-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, V4U110zEJh0Y6DtTfn7RnWU6D40SSCNWXPCCb6HPKgc3U9VBNkzqtNO8opDVwlNU IParF71bzjCEFi4ik5WSFA== 0000950129-99-001001.txt : 19990318 0000950129-99-001001.hdr.sgml : 19990318 ACCESSION NUMBER: 0000950129-99-001001 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990131 FILED AS OF DATE: 19990317 FILER: COMPANY DATA: COMPANY CONFORMED NAME: VERITAS DGC INC CENTRAL INDEX KEY: 0000028866 STANDARD INDUSTRIAL CLASSIFICATION: OIL AND GAS FIELD EXPLORATION SERVICES [1382] IRS NUMBER: 760343152 STATE OF INCORPORATION: DE FISCAL YEAR END: 0731 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-07427 FILM NUMBER: 99566673 BUSINESS ADDRESS: STREET 1: 3701 KIRBY DR STREET 2: STE 112 CITY: HOUSTON STATE: TX ZIP: 77098 BUSINESS PHONE: 7135128300 MAIL ADDRESS: STREET 1: 3701 KIRBY DRIVE SUITE 112 CITY: HOUSTON STATE: TX ZIP: 77098 FORMER COMPANY: FORMER CONFORMED NAME: DIGICON INC DATE OF NAME CHANGE: 19920703 10-Q 1 VERITAS DGC INC. - DATED JANUARY 31/1999 1 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------- FORM 10-Q (Mark One) X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE - --- ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JANUARY 31, 1999 OR 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 1-7427 VERITAS DGC INC. (Exact name of registrant as specified in its charter) DELAWARE 76-0343152 (State or other jurisdiction of incorporation or (I.R.S. Employer Identification No.) organization) 3701 KIRBY DRIVE, SUITE #112 HOUSTON, TEXAS 77098 (Address of principal executive offices) (Zip Code)
(713) 512-8300 (Registrant's telephone number, including area code) NO CHANGES (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO --- --- APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. The number of shares of Veritas DGC Inc.'s common stock (the "Common Stock"), $.01 par value, outstanding at February 28, 1999 was 22,885,664 (including 1,505,595 Veritas Energy Services Inc. exchangeable shares which are identical to the Common Stock in all material respects). ================================================================================ 2 VERITAS DGC INC. AND SUBSIDIARIES FORM 10-Q INDEX ================================================================================
Page Number ----------- PART I. Financial Information Item 1. Financial Statements Consolidated Statements of Income - For the Three and Six Months Ended January 31, 1999 and 1998 1 Consolidated Balance Sheets - January 31, 1999 and July 31, 1998 2 Consolidated Statements of Cash Flows - For the Six Months Ended January 31, 1999 and 1998 3 Notes to Consolidated Financial Statements 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10 PART II. Other Information Item 4. Submission of Matters to a Vote of Security Holders 14 Item 6. Exhibits and Reports on Form 8-K 14 Signatures 17
3 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS VERITAS DGC INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME UNAUDITED (In thousands, except per share amounts)
Three Months Ended Six Months Ended January 31, January 31, --------------------------- --------------------------- 1999 1998 1999 1998 --------- --------- --------- --------- REVENUES $ 101,652 $ 123,569 $ 248,451 $ 265,755 COSTS AND EXPENSES: Cost of services 70,015 80,804 173,526 174,057 Depreciation and amortization 17,734 12,950 34,584 25,464 Selling, general and administrative 4,501 4,254 9,057 8,793 Other expense (income): Interest 3,551 2,018 5,603 4,052 Other (2,630) (730) (2,403) (1,038) --------- --------- --------- --------- Total costs and expenses 93,171 99,296 220,367 211,328 --------- --------- --------- --------- Income before provision for income taxes and equity in (earnings) loss of joint venture 8,481 24,273 28,084 54,427 Provision for income taxes 3,057 6,505 8,939 16,154 Equity in (earnings) loss of joint venture (12) 91 87 (723) --------- --------- --------- --------- NET INCOME $ 5,436 $ 17,677 $ 19,058 $ 38,996 ========= ========= ========= ========= PER SHARE: Earnings per common share $ .24 $ .79 $ .84 $ 1.74 ========= ========= ========= ========= Weighted average common shares 22,712 22,513 22,704 22,473 ========= ========= ========= ========= Earnings per common share - assuming dilution $ .24 $ .76 $ .83 $ 1.68 ========= ========= ========= ========= Weighted average common shares - assuming dilution 22,830 23,214 22,852 23,203 ========= ========= ========= =========
See Notes to Consolidated Financial Statements 1 4 VERITAS DGC INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except par value)
January 31, July 31, 1999 1998 ----------- --------- (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 75,056 $ 40,089 Restricted cash investments 280 186 Accounts and notes receivable (net of allowance for doubtful accounts: January $3,412; July $1,248) 165,448 151,820 Materials and supplies inventory 3,967 4,106 Prepayments and other 8,711 16,290 --------- --------- Total current assets 253,462 212,491 Property and equipment 354,656 326,024 Less accumulated depreciation 183,271 151,104 --------- --------- Property and equipment - net 171,385 174,920 Multi-client data library 94,812 51,143 Investment in and advances to joint venture 1,673 2,943 Goodwill (net of accumulated amortization: January $3,485; July $3,233) 2,403 2,655 Deferred tax asset 19,687 19,157 Other assets 16,459 15,181 --------- --------- Total $ 559,881 $ 478,490 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current maturities of long-term debt $ 280 $ 289 Accounts payable - trade 30,086 42,493 Accrued interest 3,780 2,234 Other accrued liabilities 75,768 50,753 Income taxes payable 131 10,682 --------- --------- Total current liabilities 110,045 106,451 Non-current liabilities: Long-term debt - less current maturities 135,135 75,272 Other non-current liabilities 5,020 5,071 --------- --------- Total non-current liabilities 140,155 80,343 Stockholders' equity: Preferred stock, $.01 par value; authorized: 1,000,000 shares; none issued Common stock, $.01 par value; authorized: 40,000,000 shares; issued: 21,380,069 shares at January and 21,278,653 shares at July (excluding Exchangeable Shares of 1,505,595 at January and 1,505,915 at July) 214 213 Additional paid-in capital 206,460 203,258 Accumulated earnings (from August 1, 1991 with respect to Digicon Inc.) 113,416 94,358 Accumulated other comprehensive loss - cumulative foreign currency translation adjustment (6,913) (3,660) Less: Unearned compensation (620) (746) Less: Treasury stock, at cost; 121,143 shares at January and 50,000 shares at July (2,876) (1,727) --------- --------- Total stockholders' equity 309,681 291,696 --------- --------- Total $ 559,881 $ 478,490 ========= =========
See Notes to Consolidated Financial Statements 2 5 VERITAS DGC INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS UNAUDITED (Dollars in thousands)
Six Months Ended January 31, ------------------------- 1999 1998 -------- -------- OPERATING ACTIVITIES: Net income $ 19,058 $ 38,996 Non-cash items included in net income: Depreciation and amortization 34,584 25,464 Net loss on disposition of property and equipment 319 433 Equity in loss (earnings) of joint venture 87 (723) Write-down of multi-client data library to market 670 254 Deferred taxes 2,357 2,664 Amortization of unearned compensation 168 62 Change in operating assets/liabilities: Accounts and notes receivable (12,010) (43,378) Materials and supplies inventory 139 (682) Prepayments and other 7,929 (1,764) Multi-client data library (42,469) (4,581) Other 112 (884) Accounts payable - trade (13,440) (2,937) Accrued interest 1,546 2 Other accrued liabilities 23,931 18,699 Income taxes payable (10,551) 8,046 Other non-current liabilities (51) (975) -------- -------- Total cash provided by operating activities 12,379 38,696 FINANCING ACTIVITIES: Payments of long-term debt (146) (220) Borrowings from senior notes 60,000 Senior notes issue costs (1,737) Net proceeds from sale of common stock 947 1,050 Purchase of treasury stock (2,869) -------- -------- Total cash provided by financing activities 56,195 830 INVESTING ACTIVITIES: Increase in restricted cash investments (94) (13) Decrease in investment in and advances to joint venture 1,183 521 Purchase of Time Seismic Exchange Ltd., net of cash received (704) Purchase of property and equipment (30,870) (38,494) Sale of property and equipment 131 53 -------- -------- Total cash used by investing activities (30,354) (37,933) Currency loss on foreign cash (3,253) (1,560) -------- -------- Change in cash and cash equivalents 34,967 33 Beginning cash and cash equivalents balance 40,089 71,177 -------- -------- Ending cash and cash equivalents balance $ 75,056 $ 71,210 ======== ========
See Notes to Consolidated Financial Statements 3 6 VERITAS DGC INC. AND SUBSIDIARIES SUPPLEMENTARY SCHEDULES TO CONSOLIDATED STATEMENTS OF CASH FLOWS UNAUDITED (Dollars in thousands)
Six Months Ended January 31, ------------------------ 1999 1998 -------- ------- SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: Increase in property and equipment for accounts payable - trade $ 373 $ 2,443 Utilization of net operating loss carryforwards existing prior to the quasi-reorganization resulting in an increase (decrease) in: Deferred tax asset valuation allowance (2,887) (4,762) Additional paid-in capital 2,887 4,762 Treasury stock issued for purchase of Time Seismic Exchange Ltd. 664 Treasury stock issued in lieu of cash for bonuses payable 383 Restricted stock issued for future services resulting in an increase in additional paid-in capital and unearned compensation 42 594 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid for: Interest - Senior notes 3,656 3,656 Equipment purchase obligations 22 37 Other 325 277 Income taxes 16,501 6,200
See Notes to Consolidated Financial Statements 4 7 VERITAS DGC INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED FOR THE THREE AND SIX MONTHS ENDED JANUARY 31, 1999 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONSOLIDATION Veritas DGC Inc. provides seismic data acquisition, data processing, multi-client data sales and exploration and development information services to the petroleum industry in selected markets worldwide. The accompanying consolidated financial statements include the accounts of Veritas DGC Inc., formerly Digicon Inc., and all majority-owned domestic and foreign subsidiaries. Investments in a joint venture are accounted for on the equity method. All material intercompany balances and transactions have been eliminated. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect 1) the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and 2) 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. NEW ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("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 Veritas DGC Inc. to disclose certain financial information in both annual and interim reporting about "operating segments." Operating segments are components of a company that are evaluated regularly by management in deciding how to allocate its resources and in assessing its performance. The statement also requires disclosure about the countries from which Veritas DGC Inc. derives its revenues and in which it employs its long-lived assets. Major customers will continue to be disclosed. Veritas DGC Inc. 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. In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits," which will supersede the disclosure requirements of SFAS No. 87, "Employers' Accounting for Pensions," SFAS No. 88, "Employers' Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits," and SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions." This statement addresses disclosures only and will require Veritas DGC Inc. to provide a reconciliation of the beginning and ending balances of the benefit obligation and the fair value of plan assets in addition to disclosures already presented. Veritas DGC Inc. will be required to implement this statement in fiscal year 1999. In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." This standard requires companies to record derivative financial instruments on the balance sheet as assets or liabilities, as appropriate, at fair value. Gains or losses resulting from changes in the fair values of those derivatives are accounted for depending on the use of the derivative and whether it qualifies for hedge accounting. Veritas DGC Inc. will be required to implement this statement in fiscal year 2000. Veritas DGC Inc. believes that the implementation of this standard will not have a material adverse effect on Veritas DGC Inc.'s consolidated financial position, results of operations or liquidity. 5 8 VERITAS DGC INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) UNAUDITED FOR THE THREE AND SIX MONTHS ENDED JANUARY 31, 1999 2. INVESTMENT IN INDONESIAN JOINT VENTURE Veritas DGC Inc. owns 80% of an Indonesian joint venture (P.T. Digicon Mega Pratama). The joint venture is accounted for under the equity method due to provisions in the joint venture agreement that give minority shareholders the right to exercise control. Summarized financial information is as follows:
January 31, July 31, 1999 1998 ----------- -------- (Dollars in thousands) Current assets $ 1,491 $ 2,740 Property and equipment, net 460 613 -------- -------- Total assets $ 1,951 $ 3,353 ======== ======== Current liabilities $ 278 $ 410 Advances from affiliates 12,664 13,847 Stockholders' deficit: Common stock 2,576 2,576 Accumulated deficit (13,567) (13,480) -------- -------- Total stockholders' deficit (10,991) (10,904) -------- -------- Total liabilities and stockholders' deficit $ 1,951 $ 3,353 ======== ========
Three Months Ended Six Months Ended January 31, January 31, ------------------ -------------------- 1999 1998 1999 1998 ---- ---- ---- ---- (Dollars in thousands) Revenues $386 $ 355 $ 784 $ 1,804 Cost and expenses: Cost of services 289 576 614 1,243 Depreciation and amortization 84 80 170 158 Other (income) expense 1 (210) 87 (320) ---- ----- ----- ------- Total 374 446 871 1,081 ---- ----- ----- ------- Net income (loss) $ 12 $ (91) $ (87) $ 723 ==== ===== ===== =======
3. LONG-TERM DEBT Veritas DGC Inc.'s long-term debt is as follows:
January 31, July 31, 1999 1998 ----------- -------- (Dollars in thousands) Senior notes due October 2003, at 9 3/4% $135,000 $75,000 Equipment purchase obligations maturing through September 2000, at a weighted average rate of 9.29% at January 31, 1999 415 561 -------- ------- Total 135,415 75,561 Less current maturities 280 289 -------- ------- Due after one year $135,135 $75,272 ======== =======
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 Veritas DGC Inc. 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 Veritas DGC Inc.'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 Veritas DGC Inc., as defined in the indenture, the holders of the senior notes have the right to require Veritas DGC Inc. to purchase all or a portion of such holder's senior note at a price equal to 101% of the aggregate principal amount. Veritas DGC Inc. has the right to redeem the senior notes, in whole or part, on or after October 15, 2000. Under certain conditions, Veritas DGC Inc. 6 9 VERITAS DGC INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) UNAUDITED FOR THE THREE AND SIX MONTHS ENDED JANUARY 31, 1999 may redeem up to $35.0 million in aggregate principal amount of the senior notes prior to October 15, 1999. Veritas DGC Inc. maintains a revolving credit agreement due July 2001 with commercial lenders that provides advances up to $50.0 million. Advances are limited by a borrowing base and bear interest, at Veritas DGC Inc.'s election, at LIBOR or prime rate (7 3/4% at January 31, 1999) plus a margin based on certain ratios maintained by Veritas DGC Inc. Advances are secured by certain accounts receivable for a limited amount. Covenants in the agreement limit, among other things, Veritas DGC Inc.'s right to take certain actions, including creating indebtedness. In addition, the agreement requires Veritas DGC Inc. to maintain certain financial ratios. No advances were outstanding at January 31, 1999 and July 31, 1998 under the credit agreement. Veritas DGC Inc.'s equipment purchase obligations represent installment loans and capitalized lease obligations primarily related to computer and seismic equipment. 4. OTHER ACCRUED LIABILITIES Other accrued liabilities include the following:
January 31, July 31, 1999 1998 ----------- -------- (Dollars in thousands) Accrued payroll and benefits $13,323 $12,216 Deferred revenues $32,608 $19,196
5. EMPLOYEE BENEFITS In March 1999, Veritas DGC Inc. amended and restated its employee nonqualified stock option plan to increase the number of authorized common shares that may be issued under the plan to 3,954,550 shares. In December 1998, Veritas DGC Inc. amended and restated its non-employee director stock option plan. Options to purchase 5,000 shares will be granted every year and will vest 25% on the grant date and 25% on each anniversary over the following three years. All other major provisions remain the same. 6. OTHER COSTS AND EXPENSES Other costs and expenses consist of the following:
Three Months Ended Six Months Ended January 31, January 31, ----------------------- ----------------------- 1999 1998 1999 1998 ------- ------- ------- ------- (Dollars in thousands) Interest income $(1,177) $(1,066) $(1,454) $(2,140) Net loss on disposition of property and equipment 21 239 319 433 Net foreign currency exchange (gains) losses (1,301) 259 (1,129) 854 Other (173) (162) (139) (185) ------- ------- ------- ------- Total $(2,630) $ (730) $(2,403) $(1,038) ======= ======= ======= =======
7 10 VERITAS DGC INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) UNAUDITED FOR THE THREE AND SIX MONTHS ENDED JANUARY 31, 1999 7. EARNINGS PER COMMON SHARE Earnings per common share and earnings per common share - assuming dilution are computed as follows:
Three Months Ended Six Months Ended January 31, January 31, ---------------------- ---------------------- 1999 1998 1999 1998 ------- ------- ------- ------- (In thousands, except per share amounts) Net income $ 5,436 $17,677 $19,058 $38,996 ======= ======= ======= ======= Weighted average common shares 22,712 22,513 22,704 22,473 ======= ======= ======= ======= Earnings per common share $ .24 $ .79 $ .84 $ 1.74 ======= ======= ======= ======= Weighted average common shares - assuming dilution: Weighted average common shares 22,712 22,513 22,704 22,473 Shares issuable from assumed conversion of: Options 118 701 148 711 Warrants 19 ------- ------- ------- ------- Total 22,830 23,214 22,852 23,203 ======= ======= ======= ======= Earnings per common share - assuming dilution $ .24 $ .76 $ .83 $ 1.68 ======= ======= ======= =======
Exchangeable stock, which was issued in a business combination and may be exchanged for Veritas DGC Inc. common stock, is included in both computations. The following options to purchase common shares have been excluded from the computation assuming dilution because the options' exercise prices exceeded the average market price of the underlying common shares.
Three Months Ended Six Months Ended January 31, January 31, ---------------------------------------- ---------------------------------------- 1999 1998 1999 1998 ------------------ ------------------ ------------------- ------------------ Number of options 810,501 49,461 801,635 49,461 Exercise price range $17 7/8 - $56 1/2 $38 1/8 - $45 5/16 $15 5/8 - $56 1/2 $38 1/8 - $45 5/16 Expiring through November 2008 March 2007 November 2008 March 2007
8 11 VERITAS DGC INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) UNAUDITED FOR THE THREE AND SIX MONTHS ENDED JANUARY 31, 1999 8. COMPREHENSIVE INCOME Effective August 1, 1998, Veritas DGC Inc. implemented SFAS No. 130, "Reporting Comprehensive Income." This statement requires disclosure of comprehensive income (changes in equity from non-owner sources), net of the related tax effect. Veritas DGC Inc. will report comprehensive income and classifications included in the accumulated balance on the consolidated statement of changes in stockholders' equity. Veritas DGC Inc.'s sources of comprehensive income include net income and foreign currency translation adjustments. The following sets forth Veritas DGC Inc.'s comprehensive income for the periods presented:
Three Months Ended Six Months Ended January 31, January 31, ------------------------ ------------------------- 1999 1998 1999 1998 ------- -------- -------- -------- (Dollars in thousands) Net income $ 5,436 $ 17,677 $ 19,058 $ 38,996 Foreign currency translation adjustments (2,898) (1,400) (3,253) (1,689) ------- -------- -------- -------- Comprehensive income $ 2,538 $ 16,277 $ 15,805 $ 37,307 ======= ======== ======== ========
9 12 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This report contains forward-looking statements that involve risks and uncertainties. Veritas DGC Inc.'s actual results could differ materially from those anticipated in the forward-looking statements as a result of certain factors which are more fully described in other reports filed with the Securities and Exchange Commission and which include changes in market conditions in the oil and gas industry as well as declines in prices of oil and gas. RESULTS OF OPERATIONS THREE MONTHS ENDED JANUARY 31, 1999 COMPARED WITH THREE MONTHS ENDED JANUARY 31, 1998 Revenues. Revenues decreased 18% from $123.6 million to $101.7 million during the current quarter. Decreases occurred in all service groups as a result of lower exploration and development spending attributable to lower oil and gas prices. Land and transition zone acquisition revenues decreased 11% from $51.4 million to $46.0 million as a result of decreased demand and prices. The Company was operating 11 crews at the end of the current quarter compared to 21 crews in the prior year. Marine acquisition revenues decreased 19% from $25.2 million to $20.4 million. During the current quarter, two vessels were mobilized to different geographic regions. There was also less prefunding on multi-client surveys. Data processing revenues decreased 8% from $22.8 million to $21.0 million. As a result of the decline in acquisition services, pricing is more competitive. The industry is still showing strong demand for complex and computer intensive processing products such as pre-stack time and depth migration. Multi-client data library sales decreased 41%, from $24.2 million to $14.3 million also due to lower demand. Operating Expenses. Costs of services decreased 13% from $80.8 million to $70.0 million relative to the decline in revenues. However, cost of services as a percent of revenues increased from 65% to 69%. The reduction in operating margins is attributable to a more competitive environment in the onshore markets as a result of lower commodity prices. Cost of services as a percent of revenues actually declined for all other service groups due to improvements in productivity and efficiency. Depreciation and Amortization. Depreciation and amortization expense increased 37% from $13.0 million to $17.7 million due to the large increase in capital expenditures over the past two years. Interest Expense. Interest expense increased from $2.0 million to $3.6 million due to the addition of the $60.0 million senior notes discussed below at the end of the first quarter in the current year. Other Income. The increase in other income from $730,000 to $2.6 million primarily relates to net foreign currency exchange gains resulting from the Canadian dollar strengthening against the U.S. dollar. Income Taxes. Provision for income taxes decreased from $6.5 million to $3.1 million as a result of Veritas DGC Inc.'s lower taxable income in the current quarter. The increase in the effective tax rate from 27% to 36% is primarily attributable to a benefit recorded to recognize the expected future utilization of net operating loss carryforwards during the prior year's second quarter. Equity in (earnings) loss. Equity in (earnings) loss is related to the Indonesian joint venture. Improved data processing margins account for the increased profitability in the current quarter. SIX MONTHS ENDED JANUARY 31, 1999 COMPARED WITH SIX MONTHS ENDED JANUARY 31, 1998 Revenues. Revenues decreased 7% from $265.8 million to $248.5 million during the current six months. The decrease was attributable to fewer data library sales. Revenues increased for all other service groups compared to the corresponding period last year. Land and transition zone acquisition revenues increased 10% from $110.7 million to $121.3 million as a result of increased utilization of an expanded base of crews and channels during the first quarter of the 10 13 current year. Operations also improved in the Middle East market during the second quarter; however, revenues decreased in other areas as a result of decreased demand and prices. Marine acquisition revenues increased 4% from $43.5 million to $45.4 million despite disruptions caused by weather and the mobilization of vessels. The increase was primarily due to capacity added by the Veritas Viking, Veritas DGC Inc.'s new 3-D vessel that commenced operations in July 1998. Data processing revenues were consistent, $45.1 million in the prior year compared to $45.4 million in the current year. Veritas DGC Inc. substantially upgraded its processing centers, including the addition of a third NEC supercomputer in Singapore this year, to meet the demand for complex and computer intensive processing products such as pre-stack time and depth migration. Multi-client data library sales decreased 45%, from $66.5 million to $36.4 million, primarily due to the higher level of data sales in the first quarter of fiscal year 1998 related to a new data sales program in the Gulf of Mexico and decreased demand in the second quarter of the current year. Operating Expenses. Costs of services were consistent, $174.1 million in the prior year compared to $173.5 million in the current year, but increased as a percent of revenues from 65% to 70%. The reduction in operating margins is mainly attributable to a more competitive environment in the onshore markets, as a result of lower commodity prices. Marine acquisition, data processing, and data library sales operating margins actually increased due to improvements in productivity and efficiency and the mix of multi-client surveys purchased. Depreciation and Amortization. Depreciation and amortization expense increased 36% from $25.5 million to $34.6 million due to the large increase in capital expenditures over the past two years. Interest Expense. Interest expense increased from $4.1 million to $5.6 million due to the addition of the $60.0 million senior notes discussed below at the end of the first quarter in the current year. Other Income. The increase in other income from $1.0 million to $2.4 million primarily relates to net foreign currency exchange gains resulting from the Canadian dollar strengthening against the U.S. dollar. In the prior year, Veritas DGC Inc. recognized losses as the U.S. dollar strengthened against the Australian dollar. The increase is partially offset by a reduction in interest income earned as a result of lower average cash balances in the first quarter of fiscal 1999. Income Taxes. Provision for income taxes decreased from $16.2 million to $8.9 million as a result of Veritas DGC Inc.'s lower taxable income for the current year. The increase in the effective tax rate from 30% to 32% is primarily attributable to a benefit recorded to recognize the expected future utilization of net operating loss carryforwards during the prior year's second quarter. Equity in (earnings) loss. Equity in (earnings) loss is related to the Indonesian joint venture. A decrease in marine acquisition surveys accounts for the decreased profitability in the current year. LIQUIDITY AND CAPITAL RESOURCES SOURCES AND USES Veritas DGC Inc.'s internal sources of liquidity are cash, cash equivalents and cash flow from operations. External sources include public and private financing, the unutilized portion of a revolving credit facility, equipment financing and trade credit. In October 1996, Veritas DGC Inc. completed a $75.0 million public offering of senior notes ("Series A Notes"), and in October 1998, Veritas DGC Inc. completed a $60.0 million private placement of senior notes ("Series B Notes"), both due in October 2003. The Series B Notes were exchanged for notes with terms identical in all material respects to those of the Series A Notes in March 1999 ("Series C Notes"). This exchange was registered under the Securities Act of 1933, as amended. The net proceeds from the Series B Notes will be used for general corporate purposes, including capital expenditures and additions to Veritas DGC Inc.'s data library as discussed below. The indentures relating to the senior notes contain certain covenants, including covenants that limit Veritas DGC Inc.'s ability to, among other things, incur additional debt, pay dividends, and complete mergers, acquisitions and sales of assets. Veritas DGC Inc. is in compliance with all covenants of the indentures as of January 31, 1999. Upon a change in control of 11 14 Veritas DGC Inc., as defined in the indentures, holders of the senior notes have the right to require Veritas DGC Inc. 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. In July 1998, Veritas DGC Inc. obtained a new revolving credit facility due July 2001 from commercial lenders that provides advances up to $50.0 million. Advances are limited by a borrowing base and bear interest, at Veritas DGC Inc.'s election, at LIBOR or prime rate plus a margin based on certain ratios maintained by Veritas DGC Inc. Advances are secured by certain accounts receivable for a limited amount. The borrowing base is well in excess of the maximum commitment as of January 31, 1999. Covenants in the agreement limit, among other things, Veritas DGC Inc.'s right to take certain actions, including creating indebtedness. In addition, the agreement requires Veritas DGC Inc. to maintain certain financial ratios. Veritas DGC Inc. is in compliance with all covenants of the agreement, and there were no outstanding advances as of January 31, 1999. Veritas DGC Inc. requires significant amounts of working capital to support its operations and to fund capital spending and research and development programs. Veritas DGC Inc.'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. In addition, receivables and payables denominated in foreign currencies are subject to fluctuations in foreign money markets. Approximately 47% of revenues for the six months ended January 31, 1999 were attributable to Veritas DGC Inc.'s foreign operations. Veritas DGC Inc. has also increased its participation in multi-client data surveys and has significantly expanded its multi-client data library. 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, Veritas DGC Inc.'s liquidity will be affected; however, Veritas DGC Inc. believes that these non-exclusive surveys have good long-term sales, earnings and cash flow potential. Veritas DGC Inc.'s revised capital budget for fiscal 1999 is $78.8 million which includes expenditures of $30.0 million to maintain or replace Veritas DGC Inc.'s current operating equipment and $48.8 million to expand capacity. Research and development costs are estimated at $8.1 million in fiscal 1999. Veritas DGC Inc. 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. However, Veritas DGC Inc.'s ability to meet its obligations depends on its future performance, which, in turn, is subject to general economic conditions, business and other factors beyond Veritas DGC Inc.'s control. Since the end of the first quarter, many oil and gas companies have announced annual budgets that are substantially lower than previously anticipated. Key factors affecting future results will include utilization levels for both land and marine crews and the level of data library sales. The ability to forecast future earnings is more difficult as a result of a substantial reduction in backlog ($149.0 million at January 31, 1999 compared to $227.0 million at January 31, 1998). The continued deterioration in activity levels and current industry outlook will result in a very difficult environment for the balance of 1999. Management has undertaken certain initiatives in response to the current industry downturn to preserve the financial strength and flexibility of the Company. Since September 1998, headcount has been decreased from approximately 4,500 to 2,500 employees. The Company has begun decommissioning the multi-boat operation in the Gulf of Mexico. All three vessels are on short-term charters and will be returned to the vessel owners. In order to reduce capital expenditures, the seismic equipment outfitting these vessels will be installed on the second Viking class 3D vessel, which is scheduled for delivery in May 1999. Management continues to monitor discretionary capital expenditures. Veritas DGC Inc. anticipates that cash and cash equivalents, cash flow from operations, the unutilized portion of the revolving credit facility and borrowings permitted under the indentures and revolving credit facility will provide sufficient liquidity to fund these requirements through fiscal 1999. If Veritas DGC Inc. is unable to generate sufficient cash flow from operations or otherwise to comply with the terms of the revolving credit facility or the indentures, it may be required to refinance all or a portion of its existing debt or obtain additional financing. Veritas DGC Inc. cannot assure that it would be able to obtain such 12 15 refinancing or financing, or that any refinancing or financing would result in a level of net proceeds required. OTHER Veritas DGC Inc. has prepared a formal plan to address Year 2000 issues as they relate to Veritas DGC Inc.'s business and its operations. In accordance with that plan, Veritas DGC Inc. has evaluated all internal hardware and software used in its operations, including those used to support Veritas DGC Inc.'s activities, such as seismic data acquisition and processing equipment and accounting and payroll systems. In the ordinary course of business, Veritas DGC Inc. has replaced a significant amount of its hardware and software with Year 2000 compliant systems. A replacement schedule has been prepared for its remaining non-compliant systems and an ongoing monitoring program and contingency procedures in the event of unanticipated non-compliance problems have been established. Veritas DGC Inc. has also identified all external relationships, mainly suppliers and customers, and mailed each entity an internally prepared questionnaire regarding Year 2000 issues. Responses returned indicate a state of readiness and non-responses do not pertain to critical systems. As of January 31, 1999, Veritas DGC Inc. estimates that it will complete its plan, including remedial actions, by June 30, 1999. Approximately $100,000 of costs has been incurred. Veritas DGC Inc. is not aware of any additional material contingencies or costs that will be incurred. Since Veritas DGC Inc.'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 is subject to certain limitations. During the six months ended January 31, 1999, Veritas DGC Inc. recognized $2.9 million related to these benefits, due to increased profitability of Veritas DGC Inc.'s U.K. operations. Veritas DGC Inc. maintains operations in Europe, which are predominately conducted from its U.K. offices. Although the U.K. has not currently elected to convert to the new "euro" currency, Veritas DGC Inc. does have transactions with companies in countries that have adopted the new currency. Veritas DGC Inc. has made a preliminary assessment and does not anticipate any material effect to the consolidated financial statements as a result of the new currency. See Note 1 of Notes to Consolidated Financial Statements regarding new accounting pronouncements not yet adopted. 13 16 PART II. OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS On December 9, 1998 at the Annual Meeting of Stockholders of Veritas DGC Inc., stockholders voted to elect each of the ten directors nominated as follows:
- ------------------------------------------------------------------------------------------------------------ For Against - ------------------------------------------------------------------------------------------------------------ Clayton P. Cormier 17,761,286 36,212 - ------------------------------------------------------------------------------------------------------------ Ralph M. Eeson 17,768,906 28,592 - ------------------------------------------------------------------------------------------------------------ Lawrence C. Fichtner 17,770,131 27,367 - ------------------------------------------------------------------------------------------------------------ James R. Gibbs 17,770,906 26,592 - ------------------------------------------------------------------------------------------------------------ Steven J. Gilbert 12,507,171 5,290,327 - ------------------------------------------------------------------------------------------------------------ Stephen J. Ludlow 17,770,706 26,792 - ------------------------------------------------------------------------------------------------------------ Brian F. MacNeill 17,770,906 22.952 - ------------------------------------------------------------------------------------------------------------ Jan Rask 17,769,800 27,698 - ------------------------------------------------------------------------------------------------------------ David B. Robson 17,769,800 22,952 - ------------------------------------------------------------------------------------------------------------ Jack C. Threet 17,760,886 36,612 - ------------------------------------------------------------------------------------------------------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a) EXHIBITS FILED WITH THIS REPORT: Exhibit 2) Combination Agreement between Digicon Inc. and Veritas Energy Services Inc. dated as of May 10, 1996. (Refer to Exhibit 2.1 to Digicon Inc.'s Current Report on Form 8-K dated May 10, 1996.) 3-A) Restated Certificate of Incorporation with amendments of Digicon Inc. dated August 30, 1996. (Refer to Exhibit 3.1 to Veritas DGC Inc.'s Current Report on Form 8-K dated September 16, 1996.) 3-B) Certificate of Ownership and Merger of New Digicon Inc. and Digicon Inc. (Refer to Exhibit 3-B to Digicon Inc.'s Registration Statement No. 33-43873 dated November 12, 1991.) 3-C) By-laws of New Digicon Inc. dated June 24, 1991. (Refer to Exhibit 3-C to Digicon Inc.'s Registration Statement No. 33-43873 dated November 12, 1991.) 4-A) Specimen certificate for Senior Notes. (Refer to Section 2.2 of Exhibit 4-B to Veritas DGC Inc.'s Registration Statement No. 333-12481 dated September 20, 1996.) 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. (Refer to Exhibit 4-B to Veritas DGC Inc.'s Registration Statement No. 333-12481 dated September 20, 1996.) 4-C) Specimen Veritas DGC Inc. Common Stock certificate. (Refer to Exhibit 4-C to Veritas DGC Inc.'s Form 10-K for the year ended July 31, 1996.) 4-D) Rights Agreement between Veritas DGC Inc. and ChaseMellon Shareholder Services, L.L.C. dated May 15, 1997. (Refer to Exhibit 4.1 to Veritas DGC Inc.'s Current Report on Form 8-K dated May 27, 1997.) 4-E) Form of Restricted Stock Grant Agreement. (Refer to Exhibit 4.8 to Veritas DGC Inc.'s Registration Statement No. 333-48953 dated March 31, 1998.) 4-F) Restricted Stock Plan. (Refer to Exhibit 4.1 to Veritas DGC Inc.'s Registration Statement No. 333-57603 dated June 24, 1998.) 14 17 4-G) Key Contributor Incentive Plan as Amended and Restated dated March 9, 1999. (Refer to Exhibit 4.9 to Veritas DGC Inc.'s Registration Statement No. 333-74305 dated March 12, 1999.) 4-H) Purchase Agreement relating to the 9 3/4% Senior Notes due 2003, Series B of Veritas DGC Inc. between Veritas DGC Inc. and Warburg Dillon Read L.L.C. dated October 23, 1998. (Refer to Exhibit 4.1 to Veritas DGC Inc.'s Current Report on Form 8-K dated November 12, 1998.) 4-I) Registration Rights Agreement relating to the 9 3/4% Senior Notes due 2003, Series B of Veritas DGC Inc. between Veritas DGC Inc. and Warburg Dillon Read L.L.C. dated October 28, 1998. (Refer to Exhibit 4.2 to Veritas DGC Inc.'s Current Report on Form 8-K dated November 12, 1998.) 4-J) Indenture relating to the 9 3/4% Senior Notes due 2003, Series B and Series C of Veritas DGC Inc. between Veritas DGC Inc. and State Street Bank and Trust Company dated October 28, 1998. (Refer to Exhibit 4.3 to Veritas DGC Inc.'s Current Report on Form 8-K dated November 12, 1998.) *4-K) Specimen of certificate for Senior Notes Series C. 9) Voting and Exchange Trust Agreement among Digicon Inc., Veritas Energy Services Inc. and the R-M Trust Company dated August 30, 1996. (Refer to Exhibit 9.1 to Veritas DGC Inc.'s Current Report on Form 8-K dated September 16, 1996.) 10-A) Support Agreement between Digicon Inc. and Veritas Energy Services Inc. dated August 30, 1996. (Refer to Exhibit 10.1 to Veritas DGC Inc.'s Current Report on Form 8-K dated August 30, 1996.) 10-B) Second Amended and Restated 1992 Non-Employee Director Stock Option Plan as Amended and Restated dated December 9, 1998. (Refer to Exhibit 10-B to Veritas DGC Inc.'s Form 10-Q for the quarter ended October 31, 1998.) 10-C) Fourth Amended and Restated 1992 Employee Nonqualified Stock Option Plan as amended and restated dated March 9, 1999. (Refer to Exhibit 4.6 to Veritas DGC Inc.'s Registration Statement No. 333-74305 dated March 12, 1999.) 10-D) 1997 Employee Stock Purchase Plan. (Refer to Exhibit 4.1 to Veritas DGC Inc.'s Registration Statement No. 333-38377 dated October 21, 1997.) 10-E) Restricted Stock Agreement between Veritas DGC Inc. and Anthony Tripodo dated April 1, 1997. (Refer to Exhibit 10-O to Veritas DGC Inc.'s Form 10-K for the year ended July 31, 1997.) 10-F) Employment Agreement executed by David B. Robson. (Refer to Exhibit 10-L to Veritas DGC Inc.'s Form 10-K for the year ended July 31, 1997.) 10-G) Employment Agreement executed by Stephen J. Ludlow. (Refer to Exhibit 10-B to Veritas DGC Inc.'s Form 10-Q for the quarter ended April 30, 1997.) 10-H) Employment Agreement executed by Lawrence C. Fichtner. (Refer to Exhibit 10-M to Veritas DGC Inc.'s Form 10-K for the year ended July 31, 1997.) 10-I) Employment Agreement executed by Anthony Tripodo. (Refer to Exhibit 10-I to Veritas DGC Inc.'s Form 10-Q for the quarter ended April 30, 1997.) 10-J) Employment Agreement executed by Rene M.J. VandenBrand. (Refer to Exhibit 10-N to Veritas DGC Inc.'s Form 10-K for the year ended July 31, 1997.) 10-K) Credit Agreement among Veritas DGC Inc., as borrower, and Bank One, Texas, N.A., as issuing bank, as a bank and as agent for the banks, and the banks named therein dated July 27, 1998. (Refer to Exhibit 10-K to Veritas DGC Inc.'s Form 10-K for the year ended July 31, 1998.) 10-L) First Amendment to Credit Agreement among Veritas DGC Inc., as borrower, and Bank One, Texas, N.A., as issuing bank, as a bank and as agent for the banks, and the banks named therein dated October 23, 1998. (Refer to Exhibit 10-L to Veritas DGC Inc.'s Form 10-Q for the quarter ended October 31, 1998.) 15 18 10-M) Second Amendment to Credit Agreement among Veritas DGC Inc., as borrower, and Bank One, Texas, N.A., as issuing bank, as a bank and as agent for the banks, and the banks named therein dated November 20, 1998. (Refer to Exhibit 10-M to Veritas DGC Inc.'s Form 10-Q for the quarter ended October 31, 1998.) *27) Financial Data Schedule * Filed herewith b) REPORTS ON FORM 8-K Veritas DGC Inc. filed a Form 8-K on November 12, 1998 with respect to its $60.0 million of 93/4% Senior Notes due 2003, Series B to give notice of unregistered offerings under Rule 135C. 16 19 SIGNATURES 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 the 15th day of March, 1999. VERITAS DGC INC. By: ------------------------------------ DAVID B. ROBSON Chairman of the Board and Chief Executive Officer ------------------------------------ ANTHONY TRIPODO Executive Vice President, Chief Financial and Accounting Officer and Treasurer 17 20 INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION ------- ----------- 2) Combination Agreement between Digicon Inc. and Veritas Energy Services Inc. dated as of May 10, 1996. (Refer to Exhibit 2.1 to Digicon Inc.'s Current Report on Form 8-K dated May 10, 1996.) 3-A) Restated Certificate of Incorporation with amendments of Digicon Inc. dated August 30, 1996. (Refer to Exhibit 3.1 to Veritas DGC Inc.'s Current Report on Form 8-K dated September 16, 1996.) 3-B) Certificate of Ownership and Merger of New Digicon Inc. and Digicon Inc. (Refer to Exhibit 3-B to Digicon Inc.'s Registration Statement No. 33-43873 dated November 12, 1991.) 3-C) By-laws of New Digicon Inc. dated June 24, 1991. (Refer to Exhibit 3-C to Digicon Inc.'s Registration Statement No. 33-43873 dated November 12, 1991.) 4-A) Specimen certificate for Senior Notes. (Refer to Section 2.2 of Exhibit 4-B to Veritas DGC Inc.'s Registration Statement No. 333-12481 dated September 20, 1996.) 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. (Refer to Exhibit 4-B to Veritas DGC Inc.'s Registration Statement No. 333-12481 dated September 20, 1996.) 4-C) Specimen Veritas DGC Inc. Common Stock certificate. (Refer to Exhibit 4-C to Veritas DGC Inc.'s Form 10-K for the year ended July 31, 1996.) 4-D) Rights Agreement between Veritas DGC Inc. and ChaseMellon Shareholder Services, L.L.C. dated May 15, 1997. (Refer to Exhibit 4.1 to Veritas DGC Inc.'s Current Report on Form 8-K dated May 27, 1997.) 4-E) Form of Restricted Stock Grant Agreement. (Refer to Exhibit 4.8 to Veritas DGC Inc.'s Registration Statement No. 333-48953 dated March 31, 1998.) 4-F) Restricted Stock Plan. (Refer to Exhibit 4.1 to Veritas DGC Inc.'s Registration Statement No. 333-57603 dated June 24, 1998.)
21 4-G) Key Contributor Incentive Plan as Amended and Restated dated March 9, 1999. (Refer to Exhibit 4.9 to Veritas DGC Inc.'s Registration Statement No. 333-74305 dated March 12, 1999.) 4-H) Purchase Agreement relating to the 9 3/4% Senior Notes due 2003, Series B of Veritas DGC Inc. between Veritas DGC Inc. and Warburg Dillon Read L.L.C. dated October 23, 1998. (Refer to Exhibit 4.1 to Veritas DGC Inc.'s Current Report on Form 8-K dated November 12, 1998.) 4-I) Registration Rights Agreement relating to the 9 3/4% Senior Notes due 2003, Series B of Veritas DGC Inc. between Veritas DGC Inc. and Warburg Dillon Read L.L.C. dated October 28, 1998. (Refer to Exhibit 4.2 to Veritas DGC Inc.'s Current Report on Form 8-K dated November 12, 1998.) 4-J) Indenture relating to the 9 3/4% Senior Notes due 2003, Series B and Series C of Veritas DGC Inc. between Veritas DGC Inc. and State Street Bank and Trust Company dated October 28, 1998. (Refer to Exhibit 4.3 to Veritas DGC Inc.'s Current Report on Form 8-K dated November 12, 1998.) *4-K) Specimen of certificate for Senior Notes Series C. 9) Voting and Exchange Trust Agreement among Digicon Inc., Veritas Energy Services Inc. and the R-M Trust Company dated August 30, 1996. (Refer to Exhibit 9.1 to Veritas DGC Inc.'s Current Report on Form 8-K dated September 16, 1996.) 10-A) Support Agreement between Digicon Inc. and Veritas Energy Services Inc. dated August 30, 1996. (Refer to Exhibit 10.1 to Veritas DGC Inc.'s Current Report on Form 8-K dated August 30, 1996.) 10-B) Second Amended and Restated 1992 Non-Employee Director Stock Option Plan as Amended and Restated dated December 9, 1998. (Refer to Exhibit 10-B to Veritas DGC Inc.'s Form 10-Q for the quarter ended October 31, 1998.) 10-C) Fourth Amended and Restated 1992 Employee Nonqualified Stock Option Plan as amended and restated dated March 9, 1999. (Refer to Exhibit 4.6 to Veritas DGC Inc.'s Registration Statement No. 333-74305 dated March 12, 1999.) 10-D) 1997 Employee Stock Purchase Plan. (Refer to Exhibit 4.1 to Veritas DGC Inc.'s Registration Statement No. 333-38377 dated October 21, 1997.) 10-E) Restricted Stock Agreement between Veritas DGC Inc. and Anthony Tripodo dated April 1, 1997. (Refer to Exhibit 10-O to Veritas DGC Inc.'s Form 10-K for the year ended July 31, 1997.) 10-F) Employment Agreement executed by David B. Robson. (Refer to Exhibit 10-L to Veritas DGC Inc.'s Form 10-K for the year ended July 31, 1997.) 10-G) Employment Agreement executed by Stephen J. Ludlow. (Refer to Exhibit 10-B to Veritas DGC Inc.'s Form 10-Q for the quarter ended April 30, 1997.) 10-H) Employment Agreement executed by Lawrence C. Fichtner. (Refer to Exhibit 10-M to Veritas DGC Inc.'s Form 10-K for the year ended July 31, 1997.) 10-I) Employment Agreement executed by Anthony Tripodo. (Refer to Exhibit 10-I to Veritas DGC Inc.'s Form 10-Q for the quarter ended April 30, 1997.) 10-J) Employment Agreement executed by Rene M.J. VandenBrand. (Refer to Exhibit 10-N to Veritas DGC Inc.'s Form 10-K for the year ended July 31, 1997.) 10-K) Credit Agreement among Veritas DGC Inc., as borrower, and Bank One, Texas, N.A., as issuing bank, as a bank and as agent for the banks, and the banks named therein dated July 27, 1998. (Refer to Exhibit 10-K to Veritas DGC Inc.'s Form 10-K for the year ended July 31, 1998.) 10-L) First Amendment to Credit Agreement among Veritas DGC Inc., as borrower, and Bank One, Texas, N.A., as issuing bank, as a bank and as agent for the banks, and the banks named therein dated October 23, 1998. (Refer to Exhibit 10-L to Veritas DGC Inc.'s Form 10-Q for the quarter ended October 31, 1998.)
22 10-M) Second Amendment to Credit Agreement among Veritas DGC Inc., as borrower, and Bank One, Texas, N.A., as issuing bank, as a bank and as agent for the banks, and the banks named therein dated November 20, 1998. (Refer to Exhibit 10-M to Veritas DGC Inc.'s Form 10-Q for the quarter ended October 31, 1998.) *27) Financial Data Schedule
* Filed herewith EX-4.K 2 SPECIMEN OF CERTIFICATE FOR SENIOR NOTES SERIES C 1 (Face of Senior Note) THIS SENIOR NOTE IS A GLOBAL NOTE WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITORY OR A NOMINEE OF A DEPOSITORY OR A SUCCESSOR DEPOSITORY. UNLESS THIS SENIOR NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), NEW YORK, NEW YORK, TO VERITAS DGC INC. (THE "COMPANY") OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY SENIOR NOTE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO., OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC) ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. THIS SENIOR NOTE IS NOT EXCHANGEABLE FOR SENIOR NOTES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE DEPOSITORY OR ITS NOMINEE EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE, AND NO TRANSFER OF THIS SENIOR NOTE (OTHER THAN A TRANSFER OF THIS SENIOR NOTE AS A WHOLE BY THE DEPOSITORY TO A NOMINEE OF THE DEPOSITORY OR BY A NOMINEE OF THE DEPOSITORY TO THE DEPOSITORY OR ANOTHER NOMINEE OF THE DEPOSITORY) MAY BE REGISTERED EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE. 2 VERITAS DGC INC. 9 3/4% Senior Note due 2003, Series C U.S. GLOBAL NOTE No. G-1 $60,000,000.00 CUSIP No. 92343P AC 1 Veritas DGC Inc., a Delaware corporation (herein called the "Company," which term includes any successor Person under the Indenture hereinafter referred to), for value received, hereby promises to pay to CEDE & CO. or its registered assigns the principal sum of 60,000,000.00 Dollars, or such greater or lesser amount as may from time to time be endorsed on Schedule A hereto, on October 15, 2003, at the office or agency of the Company referred to below, and to pay interest thereon, commencing on April 15, 1999 and continuing semiannually thereafter, on April 15 and October 15 in each year, accruing from October 28, 1998, or from the most recent Interest Payment Date to which interest has been paid or duly provided for, at the rate of 9 3/4% per annum, until the principal hereof is paid or duly provided for, and (to the extent lawful) to pay on demand interest on any overdue interest at the rate borne by the Senior Notes from the date on which such overdue interest becomes payable to the date payment of such interest has been made or duly provided for. The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in such Indenture, be paid to the Person in whose name this Senior Note (or one or more Predecessor Senior Notes) is registered on the Security Register at the close of business on the Regular Record Date for such interest, which shall be the April 1 or October 1 (whether or not a Business Day), as the case may be, next preceding such Interest Payment Date. Any such interest not so punctually paid or duly provided for shall forthwith cease to be payable to the Holder on such Regular Record Date, and such Defaulted Interest, and (to the extent lawful) interest on such Defaulted Interest at the rate borne by the Senior Notes, may be paid to the Person in whose name this Senior Note (or one or more Predecessor Senior Notes) is registered on the Security Register at the close of business on a Special Record Date for the payment of such Defaulted Interest to be fixed by the Trustee, notice whereof shall be given to Holders of Senior Notes not less than 10 days prior to such Special Record Date, or may be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Senior Notes may be listed, and upon such notice as may be required by such exchange, all as more fully provided in said Indenture. Payment of the principal of (and premium, if any, on), interest, if any, on this Senior Note will be made at the office of agency of the Company maintained for that purpose in The City of New York, in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts; provided, however, that payment of interest may be made on Senior Notes at the option of the Company on or before the due date (i) by check mailed to the address of the Person entitled thereto as such address shall appear on the Security Register or (ii) with respect to any Holder owning Senior Notes in the principal amount of $500,000 or more, by wire transfer to an account maintained by the Holder located in the United States, as specified in 2 3 a written notice to the Trustee by any such Holder requesting payment by wire transfer and specifying the account to which transfer is requested. Reference is hereby made to the further provisions of this Senior Note set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. Unless the certificate of authentication hereon has been duly executed by the trustee referred to on the reverse hereof by manual signature, this Senior Note shall not be entitled to any benefit under the Indenture, or be valid or obligatory for any purpose. IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed under its corporate seal. VERITAS DGC INC. By: /s/ ANTHONY TRIPODO --------------------------- Vice President Attest: /s/ [ILLEGIBLE] - ------------------------------ Secretary TRUSTEE'S CERTIFICATE OF AUTHENTICATION This is one of the Senior Notes referred to in the within mentioned Indenture. State Street Bank and Trust Company, Trustee By: ---------------------------- Authorized Signatory Dated: March 12, 1999 3 4 (Reverse of Senior Note) This Senior Note is one of a duly authorized issue of securities of the Company designated as its 9 3/4% Senior Notes due 2003, Series C (herein called, together with the 9 3/4% Senior Notes due 2003, Series B, the "Senior Notes"), limited (except as otherwise provided in the Indenture referred to below) in aggregate principal amount to $60,000,000 which may be issued under an indenture (herein called the "Indenture") dated as of October 28, 1998 between the Company and State Street Bank and Trust Company (herein called the "Trustee," which term includes any successor trustee under the Indenture), to which Indenture and all indentures supplemental thereto reference is hereby made for a statement of the respective rights, limitations of rights, duties, obligations and immunities thereunder of the Company, the Trustee and the Holders of the Senior Notes, and of the terms upon which the Senior Notes are, and are to be, authenticated and delivered. The Senior Notes are subject to redemption, at the option of the Company, in whole or in part, at any time on or after October 15, 2000, upon not less than 30 or more than 60 days' notice at the following Redemption Prices (expressed as percentages of principal amount) set forth below if redeemed during the 12-month period beginning October 15 of the years indicated below:
REDEMPTION YEAR PRICE ---- ---------- 2000 ............................ 104.875% 2001 ............................ 102.438% 2002 and thereafter ............. 100.000%
together in the case of any such redemption with accrued and unpaid interest, if any, to the Redemption Date (subject to the right of Holders of record on the relevant Record Date to receive interest due on an Interest Payment Date that is on or prior to the Redemption Date), all as provided in the Indenture. Notwithstanding the foregoing, at any time on or prior to October 15, 1999 up to $15,000,000 in aggregate principal amount of Senior Notes may be redeemed, at the option of the Company, upon not less than 30 or more than 60 days' notice, from the Net Cash Proceeds of a Public Equity Offering, at a Redemption Price equal to 109.75% of the principal amount thereof, together with accrued and unpaid interest and Liquidated Damages, if any, to the Redemption Date, provided that at least $45,000,000 in aggregate principal amount of Senior Notes remain Outstanding immediately after such redemption and that such redemption occurs within 60 days following the closing of such Public Equity Offering. In the case of any redemption of Senior Notes, interest installments whose Stated Maturity is on or prior to the Redemption Date will be payable to Holders of such Senior Notes, or one or 4 5 more Predecessor Senior Notes, of record at the close of business on the relevant Record Date referred to on the face hereof. Senior Notes (or portions thereof) for whose redemption and payment provision is made in accordance with the Indenture shall cease to bear interest from and after the Redemption Date. In the event of redemption or purchase of this Senior Note in part only, a new Senior Note or Senior Notes for the unredeemed or unpurchased portion hereof shall be issued in the name of the Holder hereof upon the cancellation hereof. The Senior Notes do not have the benefit of any mandatory redemption or sinking fund obligations. In the event of a Change of Control of the Company, and subject to certain conditions and limitations provided in the Indenture, the Company will be obligated to make an offer to purchase, on a Business Day not more than 60 or less than 30 days following the occurrence of a Change of Control of the Company, all of the then Outstanding Senior Notes at a purchase price equal to 101% of the principal amount thereof, together with accrued and unpaid interest, if any, to the Change of Control Purchase Date, all as provided in the Indenture. In the event of Asset Sales, under certain circumstances, the Company will be obligated to make a Net Proceeds Offer to purchase all or a specified portion of each Holder's Senior Notes at a purchase price equal to 100% of the principal amount of the Senior Notes, together with accrued and unpaid interest, if any, to the Net Proceeds Payment Date. As set forth in the Indenture, an Event of Default is generally (i) failure to pay principal upon maturity, redemption or otherwise (including pursuant to a Change of Control Offer or a Net Proceeds Offer); (ii) default for 30 days in payment of interest, if any, on the Senior Notes; (iii) default in the performance of agreements relating to mergers, consolidations and sales of all or substantially all assets or the failure to make or consummate a Change of Control Offer or a Net Proceeds Offer; (iv) failure for 30 days after notice to comply with any other covenants in the Indenture or the Senior Notes; (v) certain payment defaults under, and the acceleration prior to the maturity of, certain Indebtedness of the Company or any Restricted Subsidiary in an aggregate principal amount in excess of $5,000,000; (vi) certain final judgments or orders against the Company or any Restricted Subsidiary in an aggregate amount of more than $5,000,000 over the coverage under applicable insurance policies which remain unsatisfied and either become subject to commencement of enforcement proceedings or remain unstayed for a period of 30 days; and (vii) certain events of bankruptcy, insolvency or reorganization of the Company or any Restricted Subsidiary. If any Event of Default occurs and is continuing, the Trustee or the holders of at least 25% in aggregate principal amount of the Outstanding Senior Notes may declare the principal amount of all the Senior Notes to be due and payable immediately, except that (a) in the case of an Event of Default arising from certain events of bankruptcy, insolvency or reorganization of the Company or any Restricted Subsidiary, the principal amount of the Senior Notes will become due and payable immediately without further action or notice, and (b) in the case of an Event of Default which relates to certain payment defaults or acceleration with respect to certain Indebtedness, any such Event of Default and any consequential acceleration of the Senior Notes will be automatically 5 6 rescinded if any such Indebtedness is repaid or if the default relating to such Indebtedness is cured or waived and if the holders thereof have accelerated such Indebtedness then such holders have rescinded their declaration of acceleration. No Holder may pursue any remedy under the Indenture unless the Trustee shall have failed to act after notice from such Holder of an Event of Default and written request by Holders of at least 25% in aggregate principal amount of the Outstanding Senior Notes, and the offer to the Trustee of indemnity reasonably satisfactory to it; however, such provision does not affect the right to sue for enforcement of any overdue payment on a Senior Note by the Holder thereof. Subject to certain limitations, Holders of a majority in aggregate principal amount of the Outstanding Senior Notes may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders notice of any continuing default (except default in payment of principal, premium or interest) if it determines in good faith that withholding the notice is in the interest of the Holders. The Company is required to file annual and quarterly reports with the Trustee as to the absence or existence of defaults. The Indenture contains provisions for (i) defeasance at any time of the entire indebtedness of the Company on this Senior Note and (ii) discharge from certain restrictive covenants and the related Defaults and Events of Default, upon compliance by the Company with certain conditions set forth therein, which provisions apply to this Senior Note. The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Company and the rights of the Holders under the Indenture at any time by the Company and the Trustee with the consent of the Holders of a majority in aggregate principal amount of the Senior Notes at the time Outstanding. The Indenture also contains provisions permitting the Holders of specified percentages in aggregate principal amount of Outstanding Senior Notes, on behalf of the Holders of all the Senior Notes, to waive compliance by the Company with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such consent or waiver by or on behalf of the Holder of this Senior Note shall be conclusive and binding upon such Holder and upon all future Holders of this Senior Note and of any Senior Note issued upon the registration of transfer hereof or in exchange herefor or in lieu hereof whether or not notation of such consent or waiver is made upon this Senior Note. Without the consent of any Holder, the Company and the Trustee may amend or supplement the Indenture or the Senior Notes to cure any ambiguity, defect or inconsistency, to qualify or maintain the qualification of the Indenture under the Trust Indenture Act and to make certain other specified changes and the other changes that do not material adversely affect the interests of any Holder in any material respect. No reference herein to the Indenture and no provision of this Senior Note or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of (and premium, if any, on) and interest on this Senior Note at the times, place, and rate, and in the coin or currency, herein prescribed. As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Senior Note is registerable on the Security Register of the Company, upon surrender of this 6 7 Senior Note for registration of transfer at the office or agency of the Company maintained for such purpose duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed by, the Holder hereof or his attorney duly authorized in writing, with signature guaranteed, and thereupon one or more new Senior Notes, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees. The Senior Notes are issuable only in registered form without coupons in denominations of $1,000 and any integral multiple thereof. As provided in the Indenture and subject to certain limitations therein set forth, the Senior Notes are exchangeable for a like aggregate principal amount of Senior Notes of a different authorized denomination, as requested by the Holder surrendering the same. No service charge shall be made for any registration of transfer or exchange of Senior Notes, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. A director, officer, employee, incorporator, stockholder or Affiliate of the Company, as such, past, present or future shall not have any personal liability under this Senior Note or any other Senior Note or the Indenture by reason of his or its status as such director, officer, employee, incorporator, stockholder or Affiliate, or any liability for any obligations of the Company under the Senior Notes or the Indenture or for any claim based on, in respect of, or by reason of such obligations or their creation. Each Holder, by accepting this Senior Note, waives and releases all such liability. Such waiver and release are part of the consideration for the issuance of this Senior Note. Prior to the time of due presentment of this Senior Note for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name this Senior Note is registered as the owner hereof for all purposes, whether or not this Senior Note is overdue, and neither the Company, the Trustee nor any agent shall be affected by notice to the contrary. All terms used in this Senior Note which are defined in the Indenture shall have the meanings assigned to them in the Indenture. The Company will furnish to any Holder upon written request and without charge a copy of the Indenture. Requests may be made to the Company at 3701 Kirby Drive, Suite 112, Houston, Texas 77098, Attention: Chief Financial Officer (or such other address as the Company may have furnished in writing to the Trustee). Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused CUSIP numbers to be printed on the Senior Notes as a convenience to the Holders thereof. No representation is made as to the accuracy of such numbers as printed on the Senior Notes and reliance may be placed only on the other identifying information printed hereon. Interest on this Senior Note shall be computed on the basis of a 360-day year comprised of twelve 30-day months. This Senior Note shall be governed by and construed in accordance with the laws of the State of New York. 7 8 ASSIGNMENT FORM To assign this Senior Note, fill in the form below: (I) or (we) assign and transfer this Senior Note to - ------------------------------------------------------------------------------- (Insert assignee's Social Senior Note or Tax I.D. No.) - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- (Print or type assignee's name, address and zip code) and irrevocably appoint _____________________________________ to transfer this Senior Note on the books of the Company or the agent appointed by the Company to maintain such books. The agent appointed hereby may substitute another to act for him. - ------------------------------------------------------------------------------- Date: ------------------------- Your signature: --------------------------------- (Sign exactly as your name appears on the face of this Senior Note) Signature Guarantee: 8 9 OPTION OF HOLDER TO ELECT PURCHASE If you want to elect to have this Senior Note purchased by the Company pursuant to Section 10.14 or 10.15 of the Indenture, check the box below: [ ] Section 10.14 [ ] Section 10.15 If you want to elect to have only part of the Senior Note purchased by the Company pursuant to Section 10.14 or Section 10.15 of the Indenture, state the amount you elect to have purchased (must be an integral multiple of $1,000): $__________________ Date: --------------------- Your signature: -------------------------------------- (Sign exactly as your name appears on the Senior Note) Social Security No. Tax Identification No.: ------------------------------ Signature Guarantee: 9 10 SCHEDULE A CHANGES IN PRINCIPAL AMOUNT OF SENIOR NOTE The following changes in the principal amount of this Global Note have been recorded:
- ---------------------------------------------------------------------------------------------------------------------------- Amount of decrease in Amount of increase in Principal Amount of this Signature of Principal Amount of Principal Amount of Global Note following authorized officer Date of Transaction this Global Note this Global Note such decrease (or increase) of Trustee - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------
10 EX-27 3 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM VERITAS DGC INC.'S FORM 10-Q FOR THE QUARTER ENDED JANUARY 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q. 1,000 6-MOS JUL-31-1999 AUG-01-1998 JAN-31-1999 280 0 165,448 3,412 3,967 253,462 354,656 183,271 559,881 110,045 135,135 0 0 214 309,467 559,881 0 248,451 0 173,526 0 0 5,603 28,084 8,939 19,058 0 0 0 19,058 0.84 0.83
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