ITEM 2. PROPERTIES
The Company's headquarters in Houston are located in a 12-story office building and occupy approximately 97,000 square feet of leased premises. Approximately 38% of this space is devoted to data processing operations, and the balance houses executive, accounting, research and development and geophysical operating personnel, The Company leases additional space aggregating approximately 338,000 square feet which is used primarily for seismic data processing operations, exploration and development information services, geophysical operating personnel and warehousing in Austin, Galveston, Houston, Irving and Midland, Texas; Denver, Colorado; Oklahoma City, Oklahoma; Crawley, England; Singapore; Kuala Lumpur, Malaysia; Brisbane, Melbourne and Perth, Australia; Calgary, Alberta, Canada; Buenos Aires and Niacin, Argentina; Caracas, Venezuela; Quito, Ecuador; Lima, Peru; Santa Cruz, Bolivia; and Abu Dhabi, U.A.E. These facilities are conventional office space, except for any modifications in wiring, air conditioning and lighting necessary to accommodate computer equipment. Leases covering the Company's facilities expire at varying times from 1998 through 2013. The Company owns property in Jackson, Mississippi, comprising 37,551 square feet of office and workshop facilities and in Calgary, Alberta, Canada comprising 15,000 square feet of office space and maintenance facilities. Additionally, the Company owns approximately two acres in Calgary, Alberta, Canada used for equipment storage.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
As of September 30, 1997, the Company was not a party to, nor was its property the subject of any material pending legal proceedings, as defined by relevant rules and regulations of the Securities and Exchange Commission.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the fourth quarter of the fiscal year ended July 31, 1997.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock commenced trading on the New York Stock Exchange under the symbol "VTS" on September 3, 1996. Prior to that time, the common stock traded on the American Stock Exchange under the symbol "DGC". The following table sets forth the reported high and low sales prices for the common stock on the New York Stock Exchange and the American Stock Exchange, as appropriate, for the periods shown.
On September 30, 1997, the last reported sale price of the Company's common stock on the New York Stock Exchange was $42 9/16 per share. On September 30, 1997, the approximate number of holders of record of common stock was 190.
Historically, the Company has not paid any dividends on its common stock and has no present plans to pay any dividends. The payment of any future dividends on common stock would depend, among other things, upon the current and retained earnings and financial condition of the Company and upon a determination by its board of directors that the payment of dividends would be desirable. In addition, the Company's revolving credit agreement, due July 1998, prohibits the payment of cash dividends. (See Note 7 of Notes to the Consolidated Financial Statements.)
On April 1, 1997 the Company issued 10,000 shares of its common stock to an executive officer of the Company in conjunction with an employment agreement and in exchange for services to be rendered over the following three years- Such issuance of common stock was exempt from registration pursuant to section 4(2) of the Securities Act.
ITEM 6.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated financial data as of July 31, 1997 and for each of the five years in the period ended July 31, 1997, which has been restated for the Combination (See Note 2 of Notes to Consolidated Financial Statements) which was accounted for as a pooling of interests. The Balance Sheet Data as of July 31, 1993 has been derived from the unaudited consolidated financial statements of the Company. In management's opinion, the balance sheet data contains all adjustments necessary to present fairly the Company's financial position as of July 31, 1993.
As a result of the differing year ends of Digicon and VES, results of operations for dissimilar year ends have been combined. Digicon's results of operations for fiscal years ended July 31, 1993, 1994 and 1995 have been combined with VES' results of operations for fiscal years ended October 31, 1993, 1994 and 1995, respectively. To conform year ends, Digicon's results of operations for the year ended July 3 1, 1996 have been combined with VES' results of operations for the twelve months ended July 31, 1996. Accordingly, VES' operating results for the period August 1, 1995 through October 31, 1,995 are included in the years ended July 31, 1995 and 1996. An adjustment in an amount equal to the results of operations for the three-month period is included in the consolidated statements of changes in stockholders' equity. VES' revenues, net income and net income per share were $22,150,000, $936,000 and $.05, respectively, for the period August 1, 1995 through October 31, 1995.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
FISCAL 1997 COMPARED WITH FISCAL 1996
Revenues. For fiscal 1997, total revenues increased 45% from $250.6 million to $362.7 million. Land and transition zone acquisition revenues increased 49% from $117.7 million to $175.8 million as a result of higher demand, additional capacity of 9,000 channels and operating efficiencies from upgraded and standardized equipment. Demand improved significantly in Canada and remained high during the spring break-up period. Contracts in the Company's other markets had longer terms, larger channel requirements, better prices and improved weather protection clauses. Marine acquisition revenues increased 19% from $54.4 million to $64.4 million primarily due to increased utilization of the Company's vessels, higher productivity from the upgrade to Syntron equipment and the addition of the Polar Princess in the first quarter and another short-term chartered vessel in the fourth quarter. Data processing operations increased 33% from $55.6 million to $74.1 million due to increased capacity, increased productivity and increased volumes of data available for processing. The Company has substantially upgraded its processing centers, installed a NEC supercomputer in Houston and opened new centers in Abu Dhabi, Australia, Ecuador and Oklahoma. Multi-client data sales increased 110% from $23.0 million to $48.3 million due to expanding customer interest in the Gulf of Mexico. especially deepwater and sub-salt areas, and North Sea multi-client data surveys.
Operating Expenses. Costs of services increased 37% from $198.7 million to $271.7 million, but as a percent of revenues decreased from 79% to 75%. The improvement in operating margins is attributable to higher prices as a result of increased market demand, better equipment utilization and higher productivity for all service groups as discussed above.
Depreciation and Amortization. Depreciation and amortization expense increased 51% from $26.9 million to $40.6 million due to the extensive 1997 capital expenditure program.
Selling, General and Administrative, Selling, general and administrative expenses increased 57% from $7.3 million to $11.4 million, resulting primarily from costs incurred in implementing new administrative and accounting systems, pursuing a more aggressive marketing strategy and from incentive compensation as a result of the improved performance of the Company,
Interest. Interest expense increased 37% from $5.5 million to $7.5 million due to increased debt levels required to finance the Company's 1997 capital expenditure program. The Company issued $75 million of senior notes during the current year.
Merger Related Costs. Merger related costs consist primarily of one month of investment banking and professional fees and expenses incurred in connection with the Combination.
Income Taxes- Provision for income taxes increased from $2.0 million to $6.1 million as a result of increased profitability of the Company, however, the effective tax rate was reduced in the current year by the write-off of certain of the Company's investments.
Equity in (earnings) loss. Equity in (earnings) loss is related to the Indonesian joint venture. An increase in marine acquisition surveys and the sale of multi-client data library account for the increased profitability of the joint venture in the current year.
FISCAL 1996 COMPARED WITH FISCAL 1995
Revenues. For fiscal 1996, total revenues increased 16% from $215.6 million to $250.6 million. Land and transition zone revenues increased 9% from $108.1 million to $117.7 million primarily as a result of increased capacity in Canada and expansion in the United States and Argentina. Marine revenues increased 66% from $32.8 million to $54.4 million, primarily resulting from the reassignment of two vessels to contract work and higher funding levels on multi-client data surveys. This increase was partially offset by lower prices in the Far East. Data processing revenue increased 2% from $54.7 million to $55.6 million. Improved results at the Holland, Singapore and Australia centers were offset by the closing of three other centers and by reduced European data processing prices. Multi-client data survey revenues increased 16% from $19.8 million to $23.0 million, resulting from an expansion of the Company's multi-client data library in response to an increase in demand by oil and gas companies for multi-client data surveys.
Operating Expenses. Cost of services increased 17% from $170.4 million to $198.7 million, however, as a percentage of total revenues, costs of services remained constant at approximately 79%.
Write-off/Write-down for Impairment of Assets. Write-off/write-down for impairment of assets of $3.6 million relates to mainframe data processing equipment used in the Company's marine seismic data processing operations that was replaced by more powerful and flexible workstation-based systems during the first quarter of fiscal 1997.
Depreciation and Amortization. Depreciation and amortization expense increased 14% from $23.7 million to $26.9 million, due to equipment purchases to upgrade and expand the Company's operations.
Selling, General and Administrative Selling, general and administrative expenses increased 24% from $5.9 million to $7.3 million resulting primarily from costs incurred in implementing a new administrative data processing system and from the addition of staff to support the Company's expanded operations.
Interest. Interest expense increased 6% from $5.2 million to $5.5 million, resulting primarily from prepayment penalties incurred to pay off a $17.0 million revolving credit agreement.
Merger Related Costs. Merger related costs of $3.7 million consist primarily of investment banking and professional fees and expenses incurred in connection with the Combination. See Note 2 of Notes to the Consolidated Financial Statements.
Income Taxes. Provision for income taxes decreased from $3.8 million to $2.0 million. An $876,000 tax benefit was recognized as a result of taxable losses in Argentina generated by deductions allowed for social security taxes and employee compensation. The remainder was due to taxable losses incurred during expansion into foreign markets.
Equity in Loss. Equity in loss decreased by $4.1 million as a result of the sale of the FSU joint ventures in fiscal 1995 and decreased losses in the Indonesian joint venture. The Indonesian joint venture recorded losses on abandonment of seismic data processing operations in fiscal 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company's internal sources of liquidity are cash, short-term investments and cash flow from operations which all increased in fiscal 1997 due to increased operating activity and completion of two public financings. External sources include the revolving credit facility, public financings, equipment financing and trade credit
The Company requires significant amounts of working capital to support its operations and to fund capital spending and research and development programs. The Company's foreign operations require greater amounts of working capital than similar domestic activities, as the average collection period for
foreign receivables is generally longer than for comparable domestic accounts. Approximately 50% of revenues for the year ended July 31, 1997 were attributable to the Company's foreign operations and export sales. In addition, the Company has increased its participation in multi-client data surveys and has significantly expanded its library of multi-client data. Because of the lead-time between survey execution and sale, partially funded multi-client data surveys generally require greater amounts of working capital than contract work. Depending on the timing of future sales of the data and the collection of the proceeds from such sales, the Company's liquidity will be affected; however, the Company believes that these non-exclusive surveys have good long-term sales, earnings and cash flow potential.
Capital expenditures totaled $96.1 million during fiscal 1997. Of this amount approximately $10.3 million represented capital spending necessary to maintain the Company's operating equipment. The remainder was for discretionary capital spending, including the replacement of older operating equipment, with a view of substantially enhancing operating efficiency, and the addition of equipment to meet increased demand for seismic services. The Company's capital expenditure program for 1998 is $75.0 million and includes expenditures of $26.0 million to maintain or replace the Company's current operating equipment and $49.0 million to expand capacity. At July 31, 1997, the Company had open purchase commitments in the amount of approximately $14.0 million related to these expenditures. The Company spent $3.7 million in fiscal 1997 and plans to spend $4.6 million in fiscal 1998 for research and development.
The Company maintains a $25.0 million revolving credit facility, as amended (the "Credit Facility"), with a commercial bank which will mature in July 1998. Advances up to $20.0 million under the Credit Facility are secured by substantially all of the Company's receivables. All advances bear interest, at the Company's election, at LIBOR plus two percent or prime rate and are limited by a borrowing formula which, based on current levels of receivables, results in a borrowing base well in excess of the maximum commitment. Covenants in the Credit Facility prohibit the payment of cash dividends and limit, among other things, the Company's right to create indebtedness and make capital expenditures over a certain amount in any fiscal year. In addition, the Credit Facility requires minimum cash flow coverage and the maintenance of minimum tangible net worth, limits the ratio of funded debt to total capitalization, and requires the Company to maintain a minimum current ratio. The Company is in compliance with all covenants of the agreement and has no outstanding advances at July 31, 1997.
In October 1996, the Company completed a $75.0 million public offering of Senior Notes, which generated approximately $72.2 million of net proceeds. The indenture relating to the Senior Notes (the "Indenture") contains certain covenants, including covenants that limit the Company's ability to, among other things, incur additional debt, pay dividends and complete mergers, acquisitions and sales of assets. The Company is in compliance with all covenants of the agreement at July 31, 1997. Upon a change in control of the Company (as defined in the Indenture), holders of the Senior Notes have the right to require the Company to purchase all or a portion of such holder's Senior Note at a price equal to 101% of the aggregate principal amount. Interest is payable semi-annually beginning April 1997. Approximately $49.8 million of the net proceeds from the Senior Notes was used to retire outstanding indebtedness of the Company. The remaining net proceeds were used to fund a portion of the Company's capital expenditures for fiscal 1997.
In July 1997, the Company completed a public offering (the "Offering") of 3,450,000 shares of common stock (including the underwriters' overallotment option of 450,000 shares). A portion of the net proceeds from the Offering of $76.4 million was used for 1997 capital expenditures and the remainder will be used to fund a portion of the Company's fiscal 1998 $75.0 million capital expenditure program and for other general corporate purposes, including working capital, possible repurchases of outstanding Senior Notes and possible acquisitions. No repurchases will be made of outstanding Senior Notes, except at prices which are, at the time of any such repurchase, regarded by the Company to be attractive. Accordingly, there can be no assurance that any such repurchases will be made. While the Company regularly evaluates opportunities to acquire complementary businesses, it has no present agreements or commitments with respect to possible acquisitions, and no estimate can be made as to the amount of net proceeds which ultimately may be used for acquisitions.
Since the Company's quasi-reorganization with respect to Digicon Inc. on July 31, 1991, the tax benefits of net operating loss carryforwards existing at the date of the quasi-reorganization have been recognized through a direct addition to paid-in capital, when realization is more likely than not. Additionally, the utilization of the net operating loss carryforwards existing at the date of the quasi-reorganization are subject to certain limitations. During 1997, the Company recognized $9,867,000 related to these benefits, due to the increased profitability of the Company during the current year and anticipated profitability in future years. See Note 9 of Notes to the Consolidated Financial Statements.
The Company will require substantial cash flow to continue operations on a satisfactory basis, complete its capital expenditure and research and development programs and meet its principal and interest obligations with respect to outstanding indebtedness. The Company anticipates that cash and short-term investments, net proceeds from the Offering, cash flow generated from operations and borrowings permitted under the Indenture and Credit Facility will provide sufficient liquidity to fund these requirements through fiscal 1998. However, the Company's ability to meet its debt service and other obligations depends on its future performance, which, in turn, is subject to general economic conditions, business and other factors beyond the Company's control. If the Company is unable to generate sufficient cash flow from operations or otherwise to comply with the terms of the Credit Facility or the Indenture, it may be required to refinance all or a portion of its existing debt or obtain additional financing. There can be no assurance that the Company would be able to obtain such refinancing or financing, or that any refinancing or financing would result in a level of net proceeds required.
ITEM 8.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Veritas DGC Inc.
In our opinion, the accompanying consolidated balance sheet and the related consolidated statements of income, of changes in stockholders' equity and of cash flows present fairly, in all material respects, the financial position of Veritas DGC Inc. and its subsidiaries at July 31, 1997 and the results of their operations and their cash flows for the year then ended in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Houston, Texas September 24, 1997
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of Veritas DGC Inc.
We have audited the consolidated balance sheet of Veritas DGC Inc. and subsidiaries as of July 31, 1996, and the related consolidated statements of income, cash flows and changes in stockholders' equity for each of the two years in the period ended July 31, 1996. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the consolidated financial statements based on our audits. The consolidated financial statements give retroactive effect to the merger of Digicon Inc. and Veritas Energy Services Inc., which has been accounted for as a pooling of interests as described in Note 2 to the consolidated financial statements. We did not audit the consolidated balance sheet of Veritas Energy Services Inc. as of July 31, 1996, or the related consolidated statements of income, cash flows and changes in stockholders' equity of Veritas Energy Services Inc. for the year ended October 31, 1995 or for the twelve months ended July 31, 1996, which statements reflect total assets of $57,793,000 as of July 31, 1996 and total revenues of $109,996,000 for the year ended October 31, 1995 and $118,591,000 for the twelve months ended July 31, 1996. Those statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for Veritas Energy Services Inc. for 1995 and 1996, is based solely on the report of such other auditors.
We conducted our audits in accordance with generally accepted auditing standards. These standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the report of the other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Veritas DGC Inc. and subsidiaries as of July 31, 1996 and the results of its operations and its cash flows for each of the two years in the period ended July 31, 1996 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Houston, Texas October 10, 1996
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of Veritas Energy Services Inc.
We have audited the consolidated balance sheets of Veritas Energy Services Inc. as of July 31, 1996 and the consolidated statements of income, retained earnings and changes in financial position for the nine months ended July 31, 1996 and for the year ended October 31, 1995 (not presented separately herein). These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. These standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statement. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as of July 31, 1996 and the results of its operations and the changes in its financial position for the nine months ended July 31, 1996 and for the year ended October 31, 1995 in accordance with Canadian generally accepted accounting principles.
PRICE WATERHOUSE Chartered Accountants
Calgary, Alberta September 20, 1996
VERITAS DGC INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share amounts)
See Notes to Consolidated Financial Statements
VERITAS DGC INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (In thousands, except for par value and number of shares)
See Notes to Consolidated Financial Statements
VERITAS DGC INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands of dollars)
See Notes to Consolidated Financial Statements
VERITAS DGC INC. AND SUBSIDIARIES
SUPPLEMENTARY SCHEDULES TO CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands of dollars)
See Notes to Consolidated Financial Statements
VERITAS DGC INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY For the years ended July 31, 1995, 1996 and 1997 (In thousands, except for number of shares)
See Notes to Consolidated Financial Statements
VERITAS DGC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED JULY 31, 1995, 1996 AND 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION
Veritas DGC Inc. (the "Company") provides seismic data acquisition, data processing and multi-client data surveys to the oil and gas industry in selected markets worldwide. The accompanying consolidated financial statements include the accounts of Veritas DGC Inc., formerly Digicon Inc. ("Digicon"), and all majority-owned domestic and foreign subsidiaries. Investments in 50% or less-owned companies and joint ventures are accounted for on the equity method. All material intercompany balances and transactions have been eliminated. All financial information for all periods presented prior to the merger on August 30, 1996 between Digicon and Veritas Energy Services Inc. ("VES") includes the results of VES. (See Note 2.) The merger has been accounted for as a pooling of interests.
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 reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
RECLASSIFICATION OF PRIOR YEAR BALANCES
Certain prior year balances have been reclassified for consistent presentation.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments include cash and short-term investments, restricted cash investments, accounts and notes receivable, accounts payable and debt. The fair market value of the $75.0 million senior notes and related interest payable is $78.7 million based on the present value of total payments due at the high yield corporate bond rate at July 31, 1997. The carrying value is a reasonable estimate of fair value for all other instruments.
NEW ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED
In February 1997, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share." This statement requires the computation of basic earnings per share based upon weighted-average common shares outstanding and diluted earnings per share based upon weighted-average common shares outstanding and additional common shares utilizing the treasury stock method and average market prices that would have been outstanding if dilutive potential common shares had been issued. In addition, previously reported earnings per share must be restated. This statement is effective for interim and annual reporting periods ending after December 15, 1997. Basic earnings per share will not differ from previously reported primary earnings per share amounts. Diluted earnings per share will include the effect of using the average market price for the period instead of the higher of the average market price or the end of period price. In addition, diluted earnings per share will be presented for all prior periods where fully diluted earnings per share were not previously reported because dilutive potential common shares did not result in more than 3% dilution. Diluted earnings per share are not expected to differ materially from basic earnings per share.
VERITAS DGC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) FOR THE YEARS ENDED JULY 31, 1995, 1996 AND 1997
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income." This statement requires disclosure in both annual and interim reporting of the reporting period's comprehensive income (changes in equity from non-owner sources), net of the related tax effect, on the face of the consolidated statement of income, consolidated statement of changes in stockholders' equity or in a separate statement of comprehensive income and the accumulated balance of other comprehensive income (comprehensive income excluding net income) as a separate component in the stockholders' equity section of the consolidated balance sheet. Classifications included in the accumulated balance are disclosed on the face of the consolidated balance sheet or statement of changes in stockholders' equity or in notes to the consolidated financial statements. The Company's sources of comprehensive income include net income and cumulative foreign currency translation adjustments. The Company will be required to implement this statement in fiscal year 1999. Management has not completed its assessment of how it will present the required information.
In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of an Enterprise and Related Information" which will supersede SFAS No. 14, "Financial Reporting for Segments of a Business Enterprise". It will require the Company to disclose certain financial information in both annual and interim reporting about "operating segments" which are components of a company that are evaluated regularly by management in deciding how to allocate its resources and in assessing its performance. It also requires disclosure about the countries from which the Company derives its revenues and in which it employs its long-lived assets. Major customers will continue to be disclosed. The Company will be required to implement this statement in fiscal year 1999. Management has not completed its assessment of how the adoption of this statement will affect its existing segment disclosures.
TRANSLATION OF FOREIGN CURRENCIES
The Company has determined that the United States ("U.S.") dollar is its primary functional currency and, accordingly, most foreign entities translate property and equipment (and related depreciation) and inventories into U.S. dollars at the exchange rate in effect at the time of their acquisition while other assets and liabilities are translated at year-end rates. Operating results (other than depreciation) are translated at the average rates of exchange prevailing during the year. Remeasurement gains and losses are included in the determination of net income and are reflected in other costs and expenses (See Note 16.) The remaining foreign entities use the Canadian dollar as their functional currency and translate all assets and liabilities at year-end exchange rates and operating results at average exchange rates prevailing during the year. Adjustments resulting from the translation of assets and liabilities are recorded in the cumulative foreign currency translation adjustment account in stockholders' equity.
CASH EQUIVALENTS
For purposes of the Consolidated Statements of Cash Flows, the Company has defined "cash equivalents" as items readily convertible into known amounts of cash with original maturities of three months or less.
RESTRICTED CASH INVESTMENTS
Restricted cash investments in the amounts of $327,000 and $550,000 at July 31, 1996 and 1997, respectively, were pledged as collateral on certain bank guarantees related to contracts entered into in the normal course of business.
VERITAS DGC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) FOR THE YEARS ENDED JULY 31, 1995, 1996 AND 1997
ACCOUNTS RECEIVABLE
Included in accounts and notes receivable at July 31, 1996 and 1997 are unbilled amounts of approximately $12,682,000 and $17,308,000, respectively. Such amounts are either not billable to the customer at July 31 in accordance with the provisions of the contract and generally will be billed in one to four months or are currently billable and will be invoiced in the next monthly statement cycle.
INVENTORIES
Inventories of materials and supplies are stated at the lower of average cost or market.
MULTI-CLIENT DATA LIBRARY
The Company collects and processes certain seismic data for its own account to which it retains all ownership rights and which it resells to clients on a non-transferable, non-exclusive basis. The Company may obtain precommitted sales contracts to help fund the cash requirements of these surveys which generally last from five to seven months. The Company capitalizes associated costs using an estimated sales method. Under that method the amount capitalized equals actual costs incurred less costs attributed to the precommitted sales contracts based on the percentage of total estimated costs to total estimated sales multiplied by actual sales. The capitalized cost of multi-client data library is likewise charged to operations in the period subsequent sales occur based on the percentage of total estimated costs to total estimated sales multiplied by actual sales. Beginning in fiscal 1997, the Company changed the estimated life of its multi-client data library so that any costs remaining 24 months after completion of a survey are charged to operations over a period not to exceed 24 months. The Company periodically reviews the carrying value of the multi-client data library to assess whether there has been a permanent impairment of value and records losses when the total estimated costs exceed total estimated sales or when it is determined that estimated sales would not be sufficient to cover the carrying value of the asset.
GOODWILL
The Company records the purchase price of businesses or joint venture interests in excess of the fair value of net assets acquired as goodwill which is amortized over a period of 10 to 20 years which approximates the period benefits are expected to be derived. The Company periodically reviews the carrying value of goodwill in relation to the current and expected operating results of the businesses or joint ventures in order to assess whether there has been a permanent impairment of such amounts.
MOBILIZATION COST
Transportation and make-ready expenses of seismic operations incurred prior to commencement of business in an area, that would not have been incurred otherwise, are deferred and amortized over the lesser of the term of the related contract or backlog of contracts in that area or one year. Amounts applicable to operations for the Company's own account are included in the cost of the multi-client data library. Unamortized mobilization costs are shown as other assets and totaled $517,000 at July 31, 1996. There were no unamortized mobilization costs at July 31, 1997.
LEASES
Operating leases include those for office space, specialized seismic equipment rented for short periods of time, and the Company's seismic ships which generally are chartered on a short-term basis.
VERITAS DGC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) FOR THE YEARS ENDED JULY 31, 1995, 1996 AND 1997
QUASI-REORGANIZATION
Digicon effected a quasi-reorganization adjustment as of July 31, 1991 in which its accumulated deficit at July 31, 1991 of $139,751,000 was offset against additional paid-in capital.
REVENUES
Revenues from data acquisition and data processing services are recognized on the percentage-of-completion method measured by the amount of data collected or processed to the total amount of data to be collected or processed or by time incurred to total time expected to be incurred. Sales from the licensing of multi-client data surveys are recognized upon delivery of such data based upon agreed rates set forth in the contract.
DEPRECIATION
Depreciation is computed using the straight-line method based on estimated useful lives as follows:
Expenditures for routine repairs and maintenance are charged to expense as incurred; expenditures for additions and improvements are capitalized and depreciated over the estimated useful life of the related asset. Significant vessel drydocking expenses are recorded as deferred charges in other assets and are amortized over a six to twenty-four month period. The net gain or loss on property and equipment retired or disposed of is included in other costs and expenses. (See Note 16.)
In fiscal 1996, the Company recognized impairment of assets in the amount of $3,628,000 or $.20 per share (as restated for the Reverse Split), respectively. (See Notes 13 and 15.)
RESEARCH AND DEVELOPMENT
Research and development costs are charged to expense when incurred. Research and development costs for the years ended July 31, 1995, 1996 and 1997 were $3,589,000, $3,193,000 and $3,725,000, respectively.
STOCK-BASED COMPENSATION
The Company maintains stock-based compensation plans that are accounted for using the intrinsic value based method allowed by Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" and related Interpretations. Under that method, no compensation expense is recorded in the accompanying consolidated financial statements since the exercise price of the related stock options approximates fair market value on the date of grant. As required by SFAS No. 123, "Accounting for Stock-Based Compensation", the effect on net income and earnings per share of compensation expense that would have been recorded using the fair value based method is reported through disclosure. (See Note 12.) The fair value of options on the date of grant under the fair value based method is determined using the Black-Scholes option valuation method.
VERITAS DGC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) FOR THE YEARS ENDED JULY 31, 1995, 1996 AND 1997
EARNINGS PER SHARE
Earnings per share and weighted average shares have been restated for all periods presented to reflect the effect of the Reverse Split consummated on January 17, 1995 (see Note 13) and shares issuable upon exchange of the Veritas Energy Services Inc. Exchangeable Stock (see Note 2).
Primary earnings per share is computed based on the weighted average number of shares of common stock, Exchangeable Stock (see Note 2) and common stock equivalents. Common stock equivalents include (i) stock options (see Note 12) and (ii) warrants (see Note 14). Shares issuable upon the conversion of stock options and warrants were disregarded since the treasury stock method of calculation resulted in dilution of less than 3%.
Fully diluted earnings per share is not presented for the years ended July 31, 1995, 1996 and 1997 since stock options and warrants referenced above resulted in dilution of less than 3%.
2. BUSINESS COMBINATION
Veritas DGC Inc. was formerly named Digicon Inc. ("Digicon"). On August 30, 1996, Digicon and Veritas Energy Services Inc. ("VES"), a Canadian company, consummated a business combination (the "Combination"). VES became a wholly owned subsidiary of Digicon and Digicon changed its name to Veritas DGC Inc. (the "Company"). As a result of the Combination, each share of VES no par value common shares outstanding was converted into the right to receive VES no par value exchangeable stock (the "Exchangeable Stock") at an exchange ratio of 0.8 of a share of Exchangeable Stock per VES common share. All of the holders of VES common shares, except for those shareholders who perfected and properly exercised their right to dissent from the Combination and received fair value of their shares in cash, became holders of Exchangeable Stock and accordingly, 7,023,701 shares of Exchangeable Stock were issued. The aggregate stated capital of the Exchangeable Stock is equal to the aggregate stated capital immediately prior to the Combination of the VES common shares that were exchanged or approximately $30.0 million. The Exchangeable Stock is convertible, at the discretion of the stockholder, on a one-for-one basis into shares of the Company's $0.01 par value common stock and their holders have rights identical to the holders of the Company's common stock. Options to purchase shares of VES common stock ("VES Option") were converted into options to purchase shares of the Company's common stock at an exchange ratio of 0.8 of an option in the Company's common stock per VES Option. (See Note 12.) The VES articles of amalgamation were amended to reduce the number of authorized VES common shares to one which is held by the Company.
The Combination has been accounted for as a pooling of interests and, accordingly, the accompanying consolidated financial statements have been prepared on a basis that includes the accounts of Digicon and VES. Information concerning common stock and per share data has been restated on an equivalent share basis. As a result of the differing year ends of Digicon and VES, results of operations for dissimilar year ends have been combined. Digicon's results of operations for the year ended July 31, 1995 have been combined with VES' results of operations for the year ended October 31, 1995. To conform year ends, Digicon's results of operations for the year ended July 31, 1996 have been combined with VES' results of operations for the twelve months ended July 31, 1996 and, accordingly, VES' operating results for the period August 1, 1995 through October 31, 1995 is included in the years ended July 31, 1995 and July 31, 1996. An adjustment in an amount equal to the results of operations for this three-month period is included in the consolidated statements of changes in stockholders' equity. VES' revenues, net income and net income per share were $22,150,000, $936,000 and $0.05, respectively, for the period August 1, 1995 through October 31, 1995.
VERITAS DGC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) FOR THE YEARS ENDED JULY 31, 1995, 1996 AND 1997
Presented below is the effect of the pooling of interests on previously reported results of operations. Amounts related to VES have been converted into the Company's reporting currency, U.S. dollars, using weighted average exchange rates prevailing during the period and reflect adjustments for differences between U.S. and Canadian generally accepted accounting principles ("GAAP") and reclassifications to conform financial statement presentation, Canadian to U.S. GAAP adjustments include adjustments to (i) write off foreign exchange losses on borrowings which are deferred and amortized over the period of the debt, decreasing net income by approximately $25,000 and $173,000 for the years ended July 31, 1995 and 1996, respectively, and (ii) reverse the effect of a prior period adjustment, increasing net income by approximately $314,000 and $102,000 for the years ended July 31, 1995 and 1996, respectively. Reclassification of $25,493,000 and $28,842,000 for the years ended July 31, 1995 and 1996, respectively, have been made to net amounts billed to customers for reimbursable costs against VES' revenues.
There were no material adjustments to the net assets of VES as a result of adopting the same accounting principles as the Company.
During the year ended July 31, 1996 and 1997, the Company incurred and expensed $3,666,000 and $597,000, respectively, of costs associated with the Combination. These costs consist primarily of professional fees and include $150,000 payable to a stockholder who was the former Chairman of the Board of Directors for consulting services rendered in conjunction with the Combination.
VERITAS DGC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) FOR THE YEARS ENDED JULY 31, 1995, 1996 AND 1997
3. INVESTMENT IN INDONESIAN JOINT VENTURE
Summarized financial information for the Company's 80% owned Indonesian joint venture (P.T. Digicon Mega Pratama) which is accounted for under the equity method due to provisions in the joint venture agreement that give minority shareholders the right to exercise control is as follows:
4. INVESTMENT IN FSU JOINT VENTURES
During the year ended July 31, 1994, the Company entered into a joint venture agreement with MD Seis International Ltd. ("MD Seis") to perform geophysical services in the former Soviet Union ("FSU"). In connection with the agreement, the Company placed shares of its pre-Reverse Split common stock in escrow to be distributed in stages upon the execution and completion of certain conditions.
The first stage was completed on April 1, 1994 and the Company exchanged 3,072,950 shares of pre-Reverse Split common stock valued at $2.375 per share, or $7,298,256, and a $ 1,000,000 cash commitment in return for interests in certain jointly owned companies. The second stage of the agreement was completed on August 25, 1994, and the Company increased its ownership interest in certain of these companies by exchanging 2,052,543 shares of pre-Reverse Split common stock valued at $1.125 per share, or $2,309,111, and an additional $2,000,000 cash commitment. In addition, the Company agreed to guarantee certain liabilities of the joint ventures. After adjustment for the Reverse Split consummated on January 17,1995, MD Seis owned 1,708,497 shares of common stock.
VERITAS DGC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) FOR THE YEARS ENDED JULY 31, 1995, 1996 AND 1997
The investments were being accounted for under the equity method. The FSU joint ventures generated total revenues of approximately $6,994,000 and a net loss of approximately $2,954,000 during the year ended July 31, 1995. The Company's share of the net loss was approximately $1,477,000 during the year ended July 31, 1995. The excess purchase price over the fair value of the net assets acquired in the amount of $9,292,000 was being amortized over a 20-year period. Amortization expense for the year ended July 31, 1995 was $392,000.
On June 6, 1995, the Company sold its interests in the joint ventures for $6,000,000 in cash and the return of the 1,708,497 shares of the post-Reverse Split common stock owned by MD Seis (valued at $5.125 per share). In addition, the Company received $2,992,144 in short-term notes, which were collected on July 31, 1995, representing payments for equipment sold and a return of amounts previously advanced to the joint ventures and is entitled to receive royalties of up to $1,500,000 based on future sales of multi-client data acquired by the joint ventures. The net effect of these transactions was a gain of $4,370,000 which was recognized during fiscal 1995.
5. PURCHASE OF DATAGRAPHICS LTD.
On December 1, 1994, the Company acquired all of the outstanding capital stock of DataGraphics Ltd., an exploration and development information service company, for a cash purchase price of $407,000. The acquisition has been accounted for using the purchase method of accounting, and accordingly, goodwill of $1,155,000 was recorded representing the excess of the purchase price over the fair value of the net assets acquired. The goodwill is being amortized over a ten-year period and the operations of DataGraphics Ltd. are included in the consolidated financial statements beginning December 1, 1994.
6. SALE OF INVENTORIES, ASSETS AND TECHNOLOGIES
On August 31, 1994, the Company entered into a series of agreements with Syntron, Inc. ("Syntron") that provided for the sale of certain assets, inventories and technologies by the Company to Syntron and the assumption of certain liabilities by Syntron. The sale price was $7,500,000 payable in cash of $3,000,000 and credits of $4,500,000 to be applied by the Company against future purchases from Syntron. The agreements also provide that for a period of three years, Syntron will be the sole supplier to the Company of certain acquisition, monitoring and recording equipment that is competitively priced, deliverable on a timely basis and technologically competitive. In addition, the Company agreed to lease back certain marine and land recording equipment from Syntron for a period of up to 36 months with minimum lease terms ranging from 7 1/2 to 17 1/2 months. The difference between the sale price and the net book value of the net assets sold after discounting the credits by 2 1/2% was a $1,001,000 gain which was recognized on a pro rata basis over the minimum lease terms as a reduction in rental expense.
VERITAS DGC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) For the years ended July 31, 1995, 1996 and 1997
7. Long-term Debt
The Company's long-term debt is as follows:
The senior notes are due in October 2003 with interest payable semi-annually at 9 3/4%. The senior notes are unsecured and are effectively subordinated to secured debt of the Company with respect to the assets securing such debt and to all debt of its subsidiaries whether secured or unsecured. The indenture relating to the senior notes contains certain covenants which limit the Company's ability to, among other things, incur additional debt, pay dividends and complete mergers, acquisitions and sales of assets. Upon a change in control of the Company, as defined in the indenture, the holders of the senior notes have the right to require the Company to purchase all or a portion of such holder's senior note at a price equal to 101% of the aggregate principal amount. The Company has the right to redeem the senior notes, in whole or part, on or after October 15, 2000. Under certain conditions, the Company may redeem up to $20.0 million in aggregate principal amount of the senior notes prior to October 15, 1999.
The revolving credit agreement due July 1998 is with a commercial bank and in June 1997 was amended to provide advances up to $25.0 million of which $20.0 million are secured by substantially all of the receivables of the Company. Advances bear interest, at the Company's election, at LIBOR plus two percent or prime rate and are limited by a borrowing formula. Covenants in the agreement limit, among other things, the Company's right, without consent of the lender, to take certain actions, including creating indebtedness and paying dividends, and limit the Company's capital expenditures in any fiscal year. In addition, the agreement requires minimum cash flow coverage and the maintenance of minimum tangible net worth, limits the ratio of funded debt to total capitalization, and requires the Company to maintain a minimum current ratio.
The secured term loan due July 1999 at prime plus 3/4% was with a commercial bank, was due in 36 equal monthly installments of $166,667 plus interest and was secured by a majority of the assets of the Company (except those assets directly or indirectly owned by VES). The secured term loan was paid with proceeds from the senior notes.
The secured term loans due July 1999 at prime plus 1/2% provided for advances for equipment purchases up to Canadian $4.0 million and Canadian $5.5 million, respectively, and advances were payable in 36 equal monthly installments. Advances were secured by the equipment purchased. The agreements required VES to maintain certain financial ratios. Advances under the secured term loans were paid with proceeds from the senior notes.
VERITAS DGC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) For the years ended July 31, 1995, 1996 and 1997
The Company's equipment purchase obligations represent installment loans and capitalized lease obligations primarily related to computer and seismic equipment. Substantially all the equipment purchase obligations were paid with proceeds from the senior notes.
The mortgage note was payable in equal monthly installments of Canadian $4,800 including interest at 10% and was secured by a building. The mortgage note was paid with proceeds from the senior notes.
Annual maturities of long-term debt for the next five years are as follows:
8. Other Accrued Liabilities
Other accrued liabilities included $3,780,000 and $8,313,000 of accrued payroll and benefits and $5,386,000 and $ 14,263,000 of deferred revenues as of July 31, 1996 and 1997, respectively.
9. Income Taxes
Pretax income was taxed under the following jurisdictions:
The provision for income taxes consists of the following:
VERITAS DGC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) For the years ended July 31, 1995, 1996 and 1997
A reconciliation of income tax expense computed at the U.S. statutory rate to the provision reported in the consolidated statements of income is as follows:
Deferred taxes result from the effect of transactions that are recognized in different periods for financial and tax reporting purposes. The primary components of the Company's deferred tax assets and liabilities are as follows:
A valuation allowance is established when it is more likely than not that some portion or all of the deferred tax assets will not be realized. The valuation allowance is then adjusted when the realization of deferred tax assets becomes more likely than not. Adjustments are also made to recognize the expiration of net operating loss and investment tax credit carryforwards, with equal and offsetting adjustments to the related deferred tax asset. Should the Company's income projections result in the conclusion that realization of additional deferred tax asset is more likely than not, further adjustments to the valuation allowance will be made. Since the Company's quasi-reorganization with respect to Digicon Inc. on July 31, 1991, the tax benefits of net operating loss carryforwards existing at the date of the quasi- reorganization have been recognized through a direct addition to paid-in capital, when realization is more likely than not. The reduction of approximately $14,645,000 in the valuation allowance during the current period resulted primarily from recognition of the expected utilization of net operating loss carryforwards generated prior to the quasi-reorganization, the expiration of net operating loss carryforwards and adjustments to net operating loss carryforwards from the settlement of audits.
VERITAS DGC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) For the years ended July 31, 1995, 1996 and 1997
As of July 31, 1997, the Company has U.S. net operating loss carryforwards of approximately $82,742,000, investment tax credit carryforwards of approximately $1,026,000 and an alternative minimum tax credit carryforward of approximately $603,000. Approximately $58,200,000 of net operating loss carryforwards and all of the investment tax credit carryforwards existed prior to the quasi- reorganization.
The alternative minimum tax credit has an indefinite carryforward period. The following schedule sets forth the expiration dates of the net operating loss and investment tax credit carryforwards:
Internal Revenue Service regulations restrict the utilization of U.S. net operating loss carryforwards and other tax benefits (such as investment tax credits) for any company in which an "ownership change" (as defined in Section 382 of the Internal Revenue Code) has occurred. The Company has performed the required testing and has concluded that an "ownership change" occurred in connection with the issuance of common stock through a public offering made by the Company on January 6, 1992. As a result, the utilization of U.S. net operating loss carryforwards existing at the date of the "ownership change" will be limited to approximately $4,041,000 per year, which if unutilized may be carried forward. This limitation had no effect on the provision for income taxes for the years ended July 31, 1995 and 1996. In the year ended July 31, 1997, the Company utilized $15,079,000 of limitation carryovers. At July 31, 1997, the accumulated unused limitation on net operating loss carryforwards and other tax benefits existing at the date of the "ownership change" was approximately $6,092,000.
Foreign operations had net operating loss carryforwards of approximately $25,623,000 at July 31, 1997, of which approximately $15,713,000 existed prior to the quasi-reorganization. Approximately $17,918,000 of the total foreign net operating loss carryforwards are related to United Kingdom operations, has an indefinite carryforward period, and is available to offset future profits in the Company's current trade or business. Approximately $14,553,000 of the United Kingdom net operating loss carryforwards existed prior to the quasi-reorganization.
The Company considers the undistributed earnings of its foreign subsidiaries to be permanently reinvested. The Company has not provided deferred U.S. income tax on those earnings, as it is not practicable to estimate the amount of additional tax that might be payable should these earnings be remitted or deemed remitted as dividends or if the Company should sell its stock in the subsidiaries.
VERITAS DGC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
For the years ended July 31, 1995, 1996 and 1997
10. Deferred Credits
In August 1992, the Company entered into agreements with a customer pursuant to which the Company received certain seismic equipment with a fair value of approximately $1,792,000 and was obligated to allow $7,800,000 in discounts at specified rates on future seismic services performed by the Company for such customer. The Company recorded deferred revenue equal to the fair value of seismic equipment at the time the equipment was received. The deferred revenue is amortized as an adjustment to revenues at a rate determined by the ratio of revenues generated by the customer during a reporting period to total revenues estimated to be generated by the customer under the agreements. Revenues are recognized net of discounts allowed as the customer purchases seismic services eligible for the discounts. At July 31, 1997, remaining discounts in the amount of $2,864,000 were available to such customer and the remaining unrecognized deferred revenue is $267,000.
The Company also has $962,000 and $5,022,000 at July 31, 1996 and 1997, respectively, included in accounts payable-trade relating to deferred credits earned by certain customers in conjunction with their original participation in certain of the Company's multi-client data surveys. These credits may be applied by the customers against future invoiced amounts.
11. Commitments and Contingent Liabilities
Total rentals of vessels, equipment and office facilities charged to operations amounted to $27,651,000, $28,210,000 and $37,332,000 for the years ended July 31, 1995, 1996 and 1997, respectively.
Minimum rentals payable under operating leases, principally for office space and vessel charters with remaining noncancellable terms of at least one year are as follows:
In connection with the Company's 1998 capital expenditure program, the Company has commitments of approximately $14,000,000 outstanding at July 31, 1997.
On May 16, 1997, the Company entered into a 96-month charter agreement for a vessel which is being constructed by a shipbuilder for the owner. The charter is noncancellable unless the owner exercises its right to cancel the shipbuilding contract due to late delivery (in excess of 180 days of the scheduled delivery time of May 31, 1998).
The Company has an employment agreement with a former employee, who was also a director, that provided for salary payments of $25,417 per month plus certain employee benefits through December 31, 1995. The agreement also contains a non-compete clause for a subsequent period of three years during which time the former employee will receive payments of $12,709 per month plus certain employee benefits.
During 1993 the Company purchased an occurrence-based workers compensation insurance policy. The policy provides for a maximum deductible of $1.4 million and $1.0 million for the policy years ended August 31, 1995 and 1996, respectively. The policy for year ended August 31, 1997, was issued under a guaranteed cost program and, accordingly, there is no deductible. Management has evaluated the
VERITAS DGC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) For the years ended July 31, 1995, 1996 and 1997
adequacy of the accrual for the liability for incurred but unreported workers compensation claims and has determined that the ultimate resolution of any such claims would not have a material adverse impact on the financial position of the Company.
The Company has letters of credit in the amount of $572,000 at July 31,1997 that will expire upon the completion of certain events relating to specific contracts.
12. Employee Benefits
The Company maintains a 401(k) plan in which employees of the Company's majority-owned domestic subsidiaries and certain foreign subsidiaries are eligible to participate. However, employees of foreign subsidiaries who are covered under a foreign deferred compensation plan are not eligible. Employees are permitted to make contributions of up to 10% of their salary to a maximum of $9,500 per year. Generally, the Company will contribute an amount equal to one-half of the employee's contribution of up to $8,000 or 8% of the employee's salary (whichever is less); however, if consolidated pre-tax income for any fiscal year is less than the amount required to be contributed by the Company, the Company may elect to reduce its contribution, but in no event may it reduce the total contribution to less than 25% of the employee contribution. The Company may make additional contributions from its current or cumulative net profits in an amount to be determined by the Board of Directors. The Company's matching contributions to the 401(k) plan were $281,000 in 1995, $314,000 in 1996 and $426,000 in 1997.
VERITAS DGC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) For the years ended July 31, 1995, 1996 and 1997
The Company initiated an employee nonqualified stock option plan on September 1, 1992. Options are granted to officers and key employees, are exercisable no earlier than six months after the date of grant and generally vest over a period of time. The exercise price for each option shall not be less than the lesser of (i) fair market value of the common stock on the date the option is granted or (ii) the average fair market value for the common stock during the 30 trading days ending on the trading day next preceding the date the option is granted. Options expire ten years from the date of grant. The Company has authorized 1,158,333 shares of post-Reverse Split common stock to be issued under the plan. The exercise prices and number of options existing prior to January 17, 1995 have been adjusted for the Reverse Split. (See Note 13).
VERITAS DGC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) For the years ended July 31, 1995, 1996 and 1997
The Company also initiated a stock option plan for non-employee directors (the "Director Plan") providing for stock options to be granted to each non-employee director of the Company. The Director Plan, as amended, provides that every other year, beginning in 1997, each eligible director shall be granted an option to purchase 10,000 shares of the Company's post-Reverse Split common stock. The exercise price for each option granted shall be fair market value, as defined. Options vest 25% per year on the anniversary of the date of grant over four years. Options expire from six to ten years from the date of grant. The Company has authorized 600,000 shares of post-Reverse Split common stock to be issued under the Director Plan. The exercise prices and number of options existing prior to January 17, 1995 have been adjusted for the Reverse Split. (See Note 13.)
VERITAS DGC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) For the years ended July 31, 1995,1996 and 1997
At the date of Combination (see Note 2), options to purchase VES Common Stock ("VES Option") were converted into options to purchase shares of the Company's common stock at an exchange ratio of 0.8 of an option in the Company's common stock per VES Option. All options are immediately exercisable and expire at varying times through February 2006. Options to purchase the Company's common stock converted from VES Options are as follows:
The effect on net income and earnings per share of compensation expense relating to the stock-based compensation plans described above that would have been recorded using the fair value based method is as follows:
The effect on net income and earnings per share may not be representative of the effects on future net income and earnings per share because some options vest over several years and additional awards may be granted.
VERITAS DGC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
For the years ended July 31, 1995, 1996 and 1997
The Company maintains a contributory defined benefit pension plan (the "Pension Plan") for eligible participating employees in the United Kingdom offices. Monthly contributions by employees are equal to 3.5% of their salaries with the Company providing an additional contribution in an actuarially determined amount necessary to fund future benefits to be provided under the Pension Plan. Benefits provided are based upon 1/60 of the employee's final pensionable salary (as defined) for each complete year of service up to 2/3 of the employee's final pensionable salary and increase annually at 5%. The Pension Plan also provides for 50% of such actual or expected benefits to be paid to a surviving spouse upon the death of a participant. Pension Plan assets consist mainly of investments in marketable securities which are held and managed by an independent trustee. The net periodic pension costs are as follows:
The funded status of the Pension Plan is as follows:
The weighted average assumptions used to determine the projected benefit obligation and the expected long-term rate of return on assets are as follows:
13. Common and Preferred Stock
On December 14, 1994, shareholders approved a one for three reverse stock split (the "Reverse Split") to holders of record on January 17, 1995, with no change in par value. On January 17, 1995, there were 33,404,816 shares of common stock outstanding which were converted into 11,134,939 shares of post Reverse Split common stock. The net effect of these transactions was a charge to common stock and a credit to additional paid-in capital of approximately $223,000. All references to the number of shares and per share amounts have been retroactively adjusted for the effects of the Reverse Split unless otherwise indicated.
VERITAS DGC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) For the years ended July 31, 1995, 1996 and 1997
On January 17, 1995, there were 1,363,637 publicly traded common stock purchase warrants expiring on July 5, 1996 with an exercise price of $6.00 per share. In connection with the Reverse Split and as required by the American Stock Exchange, the publicly traded warrants were converted, effective January 17, 1995, into approximately 454,545 post-Reverse Split common stock purchase warrants with an exercise price of $18.00. Also on January 17, 1995, there were 340,000 common stock purchase warrants expiring on June 29, 1997 with an exercise price of $2.00 per share which were adjusted in connection with the Reverse Split to represent 113,333 shares of post-Reverse Split common stock issuable upon exercise of these warrants at an exercise price of $6.00. Additionally, there were 1,975,000 and 600,000 shares of pre-Reverse Split common stock authorized under the 1992 Employee Nonqualified Stock Option Plan and 1992 Non-Employee Director Stock Option Plan, respectively. In connection with the Reverse Split, these authorized shares were decreased to 658,333 and 200,000 authorized shares of post-Reverse Split common stock under the Employee Plan and Director Plan, respectively, and the new exercise prices were tripled.
See Note 4 relating to the issuance of pre-Reverse Split common stock for the purchase of investment in FSU joint ventures.
In June 1995, 850,000 shares of treasury stock were sold to an institutional investor at a price of $4.6875 per share.
In September 1995, the Company sold its remaining 858,497 shares of treasury stock to a group of institutional investors at a price of $4.6875 per share.
In January 1996, the Company cancelled 11,517 shares of common stock and 22,473 warrants previously held by an escrow agent for issuance in conjunction with the cancellation of a previous issue of common and preferred stock and certain other liabilities in 1991.
The board of directors, without any action by the stockholders, may issue up to one million shares of authorized preferred stock, par value, $.Ol, in one or more series and determine the voting rights, preferences as to dividends and in liquidation and the conversion and other rights of such stock. There are no shares of preferred stock outstanding as of July 31, 1997.
On May 27, 1997, the board of directors of the Company declared a distribution of one right for each outstanding share of common stock or Exchangeable Stock (see Note 2) to shareholders of record at the close of business on June 12, 1997 and designated 400,000 shares of the authorized preferred stock as a class to be distributed under a shareholder rights agreement. Upon the occurrence of certain events enumerated by the shareholder rights agreement, each right entitles the registered holder to purchase a fraction of a share of the Company's authorized preferred stock or the common stock of an acquiring company. The rights, among other things, will cause substantial dilution to a person or group that attempts to acquire the Company. The rights expire on May 15, 2007 but may be redeemed earlier.
14. Warrants
The following number of warrants issued and exercise prices have been adjusted for the Reverse Split consummated on January 17, 1995. (See Note 13.)
In conjunction with the cancellation of a previous issue of common and preferred stock and certain other liabilities, the Company authorized 454,545 warrants which may be exercised for 454,545 shares of common stock. The warrants were issued for a term of five years beginning July 5, 1991 at an exercise
VERITAS DGC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
For the years ended July 31, 1995, 1996 and 1997
price of $18.00 per share. The warrants could only be exercised for cash. Warrants for 29,433 shares were exercised on July 5, 1996 and the remaining warrants expired.
In conjunction with a previously outstanding secured term loan, the Company issued 113,333 warrants exercisable at a price of $6.00 per share. The warrants were exercised in December 1996.
In conjunction with previously outstanding short-term related party loans, the Company issued warrants to purchase 120,000 common shares to the lenders of which 78,000 have been exercised. The remaining warrants are exercisable for cash at a price of $4.50 per share and expire July 26, 1999.
15. Write-off/write-down of Assets
In connection with the Combination, management committed the Company to a plan to upgrade its seismic data processing hardware. Certain equipment was scheduled to be replaced by October 1996. During July 1996, the Company recognized impairment of $3,628,000 relating to the abandonment of the equipment to be replaced.
16. Other Costs and Expenses
Other costs and expenses consist of the following:
VERITAS DGC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) For the years ended July 31, 1995, 1996 and 1997
17. Geographical Information
Substantially all of the Company's operations consist of geophysical services. The following tables provide relevant information for the years ended July 31, 1995, 1996 and 1997, grouped by major geographic areas. Intersegment sales between geographic areas are valued at current market prices.
- --------------------------- *Includes export sales of $2,228.
There was no single client that accounted for 10% or more of total revenues during the year ended July 31, 1995. During 1995, depreciation and amortization expense was $3,984,000 for Europe & Middle East; $1,040,000 for Far East; $4,390,000 for South America; $6,001,000 for Canada and $8,317,000 for United States. Capital expenditures were $1,709,000 for Europe & Middle East; $1,240,000 for Far East; $6,651,000 for South America; $10,531,000 for Canada and $13,503,000 for United States.
VERITAS DGC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) For the years ended July 31, 1995, 1996 and 1997
- --------------- *Includes export sales of $4,774.
There was no single client that accounted for 10% or more of total revenues during the year ended July 31, 1996. During 1996, operating profit (loss) included write-off/write-down for impairment of assets of $2,091,000 for Europe & Middle East; $1,127,000 for Far East and $410,000 for United States. Depreciation and amortization expense was $5,182,000 for Europe & Middle East; $1,707,000 for Far East; $4,655,000 for South America; $7,689,000 for Canada and $7,688,000 for United States. Capital expenditures were $4,088,000 for Europe & Middle East; $6,795,000 for Far East; $4,734,000 for South America; $3,657,000 for Canada and $13,586,000 for United States.
VERITAS DGC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) For the years ended July 31, 1995,1996 and 1997
- ---------------- *Includes export sales of $4,115.
There was no single client that accounted for 10% or more of total revenues during the year ended July 31, 1997. Depreciation and amortization expense was $3,757,000 for Europe & Middle East; $2,996,000 for Far East; $4,550,000 for South America; $8,961,000 for Canada and $20,367,000 for United States. Capital expenditures were $15,919,000 for Europe & Middle East; $6,845,000 for Far East; $4,883,000 for South America; $6,560,000 for Canada and $61,843,000 for United States.
VERITAS DGC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) For the years ended July 31, 1995, 1996 and 1997
18. Related Party Transactions
In fiscal 1995, the Company paid certain shareholders $376,000 in interest and fees related to short-term related party loans. The loans were repaid in full in June 1995.
In fiscal 1995, the Company performed certain data acquisition, processing, marketing and training services for various co-venturers and recorded sales in the amount of $ 1,633,000.
The Company is party to transactions with P.T. Digicon Mega Pratama ("P.T. Digicon"), an 80% owned joint venture (see Note 3), in the normal course of business. During the years ended July 31, 1995, 1996 and 1997, the Company charged P.T. Digicon $607,000, $1,207,000 and $1,429,000, respectively, relating to allocations of corporate administrative expenses and actual expenses incurred by P.T. Digicon for salary cost, insurance and equipment charges. Advances from the Company to P.T. Digicon of $14,532,000 and $14,784,000 at July 31, 1996 and 1997, respectively, have no formal repayment terms and do not bear interest.
19. Selected Unaudited Quarterly Financial Data
* Reported quarterly earnings (loss) per share is based on each quarter's weighted shares outstanding. The quarters may not total to the reported annual earnings per share due in part to fluctuations in common shares outstanding.
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Previously reported on Form 8-K, as amended by Form 8-K/A, filed on November 27, 1996 and December 4, 1996, respectively.
PART III
Item 10.
Item 10. Directors and Executive Officers of the Registrant
Information required by this item is incorporated by reference to the material appearing under the heading "Election of Directors" in the Proxy Statement for the 1997 Annual Meeting of Stockholders.
Item 11.
Item 11. Executive Compensation
Information required by this item is incorporated by reference to the material appearing under the heading "Other Information - Executive Compensation" in the Proxy Statement for the 1997 Annual Meeting of Stockholders.
Item l2. Security Ownership Of Certain Beneficial Owners and Management
Information required by this item is incorporated by reference to the material appearing under the heading "Election of Directors" and "Other Information - Certain Stockholders" in the Proxy Statement for the 1997 Annual Meeting of Stockholders.
Item 13.
Item 13. Certain Relationships and Related Transactions
Information required by this item is incorporated by reference to the material appearing under the heading "Other Information - Certain Transactions" in the Proxy Statement for the 1997 Annual Meeting of Stockholders.
PART IV
Item 14.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED FINANCIAL SCHEDULES
All other financial statement schedules are omitted for the reason that they are not required or are not applicable, or the required information is shown in the financial statements or the notes thereto.
Individual financial statements of 50% or less-owned companies and joint ventures accounted for by the equity method have been omitted because such 50% or less-owned companies and joint ventures, considered in the aggregate as a single subsidiary, would not constitute a significant subsidiary.
FORM 8-K REPORTS DURING THE QUARTER ENDED JULY 31, 1997
Form 8-K was filed on May 27, 1997 with respect to the Rights Agreement dated May 15, 1997 between Veritas DGC Inc. and ChaseMellon Shareholder Services, L.L.C.
EXHIBIT INDEX Exhibit ------- 2) Combination Agreement dated as of May 10, 1996, between Digicon Inc. and Veritas Energy Services Inc. (Exhibit 2.1 of Digicon Inc.'s Current Report on Form 8-K dated May 10, 1996 is incorporated herein by reference.)
3-A) Restated Certificate of Incorporation with amendments of Digicon Inc. dated August 30, 1996. (Exhibit 3.1 to Veritas DGC Inc.'s Current Report on Form 8-K dated September 16, 1996 is incorporated herein by reference.)
3-B) Certificate of Ownership and Merger of New Digicon Inc. and Digicon Inc. (Exhibit 3-B to Digicon Inc.'s Registration Statement No. 33-43873 dated November 12, 1991 is incorporated herein by reference.)
3-C) By-laws of New Digicon Inc. dated June 24, 1991. (Exhibit 3-C to Digicon Inc.'s Registration Statement No. 33-43873 dated November 12, 1991 is incorporated herein by reference).
4-A) Specimen certificate for Senior Notes. (Included as part of Section 2.2 of Exhibit 4-B to Veritas DGC Inc.'s Registration Statement No. 333-12481 dated September 20, 1996 is incorporated herein by reference.)
4-B) Form of Trust Indenture relating to the 9 3/4% Senior Notes due 2003 of Veritas DGC Inc. between Veritas DGC Inc. and Fleet National Bank, as trustee. (Exhibit 4-B to Veritas DGC Inc.'s Registration Statement No. 333-12481 dated September 20, 1996 is incorporated herein by reference.)
4-C) Specimen Veritas DOC Inc. Common Stock certificate. (Exhibit 4-C to Veritas DGC Inc.'s Form 10-K for the year ended July 31, 1996 is incorporated herein by reference.)
4-D) Rights Agreement between Veritas DGC Inc. and ChaseMellon Shareholder Services, L.L.C. dated as of May 15, 1997. (Exhibit 4.1 of Veritas DGC Inc.'s Current Report on Form 8-K filed May 27, 1997 is incorporated herein by reference.)
9) Voting and Exchange Trust Agreement dated August 30, 1996, among Digicon Inc., Veritas Energy Services Inc. and the R-M Trust Company. (Exhibit 9.1 of Veritas DGC Inc.'s Current Report on Form 8-K, dated September 16, 1996 is incorporated herein by reference.)
10-A) Salary Continuation Agreement executed by Richard W. McNairy. (Exhibit 10-E of Digicon Inc.'s Form 10-K for the year ended July 31, 1994 is incorporated herein by reference.)
10-B) Employment Agreement executed by Stephen J. Ludlow. (Exhibit 10-B to Veritas DGC Inc.'s Form 10-Q for the quarter ended April 30, 1997 is incorporated herein by reference.)
10-C) Asset Purchase Agreement dated August 31, 1994, among Syntron, Inc. and Digicon Geophysical Corp., Euroseis, Inc., Digicon/GFS Inc. and Digicon Inc. (Exhibit 10-M of Digicon Inc.'s Form 10-K for the year ended July 31, 1994 is incorporated herein by reference.)
*10-D) Amended and Restated 1992 Non-Employee Director Stock Option Plan.
*10-E) Amended and Restated 1992 Employee Nonqualified Stock Option Plan.
10-F) Support Agreement dated August 30, 1996, between Digicon Inc. and Veritas Energy Services Inc. (Exhibit 10.1 of Veritas DGC Inc.'s Current Report on Form 8-K, dated August 30, 1996 is incorporated herein by reference.)
10-G) Credit Agreement dated July 18, 1996, among Digicon Inc. and Digicon Geophysical Corp., Digicon/GFS Inc., Digicon Geophysical Limited and Digicon Exploration, Ltd., as Borrowers, each of the banks named therein, and Wells Fargo Bank (Texas), National Association, as issuing bank, as a bank and as agent for the banks (the "Credit Agreement") (Exhibit 10-G of Veritas DGC Inc.'s Amendment No. 1 to Registration Statement No. 333-12481, dated October 2, 1996 is incorporated herein by reference.)
10-H) Letter dated September 27, 1996, from Wells Fargo Bank (Texas), National Association, agreeing to amend the Credit Agreement. (Exhibit 10-H of Veritas DGC Inc.'s Amendment No. 1 to Registration Statement No. 333-12481, dated October 2, 1996 is incorporated herein by reference.)
10-I) Employment Agreement executed by Anthony Tripodo. (Exhibit 10-I to Veritas DGC Inc.'s Form 10-Q for the quarter ended April 20, 1997 is incorporated herein by reference.)
10-J) Letter dated May 28, 1997, from Wells Fargo Bank (Texas), National Association, agreeing to amend the Credit Agreement. (Exhibit 10-J to Veritas DGC Inc.'s Form 10-Q for the quarter ended April 30, 1997 is incorporated herein by reference.)
*10-K) Severance Agreement between Veritas DGC Inc. and Richard W. McNairy.
*10-L) Employment Agreement executed by David B. Robson.
*10-M) Employment Agreement executed by Lawrence C. Fichtner.
*10-N) Employment Agreement executed by Rene M.J. VandenBrand.
*10-O) Restricted Stock Agreement dated April 1, 1997 between Veritas DGC Inc. and Tony Tripodo.
*11) Computation of income per common and common equivalent share.
16) Letter regarding change in certifying accountants (Exhibit 16.1 of Veritas DGC Inc.'s Current Report on Form 8-K, as amended by Form 8-K/A dated November 27, 1996 and December 4, 1996, respectively, is incorporated herein by reference.)
*21) Subsidiaries of the Registrant.
*23-A) Consent of Price Waterhouse LLP.
*23-B) Consent of Price Waterhouse, Chartered Accountants.
*23-C) Consent of Deloitte & Touche LLP.
*27) Financial Data Schedule.
* Filed herewith
SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned; thereunto duly authorized, on the 16th day of October, 1997.
VERITAS DGC INC.
By: /s/ DAVID B. ROBSON ------------------- David B. Robson (Chairman of the Board and Chief Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, the following persons on behalf of the Registrant in the indicated capacities have signed this report below on the 16th day of October 1997.
Signature Title --------- -----
Chairman of the Board and Chief /s/ DAVID B. ROBSON Executive Officer, Director - ------------------------------ David B. Robson
President and Chief Operating Officer, /s/ STEPHEN J. LUDLOW Director - ------------------------------ Stephen J. Ludlow
Executive Vice President - Corporate /s/ LAWRENCE C. FICHTNER Communications, Director - ------------------------------ Lawrence C. Fichtner
Executive Vice President, Chief Financial /s/ ANTHONY TRIPODO and Accounting Officer and Treasurer - ------------------------------ Anthony Tripodo
Director - ------------------------------ Clayton P. Cormier
Director - ------------------------------ Ralph M. Eeson
Director - ------------------------------ Steven J. Gilbert
Director - ------------------------------ Brian F. MacNeill
/s/ DOUGLAS B. THOMPSON Director - ------------------------------ Douglas B. Thompson
/s/ JACK C. THREET Director - ------------------------------ Jack C. Threet
INDEX TO EXHIBITS Exhibit ------- 2) Combination Agreement dated as of May 10, 1996, between Digicon Inc. and Veritas Energy Services Inc. (Exhibit 2.1 of Digicon Inc.'s Current Report on Form 8-K dated May 10, 1996 is incorporated herein by reference.)
3-A) Restated Certificate of Incorporation with amendments of Digicon Inc. dated August 30, 1996. (Exhibit 3.1 to Veritas DGC Inc.'s Current Report on Form 8-K dated September 16, 1996 is incorporated herein by reference.)
3-B) Certificate of Ownership and Merger of New Digicon Inc. and Digicon Inc. (Exhibit 3-B to Digicon Inc.'s Registration Statement No. 33-43873 dated November 12, 1991 is incorporated herein by reference.)
3-C) By-laws of New Digicon Inc. dated June 24, 1991, (Exhibit 3-C to Digicon Inc.'s Registration Statement No. 33-43873 dated November 12, 1991 is incorporated herein by reference).
4-A) Specimen certificate for Senior Notes. (Included as part of Section 2.2 of Exhibit 4-B to Veritas DGC Inc.'s Registration Statement No. 333-12481 dated September 20, 1996 is incorporated herein by reference.)
4-B) Form of Trust Indenture relating to the 9-3/4% Senior Notes due 2003 of Veritas DGC Inc. between Veritas DGC Inc. and Fleet National Bank, as trustee. (Exhibit 4-B to Veritas DGC Inc.'s Registration Statement No. 333-12481 dated September 20, 1996 is incorporated herein by reference.)
4-C) Specimen Veritas DOC Inc. Common Stock certificate. (Exhibit 4-C to Veritas DGC Inc.'s Form 10-K for the year ended July 31, 1996 is incorporated herein by reference.)
4-D) Rights Agreement between Veritas DOC Inc. and ChaseMellon Shareholder Services, L.L.C. dated as of May 15, 1997. (Exhibit 4.1 of Veritas DOC Inc.'s Current Report on Form 8-K filed May 27, 1997 is incorporated herein by reference.)
9) Voting and Exchange Trust Agreement dated August 30, 1996, among Digicon Inc., Veritas Energy Services Inc. and the R-M Trust Company. (Exhibit 9.1 of Veritas DGC Inc.'s Current Report on Form 8-K, dated September 16, 1996 is incorporated herein by reference.)
10-A) Salary Continuation Agreement executed by Richard W. McNairy. (Exhibit 10-E of Digicon Inc.'s Form 10-K for the year ended July 31, 1994 is incorporated herein by reference.)
10-B) Employment Agreement executed by Stephen J. Ludlow. (Exhibit 10-B to Veritas DGC Inc.'s Form 10-Q for the quarter ended April 30, 1997 is incorporated herein by reference.)
10-C) Asset Purchase Agreement dated August 31, 1994, among Syntron, Inc. and Digicon Geophysical Corp., Euroseis, Inc., Digicon/GFS Inc. and Digicon Inc. (Exhibit 10-M of Digicon Inc.'s Form 10-K for the year ended July 31, 1994 is incorporated herein by reference.)
*10-D) Amended and Restated 1992 Non-Employee Director Stock Option Plan.
*10-E) Amended and Restated 1992 Employee Nonqualified Stock Option Plan.
10-F) Support Agreement dated August 30, 1996, between Digicon Inc. and Veritas Energy Services Inc. (Exhibit 10.1 of Veritas DGC Inc.'s Current Report on Form 8-K, dated August 30, 1996 is incorporated herein by reference.)
10-G) Credit Agreement dated July 18, 1996, among Digicon Inc. and Digicon Geophysical Corp., Digicon/GFS Inc., Digicon Geophysical Limited and Digicon Exploration, Ltd., as Borrowers, each of the banks named therein, and Wells Fargo Bank (Texas), National Association, as issuing bank, as a bank and as agent for the banks (the "Credit Agreement") (Exhibit 10-G of Veritas DGC Inc.'s Amendment No. I to Registration Statement No. 333-12481, dated October 2, 1996 is incorporated herein by reference.)
10-H) Letter dated September 27, 1996, from Wells Fargo Bank (Texas), National Association, agreeing to amend the Credit Agreement. (Exhibit 10-H of Veritas DGC Inc.'s Amendment No. 1 to Registration Statement No. 333-12481, dated October 2, 1996 is incorporated herein by reference.)
10-I) Employment Agreement executed by Anthony Tripodo. (Exhibit 10-I to Veritas DGC Inc.'s Form 10-Q for the quarter ended April 20, 1997 is incorporated herein by reference.)
10-J) Letter dated May 28, 1997, from Wells Fargo Bank (Texas), National Association, agreeing to amend the Credit Agreement. (Exhibit 10-J to Veritas DGC Inc.'s Form 10-Q for the quarter ended April 30, 1997 is incorporated herein by reference.)
*10-K) Severance Agreement between Veritas DGC Inc. and Richard W. McNairy.
*10-L) Employment Agreement executed by David B. Robson.
*10-M) Employment Agreement executed by Lawrence C. Fichtner.
*10-N) Employment Agreement executed by Rene M.J. VandenBrand.
*10-O) Restricted Stock Agreement dated April 1, 1997 between Veritas DGC Inc. and Tony Tripodo.
*11) Computation of income per common and common equivalent share.
16) Letter regarding change in certifying account (Exhibit 16.1 of Veritas DGC Inc.'s Current Report on Form 8-K, as amended by Form 8-K/A dated November 27, 1996 and December 4, 1996, respectively, is incorporated herein by reference.)
*21) Subsidiaries of the Registrant.
*23-A) Consent of Price Waterhouse LLP.
*23-B) Consent of Price Waterhouse, Chartered Accountants.
*23-C) Consent of Deloitte & Touche LLP.
*27) Financial Data Schedule.
* Filed herewith