10-Q 1 h82596e10-q.txt VERITAS DGC INC - PERIOD DATE OCTOBER 31, 2000 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 OCTOBER 31, 2000 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 (the or other jurisdiction of (I.R.S. Employer incorporation of organization) Identification No.) 10300 TOWN PARK HOUSTON, TEXAS 77072 (Address of principal executive offices) (Zip Code) (832) 351-8300 (Registrant's telephone number, including area code) 3701 KIRBY DRIVE, #112 HOUSTON, TEXAS 77098 (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 the Company's common stock, $.01 par value, outstanding at November 30, 2000 was 30,556,287 (including 1,824,756 Veritas Energy Services Inc. exchangeable 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 and Comprehensive Income - For the Three Months Ended October 31, 2000 and 1999 1 Consolidated Balance Sheets - October 31, 2000 and July 31, 2000 2 Consolidated Statements of Cash Flows - For the Three Months Ended October 31, 2000 and 1999 3 Notes to Consolidated Financial Statements 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 Item 3. Quantitative and Qualitative Disclosures Regarding Market Risk 11 PART II. Other Information Item 6. Exhibits and Reports on Form 8-K 12 Signatures 15 3 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS VERITAS DGC INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME UNAUDITED
THREE MONTHS ENDED OCTOBER 31, --------- --------- 2000 1999 --------- --------- (In thousands) REVENUES $ 111,299 $ 68,677 COSTS AND EXPENSES: Cost of services 76,168 42,741 Research and development 2,169 1,962 Depreciation and amortization 17,105 18,378 Selling, general & administrative 5,503 3,443 Interest expense 3,516 3,491 Other income (1,527) (979) --------- --------- Total costs and expenses 102,934 69,036 Income (loss) before provision for income taxes and equity in loss of joint venture 8,365 (359) Provision (benefit) for income taxes 3,346 (15) Equity in loss of joint venture 11 236 --------- --------- Net income (loss) before extraordinary charge 5,008 (580) Extraordinary loss on debt repurchase (net of tax, $95) 187 --------- --------- Net income (loss) $ 5,008 $ (767) Other comprehensive income (loss) (net of tax - $0 in both periods) Foreign currency translation adjustments (1,904) 572 Unrealized gain (loss) on investments-available for sale 2,337 (1,347) --------- --------- Comprehensive income (loss) $ 5,441 $ (1,542) ========= ========= PER SHARE: BASIC Net income (loss) per common share before extraordinary item .18 $ (.02) Net loss per common share from extraordinary item (.01) --------- --------- Net income (loss) per common share $ .18 $ (.03) ========= ========= Weighted average common shares 27,795 23,633 ========= ========= DILUTED Net income (loss) per common share before extraordinary item $ .18 $ (.02) Net loss per common share from extraordinary item (.01) --------- --------- Net income (loss) per common share $ .18 $ (.03) ========= ========= Weighted average common shares 28,584 24,183 ========= =========
See Notes to Consolidated Financial Statements 1 4 VERITAS DGC INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
OCTOBER 31, JULY 31, 2000 2000 ------------- ---------- Unaudited (In thousands) ASSETS Current assets: Cash and cash equivalents $ 90,391 $ 43,154 Restricted cash investments 208 206 Accounts and notes receivable (net of allowance: October $1,744; July $1,749) 143,604 117,242 Materials and supplies inventory 4,783 5,055 Prepayments and other 13,825 6,435 Investments-available for sale 6,321 3,984 ---------- ---------- Total current assets 259,132 176,076 Property and equipment 402,884 409,284 Less accumulated depreciation 266,722 262,706 ---------- ---------- Property and equipment - net 136,162 146,578 Multi-client data library 251,932 231,274 Investment in and advances to joint venture 1,938 1,949 Goodwill (net of accumulated amortization: October $5,324; July $4,984) 10,528 11,064 Deferred tax asset 34,892 34,064 Long term notes receivable (net of allowance: $1,000 in both periods) 3,576 3,579 Other assets 10,020 7,224 ---------- ---------- Total $ 708,180 $ 611,808 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current maturities of long-term debt $ 82 $ 106 Accounts payable - trade 38,533 37,434 Accrued interest 564 3,856 Other accrued liabilities 39,916 39,620 Income taxes payable 5,637 2,116 ---------- ---------- Total current liabilities 84,732 83,132 Non-current liabilities: Long-term debt - less current maturities 135,000 135,000 Other non-current liabilities 10,845 10,732 ---------- ---------- Total non-current liabilities 145,845 145,732 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: 28,695,597 shares at October and 25,069,834 shares at July (excluding exchangeable shares of 1,825,773 at October and 2,014,205 at July) 287 251 Additional paid-in capital 358,376 269,355 Accumulated earnings (from August 1, 1991 with respect to Digicon Inc.) 126,141 121,133 Accumulated comprehensive income: Cumulative foreign currency translation adjustment (5,675) (3,771) Unrealized gain (loss) on investments-available for sale 722 (1,615) Unearned compensation (436) (597) Treasury stock, at cost: 104,175 shares in both periods (1,812) (1,812) ---------- ---------- Total stockholders' equity 477,603 382,944 ---------- ---------- Total $ 708,180 $ 611,808 ========== ==========
See Notes to Consolidated Financial Statements 2 5 VERITAS DGC INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS UNAUDITED
THREE MONTHS ENDED OCTOBER 31, ----------------------- 2000 1999 -------- --------- (in thousands) OPERATING ACTIVITIES: Net income (loss) $ 5,008 $ (767) Non-cash items included in net income: Depreciation and amortization 17,105 18,378 Net gain on disposition of property and equipment (733) (2) Equity in loss of joint venture 11 236 Amortization of multi-client data library 297 239 Deferred taxes 12 (1,818) Amortization of unearned compensation 161 153 Change in operating assets/liabilities: Accounts and notes receivable (26,978) (2,612) Materials and supplies inventory 246 (515) Prepayments and other (7,407) (4,153) Multi-client data library (21,566) (34,311) Accounts payable and other accrued liabilities (1,524) (7,283) Income taxes payable 3,459 (4,898) Other non-current liabilities 22 4,225 Other (3,426) 4,669 -------- -------- Total cash used in operating activities (35,313) (28,459) FINANCING ACTIVITIES: Payments of long-term debt (24) (5,679) Senior notes issue costs (25) Net proceeds from sale of common stock 88,210 686 -------- -------- Total cash provided by (used in) financing activities 88,186 (5,018) INVESTING ACTIVITIES: Increase in restricted cash investments (2) (410) Acquisitions, net of cash received 448 Purchase of property and equipment (7,314) (9,238) Sale of property and equipment 1,748 1,757 -------- -------- Total cash used in investing activities (5,568) (7,443) Currency loss on foreign cash (68) (96) -------- -------- Change in cash and cash equivalents 47,237 (41,016) Beginning cash and cash equivalents balance 43,154 73,447 -------- -------- Ending cash and cash equivalents balance $ 90,391 $ 32,431 ======== ========
See Notes to Consolidated Financial Statements 3 6 VERITAS DGC INC. AND SUBSIDIARIES SUPPLEMENTARY SCHEDULES TO CONSOLIDATED STATEMENTS OF CASH FLOWS UNAUDITED
THREE MONTHS ENDED OCTOBER 31, ------------------ 2000 1999 ------- ------- (In thousands) SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: Increase in property and equipment for accounts payable - trade $ 444 $ 1,053 Utilization of net operating loss carryforwards existing prior to the quasi-reorganization resulting in an increase (decrease) in: Deferred tax asset valuation allowance (847) Additional paid-in capital 847 Treasury stock issued for future services resulting in an increase (decrease) in: Additional paid-in-capital 17 Unearned compensation 135 Stock and options issued for purchase of Enertec Resource Services Inc. (net of cash received) 25,189 Settlement of and interest payments from investments-available for sale 602 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid (received) for: Interest - Senior notes 6,582 6,827 Equipment purchase obligations 2 1 Other 224 392 Income taxes (172) (6,969)
See Notes to Consolidated Financial Statements 4 7 VERITAS DGC INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONSOLIDATION We provide integrated geophysical services to the petroleum industry worldwide. The accompanying consolidated financial statements include our accounts and the accounts of majority-owned domestic and foreign subsidiaries. Investment in an 80% owned joint venture is accounted for on the equity method due to provisions in the joint venture agreement that give minority shareholders the right to exercise control. 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. These estimates and assumptions 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. ADOPTION OF NEW ACCOUNTING PRONOUNCEMENTS In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." This standard, as amended by SFAS No. 138, 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. We adopted this statement in the current quarter. Currently, we neither hold nor have we issued derivative instruments. In addition, we have not engaged in any hedging activities. 2. LONG-TERM DEBT Long-term debt is as follows:
October 31, July 31, 2000 2000 ----------- --------- (In thousands) Senior notes due October 2003, at 9 3/4% $ 135,000 $ 135,000 --------- --------- Equipment purchase obligations maturing through July 2001, at 8.97% 82 106 --------- --------- Total 135,082 135,106 Less current maturities 82 106 --------- --------- Due after one year $ 135,000 $ 135,000 ========= =========
The senior notes are due in October 2003 with interest payable semi-annually at 9 3/4% per annum. The senior notes are unsecured and are effectively subordinated to all of our secured debt, with respect to the assets securing such debt, and to all debt of our subsidiaries whether secured or unsecured. The indenture relating to the senior notes contains certain covenants that limit our ability to, among other things, incur additional debt, pay dividends and complete mergers, acquisitions and sales of assets. Upon a change in our control, as defined in the indenture, each holder of the senior notes has the right to require us to purchase all or a portion of such holder's senior note at a price equal to 101% of the aggregate principal 5 8 VERITAS DGC INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) UNAUDITED amount. We have the right to redeem the senior notes, in whole or part, on or after October 15, 2000. On September 24, 1999, we repurchased $5.5 million of 9 3/4% senior notes on the open market at a price of $5.7 million, resulting in an extraordinary loss of $0.2 million, net of tax. On December 3, 1999, we reissued $1.0 million of 9 3/4% senior notes at a price of $1.0 million. On December 10, 1999, we reissued $4.6 million of 9 3/4% senior notes at a price of $4.7 million. We maintain a revolving credit agreement due July 2001 with commercial lenders that provides for advances up to $50.0 million. Advances are limited by a borrowing base, which is in excess of the credit limit at October 31, 2000 and bears interest, at our election, at LIBOR plus a margin based on certain financial ratios maintained by us or prime rate. Advances are secured by certain accounts receivable. Covenants in the agreement limit, among other things, our right to take certain actions, including creating indebtedness. In addition, the agreement requires us to maintain certain financial ratios. No advances were outstanding at October 31, 2000 and July 31, 2000, under the credit agreement. At October 31, 2000, $4.1 million in letters of credit were outstanding under the facility. Our equipment purchase obligations represent installment loans and capitalized lease obligations primarily related to computer and geophysical equipment. 3. OTHER ACCRUED LIABILITIES Other accrued liabilities include the following:
October 31, July 31, 2000 2000 ----------- --------- (In thousands) Accrued payroll and benefits $ 11,451 $ 9,942 Deferred revenues $ 10,550 $ 15,370 Accrued taxes other than income $ 4,469 $ 4,255
4. OTHER INCOME Other income consists of the following:
Three Months Ended October 31, ------------------------- 2000 1999 --------- --------- (In thousands) Interest income $ (1,001) $ (1,045) Net gain on disposition of property and equipment (733) (2) Net foreign currency exchange losses 214 68 Other (7) -------- -------- Total $ (1,527) $ (979) ======== ========
6 9 VERITAS DGC INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) UNAUDITED 5. EARNINGS PER COMMON SHARE Earnings (losses) per common share - basic and diluted are computed as follows:
Three Months Ended October 31, ---------------------- (In thousands, except per share amounts) Net income (loss) before extraordinary item $ 5,008 $ (580) Extraordinary loss on debt repurchase 187 -------- -------- Net income (loss) $ 5,008 $ (767) ======== ======== Weighted average common shares 27,795 23,633 Basic Net income (loss) per common share before extraordinary item $ .18 $ (.02) Net loss per common share from extraordinary item (.01) -------- -------- Net income (loss) per common share $ .18 $ (.03) ======== ======== Weighted average common shares - assuming dilution: Weighted average common shares 27,795 23,633 Shares issuable from assumed conversion of: Options 789 550 -------- -------- Total 28,584 24,183 ======== ======== Diluted Net income (loss) per common share before extraordinary item $ .18 $ (.02) Net loss per common share from extraordinary item (.01) -------- -------- Net income (loss) per common share $ .18 $ (.03) ======== ========
VESI exchangeable shares, which were issued in business combinations, and may be exchanged for our common stock and are identical to our common stock in all material respects, are included in the above computations. On October 26, 1999, we filed a prospectus supplement relating to the sale of up to 2.0 million shares of our common stock, from time to time through ordinary brokerage transactions, under a shelf registration. For the three months ended October 31, 2000, we issued approximately 0.1 million shares in connection with these transactions, generating approximately $2.9 million in net proceeds. In October 2000, we completed an offering of 3.1 million shares of common stock under the shelf registration statement, generating $82.4 million in net proceeds. In addition, during the current quarter, 0.2 million options were exercised, generating $2.9 million in net proceeds. 7 10 VERITAS DGC INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) UNAUDITED 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 as of the date the period ended.
Three Months Ended October 31, -------------------------------------- 2000 1999 ------------------- ----------------- Number of options 64,504 811,327 Exercise price range $27 13/16 - $55 1/8 $19 3/8 - $55 1/8 Expiring through August 2008 November 2008
6. UNREALIZED LOSS ON INVESTMENTS-AVAILABLE FOR SALE In fiscal year 1999, we exchanged a $4.7 million account receivable from Miller Exploration Company, a publicly traded company, for a long-term note receivable paying 18% interest. The interest rate changed to 9 3/4%, effective October 15, 2000. For the periods April 15, 1999 to October 14, 2000, interest was paid in common stock warrants, with an exercise price of $0.01 per share, in advance, at six-month intervals. Beginning October 15, 2000, interest will be paid in cash after the six-month intervals and no additional warrants will be issued. In addition, in fiscal year 1999, we exchanged an account receivable from Brigham Exploration Company, a publicly traded company, for shares of Brigham common stock. The cost basis of the investments available for sale is determined by the fair market value on the date received.
October 31, 2000 July 31, 2000 ---------------------------------- ----------------------------------- Unrealized Unrealized Fair Value Cost Basis gain/(loss) Fair Value Cost Basis gain/(loss) ---------- ----------- ----------- ----------- ----------- ----------- (In thousands) Brigham common stock $ 4,099 $445 $ 4,544 $ 4,099 $(1,411) $ 2,688 Miller warrants 1,500 277 1,777 1,500 (204) 1,296 ------- ---- ------- ------- ------- ------- $ 5,599 $722 $ 6,321 $ 5,599 $(1,615) $ 3,984 ======= ==== ======= ======= ======= =======
7. SEGMENT INFORMATION We have two segments, land and marine operations, both of which provide geophysical products and services to the petroleum industry. The two segments have been aggregated as they are so similar in their economic characteristics and the nature of their products, production processes and customers. A reconciliation of the reportable segments' results to those of the total enterprise is given below.
Three Months Ended Three Months Ended October 31, 2000 October 31, 1999 ------------------------------- ----------------------------- Segments Corporate Total Segments Corporate Total -------- --------- -------- -------- --------- ------- Revenue $111,299 $111,299 $68,677 $68,677 Costs and expenses including joint venture 91,974 10,971 102,945 61,442 7,830 69,272 Net income (loss) before income tax 19,325 (10,971) 8,354 7,235 (7,830) (595)
8 11 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. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of certain factors. These factors are more fully described in other reports filed with the Securities and Exchange Commission, including our fiscal year 2000 Form on 10-K, and 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 OCTOBER 31, 2000 COMPARED WITH THREE MONTHS ENDED OCTOBER 31, 1999 Revenues. Revenues increased 62%, from $68.7 million to $111.3 million due a general increase in exploration spending by our customers in the current quarter. Multi-client revenue increased 83%, from $33.5 million to $61.2 million. This is largely due to increased licensing of multi-client surveys in the Gulf of Mexico and Canada. The surveys in Canada are the largest multi-client surveys ever performed in that country. Contract revenue increased 42%, from $35.2 million to $50.1 million, driven by increased activity in Asia Pacific and new surveys in Tunisia and Suriname. Cost of services. Cost of services increased 78%, from $42.7 million to $76.2 million primarily as a result of the increase in revenue. However, cost of services as a percent of revenues increased from 62% to 68%. This is due to an increased proportion of land multi-client revenue versus marine multi-client revenue. The land multi-client business generally earns a lower margin than the more established marine multi-client business. Research and development. Research and development expense increased 10%, from $2.0 million to $2.2 million as a result of increased emphasis on leading edge technologies. Depreciation and amortization. Depreciation and amortization expense decreased 7%, from $18.4 million to $17.1 million. In general, this is the result of delays in capital spending during fiscal year 2000. Net property and equipment decreased by 16%, from $162.5 million to $136.2 million between the comparative income statement periods. Selling, general & administrative. Selling, general and administrative increased 62%, from $3.4 million to $5.5 million. Most of the increase is related to expenses incurred in connection with the relocation of various operations our new headquarters facility in Houston. Other additional expense is due to the expansion of our e-business and heath and safety initiatives in the current quarter. Interest expense. Interest expense remained essentially flat, with long term debt being the same in both quarters. Other income. Other income increased from $1.0 million to $1.5 million as a result of a $0.7 million gain on a sale of assets. This is partially offset by a foreign currency loss of $0.2 million in the current quarter. Income taxes. Income taxes increased from a benefit of $15 thousand to a provision of $3.3 million as a result of our higher earnings in the current quarter. The increase in the effective tax rate from 4% to 40% is primarily attributable to income in the current period versus unbenefitted losses in the prior period. Equity in loss of joint venture. Equity in loss of joint venture, related to the Indonesian joint venture, decreased from a loss of $236,000 to a loss of $11,000. An increase in marine contract work accounts for the increased profitability in the current quarter. 9 12 LIQUIDITY AND CAPITAL RESOURCES SOURCES AND USES Our internal sources of liquidity are cash, cash equivalents and cash flow from operations. External sources include public financing, equity sales, the unutilized portion of a revolving credit facility, equipment financing and trade credit. We believe that these sources of funds are adequate to meet our liquidity needs for fiscal 2001. As of October 31, 2000, we had $135.0 million in senior notes outstanding due in October 2003. These notes contain a change of control provision allowing them to be callable by the holder under certain conditions. We also have a revolving credit facility due July 2001 from commercial lenders that provides advances up to $50.0 million. At October 31, 2000, the borrowing base exceeded the credit limit. Advances bear interest, at our election, at LIBOR plus a margin based on certain financial ratios maintained by us or prime rate. Advances are secured by certain accounts receivable. As of October 31, 2000, there were no outstanding advances under the credit facility, but $4.1 million of the credit facility was utilized for letters of credit. An additional $45.9 million is available for borrowings. We require significant amounts of working capital to support our operations and fund capital spending and research and development programs. Our current capital expenditure forecast for fiscal 2001 is $97.0 million, which includes expenditures of approximately $50 million to expand or upgrade current operating equipment. We are forecasting $9.2 million of research and development spending in fiscal 2001. As demand for our geophysical products and services continues to increase during fiscal 2001, we may increase our expenditures and business investments as we take advantage of expansion opportunities. Currently, we are forecasting $74.7 million of investment in our data library (measured as the change in the balance sheet account) during fiscal year 2001. Because of the elapsed time between survey execution, sale and ultimate cash receipt, multi-client work generally requires greater amounts of working capital than contract work. Depending upon the timing of the sales of the multi-client surveys and the contract terms relating to the collection of the proceeds from such sales, our liquidity may be affected. While we seek pre-funding commitments from customers for a portion of the cost of these surveys, pre-funding levels do not generally affect our library spending. We believe that these multi-client surveys have good long-term sales, earnings and cash flow potential, but there is no assurance that we will recover the costs of these surveys. We will require substantial cash flow to continue operations on a satisfactory basis, complete our capital expenditure and research and development programs and meet our principal and interest obligations with respect to outstanding indebtedness. While we believe that we have adequate sources of funds to meet our liquidity needs, our ability to meet our obligations depends on our future performance, which, in turn, is subject to many factors beyond our control. Key internal factors affecting future results include utilization levels of acquisition and processing assets and the level of multi-client data library licensing, all of which are driven by the external factors of exploration spending and, ultimately, underlying commodity prices. To ensure that we have available as many financing options as possible, we filed a shelf registration allowing the issuance of up to $200 million in debt, preferred stock or common stock. On October 26, 1999, we filed a prospectus supplement relating to the sale of up to 2.0 million shares of our common stock, from time to time through ordinary brokerage transactions, under the shelf registration. For the three months ended October 31, 2000, we issued approximately 0.1 million shares in connection with these transactions, generating approximately $2.9 million in net proceeds. In addition, in October 2000, we completed an offering of 3.1 million shares of common stock under the shelf registration statement. 10 13 This offering generated $82.4 million in net proceeds. The total issuance of equity under the shelf registration has been 4.4 million shares generating $112.5 million in net proceeds. OTHER Since our 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 additional 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. For the three months ended October 31, 2000, we recognized $847,000 related to these benefits, due to our U.K. operations increased profitability. We receive some account receivable payments in foreign currency. We currently do not conduct a hedging program because we do not consider our current exposure to foreign currency fluctuations to be significant. In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." This standard, as amended by SFAS No. 138, 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. We adopted this statement in current quarter. Currently, we neither hold nor have we issued derivative instruments. In addition, we have not engaged in any hedging activities. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES REGARDING MARKET RISK There have been no significant changes that would affect our exposure to market risk since July 31, 2000. 11 14 PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K A) EXHIBITS FILED WITH THIS REPORT: Exhibit ------------ 3-A) Restated Certificate of Incorporation with amendments of Veritas DGC 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.) 3-D) Certificate of Amendment to Restated Certificate of Incorporation of Veritas DGC Inc. dated September 30, 1999. (Exhibit 3-D to Veritas DGC Inc.'s Form 10-K for the year ended July 31, 1999 is incorporated herein by reference.) 3-F) By-laws of Veritas DGC Inc. as amended and restated March 7, 2000. (Exhibit 3-E to Veritas DGC Inc.'s Form 10-Q for the quarter ended January 31, 2000 is incorporated herein by reference.) 4-A) Specimen certificate for Senior Notes (Series A). (Included as part of Section 2.2 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 DGC 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 May 15, 1997. (Exhibit 4.1 to Veritas DGC Inc.'s Current Report on Form 8-K dated May 27, 1997 is incorporated herein by reference.) 4-E) Form of Restricted Stock Grant Agreement. (Exhibit 4.8 to Veritas DGC Inc.'s Registration Statement No. 333-48953 dated March 31, 1998 is incorporated herein by reference.) 4-F) Restricted Stock Plan as amended and restated March 7, 2000. (Exhibit 4-F to Veritas DGC Inc.'s Form 10-Q for the quarter ended April 30, 2000 in incorporated herein by reference.) 4-G) Key Contributor Incentive Plan as Amended and Restated dated March 9, 1999. (Exhibit 4.9 to Veritas DGC Inc.'s Registration Statement No. 333-74305 dated March 12, 1999 is incorporated herein by reference.) 12 15 4-H) Specimen for Senior Notes (Series C). (Exhibit 4-K to Veritas DGC Inc.'s Form 10-Q for the quarter ended January 31, 1999 is incorporated herein by reference.) 4-I) Indentures 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. (Exhibit 4.3 to Veritas DGC Inc.'s Current Report on Form 8-K dated November 12, 1998 is incorporated herein by reference.) 9-A) 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 to Veritas DGC Inc.'s Current Report on Form 8-K dated September 16, 1996 is incorporated herein by reference.) 9-B) Voting and Exchange Trust Agreement dated September 30, 1999 among Veritas DGC Inc., Veritas Energy Services Inc. and the CIBC Mellon Trust Company. 10-A) Support Agreement dated August 30, 1996 between Digicon Inc. and Veritas Energy Services Inc. (Exhibit 10.1 to Veritas DGC Inc.'s Current Report on Form 8-K dated August 30, 1996 is incorporated herein by reference.) 10-B) 1992 Non-Employee Director Stock Option Plan as amended and restated March 7, 2000. (Exhibit 10-B to Veritas DGC Inc.'s Form 10-Q for the quarter ended April 30, 2000 in incorporated herein by reference.) 10-C) 1992 Employee Nonqualified Stock Option Plan as amended and restated March 7, 2000. (Exhibit 10-C to Veritas DGC Inc.'s Form 10-Q for the quarter ended April 30, 2000 is incorporated herein by reference.) 10-D) 1997 Employee Stock Purchase Plan. (Exhibit 4.1 to Veritas DGC Inc.'s Registration Statement No. 333-38377 dated October 21, 1997 is incorporated herein by reference.) 10-E) Restricted Stock Agreement dated April 1, 1997 between Veritas DGC Inc. and Anthony Tripodo. (Exhibit 10-O to Veritas DGC Inc.'s Form 10-K for the year ended July 31, 1997 is incorporated herein by reference.) 10-F) Employment Agreement executed by David B. Robson. (Exhibit 10-L to Veritas DGC Inc.'s Form 10-K for the year ended July 31, 1997 is incorporated herein by reference.) 10-G) 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-H) 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 is incorporated herein by reference.) 10-I) Employment Agreement executed by Rene M.J. VandenBrand. (Exhibit 10-N to Veritas DGC Inc.'s Form 10-K for the year ended July 31, 1997 is incorporated herein by reference.) 10-J) Employment Agreement executed by Timothy L. Wells. (Exhibit 10-J to Veritas DGC Inc.'s Form 10-K for the year ended July 31, 1999 is incorporated herein by reference.) 10-K) Credit Agreement among Veritas DGC Inc., as borrower, and Bank One, Texas, N.A., as issuing bank, as a bank and agent for the banks, and the banks therein named dated 13 16 November 1, 1999. (Exhibit 10-N to Veritas DGC Inc.'s Form 10-Q for the quarter ended October 31, 1999 is incorporated herein by reference.) 10-L) Sales agency agreement between Veritas DGC Inc. and Paine Webber Incorporated, dated October 26, 1999. (Exhibit 10-N to Veritas DGC Inc.'s Form 10-Q for the quarter ended October 31, 1999 is incorporated herein by reference.) 10-M) Form of Indemnity Agreement between Veritas DGC Inc. and its executive officers and directors as amended and restated March 7, 2000. (Exhibit 10-M to Veritas DGC Inc.'s Form 10-Q for the quarter ended April 30, 2000 is incorporated herein by reference.) 10-N) Employment Agreement executed by Richard C. White. (Exhibit 10-Q to Veritas DGC Inc's Form 10-Q for the quarter ended January 31, 2000 is incorporated herein by reference.) 10-O) Indemnity Agreement between Veritas DGC Inc. and Richard C. White. (Exhibit 10-Q to Veritas DGC Inc.'s Form 10-Q for the quarter ended April 30, 2000 is incorporated herein by reference.) *10-P) Settlement Agreement between Veritas DGC Inc. and Richard C. White. *10-Q) Deferred Compensation Plan effective January 1, 2001. *10-R) Rabbi Trust Agreement between Veritas DGC Inc. and Austin Trust Company relating to the Deferred Compensation Plan. *27) Financial Data Schedule. * Filed herewith B) REPORTS ON FORM 8-K On October 5, 2000, we filed a Form 8-K reporting under Item 5 an underwritten public offering of shares of our common stock 14 17 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 13th day of December 2000. VERITAS DGC INC. By: /s/ DAVID B. ROBSON -------------------------------------------------- DAVID B. ROBSON Chairman of the Board and Chief Executive Officer /s/ ANTHONY TRIPODO -------------------------------------------------- ANTHONY TRIPODO Executive Vice President, Chief Financial Officer and Treasurer 15 18 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION 10-P) Settlement Agreement between Veritas DGC Inc. and Richard C. White 10-Q) Deferred Compensation Plan effective January 1, 2001 10-R) Rabbi Trust Agreement between Veritas DGC Inc. and Austin Trust Company relating to the Deferred Compensation Plan 27) Financial Data Schedule