative expenses as a
percentage of total net revenue to remain relatively stable for
the remainder of 2003.



| |                                  
| | ---------------------------------
| | Amortization of Other Intangibles

|                                  |  |                                   |      |      |  |          |      |   |  |  |   |  
|--------------------------------- |  | --------------------------------- | ---- | ---- |  | -------- | ---- | - |  |  | - | -
|                                  |  |                                   |      |     
|                                  |  | Three Months                      |      |     
|                                  |  | Ended March 31,                   |      |     
|                                  |  |                                   |      |     
|                                  |  | 2003                              |      | 2002 |  | % Change
|                                  |  |                                   |      |      |  |         
|                                  |  |                                  
|                                  |  | (In millions, except percentages)
|Amortization of other intangibles |  | $                                 | 18.2 |      |  | $        | 18.0 |   |  |  | 1 | %
|As a percentage of net revenue    |  |                                   | 5    | %    |  |          | 5    | % |  |  |   |  

Amortization of other intangibles principally
represents amortization of distribution channels, trademarks and
other intangibles recorded upon the acquisitions completed
during 1999 and the first quarter of 2003. The estimated useful
life of our other intangibles is six months to five years, with
the majority of intangibles being amortized over two to four
years. Other intangibles related to the 1999 acquisitions will
be fully amortized during the second quarter of 2003. We expect
amortization of developed technology and other intangibles to
decline in the third quarter of 2003 to approximately
$7.0 million to $10.0 million per quarter, including
the impacts of the January 2003 acquisition of Jareva and the
expected impact of our pending acquisition of Precise based on
our preliminary purchase price allocation.

30



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##### Table of Contents





| |                                    
| | -----------------------------------
| | In-Process Research and Development

|                                                 |  |                                   |     |      |  |          |   |  |  |  |     |  
|------------------------------------------------ |  | --------------------------------- | --- | ---- |  | -------- | - |  |  |  | --- | -
|                                                 |  |                                   |     |     
|                                                 |  | Three Months                      |     |     
|                                                 |  | Ended March 31,                   |     |     
|                                                 |  |                                   |     |     
|                                                 |  | 2003                              |     | 2002 |  | % Change
|                                                 |  |                                   |     |      |  |         
|                                                 |  |                                  
|                                                 |  | (In millions, except percentages)
|Write-off of in-process research and development |  | $                                 | 4.1 |      |  | $        |  |  |  |  | 100 | %
|As a percentage of net revenue                   |  |                                   | 1   | %    |  |          |  |  |  |  |     |  

Upon the acquisition of Jareva in January 2003,
we recorded a charge to in-process research and development of
$4.1 million. We obtained an outside valuation for this
acquisition, and values were assigned to developed technology,
in-process research and development and other intangibles. As
the basis for identifying the in-process research and
development, the development projects were evaluated in the
context of Interpretation 4 of SFAS No. 2, Accounting
for Research and Development Costs. The fair value of the
in-process research and development for the acquisition of
Jareva was determined using the income approach, which discounts
expected future cash flows from projects under development to
their net present value. Each project was analyzed to determine
the characteristics and applications of the technology; the
complexity, cost and time to complete the remaining development
efforts; any alternative future use or current technological
feasibility; and the stage of completion. Two in-process
research and development projects were identified and valued at
the time of our acquisition of Jareva. The projected future cash
flows from the projects under development were based on
managements estimates of revenues and operating profits
related to the projects. Revenues on the projects related to
in-process research and development were estimated to begin in
2003 through 2007, with the majority of the revenues occurring
in 2006 and 2007. Costs to complete these two research and
development projects were estimated at $1.3 million. At the date
of acquisition, the development of the related products was
estimated at 52% complete, with an expected completion date of
June 2003 for both projects. The risk-adjusted discount rate
applied to after-tax cash flows was 38%, compared to an
estimated weighted average cost of capital of 18%. We believe
the amounts determined for in-process research and development
are representative of the fair value and do not exceed the
amounts an independent third party would pay for the projects
assumed.



| |                               
| | ------------------------------
| | Interest and Other Income, Net

|                               |  |                                   |     |      |  |          |      |   |  |  |     |   
|------------------------------ |  | --------------------------------- | --- | ---- |  | -------- | ---- | - |  |  | --- | --
|                               |  |                                   |     |     
|                               |  | Three Months                      |     |     
|                               |  | Ended March 31,                   |     |     
|                               |  |                                   |     |     
|                               |  | 2003                              |     | 2002 |  | % Change
|                               |  |                                   |     |      |  |         
|                               |  |                                  
|                               |  | (In millions, except percentages)
|Interest and other income, net |  | $                                 | 8.4 |      |  | $        | 13.2 |   |  |  | (36 | )%
|As a percentage of net revenue |  |                                   | 2   | %    |  |          | 4    | % |  |  |     |   

The decrease from the first quarter of 2002 to
the first quarter of 2003 is primarily due to a decrease in
interest income. The decrease in interest income in the first
quarter of 2003 is due principally to the fall in interest rates
and the appreciation of the Euro against the U.S. Dollar from
the first quarter of 2002, partially offset by the higher level
of funds available for investment in the first quarter of 2003,
which were generated primarily from the net cash provided by
operating activities.



| |                 
| | ----------------
| | Interest Expense

|                               |  |                                   |     |      |  |          |     |   |  |  |    |   
|------------------------------ |  | --------------------------------- | --- | ---- |  | -------- | --- | - |  |  | -- | --
|                               |  |                                   |     |     
|                               |  | Three Months                      |     |     
|                               |  | Ended March 31,                   |     |     
|                               |  |                                   |     |     
|                               |  | 2003                              |     | 2002 |  | % Change
|                               |  |                                   |     |      |  |         
|                               |  |                                  
|                               |  | (In millions, except percentages)
|Interest expense               |  | $                                 | 7.7 |      |  | $        | 7.9 |   |  |  | (3 | )%
|As a percentage of net revenue |  |                                   | 2   | %    |  |          | 2   | % |  |  |    |   

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.

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| |                              
| | -----------------------------
| | Loss on Strategic Investments

|                               |  |                                   |     |      |  |          |   |  |  |  |     |  
|------------------------------ |  | --------------------------------- | --- | ---- |  | -------- | - |  |  |  | --- | -
|                               |  |                                   |     |     
|                               |  | Three Months                      |     |     
|                               |  | Ended March 31,                   |     |     
|                               |  |                                   |     |     
|                               |  | 2003                              |     | 2002 |  | % Change
|                               |  |                                   |     |      |  |         
|                               |  |                                  
|                               |  | (In millions, except percentages)
|Loss on strategic investment   |  | $                                 | 3.5 |      |  | $        |  |  |  |  | 100 | %
|As a percentage of net revenue |  |                                   | 1   | %    |  |          |  |  |  |  |     |  

With the decline in general economic conditions
beginning in 2001, some of the companies in which we have
invested have experienced extreme volatility and instability in
their business and operating results. During the first quarter
of 2003, we recognized impairment losses on our strategic
investments when we determined that there had been a decline in
the fair value of these investments that was other than
temporary. These losses represented write-downs of the carrying
amount of our investments. As of March 31, 2003, we
determined that there was no further impairment, other than
temporary, on our strategic investments.



| |             
| | ------------
| | Income Taxes

|                               |  |                                   |      |      |  |          |      |   |  |  |   |  
|------------------------------ |  | --------------------------------- | ---- | ---- |  | -------- | ---- | - |  |  | - | -
|                               |  |                                   |      |     
|                               |  | Three Months                      |      |     
|                               |  | Ended March 31,                   |      |     
|                               |  |                                   |      |     
|                               |  | 2003                              |      | 2002 |  | % Change
|                               |  |                                   |      |      |  |         
|                               |  |                                  
|                               |  | (In millions, except percentages)
|Income taxes                   |  | $                                 | 21.1 |      |  | $        | 20.7 |   |  |  | 2 | %
|As a percentage of net revenue |  |                                   | 5    | %    |  |          | 6    | % |  |  |   |  

Our effective tax rate for the first quarter of
2003 was 33% compared to 32% for the first quarter of 2002. Our
first quarter effective tax rates for 2003 and 2002 differed
from the federal statutory rate due primarily to differences
attributable to acquisition-related charges that were
non-deductible for tax purposes and to foreign earnings which
are taxed at rates different from the federal statutory rate.

New Accounting Pronouncements

In June 2001, the Financial Accounting Standards
Board, or FASB, issued SFAS No. 143, Accounting for
Asset Retirement Obligations. SFAS 143 addresses the
financial accounting and reporting for obligations associated
with the retirement of tangible long-lived assets and the
associated asset retirement costs. SFAS 143 applies to
legal obligations associated with the retirement of long-lived
assets that result from the acquisition, construction,
development or normal use of the assets. SFAS 143 requires
that the fair value of a liability for an asset retirement
obligation be recognized in the period in which it is incurred
if a reasonable estimate of fair value can be made. The fair
value of the liability is added to the carrying amount of the
associated asset, and this additional carrying amount is
expensed over the life of the asset. We have adopted the
provisions of SFAS 143 as of January 1, 2003. The
adoption of SFAS 143 did not have a material effect on our
financial position, results of operations or cash flows.

In June 2002, the FASB issued SFAS 146,
Accounting for Costs Associated with Exit or Disposal
Activities. SFAS 146 supersedes Emerging Issues Task
Force Issue, or EITF No. 94-3, Liability
Recognition for Certain Employee Termination Benefits and other
Costs to Exit an Activity (Including Certain Costs Incurred in a
Restructuring). SFAS 146 addresses the recognition,
measurement, and reporting of costs that are associated with
exit and disposal activities. These costs include those related
to terminating a contract that is not a capital lease and
termination benefits that employees who are involuntarily
terminated receive under the terms of a one-time benefit
arrangement that is not an ongoing benefit arrangement or an
individual deferred-compensation contract. SFAS 146
requires that the liability for costs associated with an exit or
disposal activity be recorded at fair value and that they be
recognized when the liability is incurred rather than at the
date of the commitment to an exit plan as prescribed under EITF
94-3. SFAS 146 will be applied prospectively for exit or
disposal activities that are initiated after December 31,
2002 and accordingly, liabilities recognized prior to the
initial application of SFAS 146 should continue to be
accounted for in accordance with EITF 94-3. We have
implemented the provisions of SFAS 146 as of
January 1, 2003, and the

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implementation of SFAS 146 did not have a
material impact on our financial position, results of operations
or cash flows.


In November 2002, the FASB issued FASB
Interpretation, or FIN, No. 45, Guarantors
Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others. FIN 45
requires that we recognize the fair value for guarantee and
indemnification arrangements issued or modified by us after
December 31, 2002, if these arrangements are within the
scope of the Interpretation. In addition, we must continue to
monitor the conditions that are subject to the guarantees and
indemnifications, as required under previously existing
generally accepted accounting principles, in order to identify
if a loss has occurred. If we determine it is probable that a
loss has occurred then any such estimable loss would be
recognized under those guarantees and indemnifications. Some of
our software licenses contain provisions that indemnify
licensees of our software from damages and costs resulting from
claims alleging that our software infringes the intellectual
property rights of a third party. We have historically received
only a limited number of requests for indemnification under
these provisions and have not been required to make material
payments pursuant to these provisions. Accordingly, we have not
recorded a liability related to these indemnification
provisions. We do not have any guarantees or indemnification
arrangements other than the indemnification clause in some of
our software licenses, the guarantee on a credit facility
discussed in Note 14 to our condensed consolidated financial
statements and the guarantee on our three build-to-suit lease
agreements for buildings in Mountain View, Roseville and
Milpitas discussed in Note 15 to our condensed consolidated
financial statements. We have implemented the provisions of FIN
45 as of January 1, 2003, and the implementation of FIN 45
did not have a material impact on our financial position,
results of operations or cash flows.

In January 2003, the FASB issued FIN No. 46,
Consolidation of Variable Interest Entities, which
addresses the consolidation of variable interest entities. FIN
46 provides guidance for determining when an entity that is the
primary beneficiary of a variable interest entity or equivalent
structure should consolidate the variable interest entity into
the entitys financial statements. The provisions of FIN 46
are to be applied as of the beginning of the first interim or
annual reporting period beginning after June 15, 2003 for
variable interest entities created before February 1, 2003
and still existing on June 15, 2003. We currently have
three build-to-suit operating leases, commonly referred to as
synthetic leases, which were entered into prior to
February 1, 2003. Each synthetic lease is owned by a trust,
that has no voting rights, no employees, no financing activity
other than the lease with us, no ability to absorb losses and no
right to participate in gains realized on the sale of the
related property. If the trusts under our leasing structures
qualify as variable interest entities for purposes of FIN 46, we
would be considered the primary beneficiary and would be
required to consolidate these entities into our financial
statements beginning July 1, 2003. This would require us to
recognize the assets and liabilities of the trusts on our
consolidated balance sheet and a cumulative adjustment for the
accounting change in our consolidated statement of operations.
Alternatively, we may choose to purchase the properties by
exercising our purchase option or seek to restructure the
synthetic leases with entities that would not qualify as
variable interest entities under FIN 46. The purchase price for
these properties would be equal to the termination value of the
facilities under the respective operating leases and, in the
aggregate, would be approximately $380.8 million. Payment
of the purchase price for these properties would significantly
reduce the amount of cash, cash equivalents and short-term
investments available for funding our research and development
efforts, geographic expansion and strategic acquisitions in the
future. We can give no assurance that we will be able to
restructure the synthetic leases with entities that would not
qualify as variable interest entities under FIN 46. We are
currently evaluating the impact that would result from adopting
FIN 46 on our financial statements.

Liquidity and Capital Resources



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

Our cash, cash equivalents and short-term
investments totaled $2,394.1 million at March 31, 2003 and
represented 80% of our net tangible assets. Our cash, cash
equivalents and short-term investments totaled
$2,241.3 million at December 31, 2002 and represented
77% of our net tangible assets. Cash and cash equivalents are
highly liquid with original maturities of 90 days or less.
Short-term investments consist mainly

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of commercial paper, medium-term notes, corporate
notes, government agency securities (taxable and non-taxable),
asset-backed securities and market auction preferreds.


Operating activities provided cash of
$203.3 million for the three months ended March 31,
2003, primarily due to net income of $42.5 million,
adjusted for depreciation and amortization of
$24.6 million, amortization of developed technology and
other intangibles of $33.0 million, deferred income taxes
of $(13.4) million and other non-cash charges, increases in
deferred revenue, income taxes payable and a decrease in
accounts receivable of $91.2 million, which were partially
offset by decreases in accrued compensation and benefits and
other accrued liabilities. We believe that the decrease in
accounts receivable was primarily due to the fact that a greater
portion of our sales, including some large transactions,
occurred in the first two months of the first quarter of 2003.
Consequently, a higher than expected amount of our transactions
during the first quarter of 2003 was invoiced and paid prior to
the end of the quarter. We do not anticipate that the change in
our accounts receivable balance or related cash flows from
December 31, 2002 to March 31, 2003 is indicative of
future periods. Operating activities provided cash of
$193.7 million for the three months ended March 31,
2002, primarily due to net income of $44.5 million,
adjusted for depreciation and amortization of
$24.8 million, amortization of developed technology and
other intangibles of $34.9 million, tax benefits from stock
plans of $15.9 million, deferred income taxes of
$(13.1) million and other non-cash charges, increases in
deferred revenue and income taxes payable and a decrease in
accounts receivable. These elements were partially offset by a
decrease in accrued compensation and benefits.

Investing activities provided cash of
$40.8 million for the three months ended March 31,
2003, primarily due to the net decrease in short-term
investments of $113.8 million, partially offset by
purchases of businesses and technologies, net of cash acquired
of $54.6 million and purchases of property and equipment of
$16.3 million. Investing activities provided cash of $113.7
million for the three months ended March 31, 2002,
primarily due to the net decrease in short-term investments of
$136.3 million, partially offset by purchases of property
and equipment of $15.3 million and purchases of businesses
and technologies of $7.3 million.

Financing activities provided cash of
$20.0 million for the three months ended March 31,
2003, arising from the issuance of common stock under our
employee stock plans. Financing activities provided cash of
$51.3 million for the three months ended March 31,
2002, arising from the issuance of common stock under our
employee stock plans.

If our pending acquisition of Precise Software is
completed in the second quarter of 2003 as we anticipate, we
expect to have a net use of cash from investing activities
reflecting our cash payment to the shareholders of Precise
Software, which we currently estimate to be in the range of
$408.9 million to $545.2 million, depending on the mix
of cash and stock consideration paid at the closing of the
transaction.

We continue to evaluate alternative uses of our
cash including, but not limited to, exercising our purchase
option for the properties subject to the build-to-suit lease
arrangements, restructuring our 5.25% and 1.856% convertible
subordinated notes, implementing a stock re-purchase plan and
exploring potential strategic acquisitions, any one of which
could reduce the amount of available cash and cash equivalents.



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

In October 1997, we issued $100.0 million of
5.25% convertible subordinated notes due in 2004, or 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 5.25% notes. As of March 31, 2003, a total
principal amount of $36.0 million had been converted into
approximately 3.8 million shares of our common stock. Based
on the aggregate principal amount at maturity of
$64.0 million outstanding as of March 31, 2003, 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. The 5.25%
notes are redeemable over a period of time until maturity at our
option at declining

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premiums to par. The debt issuance costs are
being amortized over the term of the 5.25% notes using the
interest method.


In August 1999, we and our wholly-owned
subsidiary, VERITAS Operating Corporation, issued
$465.8 million, aggregate principal amount at maturity, of
1.856% convertible subordinated notes due in 2006, or the
1.856% notes, for which we received net proceeds of
approximately $334.1 million. The interest rate of 1.856%,
together with the accrual of original issue discount, represent
a yield to maturity of 6.5%. We, and VERITAS Operating
Corporation are co-obligors on the 1.856% notes and are
unconditionally, jointly and severally liable for all payments
under the notes. As of March 31, 2002, a total principal amount
of $1.1 million had been converted into approximately
29,400 shares of our common stock. Based on the aggregate
principal amount at maturity of $464.7 million outstanding
as of March 31, 2003, 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. The 1.856% notes
are 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.

At March 31, 2003, we had a ratio of
long-term debt to total capitalization of approximately 14%. The
degree to which we will be leveraged could materially and
adversely affect our ability to obtain financing for working
capital, acquisitions or other purposes and could make us more
vulnerable to industry downturns and competitive pressures. 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.



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



| |                
| | ---------------
| | Credit Facility

During 2002, our Japanese subsidiary entered into
a short-term credit facility with a multinational Japanese bank
in the amount of 1.0 billion Japanese yen
($8.3 million USD). At March 31, 2003, no amount was
outstanding. The short-term credit facility was renewed in March
2003 and is due to expire in March 2004. Borrowings under the
short-term credit facility bear interest at Tokyo Inter Bank
Offered Rate, or TIBOR, plus 0.5%. There are no covenants on the
short-term credit facility and the loan has been guaranteed by
VERITAS Software Global Corporation, one of our wholly-owned
subsidiaries of the Company.



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

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

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

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

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

Lease payments under our three build-to-suit
lease agreements are generally paid quarterly and are equal to
the termination value of the outstanding lease obligations
multiplied by our cost of funds, which is based on LIBOR using
30-day to 180-day LIBOR contracts and adjusted for our credit
spread. In January 2002, we entered into two three-year pay
fixed, receive floating, interest rate swaps for the purpose of
hedging the cash payments related to the Roseville, Minnesota
and Mountain View, California lease agreements. Under the terms
of these interest rate swaps, we make payments based on the
fixed rate and will receive interest payments based on the
3-month LIBOR rate. For the three months ended March 31,
2003, our aggregate lease payments, including the payments on
the interest rate swaps, were $4.1 million. Our aggregate
payment obligations under the three build-to-suit lease
agreements for the second quarter of 2003 are $4.1 million.

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

If we choose to exercise the purchase option for
the properties subject to the three build-to-suit lease
agreements, the aggregate purchase price would be approximately
$380.8 million. Payment of the purchase price for these
properties would significantly reduce the amount of cash, cash
equivalents and short-term investments available for funding our
research and development efforts, geographic expansion and
strategic acquisitions in the future.

The agreements for the facilities described above
require that we maintain specified financial covenants, all of
which we were in compliance with as of March 31, 2003. The
specified financial covenants require us to maintain a minimum
rolling four quarter EBITDA of $400 million, a minimum
ratio of cash and cash equivalents to current liabilities of 1.2
to 1, and a leverage ratio of total funded indebtedness to
rolling four

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quarter EBITDA of not more than 2.5 to 1. For
purposes of these financial covenants, EBITDA represents our net
income for the applicable period, plus interest expense, taxes,
depreciation and amortization and all non-cash restructuring
charges for acquisitions occurring within a four year period,
less software development expenses classified as capital
expenditures. In order to secure the obligations under each
agreement, each of the facilities is subject to a deed of trust
in favor of the financial institutions which financed the
development and acquisition of the respective facility. Bank of
America, N.A. was the agent for the syndicate of banks that
funded the development of the Mountain View, California and
Roseville, Minnesota facilities, and ABN AMRO Bank, N.V. was the
agent for the syndicate of banks that funded the development of
the Milpitas, California facility.


We currently have operating leases for our
facilities and rental equipment through 2023. In addition to our
basic rent, we are responsible for all taxes, insurance and
utilities related to the facilities. The table below shows our
commitments related to our approximate minimum lease payments
for our facilities and rental equipment as of March 31,
2003 (in millions):

|                                    |                   |             |         |         | 
|----------------------------------- | ----------------- | ----------- | ------- | ------- | 
|                                    |                   | Operating  
|                                    |                   | Lease      
|                                    |                   | Commitments
|                                    |                   |            
|Nine months ended December 31, 2003 |                   | $           | 59,466  |        
|2004                                |                   |             | 67,923  |        
|2005                                |                   |             | 44,973  |        
|2006                                |                   |             | 32,183  |        
|2007                                |                   |             | 31,008  |        
|2008 and thereafter                 |                   |             | 163,513 |        
|                                    |                   |             |         |        
|                                    | Total commitments |             | $       | 399,065 | 
|                                    |                   |             |         |        



| |                                
| | -------------------------------
| | Acquired Technology Commitments

On October 1, 2002, we acquired volume
replicator software technology for $6.0 million and
contingent payments of up to another $6.0 million based on
future revenues generated by the acquired technology. The
payments will be paid quarterly over 40 quarters, in
amounts between $150,000 and $300,000. We issued a promissory
note payable in the principal amount of $5.0 million,
representing the present value of our minimum payment
obligations under the purchase agreement for the acquired
technology, which are payable quarterly commencing in the first
quarter of 2003 and ending in the fourth quarter of 2012. The
contingent payments in excess of the quarterly minimum
obligations will be paid as they may become due. The balance
outstanding of the note payable was $4.9 million as of
March 31, 2003 and $5.0 million as of
December 31, 2002 and is included in non-current accrued
acquisition and restructuring costs.

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

Factors That May Affect Future
Results

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

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If we experience lower-than-anticipated
revenue in any particular quarter, or if we announce that we
expect lower revenue or earnings than previously forecasted, the
market price of our securities could decline.

Our revenue is difficult to forecast and is
likely to fluctuate from quarter to quarter due to many factors
outside of our control. Any significant revenue shortfall or
lowered forecasts could cause the market price of our securities
to decline substantially. Factors that could affect our revenue
include, but are not limited to:



| |   |                                                                                                                                                                                                                                             
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the possibility that our customers may cancel,
    defer or limit purchases as a result of reduced information
    technology budgets or the current weak and uncertain economic
    and industry conditions;                               
|
| |  | the possibility that our customers may defer
    purchases of our products in anticipation of new products or
    product updates from us or our competitors;                                                                               
|
| |  | the possibility that original equipment
    manufacturers will introduce, market and sell products that
    compete with our products;                                                                                                      
|
| |  | the unpredictability of the timing and magnitude
    of our sales through direct sales channels, value-added
    resellers and distributors, which tend to occur later in a
    quarter than sales through original equipment manufacturers;
|
| |  | the timing of new product introductions by us and
    the market acceptance of new products, which may be delayed as a
    result of weak and uncertain economic and industry conditions;                                                   
|
| |  | the seasonal nature of our sales;                                                                                                                                                                                                           
|
| |  | the rate of adoption and long sales cycles of
    storage area networks and storage resource management technology;                                                                                                                         
|
| |  | changes in our pricing and distribution terms or
    those of our competitors;                                                                                                                                                              
|
| |  | the potential impact of the Severe Acute
    Respiratory Syndrome, or SARS, illness upon our ability to
    generate revenues, particularly in the Asia-Pacific region; and                                                                 
|
| |  | the possibility that our business will be
    adversely affected as a result of the threat of terrorism or
    military actions taken by the United States or its allies.                                                                   

You should not rely on the results of prior
periods as an indication of our future performance. Our
operating expense levels are based, in significant part, on our
expectations of future revenue. If we have a shortfall in
revenue in any given quarter, we may not be able to 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,
if we fail to manage our business effectively over the long
term, we may experience high operating expenses, and our
operating results may be below the expectations of securities
analysts or investors, which could cause the price of our common
stock to decline.

Because we derived over 80% of our license
and service revenue from sales of our data protection, file
system and volume management products, any decline in demand for
these products could severely harm our ability to generate
revenue.

We derive a substantial majority of our revenue
from a small number of software products, including data
protection, file system and volume management products. For the
three months ended March 31, 2003, we derived approximately
82% of our user license fees from these core products, and a
similar percentage of our service revenue from associated
maintenance and technical support. As a result, we are
particularly vulnerable to fluctuations in demand for these
products, whether as a result of competition, product
obsolescence, technological change, budget constraints or other
factors. If our revenue derived from these software products
were to decline significantly, our business and operating
results would be adversely affected. In addition, because our
software products are concentrated within the market for data
storage, a decline in the demand for storage devices, storage
software applications or storage capacity could result in a
significant reduction in our revenue and adversely affect our
business and operating results.

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If we fail to manage our multiple
distribution channels effectively, or if our distributors and
original equipment manufacturer customers choose not to market
and sell our products to their customers, our sales could
decline.

We sell our products primarily through indirect
sales channels, original equipment manufacturers and direct
sales channels. If we fail to manage our distribution channels
successfully, our distribution channels may conflict with one
another or otherwise fail to perform as we anticipate, which
could reduce our sales and increase our expenses, as well as
weaken our competitive position.

Indirect Sales Channels.A significant portion of our revenue
is derived from sales through value-added resellers and
distributors that sell our products to end-users and other
resellers. This channel involves a number of special risks,
including:



| |   |                                                                                                                                                  
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------
| |  | our lack of control over the delivery of our
    products to end-users;                                                                          
|
| |  | our resellers and distributors are not subject to
    minimum sales requirements or any obligation to market our
    products to their customers;
|
| |  | our resellers and distributors may terminate
    their relationships with us at any time; and                                                    
|
| |  | our resellers and distributors may market and
    distribute competing products.                                                                 

Original Equipment Manufacturers.A portion of our revenue is derived
from sales through original equipment manufacturers that
incorporate our products into their products. Our reliance on
this channel involves many risks, including:



| |   |                                                                                                                                                                                                                                                
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | our lack of control over the shipping dates or
    volume of systems shipped;                                                                                                                                                                  
|
| |  | the original equipment manufacturers are not
    subject to minimum sales requirements or any obligation to offer
    our products to their customers;                                                                                         
|
| |  | the original equipment manufacturers may
    terminate their arrangements with us at any time;                                                                                                                                                 
|
| |  | the development work that we must generally
    undertake under our agreements with original equipment
    manufacturers may require us to invest significant resources and
    incur significant costs with little or no associated revenue;  
|
| |  | the time and expense required for the sales and
    marketing organizations of our original equipment manufacturer
    customers to become familiar with our products make it more
    difficult to introduce those products to the market; and
|
| |  | our original equipment manufacturer customers are
    able to develop, market and distribute their own storage
    products and market and distribute storage products of our
    competitors, which could reduce our sales.                   

Direct Sales.A
portion of our revenue is derived from sales by our direct sales
force to end-users. This sales channel involves special risks,
including:



| |   |                                                                                                                                                             
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | longer sales cycles are associated with direct
    sales efforts;                                                                                           
|
| |  | we may have difficulty hiring, training,
    retaining and motivating our direct sales force; and                                                           
|
| |  | sales representatives require a substantial
    amount of training to become productive, and training must be
    updated to cover new and revised products.

We face intense competition, and our
competitors may gain market share in markets for our products,
which could adversely affect the growth of our business and
cause our revenues to decline.

We have many competitors in the markets for our
products. If existing or new competitors gain market share in
any of these markets, we may experience a decline in revenues,
which could adversely affect our business and operating results.
Our principal competitors are the internal development groups of
original equipment manufacturers. These groups develop storage
management software for the original equipment

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manufacturers storage hardware. Our
principal competitors also include hardware and software vendors
that offer products that compete with our products.


Many of our original equipment manufacturer
customers have products that compete with our products or have
announced their intention to focus on developing and marketing
their own storage software products. These original equipment
manufacturers may choose to license their own products rather
than offer our products to their customers or limit our access
to their hardware platforms. End-user customers may prefer to
purchase software and hardware that is manufactured by the same
company because of perceived advantages in price, technical
support, compatibility or other issues. In addition, software
vendors may choose to bundle their operating systems with their
own or other vendors storage or clustering software. They
may also limit our access to standard product interfaces for
their operating systems and inhibit our ability to develop
products for their platform. If our original equipment
manufacturer customers or software vendors were to take any of
these actions, we could lose market share and our operating
results could be adversely affected.

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

If we are unable to develop new and
enhanced products that achieve widespread market acceptance, we
may be unable to recoup product development costs, and our
earnings and revenue may decline.

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. We must also extend the operation of
our products to new platforms and keep pace with technological
developments and emerging industry standards. We intend to
commit substantial resources to developing new software products
and services, including software products and services for the
storage area networking market and the storage resource
management market. Each of these markets is new and unproven,
and industry standards for these markets are evolving and
changing. They also may require development of new channels. If
these markets do not develop as anticipated, or demand for our
products and services in these markets does not materialize or
occurs more slowly than we expect, we will have expended
substantial resources and capital without realizing sufficient
revenue, and our business and operating results could be
adversely affected.

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

Our international sales and operations
involve special risks that could increase our expenses,
adversely affect our operating results and require increased
time and attention of management.

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



| |   |                                                                                                                                             
| | - | --------------------------------------------------------------------------------------------------------------------------------------------
| |  | potential loss of proprietary information due to
    piracy, misappropriation or weaker laws regarding intellectual
    property protection;
|
| |  | imposition of foreign laws and other governmental
    controls, including trade and employment restrictions;                                

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| |   |                                                                                                                                                                                                                                                                                      
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | fluctuations in currency exchange rates and
    economic instability such as higher interest rates and
    inflation, which could reduce our customers ability to
    obtain financing for software products or which could make our
    products more expensive in those countries;
|
| |  | restrictions on growth or maintenance of our
    revenue from international sales if we do not invest
    sufficiently in our international operations;                                                                                                                              
|
| |  | difficulties in hedging foreign currency
    transaction exposures;                                                                                                                                                                                                                  
|
| |  | longer payment cycles for sales in foreign
    countries and difficulties in collecting accounts receivable;                                                                                                                                                                         
|
| |  | difficulties in staffing and managing our
    international operations, including difficulties related to
    administering our stock option plan in some foreign countries;                                                                                                         
|
| |  | difficulties in coordinating the activities of
    our geographically dispersed and culturally diverse operations;                                                                                                                                                                   
|
| |  | seasonal reductions in business activity in the
    summer months in Europe and in other periods in other countries;                                                                                                                                                                 
|
| |  | competition from local suppliers;                                                                                                                                                                                                                                                    
|
| |  | costs and delays associated with developing
    software in multiple languages;                                                                                                                                                                                                      
|
| |  | the possible reduced level of general business
    activity, particularly in the Asia-Pacific region, as a result
    of the SARS illness; and                                                                                                                                       
|
| |  | political unrest, war or terrorism, particularly
    in areas in which we have facilities.                                                                                                                                                                                           

In addition, 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 adversely affect our ability to continue to realize these
tax benefits.

Our products may contain significant
defects, which may subject us to liability for damages suffered
by end users.

Software products frequently contain errors or
failures, especially when first introduced or when new versions
are released. Our end-user customers use our products in
applications that are critical to their businesses, including
for data backup and recovery, and may have a greater sensitivity
to product defects than the market for software products
generally. If a customer loses critical data as a result of an
error in or failure of our software products or as a result of
the customers misuse of our software products, the
customer could suffer significant damages and seek to recover
those damages from us. Although our software licenses generally
contain protective provisions limiting our liability, a court
could rule that these provisions are unenforceable. If a
customer is successful in proving its damages and a court does
not enforce our protective provisions, we could be liable for
the damages suffered by our customers, which could adversely
affect our operating results.

In addition, product defects could cause delays
in new product releases or product upgrades, or our products
might not work in combination with other hardware or software,
which could adversely affect market acceptance of our products.
If our customers were dissatisfied with product functionality or
performance, or if we were to experience significant delays in
the release of new products or new versions of products, we
could lose competitive position and revenue and our business and
operating results could be adversely affected.

If we lose key personnel or fail to
integrate replacement personnel successfully, our ability to
manage the business effectively would be impaired.

Our future success depends upon the continued
service of our key management, technical and sales personnel.
Our officers and other key personnel are employees-at-will, and
we cannot assure you that we will be able to retain them. Key
personnel have left our company over the years, and we cannot
assure you that

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there will not be additional departures. The loss
of any key employee could result in significant disruptions to
our operations, and the integration of replacement personnel
could be time consuming, may cause additional disruptions to our
operations and may be unsuccessful. We do not carry key person
life insurance covering any of our personnel.


In 2002, we hired a new chief financial officer
and three other senior management personnel in marketing,
product operations and corporate development. In 2003, we expect
to hire a new senior sales executive. Any resulting
restructuring of those organizations could adversely affect the
timeliness of product releases, the successful implementation
and completion of company initiatives and the results of our
operations. Whether we are able to execute effectively on our
business strategy will depend in large part on how well key
management and other personnel perform in their positions and
are integrated within our company.

If we are unable to attract and retain
qualified employees and manage our employee base effectively, we
may be unable to develop new and enhanced products, expand our
business or increase our revenue.

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

We incur considerable expenses to develop
products for operating systems that are owned by others and who
generally are not required to cooperate with us in our
development efforts. This may cause us to incur higher expenses
or fail to expand our product lines and revenues.

Many of our products operate primarily on the
UNIX and Windows computer operating systems. We have also
redesigned, or ported, these products to operate on the Linux
operating systems for both server-based and embedded solutions.
We continue to develop new products for UNIX, Windows Server and
Linux. We may not accomplish our development efforts quickly or
cost-effectively, and it is not clear what the relative growth
rates of these operating systems will be. These development
efforts 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 some operating systems, we must obtain
from the owner of the operating system a source code license to
portions of the operating system software to port some of our
products to or develop products for the operating system.
Operating system owners have no obligation to assist in these
porting or development efforts. If they do not grant us a
license or if they do not renew our license, we may not be able
to expand our product line into other areas. We also cannot
predict how quickly, or to what extent, the market for Linux
will evolve. If the market for Linux does not develop as
anticipated, or demand for our products and services in this
market does not materialize or occurs more slowly than we
expect, we will have expended substantial resources and capital
without realizing sufficient revenue, and our business and
operating results could be adversely affected.

We derive a large amount of revenue from
one of our distributors, the loss of which could cause our
revenues to decline.

We derive significant revenue from Ingram Micro,
Inc., a distributor that sells our products and services through
resellers. For the three months ended March 31, 2003,
Ingram Micro accounted for 10% of our net revenue. If this
distributor were to reduce purchases of our products or
services, our revenues would decline unless we were able to
substantially increase sales through other distributors or
direct sales to customers. Our contract with Ingram Micro does
not require them to purchase any specified number of software
licenses from

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us. Accordingly, we cannot be sure that Ingram
Micro will continue to market and sell our products at current
levels.


Cooperating with the SEC in its
investigation of our transactions with AOL Time Warner has
required, and will continue to require, a large amount of
management time and attention, as well as accounting and legal
expense, which may reduce net income or interfere with our
ability to manage our business.

In response to subpoenas issued by the Securities
and Exchange Commission in the investigation entitled In the
Matter of AOL/ Time Warner, we have been cooperating with
the SECs requests for information, including information
relating to transactions we entered into with AOL in September
2000 and other transactions. The investigation may continue to
require significant management attention and accounting and
legal resources, which could adversely affect our ability to
manage our business and result in significant accounting and
legal expenses. If the SEC or other governmental agency were to
pursue an action against us in connection with this matter, we
would be required to devote additional management attention and
incur additional accounting and legal expenses, which could
further adversely affect our business, results of operations and
cash flows.

Following the announcement of our financial
restatement, we were named as a party to several class action
and derivative action lawsuits, and we may be named in
additional litigation, all of which could require significant
management attention and result in significant legal expenses.
An unfavorable outcome in one or more of these lawsuits could
have a material adverse effect on our business, financial
condition, results of operations and cash flows.

After we announced in January 2003 that we would
restate financial results as a result of transactions entered
into with AOL Time Warner in September 2000, numerous separate
complaints purporting to be class actions were filed in federal
court alleging that we and some of our officers and directors
violated provisions of the Securities Exchange Act of 1934. The
complaints contain varying allegations, including that we made
materially false and misleading statements with respect to our
2000, 2001 and 2002 financial results included in our filings
with the SEC, press releases and other public disclosures. In
addition, several complaints purporting to be derivative actions
have been filed in state court against some of our directors and
officers. These complaints are based on the same facts and
circumstances as the class actions and generally allege that the
named directors and officers breached their fiduciary duties by
failing to oversee adequately our financial reporting. All of
the complaints generally seek an unspecified amount of damages.
The cases are still in the preliminary stages, and it is not
possible for us to quantify the extent of our potential
liability, if any. An unfavorable outcome in any of these cases
could have a material adverse effect on our business, results of
operations and cash flows. In addition, the expense of defending
any litigation may be costly and divert managements
attention from the day-to-day operations of our business, which
would adversely affect our business, results of operations and
cash flows.

Our business strategy includes possible
growth through business acquisitions, which involve special
risks that could increase our expenses, cause our stock price to
decline and divert the time and attention of
management.

As part of our business strategy, we have in the
past acquired and expect in the future to acquire other
businesses, business units and technologies. We recently
acquired Jareva Technologies, Inc. and entered into a definitive
agreement to acquire Precise Software Solutions Ltd. Our
acquisitions involve a number of special risks and challenges,
including:



| |   |                                                                                                                                                                                                                                                                                  
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | diversion of managements attention from our
    core business;                                                                                                                                                                                                                  
|
| |  | integration of acquired business operations and
    employees into our existing business, including coordination of
    geographically dispersed operations, which in the past has taken
    longer and was more complex than initially expected for some
    acquired companies;
|
| |  | incorporation of acquired business technology
    into our existing product lines, including consolidating
    technology with duplicative functionality or designed on
    different technological architecture;                                                                

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| |   |                                                                                                                                                 
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------
| |  | loss or termination of employees, including
    costly litigation resulting from the termination of those
    employees;                        
|
| |  | dilution of our then-current stockholders
    percentage ownership;                                                                            
|
| |  | assumption of liabilities of the acquired
    business, including costly litigation related to alleged
    liabilities of the acquired business;
|
| |  | presentation of a unified corporate image to our
    customers and our employees; and                                                           
|
| |  | risk of impairment charges related to potential
    write-down of acquired assets in future acquisitions.                                       

Acquisitions of businesses, business units and
technologies are inherently risky and create many challenges. We
may be unable to close announced acquisitions, and we cannot
provide any assurance that our previous or any future
acquisitions will achieve the desired objectives.

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

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

Our effective tax rate may increase or
fluctuate, which could increase our income tax expense and
reduce net income.

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 revenue and income before taxes in the
various domestic and international jurisdictions in which we
operate. We are also subject to changing tax laws, regulations
and interpretations in multiple jurisdictions in which we
operate. We do not have a history of audit activity from various
taxing authorities and while we believe we are in compliance
with all federal, state and international tax laws, there are
various interpretations of their application that could result
in additional tax assessments. Our effective tax rate is also
influenced by the tax effects of purchase accounting for
acquisitions and non-recurring charges, which may cause
fluctuations between reporting periods. In addition, in November
2000, we acquired Seagate Technology, which has certain federal
and state tax returns for various fiscal years under examination
by tax authorities. We believe that adequate amounts for tax
liabilities have been provided for any final assessments that
may result from these examinations. The timing of the settlement
of these examinations is uncertain. To the extent the
settlements of these audits and the amounts reimbursed by SAC,
as required by the Seagate acquisition agreement, are different
from the amounts recorded, the difference will be recorded as a
component of income tax expense or benefit and may significantly
affect our effective tax rate for the period in which the
settlements take place.

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We incur or may incur significant
accounting charges that, individually or in the aggregate, could
reduce earnings and create net losses under generally accepted
accounting principles.

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



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Amortization of Developed Technology and Other
    Intangibles.We incur significant
    charges related to the amortization of developed technology and
    other intangibles. We expect this charge to be approximately
    $23.2 million for the second quarter of 2003 and approximately
    $7.0 million to $10.0 million for the third quarter of
    2003, including the impact of the pending transaction with
    Precise that is expected to close during the second quarter of
    2003. The quarterly amortization charge could increase as a
    result of future business combinations or impairment of our
    other intangibles. While we do not expect to record other
    intangibles impairment charges, we cannot be sure that we will
    not have to record impairment in the future. As of
    March 31, 2003, the total net carrying amount of our other
    intangibles was $49.8 million;                                                     
|
| |  | Impairment of Goodwill.We do not amortize goodwill related to
    business combinations, but instead we test it for impairment at
    least annually. While we do not expect to record goodwill
    impairment charges, we cannot be sure that we will not have to
    record impairment in the future. As of March 31, 2003, the
    total net carrying amount of our goodwill was
    $1,239.9 million;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| |  | Loss on Strategic Investments.In the third quarter of 2001, the
    second quarter of 2002 and the first quarter of 2003, we
    recorded losses on strategic investments. Future losses will
    depend on the results of our quarterly reviews to determine if
    there has been a decline in the fair value of our strategic
    investments that is other than temporary. As of March 31,
    2003, the total carrying amount of our strategic investments was
    $5.6 million;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| |  | Stock-based Compensation.In accounting for our stock option and
    stock purchase plans, because the exercise price of options
    granted under our stock plans are generally equal to the market
    value of our common stock on the date of grant, we recognize no
    compensation cost for grants under these plans. The FASB has
    voted to require companies to record a charge to earnings for
    employee stock option grants, but the methodology for valuing
    stock options and the timing for issuance of final rules have
    not been finalized. Changes in practices regarding accounting
    for stock options could result in significant accounting
    charges; and                                                                                                                                                                                                                                                                         
|
| |  | Restructuring Charges.We regularly perform evaluations of
    our operations and activities. Any decision to restructure our
    operations, to exit any activity or to eliminate any excess
    capacity could result in significant accounting charges.
    Restructuring charges could also result from future business
    combinations. As a result of an evaluation of our facilities
    requirements, we believe that we have excess capacity in our
    domestic and foreign facilities. In the fourth quarter of 2002,
    our board of directors approved a restructuring plan to exit and
    consolidate certain of our facilities located in 17 metropolitan
    areas worldwide. In connection with this restructuring plan, we
    recorded a restructuring charge of approximately
    $98.2 million during the fourth quarter of 2002. As of
    March 31, 2003, the total carrying amount of our facility
    restructure reserve was $95.5 million.

If our assumptions about our ability to
terminate or sublet our facilities prove to be unrealistic, the
total costs of our facilities restructuring may be larger than
we anticipated.

In the fourth quarter of 2002, our board of
directors approved a restructuring plan to exit and consolidate
some of our facilities based on our evaluation that our existing
and planned facilities would exceed our near-term facilities
needs due to slower than anticipated growth in the number of our
employees as a result of weak and uncertain economic and
industry conditions. In connection with this restructuring plan,
we recorded a restructuring charge of approximately
$98.2 million during the fourth quarter of 2002. Our
restructuring plan includes assumptions related to our ability
to enter sublease and/or lease termination arrangements
regarding some of our facilities. We cannot predict if, or when,
we will be able to successfully enter sublease and/or lease
termination arrangements for these facilities or if the actual
terms of these arrangements will be as

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favorable as those assumed under our
restructuring plan. Should we be unable to execute our
restructuring plan under terms as favorable as those assumed
under the restructuring plan, we may be required to materially
increase our restructuring charge in future periods. We also
cannot predict if our evaluation of our needs is accurate or if
weak and uncertain economic and industry conditions will
continue once we begin to implement our restructuring plan. We
may find that our facility requirements are greater than
estimated under our plan, which could necessitate procuring
facilities at rates higher and at costs in addition to
facilities that have been vacated by us. In addition, we cannot
assure you that our restructuring program will achieve the
anticipated benefits or will be completed in accordance with the
contemplated timetable.


Our debt would be expensive to repay, and
any default may impair our ability to borrow or raise
capital.

In October 1997, we issued $100.0 million in
aggregate principal amount at maturity of 5.25% convertible
subordinated notes due 2004, of which $64.0 million was
outstanding as of March 31, 2003. In August 1999, we issued
$465.8 million in aggregate principal amount at maturity of
1.856% convertible subordinated notes due 2006, of which
$464.7 million was outstanding as of March 31, 2003.
As of March 31, 2003, 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 interest or
principal on our debts as they come due, we could be in default
of those debts. For example, if we do not make timely payments,
the notes could be declared immediately due and payable, in
which event we would be required to immediately repay the notes
in their entirety. A default under the notes could result in a
reduction of our credit rating and make it more difficult for us
to raise capital and adversely affect the trading price in our
common stock. In addition, repayment of the notes upon a default
would significantly reduce the amount of cash, cash equivalents
and short term investments available for funding our research
and development efforts, geographic expansion and strategic
acquisitions in the future. Our outstanding debt could also
increase our vulnerability to adverse economic and industry
conditions by making it more difficult for us to raise capital
if needed. In addition, any changes in accounting rules
regarding our operating leases and built-to-suit facilities may
affect our debt levels and operating expenses in the future.

If we do not protect our proprietary
information and prevent third parties from making unauthorized
use of our products and technology, our revenues could be
harmed.

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

Third parties claiming that we infringe
their proprietary rights could cause us to incur significant
legal expenses and prevent us from selling
products.

From time to time, we 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

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throughout Europe and the western hemisphere. We
have also received patent infringement claims in the past and
may receive more claims in the future based on allegations that
our products infringe upon patents held by third parties. In
addition, former employers of our former, current or future
employees may assert claims that such employees have improperly
disclosed to us the confidential or proprietary information of
these former employers. Any such claim, with or without merit,
could:




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

If we discontinue reporting financial
results using non-GAAP financial measures, investors may be
confused about our operating results and our stock price could
decline.

As a result, we announced our intention to
discontinue reporting non-GAAP financial measures (sometimes
called pro forma reporting) beginning with our
earnings announcement for the quarter ending September 30,
2003. Historically, we reported our financial results using both
GAAP financial measures and non-GAAP financial measures, which
typically excluded the impact of purchase accounting adjustments
and the impact of other special items on our operating results.
It is possible that, as we transition away from pro forma
reporting, investors may be confused about our operating
results, particularly with regard to comparisons to our
operating results for prior periods. If this occurs, the market
price of our common stock could decline.

Natural disasters could disrupt our
business and result in loss of revenue or in higher
expenses.

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

Some provisions in our charter documents
and our stockholder rights plan may prevent or deter an
acquisition of VERITAS.

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

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| |   |                                                                                                                                                                                                          
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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. In
general, our stockholder rights plan provides our existing
stockholders (other than an existing stockholder that becomes an
acquiring person) with rights to acquire shares of our common
stock at 50% of its trading price if a person or entity
acquires, or announces its intention to acquire, 15% or more of
the outstanding shares of our common stock, unless our board of
directors elects to redeem these rights.

Our board of directors could utilize the
provisions of our charter documents and stockholder rights plan
to resist an offer from a third party to acquire VERITAS,
including an offer to acquire our common stock at a premium to
its trading price or an offer that is otherwise considered
favorable by our stockholders.

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

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



| |   |                                                                                                                                             
| | - | --------------------------------------------------------------------------------------------------------------------------------------------
| |  | announcements of our quarterly operating results
    or those of our competitors or our original equipment
    manufacturer customers;      
|
| |  | rumors, announcements or press articles regarding
    changes in our management, organization, operations or prior
    financial statements;
|
| |  | inquiries by the SEC, NASDAQ or regulatory bodies;                                                                                          
|
| |  | changes in earnings estimates by securities
    analysts;                                                                                   
|
| |  | announcements of planned acquisitions by us or by
    our competitors;                                                                      
|
| |  | gain or loss of a significant customer;                                                                                                     
|
| |  | announcements of new products by us, our
    competitors or our original equipment manufacturer customers;                                  
|
| |  | the potential impact of the SARS illness upon our
    ability to generate revenues, particularly in the Asia-Pacific
    region; and        
|
| |  | acts of terrorism, the threat of war and economic
    slowdowns in general.                                                                 

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

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Item 3.     Quantitative
and Qualitative Disclosures About Market Risk

Foreign Currency Risk

We transact business in various foreign
currencies and have established a foreign currency hedging
program, utilizing foreign currency forward exchange contracts,
or forward contracts, to hedge certain foreign currency
transaction exposures. Under this program, increases or
decreases in our foreign currency transactions are offset by
gains and losses on the forward contracts, so as to mitigate the
possibility of foreign currency transaction gains and losses. We
do not use forward contracts for speculative or trading
purposes. All foreign currency transactions and all outstanding
forward contracts are marked-to-market at the end of the period
with unrealized gains and losses included in other income
(expense). The unrealized gain (loss) on the outstanding
forward contracts at March 31, 2003 was immaterial to our
consolidated financial statements.

Our outstanding forward contracts as of
March 31, 2003 are presented in the table below. All
forward contract amounts are representative of the expected
payments to be made under these instruments. As of
March 31, 2003, all forward contracts mature in
31 days or less (amounts in thousands):

|                             |                    |                 |  |                 |   |                |  |              |  |  |  |       |  
|---------------------------- | ------------------ | --------------- |  | --------------- | - | -------------- |  | ------------ |  |  |  | ----- | -
|                             |                    |                 |  |                 |   | Fair Market   
|                             |                    |                 |  |                 |   | Value at      
|                             |                    | Local Currency  |  |                 |   | March 31, 2003
|                             |                    | Contract Amount |  | Contract Amount |   | (US $)        
|                             |                    |                 |  |                 |   |               
|Contracts to Buy US $        |                    |                 |  |                 |   |                |  |              |  |  |  |      
|                             | Australian dollar  |                 |  | 733.0 AU        | D |                |  | 438.7 USD    |  |  |  | 4.6   |  
|                             | British pound      |                 |  | 3,118.0 GB      | P |                |  | 4,869.1 USD  |  |  |  | 54.9  |  
|                             | Euro               |                 |  | 29,000.0 EU     | R |                |  | 30,921.6 USD |  |  |  | 694.2 |  
|                             | Indian rupee       |                 |  | 242,000.0 IN    | R |                |  | 5,100.1 USD  |  |  |  | (2.5  | )
|                             | Japanese yen       |                 |  | 93,000.0 JP     | Y |                |  | 776.9 USD    |  |  |  | 10.8  |  
|Contracts to Sell US $       |                    |                 |  |                 |   |                |  |              |  |  |  |      
|                             | Brazilian real     |                 |  | 5,536.0 BR      | L |                |  | 1,602.3 USD  |  |  |  | (60.8 | )
|                             | Canadian dollar    |                 |  | 10,675.0 CA     | D |                |  | 7,251.7 USD  |  |  |  | 13.6  |  
|Contracts to Buy
    Euro   |                    |                 |  |                 |   |                |  |              |  |  |  |      
|                             | Malaysian ringgat  |                 |  | 1,500.0 MY      | R |                |  | 386.6 EUR    |  |  |  | (26.4 | )
|                             | Swedish krona      |                 |  | 11,911.0 SE     | K |                |  | 1,288.0 EUR  |  |  |  | 2.3   |  
|Contracts to Sell
    Euro  |                    |                 |  |                 |   |                |  |              |  |  |  |      
|                             | Australian dollar  |                 |  | 1,514.0 AU      | D |                |  | 848.2 EUR    |  |  |  | (9.0  | )
|                             | British pound      |                 |  | 37,400.0 GB     | P |                |  | 54,700.8 EUR |  |  |  | 566.4 |  
|                             | Hong Kong dollar   |                 |  | 14,090.0 HK     | D |                |  | 1,691.9 EUR  |  |  |  | 37.6  |  
|                             | Indian rupee       |                 |  | 92,400.0 IN     | R |                |  | 1,799.8 EUR  |  |  |  | 15.5  |  
|                             | Japanese yen       |                 |  | 2,358,000.0 JP  | Y |                |  | 18,426.8 EUR |  |  |  | 115.0 |  
|                             | Swiss franc        |                 |  | 2,883.0 CH      | F |                |  | 1,953.8 EUR  |  |  |  |      |  
|                             | UAE dirham         |                 |  | 12,410.0 AE     | D |                |  | 3,155.9 EUR  |  |  |  | 59.3  |  
|Contracts to Buy GBP         |                    |                 |  |                 |   |                |  |              |  |  |  |      
|                             | South African rand |                 |  | 1,985.0 ZA      | R |                |  | 157.3 GBP    |  |  |  | 3.0   |  

In September 2000, we entered into a three-year
cross currency interest rate swap transaction, or swap, for the
purpose of hedging fixed interest rate, foreign currency
denominated cash flows under an inter-company loan receivable.
Under the terms of this derivative financial instrument, Euro
denominated fixed principal and interest payments to be received
under the inter-company loan will be swapped for U.S.
dollar-fixed principal and interest payments. As of
March 31, 2003, six monthly payments of
 4.3 million
remained to be swapped at a forward exchange rate of 0.89070
U.S. dollar per Euro. The fair market value of the swap at
March 31, 2003 was $(8.8) 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

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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 value due to changes in
U.S. dollar interest rates. As of March 31, 2003, the
impact of these fluctuations was not significant. This hedge was
deemed to be highly effective as of March 31, 2003.


In January 2002, we entered into two three-year
pay fixed, receive floating, interest rate swaps for the purpose
of hedging cash flows on variable interest rate debt of our
build-to-suit lease agreements. Under the terms of these
interest rate swaps, we make payments based on the fixed rate
and will receive interest payments based on the 3-month London
Inter Bank Offered Rate, or LIBOR. The payments on our
build-to-suit lease agreements are based upon a 3-month LIBOR
plus a credit spread. If our credit spread remains consistent
and other critical terms of the interest rate swap or the hedged
item do not change, the interest rate swap will be considered to
be highly effective with all changes in the fair value included
in other comprehensive income. If our credit spread changes or
other critical terms of the interest rate swap or the hedged
item change, the hedge may become partially or fully
ineffective, which could result in all or a portion of the
changes in fair value of the derivative recorded in the
statement of operations. The interest rate swaps settle the
first day of January, April, July and October until expiration.
As of March 31, 2003, the fair value of the interest rate
swaps was $(11.1) million. As a result of entering into the
interest rate swaps, we have mitigated our exposure to variable
cash flows associated with interest rate fluctuations. Because
the rental payments on the leases are based on the 3-month LIBOR
and we receive 3-month LIBOR from the interest rate swap
counter-party, we have eliminated any impact to raising interest
rates related to our rent payments under the build-to-suit lease
agreements. This hedge was deemed to be highly effective as of
March 31, 2003.

Interest Rate Risk

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

Long-term debt of $464.5 million consists of
$64.0 million from our 5.25% convertible subordinated notes
due in 2004 and $400.5 million from our 1.856% convertible
subordinated notes due in 2006. The interest rate of 1.856% on
the 1.856% notes together with the accrual of original issue
discount represent 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, and subject to
adjustment under the terms of the notes.

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The following table presents the amounts of our
cash equivalents, investments and long-term debt, according to
maturity date, that may be subject to interest rate risk and the
average interest rates as of March 31, 2003 by year of
maturity (dollars in thousands):

|                                                  |                       |                |           |            |   |       |         |            |   |           |           |           |   |   |           |           |   |   |           |           |  
|------------------------------------------------- | --------------------- | -------------- | --------- | ---------- | - | ----- | ------- | ---------- | - | --------- | --------- | --------- | - | - | --------- | --------- | - | - | --------- | --------- | -
|                                                  |                       |                |           |            |   |      
|                                                  |                       | Amortized Cost |           |            |   |      
|                                                  |                       |                |           |            |   |      
|                                                  |                       |                |           | Due in     |   |       |         |            |   | 2002     
|                                                  |                       | Due in         |           | 2004 and   |   |       |         | 2003       |   | Amortized
|                                                  |                       | 2003           |           | Thereafter |   | Total |         | Fair Value |   | Cost     
|                                                  |                       |                |           |            |   |       |         |            |   |          
|Cash equivalents and short-term investments:      |                       |                |           |            |   |       |         |            |   |           |           |           |   |   |           |           |   |   |           |          
|                                                  | Fixed rate            |                | $         | 1,057,120  |   |       | $       | 558,606    |   |           | $         | 1,615,726 |   |   | $         | 1,622,640 |   |   | $         | 1,778,702 |  
|                                                  | Average fixed rate    |                |           | 1.48       | % |       |         | 2.80       | % |           |           | 1.94      | % |   |           | 1.94      | % |   |           | 2.26      | %
|                                                  | Variable rate         |                | $         | 429,415    |   |       | $       | 105,020    |   |           | $         | 534,435   |   |   | $         | 533,112   |   |   | $         | 288,575   |  
|                                                  | Average variable rate |                |           | 1.46       | % |       |         | 3.06       | % |           |           | 1.77      | % |   |           | 1.78      | % |   |           | 1.73      | %
|Total cash equivalents and short-term investments |                       | $              | 1,486,535 |            |   | $     | 663,626 |            |   | $         | 2,150,161 |           |   | $ | 2,155,752 |           |   | $ | 2,067,277 |          
|                                                  | Average rate          |                |           | 1.48       | % |       |         | 2.84       | % |           |           | 1.90      | % |   |           | 1.90      | % |   |           | 2.18      | %
|Long-term debt:                                   |                       |                |           |            |   |       |         |            |   |           |           |           |   |   |           |           |   |   |           |          
|                                                  | Fixed rate            |                | $         |           |   |       | $       | 464,497    |   |           | $         | 464,497   |   |   | $         | 520,823   |   |   | $         | 460,252   |  
|                                                  | Average fixed rate    |                |           |           |   |       |         | 6.33       | % |           |           | 6.33      | % |   |           | 6.21      | % |   |           | 6.33      | %

Equity Price Risk

We are exposed to equity price risk on the
marketable portion of our portfolio of equity securities
investments. We typically do not attempt to reduce or eliminate
our market exposure on these equity securities. These
investments are in companies in the high-technology industry. As
of March 31, 2003, we held two marketable equity
securities, representing a total market value of
$7.6 million. Assuming a 10% adverse change, our marketable
equity securities investments would decrease in value by
approximately $0.8 million. If our marketable equity
security investments as of March 31, 2003 had been valued
using prices as of April 30, 2003, the value of these
securities would have increased by approximately
$2.4 million, or 31%. This estimate is not necessarily
indicative of future performance and actual results may differ
materially.

We also made investments in development-stage
companies that we believe provide strategic opportunities for
us. We intend that these investments will provide access to new
technologies and emerging markets, and create opportunities for
additional sales of our products and services. We recognize
impairment losses on our strategic investments when we determine
that there has been a decline in the fair value of the
investment that was other than temporary. During the first
quarter of 2003, we recognized impairment losses of
$3.5 million on our strategic investments when we
determined that there had been a decline in the fair value of
the investments that were other than temporary. The losses
represented write-downs of the carrying amount of our
investments and were determined by using, among other factors,
an investees significant decline in stock value, its
inability to obtain additional private financing and the
uncertainty of its financial conditions. As of March 31,
2003, we determined that there was no further impairment in
these investments. We cannot assure you that our investments
will have the above mentioned results, or even that we will not
lose all or any part of these investments.




Item 4.     Controls
and Procedures

Evaluation of Disclosure Controls and
Procedures

Regulations under the Securities Exchange Act of
1934 require public companies, including our company, to
maintain disclosure controls and procedures, which
are defined to mean a companys controls and other
procedures that are designed to ensure that information required
to be disclosed in the reports that it files or submits under
the Securities Exchange Act of 1934 are recorded, processed,
summarized and reported, within the time periods specified in
the Securities and Exchange Commissions rules and forms.
Our chief executive officer and our chief financial officer have
evaluated our disclosure controls and procedures within

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90 days before the filing date of this
report. This included evaluation of improvements we made to our
disclosure controls and procedures in the fourth quarter of 2002
to strengthen our review process for transactions in which our
customers are also our suppliers. Our chief executive officer
and chief financial officer concluded that as of their
evaluation date, our disclosure controls and procedures were
effective for the purposes for which they were designed.


Changes in Internal Controls

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

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PART II: OTHER INFORMATION






|        |                  
|------- | -----------------
|Item 1. | Legal Proceedings

In response to subpoenas issued by the Securities
and Exchange Commission in the investigation entitled In the
Matter of AOL/ Time Warner, we continue to furnish
information requested by the SEC, including information relating
to the transactions we entered into with AOL in
September 2000. We cannot predict the outcome of this
investigation at this time. We will continue our efforts to
cooperate with the SECs investigation.

After we announced in January 2003 that we
would restate financial results as a result of transactions
entered into with AOL in September 2000, numerous separate
complaints purporting to be class actions were filed in the
United States District Court for the Northern District of
California alleging that we and some of our officers and
directors violated provisions of the Securities Exchange Act of
1934. The complaints contain varying allegations, including that
we made materially false and misleading statements with respect
to our 2000, 2001 and 2002 financial results included in our
filings with the SEC, press releases and other public
disclosures. These complaints have been consolidated and, on
May 2, 2003, a lead plaintiff and lead counsel were
appointed. In addition, several complaints purporting to be
derivative actions have been filed in California state court
against some of our directors and officers. These complaints are
based on the same facts and circumstances as the class actions
and generally allege that the named directors and officers
breached their fiduciary duties by failing to oversee adequately
our financial reporting. All of the complaints generally seek an
unspecified amount of damages. The cases are still in the
preliminary stages, and it is not possible for us to quantify
the extent of our potential liability, if any. An unfavorable
outcome in any of these cases could have a material adverse
effect on our business, financial condition, results of
operations and cash flow. In addition, defending any litigation
may be costly and divert managements attention from the
day-to-day operations of our business.

On January 10, 2003, Raytheon Company sued
VERITAS Software Corporation along with Brocade Communications
Systems, Oracle Corporation, Overland Storage Inc., Qualstar
Corp., QLogic Corporation, Ricoh Corporation and Spectra Logic
Corporation in the United States District Court for the Eastern
District of Texas. Raytheon is alleging infringement of
US Patent No. 5,412,791, entitled Mass Data Storage
Library, and is seeking damages and an injunction against all
defendants. We believe that we have numerous defenses and
counterclaims to the claims of infringement asserted against us
and we intend to vigorously defend ourselves. We filed an answer
to Raytheons complaint on March 7, 2003, denying all
material allegations in the complaint and asserting
counterclaims seeking to have Raytheons 791 patent
declared invalid and not infringed by us.

On October 23, 2001, Storage Computer
Corporation initiated litigation against VERITAS Software
Corporation in the United States District Court for the Northern
District of Texas alleging infringement of one of Storage
Computer Corporations patents. Currently, Storage Computer
Corporation is alleging we infringe two of their
US patents. We have denied all material allegations in the
complaints, have filed counterclaims for declaratory judgment of
invalidity and non-infringement of the patents-in-suit and have
alleged their infringement of one of our patents. Storage
Computer Corporation is seeking unspecified damages, treble
damages, costs of suit and attorneys fees and a permanent
injunction from further alleged infringement. We believe that we
have numerous defenses and counterclaims relative to the claims
of infringement asserted against us and intend to vigorously
defend this action.

We are also party to various other legal
proceedings that have arisen in the ordinary course of our
business. While we currently believe that the ultimate outcome
of these proceedings, individually and in the aggregate, will
not have a material adverse effect on our financial position or
overall trends in results of operations, litigation is subject
to inherent uncertainties. Were an unfavorable ruling to occur,
there exists the possibility of a material adverse impact on the
results of operations of the period in which the ruling occurs.
The estimate of the potential impact on our financial position
or overall results of operations for the above legal proceedings
could change in the future.

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

At our annual meeting of stockholders held on
May 13, 2003, each of the following individuals was elected
to our board of directors as Class B directors to hold
office for a term of three years or until his successor is duly
elected or qualified or until his resignation or removal:

|                |  |           |             |          |  |  |            | 
|--------------- |  | --------- | ----------- | -------- |  |  | ---------- | 
|                |  |           |             | Votes   
|                |  | Votes For |             | Withheld
|                |  |           |             |         
|Gary L. Bloom   |  |           | 350,108,962 |          |  |  | 12,113,770 | 
|Joseph D. Rizzi |  |           | 337,991,045 |          |  |  | 24,231,687 | 

In addition, the following individuals
terms of office as directors continued after the annual meeting:

|                 |  |                   
|---------------- |  | ------------------
|Steven D. Brooks |  | Geoffrey W. Squire
|Michael Brown    |  | Paul Unruh        
|Mark Leslie      |  | Fred van den Bosch
|David J. Roux    |  |                   

The following proposals were also approved at our
annual meeting:

|                                                                                                                                                                      |  |           |             |               |  |             |             |           |  |  |           |  |  |  |            | 
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------- | ----------- | ------------- |  | ----------- | ----------- | --------- |  |  | --------- |  |  |  | ---------- | 
|                                                                                                                                                                      |  |           |             |               |  |             |             | Broker   
|                                                                                                                                                                      |  | Votes For |             | Votes Against |  | Abstentions |             | Non-Votes
|                                                                                                                                                                      |  |           |             |               |  |             |             |          
|Approve the VERITAS Software Corporation 2003
    Stock Incentive Plan                                                                                                |  |           | 239,796,633 |               |  |             | 119,893,623 |           |  |  | 2,532,475 |  |  |  | 60,458,156 | 
|Approve a stockholder proposal requesting that
    the Board of Directors establish a policy of expensing future
    stock option grants to senior company executives |  |           | 189,475,573 |               |  |             | 105,210,997 |           |  |  | 7,078,006 |  |  |  | 60,458,156 | 
|Ratify the appointment of KPMG LLP as independent
    accountants for the fiscal year ending December 31, 2003                                                        |  |           | 353,100,188 |               |  |             | 6,881,107   |           |  |  | 2,241,435 |  |  |  | 60,458,156 | 






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

(a) Exhibits

|        |        |                     |  |                                                                                                                                          |  |       |  |        |  |          |  |  |  |  |  |  |  |  |   | 
|------- | ------ | ------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------- |  | ----- |  | ------ |  | -------- |  |  |  |  |  |  |  |  | - | 
|        |        |                     |  |                                                                                                                                          |  |      
|        |        |                     |  | Incorporated by Reference                                                                                                                |  |      
|Exhibit |        |                     |  |                                                                                                                                          |  | Filed
|Number  |        | Exhibit Description |  | Form                                                                                                                                     |  | Date  |  | Number |  | Herewith
|        |        |                     |  |                                                                                                                                          |  |       |  |        |  |         
|        | 10.01* |                     |  | Letter Agreement dated May 12, 2003 by and
    between VERITAS and Geoffrey Squire                                                       |  |       |  |        |  |          |  |  |  |  |  |  |  |  | X | 
|        | 99.01  |                     |  | Certifications of Chief Executive Officer and
    Chief Financial Officer pursuant to Section 906 of the
    Sarbanes-Oxley Act of 2002 |  |       |  |        |  |          |  |  |  |  |  |  |  |  | X | 



---



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



|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | These certifications accompany this
    quarterly report on Form 10-Q of VERITAS Software
    Corporation and shall not be deemed filed with the
    Securities and Exchange Commission or deemed incorporated by
    reference in any filing with the Securities and Exchange
    Commission under the Securities Act of 1933 or the Securities
    Exchange Act of 1934, whether made before or after the date
    hereof and irrespective of any general incorporation language in
    any filings.

54



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##### Table of Contents



(b) Reports on Form 8-K

|               |         |         |  |             |         |  |  |                                                                                                                                                                                                                                                                                                                                                                                 
|-------------- | ------- | ------- |  | ----------- | ------- |  |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Date of Report |         | Item(s) |  | Description
|               |         |         |  |            
|               | 1/17/03 |         |  |             | 5, 7, 9 |  |  | VERITAS announced the restatement of some of its
    financial results and included a table setting forth the
    expected adjustments to be reflected in the restated financial
    statements.                                                                                                                                                                                
|               | 1/28/03 |         |  |             | 5, 7    |  |  | VERITAS announced financial results for the
    fourth quarter and the year ended December 31, 2002.                                                                                                                                                                                                                                                                            
|               | 3/18/03 |         |  |             | 5, 7    |  |  | VERITAS filed its consolidated financial
    statements and a financial statement schedule, together with the
    auditors reports thereon, as of December 31, 2002 and
    2001 and for each of the years in the three-year period ended
    December 31, 2002, and the related managements
    discussion and analysis of financial condition and results of
    operations.

55



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##### Table of Contents






SIGNATURE

Pursuant to the requirements of the Securities
Exchange Act of 1934, the registrant has duly caused this report
to be signed on its behalf by the undersigned thereunto duly
authorized on May 14, 2003.



| |                                                 
| | ------------------------------------------------
| | VERITAS SOFTWARE CORPORATION                    
|
| | /s/ EDWIN GILLIS                                
| |                                                 
| | Edwin Gillis                                    
| | Executive Vice President, Finance               
| | and Chief Financial Officer                     
| | (Principal Financial and Accounting
    Officer)

56



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##### Table of Contents






CHIEF EXECUTIVE OFFICER
CERTIFICATION

I, Gary L. Bloom, certify that:

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

2.     Based on my
knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this quarterly
report;

3.     Based on my
knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in
all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the
periods presented in this quarterly report;

4.     The
registrants other certifying officer and I are responsible
for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and
15d-14) for the registrant and we have:



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

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



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

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

Dated: May 14, 2003



| |                                     
| | ------------------------------------
| | /s/ GARY L. BLOOM                   
| |                                     
| | Gary L. Bloom                       
| | Chairman of the Board, President and
| | Chief Executive Officer             

57



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##### Table of Contents






CHIEF FINANCIAL OFFICER
CERTIFICATION

I, Edwin Gillis, certify that:

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

2.     Based on my
knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this quarterly
report;

3.     Based on my
knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in
all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the
periods presented in this quarterly report;

4.     The
registrants other certifying officer and I are responsible
for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and
15d-14) for the registrant and we have:



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

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



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

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

Dated: May 14, 2003



| |                                  
| | ---------------------------------
| | /s/ EDWIN GILLIS                 
| |                                  
| | Edwin Gillis                     
| | Executive Vice President, Finance
| | and Chief Financial Officer      

58



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##### Table of Contents






EXHIBIT INDEX

|        |        |                     |  |                                                                                                                                          |  |       |  |        |  |          |  |  |  |  |  |  |  |  |   | 
|------- | ------ | ------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------- |  | ----- |  | ------ |  | -------- |  |  |  |  |  |  |  |  | - | 
|        |        |                     |  |                                                                                                                                          |  |      
|        |        |                     |  | Incorporated by Reference                                                                                                                |  |      
|Exhibit |        |                     |  |                                                                                                                                          |  | Filed
|Number  |        | Exhibit Description |  | Form                                                                                                                                     |  | Date  |  | Number |  | Herewith
|        |        |                     |  |                                                                                                                                          |  |       |  |        |  |         
|        | 10.01* |                     |  | Letter Agreement dated May 12, 2003 by and
    between VERITAS and Geoffrey Squire                                                       |  |       |  |        |  |          |  |  |  |  |  |  |  |  | X | 
|        | 99.01  |                     |  | Certifications of Chief Executive Officer and
    Chief Financial Officer pursuant to Section 906 of the
    Sarbanes-Oxley Act of 2002 |  |       |  |        |  |          |  |  |  |  |  |  |  |  | X | 



---



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



|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | These certifications accompany this
    quarterly report on Form 10-Q of VERITAS Software
    Corporation and shall not be deemed filed with the
    Securities and Exchange Commission or deemed incorporated by
    reference in any filing with the Securities and Exchange
    Commission under the Securities Act of 1933 or the Securities
    Exchange Act of 1934, whether made before or after the date
    hereof and irrespective of any general incorporation language in
    any filings.

59