-----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, AYLqVqpNRJDt6/NEh1JOvbN2ig+2nYtiHaJxXEiKqtSRhmpcFwPkUmi7NVKnq/uG 86wF78bcTnOln/Uy4xD5pg== 0000950129-97-005252.txt : 19971216 0000950129-97-005252.hdr.sgml : 19971216 ACCESSION NUMBER: 0000950129-97-005252 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19971031 FILED AS OF DATE: 19971215 SROS: AMEX 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: 97738464 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. - 10/31/97 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, 1997 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 organization) (I.R.S. Employer Identification No.) 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 the Company's common stock (the "Common Stock"), $.01 par value, outstanding at November 30, 1997 was 22,459,670 (including 2,367,071 Veritas Energy Services Inc. exchangeable shares which are identical to the Common Stock in all material respects). ================================================================================ 2 VERITAS DGC INC. AND SUBSIDIARIES INDEX FORM 10-Q ================================================================================
Page Number ----------- PART I. Financial Information Item 1. Financial Statements Consolidated Statements of Income - For the Three Months Ended October 31, 1996 and 1997 1 Consolidated Balance Sheets - July 31, 1997 and October 31, 1997 2 Consolidated Statements of Cash Flows - For the Three Months Ended October 31, 1996 and 1997 3 Notes to Consolidated Financial Statements 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 PART II. Other Information Item 4. Submission of Matters to a Vote of Security Holders 12 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 UNAUDITED (In thousands, except per share amounts)
Three Months Ended October 31, ------------------------------ 1996 1997 --------- --------- REVENUES $ 76,405 $ 142,186 COSTS AND EXPENSES: Cost of services 58,320 93,253 Depreciation and amortization 8,692 12,514 Selling, general and administrative 1,950 4,539 Other (income) expense: Interest 1,263 2,034 Merger related costs 597 Other (256) (308) --------- --------- Total costs and expenses 70,566 112,032 --------- --------- Income before provision for income taxes and equity in earnings of joint venture 5,839 30,154 Provision for income taxes 1,238 9,649 Equity in earnings of joint venture (567) (814) --------- --------- NET INCOME $ 5,168 $ 21,319 ========= ========= PER SHARE OF COMMON STOCK: Primary: Earnings per share $ .28 $ .95 ========= ========= Weighted average shares 18,382 22,424 ========= ========= Fully diluted: Earnings per share $ .27 ========= Weighted average shares 18,950 =========
See Notes to Consolidated Financial Statements 1 4 VERITAS DGC INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands, except for par value and number of shares)
July 31, October 31, 1997 1997 --------- ----------- (Unaudited) ASSETS Current assets: Cash and short-term investments $ 71,177 $ 85,859 Restricted cash investments 550 557 Accounts and notes receivable (net of allowance for doubtful accounts: July $646; 120,946 130,953 October $1,062) Materials and supplies inventory 2,333 2,519 Prepayments and other 10,429 9,401 --------- --------- Total current assets 205,435 229,289 Property and equipment: Seismic equipment 156,264 167,180 Data processing equipment 54,516 59,413 Leasehold improvements and other 29,978 29,552 --------- --------- Total 240,758 256,145 Less accumulated depreciation 108,004 116,892 --------- --------- Property and equipment - net 132,754 139,253 Multi-client data library 20,904 18,602 Investment in and advances to joint venture 2,908 3,994 Goodwill (net of accumulated amortization: July $2,725; October $2,852) 3,163 3,036 Deferred tax asset 6,385 Other assets 9,712 15,359 --------- --------- Total $ 381,261 $ 409,533 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current maturities of long-term debt $ 383 $ 391 Accounts payable - trade 39,007 38,888 Accrued interest 2,188 362 Other accrued liabilities 38,669 44,463 Income taxes payable 3,118 973 --------- --------- Total current liabilities 83,365 85,077 Non-current liabilities: Long-term debt - less current maturities 75,588 75,472 Other non-current liabilities 1,007 1,140 --------- --------- Total non-current liabilities 76,595 76,612 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: 19,982,040 and 200 200 20,092,599 shares (excluding 2,367,071 Exchangeable Shares) at July and October, respectively Additional paid-in capital 194,764 200,277 Accumulated earnings (from August 1, 1991 with respect to Digicon Inc.) 27,400 48,719 Cumulative foreign currency translation adjustment (1,063) (1,352) --------- --------- Total stockholders' equity 221,301 247,844 --------- --------- Total $ 381,261 $ 409,533 ========= =========
See Notes to Consolidated Financial Statements 2 5 VERITAS DGC INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS UNAUDITED (In thousands of dollars)
Three Months Ended October 31, ------------------------------ 1996 1997 -------- -------- OPERATING ACTIVITIES: Net income $ 5,168 $ 21,319 Non-cash items included in net income: Depreciation and amortization 8,692 12,514 Loss on disposition of property and equipment 224 194 Equity in earnings of 50% or less-owned companies and joint ventures (567) (814) Write-down of multi-client data library to market 436 80 Change in operating assets/liabilities: Accounts and notes receivable (15,021) (10,007) Materials and supplies inventory (630) (186) Prepayments and other 89 1,028 Multi-client data library (2,883) 2,222 Other 1,421 (5,776) Accounts payable - trade 4,481 (2,562) Accrued interest 23 (1,826) Other accrued liabilities 1,464 5,794 Income taxes payable 415 9,237 Other non-current liabilities (87) (102) -------- -------- Total cash provided by operating activities 3,225 31,115 FINANCING ACTIVITIES: Payments of secured term loans (6,000) Payments of long-term debt (28,398) (108) Borrowings from long-term debt 781 Net borrowings (payments) under credit agreement (11,458) Borrowings from senior notes 75,000 Debt issue costs (2,461) Net proceeds from sale of common stock 800 751 -------- -------- Total cash provided by financing activities 28,264 643 INVESTING ACTIVITIES: (Increase) decrease in restricted cash investments (203) (7) Increase in investment in and advances to joint venture (1,000) (272) Purchase of property and equipment (8,502) (16,639) Sale of property and equipment 667 2 -------- -------- Total cash used by investing activities (9,038) (16,916) Currency (gain) loss on foreign cash 214 (160) -------- -------- Change in cash and cash equivalents 22,665 14,682 Beginning cash and cash equivalents balance 10,072 71,177 -------- -------- Ending cash and cash equivalents balance $ 32,737 $ 85,859 ======== ========
See Notes to Consolidated Financial Statements 3 6 VERITAS DGC INC. AND SUBSIDIARIES SUPPLEMENTARY SCHEDULES TO CONSOLIDATED STATEMENTS OF CASH FLOWS UNAUDITED (In thousands of dollars)
Three Months Ended October 31, ------------------------------- 1996 1997 --------------- -------------- SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: Increase in property and equipment for: Equipment purchase obligations $ 5,542 Accounts payable - trade 1,289 $ 2,443 Utilization of net operating losses existing prior to the quasi-reorganization resulting in an increase (decrease) in: Deferred tax asset valuation allowance (4,762) Additional paid-in capital 4,762 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid for: Interest - Senior notes 3,656 Revolving credit agreement 205 Secured term loans 274 Equipment purchase obligations 689 19 Other 11 127 Income taxes 613 412
See Notes to Consolidated Financial Statements 4 7 VERITAS DGC INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED OCTOBER 31, 1997 UNAUDITED 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES OPINION OF MANAGEMENT In the opinion of Management, the accompanying unaudited consolidated financial statements contain all adjustments of a normal and recurring nature necessary to present fairly the financial position of Veritas DGC Inc. and subsidiaries at October 31, 1997, and the results of its operations and its cash flows for the three months ended October 31, 1996 and 1997. The results of operations for any interim period are not necessarily indicative of the results to be expected for a full year, as such results could be affected by changes in demand for geophysical services and products, which is directly related to the level of oil and gas exploration and development activity. Governmental actions, foreign currency exchange rate fluctuations, seasonal factors, weather conditions and equipment problems also could impact future operating results. NEW ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED In February 1997, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share." This statement requires the computation of basic earnings per share based upon weighted-average common shares outstanding and diluted earnings per share based upon weighted-average common shares outstanding and additional common shares, utilizing the treasury stock method and average market prices, that would have been outstanding if dilutive potential common shares had been issued. In addition, previously reported earnings per share must be restated. This statement is effective for interim and annual reporting periods ending after December 15, 1997. Basic earnings per share will not differ from previously reported primary earnings per share amounts. Diluted earnings per share will include the effect of using the average market price for the period instead of the higher of the average market price or the end of period price. In addition, diluted earnings per share will be presented for all prior periods where fully diluted earnings per share were not previously reported because dilutive potential common shares did not result in more than 3% dilution. Diluted earnings per share are not expected to differ materially from basic earnings per share. In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income." This statement requires disclosure in both interim and annual reporting of the reporting period's comprehensive income (changes in equity from non-owner sources), net of the related tax effect, on the face of the consolidated statement of income, consolidated statement of changes in stockholders' equity or in a separate statement of comprehensive income and the accumulated balance of other comprehensive income (comprehensive income excluding net income) as a separate component in the stockholders' equity section of the consolidated balance sheet. Classifications included in the accumulated balance are disclosed on the face of the consolidated balance sheet or statement of changes in stockholders' equity or in notes to the consolidated financial statements. The Company's sources of comprehensive income include net income and cumulative foreign currency translation adjustments. The Company will be required to implement this statement in fiscal year 1999. Management has not completed its assessment of how it will present the required information. In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of an Enterprise and Related Information" which will supersede SFAS No. 14, "Financial Reporting for Segments of a Business Enterprise". It will require the Company to disclose certain financial information in both annual and interim reporting about "operating segments" which are components of a company that are evaluated 5 8 VERITAS DGC INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) FOR THE THREE MONTHS ENDED OCTOBER 31, 1997 UNAUDITED regularly by management in deciding how to allocate its resources and in assessing its performance. It also requires disclosure about the countries from which the Company derives its revenues and in which it employs its long-lived assets. Major customers will continue to be disclosed. The Company will be required to implement this statement in fiscal year 1999. Management has not completed its assessment of how the adoption of this statement will affect its existing segment disclosures. EARNINGS PER SHARE Primary earnings per share is computed based on the weighted average number of shares of common stock, Exchangeable Stock issued in the business combination between Veritas DGC Inc., formerly Digicon Inc., and Veritas Energy Services Inc. and common stock equivalents. Common stock equivalents include stock options and warrants. Shares issuable upon the conversion of stock options and warrants were disregarded since the treasury stock method of calculation resulted in dilution of less than 3%. Fully diluted earnings per share is not presented for the three months ended October 31, 1997 since stock options and warrants referenced above resulted in dilution of less than 3%. 2. INVESTMENT IN INDONESIAN JOINT VENTURE Summarized financial information for the Company's 80% owned Indonesian joint venture (P.T. Digicon Mega Pratama), which is accounted for under the equity method due to provisions in the joint venture agreement that give minority shareholders the right to exercise control, is as follows:
July 31, October 31, 1997 1997 -------- ----------- (In thousands of dollars) Current assets $ 3,697 $ 4,743 Property and equipment, net 60 55 Multi-client data library 228 168 -------- -------- Total assets $ 3,985 $ 4,966 ======== ======== Current liabilities $ 1,077 $ 972 Advances from affiliates 14,784 15,055 Stockholders' deficit: Common stock 2,576 2,576 Accumulated deficit (14,452) (13,637) -------- -------- Total stockholders' deficit (11,876) (11,061) -------- -------- Total liabilities and stockholders' deficit $ 3,985 $ 4,966 ======== ========
6 9 VERITAS DGC INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) FOR THE THREE MONTHS ENDED OCTOBER 31, 1997 UNAUDITED
Three Months Ended October 31, --------------------- 1996 1997 --------- --------- (In thousands of dollars) Revenues $ 3,296 $ 1,450 Cost and expenses: Cost of services 2,365 667 Depreciation and amortization 288 78 Other 1 (110) --------- --------- Total 2,654 635 --------- --------- Income before provision for income taxes 642 815 Provision for income taxes 75 --------- --------- Net income $ 567 $ 815 ========= =========
3. LONG-TERM DEBT The Company's long-term debt is as follows:
July 31, October 31, 1997 1997 --------- ----------- (In thousands of dollars) Senior notes due October 2003, at 9 3/4% $ 75,000 $ 75,000 Equipment purchase obligations maturing through September 2000, at a weighted average rate of 9.29% at October 31, 1997 971 863 --------- --------- Total 75,971 75,863 Less current maturities 383 391 --------- --------- Due after one year $ 75,588 $ 75,472 ========= =========
The senior notes are due in October 2003 with interest payable semi-annually at 9 3/4%. The senior notes are unsecured and are effectively subordinated to secured debt of the Company with respect to the assets securing such debt and to all debt of its subsidiaries whether secured or unsecured. The indenture relating to the senior notes contains certain covenants which limit the Company's ability to, among other things, incur additional debt, pay dividends and complete mergers, acquisitions and sales of assets. Upon a change in control of the Company, as defined in the indenture, the holders of the senior notes have the right to require the Company to purchase all or a portion of such holder's senior note at a price equal to 101% of the aggregate principal amount. The Company has the right to redeem the senior notes, in whole or part, on or after October 15, 2000. Under certain conditions, the Company may redeem up to $20.0 million in aggregate principal amount of the senior notes prior to October 15, 1999. The Company maintains a revolving credit agreement which matures in July 1998 with a commercial bank and provides advances up to $25.0 million of which $20.0 million are secured by substantially all of the receivables of the Company. Advances bear interest, at the Company's election, at LIBOR plus two percent or prime rate and are limited by a borrowing formula. Covenants in the agreement limit, among other things, the Company's right, without consent of the lender, to take certain actions, including creating indebtedness and paying dividends, and limit the Company's capital expenditures in any fiscal year. In addition, the agreement requires minimum cash flow coverage and the maintenance of minimum 7 10 VERITAS DGC INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) For the Three Months Ended October 31, 1997 UNAUDITED tangible net worth, limits the ratio of funded debt to total capitalization, and requires the Company to maintain a minimum current ratio. 4. OTHER ACCRUED LIABILITIES Other accrued liabilities included $8.3 million and $7.0 million of accrued payroll and benefits and $14.3 million and $19.4 million of deferred revenues as of July 31, 1997 and October 31, 1997, respectively. 5. OTHER COSTS AND EXPENSES Other costs and expenses consist of the following:
Three Months Ended October 31, ---------------------- 1996 1997 --------- --------- (In thousands of dollars) Net foreign currency exchange (gains) losses $ (395) $ 595 Net loss on disposition of property and equipment 224 194 Interest income (95) (1,074) Other 10 (23) --------- --------- Total $ (256) $ (308) ========= =========
8 11 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS THREE MONTHS ENDED OCTOBER 31, 1997 COMPARED WITH THREE MONTHS ENDED OCTOBER 31, 1996 Revenues. Total revenues increased 86% from $76.4 million to $142.2 million. Multi-client data sales increased 917% from $4.2 million to $42.3 million due to expanding customer interest in the Gulf of Mexico deepwater and sub-salt areas. Over the past two years as oil and gas companies have moved towards multi-client surveys to reduce the finding costs in these areas, the Company has significantly increased its data library. The Company has 1,140,000 line kilometers in its data library of which 140,000 line kilometers were added during the quarter ended October 31, 1997. Land and transition zone acquisition revenues increased 47% from $40.5 million to $59.3 million as a result of firm prices, additional recording capacity and operating efficiencies from upgraded and standardized equipment. Data processing operations increased 44% from $15.4 million to $22.3 million due to increased market activity and the demand for computer intensive processes, such as prestack time and depth migration, to process the larger volumes of data acquired in three dimensional surveys. The Company has substantially upgraded its processing centers, including the addition of a NEC supercomputer in the U.K. in August 1997, to meet this increased demand. Marine acquisition revenues increased 12% from $16.3 million to $18.3 million primarily due to higher productivity from the upgrade to Syntron equipment in the prior fiscal year. Operating Expenses. Costs of services increased 60% from $58.3 million to $93.3 million, but as a percent of revenues decreased from 76% to 66%. The improvement in operating margins is attributable to the significant sales of multi-client data surveys which generally have higher margins, higher prices as a result of increased market demand, better equipment utilization and higher productivity for all service groups as discussed above. Depreciation and Amortization. Depreciation and amortization expense increased 44% from $8.7 million to $12.5 million due to the $96.1 million 1997 capital expenditure program. Selling, General and Administrative. Selling, general and administrative expenses increased 133% from $2.0 million to $4.5 million, resulting primarily from costs incurred in implementing new administrative and accounting systems and pursuing a more aggressive marketing strategy. Interest. Interest expense increased 61% from $1.3 million to $2.0 million due to increased debt levels required to finance the Company's 1997 capital expenditure program. The Company issued $75 million of senior notes in late October 1996. Merger Related Costs. Merger related costs in the prior year consist primarily of one month of investment banking and professional fees and expenses incurred in connection with the Company's August 1996 business combination with Veritas Energy Services Inc. Income Taxes. Provision for income taxes increased from $1.2 million to $9.6 million as a result of increased profitability of the Company. Equity in earnings. Equity in earnings is related to the Indonesian joint venture. An increase in marine acquisition surveys account for the increased profitability of the joint venture in the current year. LIQUIDITY AND CAPITAL RESOURCES The Company's internal sources of liquidity are cash, short-term investments and cash flow from operations. External sources include the unutilized portion of a revolving credit facility, public financings, equipment financing and trade credit. 9 12 The Company requires significant amounts of working capital to support its operations and to fund capital spending and research and development programs. The Company's foreign operations require greater amounts of working capital than similar domestic activities, as the average collection period for foreign receivables is generally longer than for comparable domestic accounts. Approximately 37% of revenues for the quarter ended October 31, 1997 were attributable to the Company's foreign operations. In addition, the Company has increased its participation in multi-client data surveys and has significantly expanded its library of multi-client data. Because of the lead-time between survey execution and sale, partially funded multi-client data surveys generally require greater amounts of working capital than contract work. Depending on the timing of future sales of the data and the collection of the proceeds from such sales, the Company's liquidity will be affected; however, the Company believes that these non-exclusive surveys have good long-term sales, earnings and cash flow potential. The Company's capital expenditure program for 1998 is $93.0 million and includes expenditures of $26.0 million to maintain or replace the Company's current operating equipment and $67.0 million to expand capacity. The Company plans to spend $4.6 million in fiscal 1998 for research and development. In October 1996, the Company completed a $75.0 million public offering of Senior Notes due in October 2003 (the "Senior Notes"). The net proceeds from the Senior Notes were used to retire outstanding indebtedness of the Company and fund a portion of the Company's capital expenditures in fiscal 1997. The indenture relating to the Senior Notes (the "Indenture") contains certain covenants, including covenants that limit the Company's ability to, among other things, incur additional debt, pay dividends and complete mergers, acquisitions and sales of assets. The Company is in compliance with all covenants of the agreement at October 31, 1997. Upon a change in control of the Company (as defined in the Indenture), holders of the Senior Notes have the right to require the Company to purchase all or a portion of such holder's Senior Note at a price equal to 101% of the aggregate principal amount. Interest is payable semi-annually beginning April 1997. In July 1997, the Company completed a public offering (the "Offering") of 3,450,000 shares of common stock (including the underwriters' overallotment option of 450,000 shares). A portion of the net proceeds from the Offering of $76.4 million was used for 1997 capital expenditures and the remainder will be used to fund a portion of the Company's fiscal 1998 $93.0 million capital expenditure program and for other general corporate purposes, including working capital, possible repurchases of outstanding Senior Notes and possible acquisitions. No repurchases will be made of outstanding Senior Notes, except at prices which are, at the time of any such repurchase, regarded by the Company to be attractive. Accordingly, there can be no assurance that any such repurchases will be made. While the Company regularly evaluates opportunities to acquire complementary businesses, it has no present agreements or commitments with respect to possible acquisitions, and no estimate can be made as to the amount of net proceeds which ultimately may be used for acquisitions. The Company maintains a $25.0 million revolving credit facility, as amended (the "Credit Facility"), with a commercial bank which will mature in July 1998. Advances up to $20.0 million under the Credit Facility are secured by substantially all of the Company's receivables. All advances bear interest, at the Company's election, at LIBOR plus two percent or prime rate and are limited by a borrowing formula which, based on current levels of receivables, results in a borrowing base well in excess of the maximum commitment. Covenants in the Credit Facility prohibit the payment of cash dividends and limit, among other things, the Company's right to create indebtedness and make capital expenditures over a certain amount in any fiscal year. In addition, the Credit Facility requires minimum cash flow coverage and the maintenance of minimum tangible net worth, limits the ratio of funded debt to total capitalization, and requires the Company to maintain a minimum current ratio. The Company is in compliance with all covenants of the agreement and has no outstanding advances at October 31, 1997. Since the Company's quasi-reorganization with respect to Digicon Inc. on July 31, 1991, the tax benefits of net operating loss carryforwards existing at the date of the quasi-reorganization have been recognized through a direct addition to paid-in capital, when realization is more likely than not. Additionally, the 10 13 utilization of the net operating loss carryforwards existing at the date of the quasi-reorganization are subject to certain limitations. During the quarter ended October 31, 1997 the Company recognized $4.8 million related to these benefits, due to the increased profitability of the Company during the current fiscal year and anticipated profitability in future fiscal years. The Company will require substantial cash flow to continue operations on a satisfactory basis, complete its capital expenditure and research and development programs and meet its principal and interest obligations with respect to outstanding indebtedness. The Company anticipates that cash and short-term investments, net proceeds from the Offering, cash flow generated from operations and borrowings permitted under the Indenture and Credit Facility will provide sufficient liquidity to fund these requirements through fiscal 1998. However, the Company's ability to meet its debt service and other obligations depends on its future performance, which, in turn, is subject to general economic conditions, business and other factors beyond the Company's control. If the Company is unable to generate sufficient cash flow from operations or otherwise to comply with the terms of the Credit Facility or the Indenture, it may be required to refinance all or a portion of its existing debt or obtain additional financing. There can be no assurance that the Company would be able to obtain such refinancing or financing, or that any refinancing or financing would result in a level of net proceeds required. 11 14 PART II. OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS On December 9, 1997 at the Annual Meeting of Stockholders of Veritas DGC Inc., stockholders voted: 1. To elect each of the ten directors nominated for the board of directors as follows:
For Against ---------- ------- Clayton P. Cormier 19,507,417 807,095 Ralph M. Eeson 19,724,817 589,695 Lawrence C. Fichtner 19,727,857 586,655 James R. Gibbs 19,727,637 586,875 Steven J. Gilbert 19,727,967 586,545 Stephen J. Ludlow 19,727,967 586,545 Brian F. MacNeill 19,727,967 586,545 David B. Robson 19,727,757 586,755 Douglas B. Thompson 19,510,357 804,155 Jack C. Threet 19,507,357 807,155
2. Upon a proposal to adopt a 1997 Employee Stock Purchase Plan which allows qualifying employees to purchase specified amounts of the Company's stock at a discount from market price. Votes cast for the above matter were 16,658,972; votes against the above matter were 601,242. There were 109,795 abstentions and 2,944,503 broker non-votes. and 3. Upon the proposed amendment to the Company's Amended and Restated 1992 Employee Nonqualified Stock Option Plan which would increase the number of shares of common stock which may be issued or covered by options by 1,041,667 shares. Votes cast for the above matter were 11,070,584; votes against the above matter were 6,188,436. There were 110,989 abstentions and 2,944,503 broker non-votes. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a) EXHIBITS FILED WITH THIS REPORT: Exhibit ------- 2) Combination Agreement dated as of May 10, 1996, between Digicon Inc. and Veritas Energy Services Inc. (Exhibit 2.1 of Digicon Inc.'s Current Report on Form 8-K dated May 10, 1996 is incorporated herein by reference.) 3-A) Restated Certificate of Incorporation with amendments of Digicon Inc. dated August 30, 1996. (Exhibit 3.1 to Veritas DGC Inc.'s Current Report on Form 8-K dated September 16, 1996 is incorporated herein by reference.) 3-B) Certificate of Ownership and Merger of New Digicon Inc. and Digicon Inc. (Exhibit 3-B to Digicon Inc.'s Registration Statement No. 33-43873 dated November 12, 1991 is incorporated herein by reference.) 12 15 3-C) By-laws of New Digicon Inc. dated June 24, 1991. (Exhibit 3-C to Digicon Inc.'s Registration Statement No. 33-43873 dated November 12, 1991 is incorporated herein by reference). 4-A) Specimen certificate for Senior Notes. (Included as part of Section 2.2 of Exhibit 4-B to Veritas DGC Inc.'s Registration Statement No. 333-12481 dated September 20, 1996 is incorporated herein by reference.) 4-B) Form of Trust Indenture relating to the 9 3/4% Senior Notes due 2003 of Veritas DGC Inc. between Veritas DGC Inc. and Fleet National Bank, as trustee. (Exhibit 4-B to Veritas DGC Inc.'s Registration Statement No. 333-12481 dated September 20, 1996 is incorporated herein by reference.) 4-C) Specimen Veritas 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 as of May 15, 1997. (Exhibit 4.1 of Veritas DGC Inc.'s Current Report on Form 8-K filed May 27, 1997 is incorporated herein by reference.) 10-A) 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-B) Amended and Restated 1992 Non-Employee Director Stock Option Plan. (Exhibit 4.2 to Veritas DGC Inc.'s Registration Statement No. 333-41829 dated December 10, 1997 is incorporated herein by reference.) 10-C) Second Amended and Restated 1992 Employee Nonqualified Stock Option Plan. (Exhibit 4.1 to Veritas DGC Inc.'s Registration Statement No. 333-41829 dated December 10, 1997 is incorporated herein by reference.) 10-D) Support Agreement dated August 30, 1996, between Digicon Inc. and Veritas Energy Services Inc. (Exhibit 10.1 of Veritas DGC Inc.'s Current Report on Form 8-K, dated August 30, 1996 is incorporated herein by reference.) 10-E) Credit Agreement dated July 18, 1996, among Digicon Inc. and Digicon Geophysical Corp., Digicon/GFS Inc., Digicon Geophysical Limited and Digicon Exploration, Ltd., as Borrowers, each of the banks named therein, and Wells Fargo Bank (Texas), National Association, as issuing bank, as a bank and as agent for the banks (the "Credit Agreement") (Exhibit 10-G of Veritas DGC Inc.'s Amendment No. 1 to Registration Statement No. 333-12481, dated October 2, 1996 is incorporated herein by reference.) 10-F) Letter dated September 27, 1996, from Wells Fargo Bank (Texas), National Association, agreeing to amend the Credit Agreement. (Exhibit 10-H of Veritas DGC Inc.'s Amendment No. 1 to Registration Statement No. 333-12481, dated October 2, 1996 is incorporated herein by reference.) 10-G) Employment Agreement executed by Anthony Tripodo. (Exhibit 10-I to Veritas DGC Inc.'s Form 10-Q for the quarter ended April 30, 1997 is incorporated herein by reference.) 10-H) Letter dated May 28, 1997, from Wells Fargo Bank (Texas), National Association, agreeing to amend the Credit Agreement. (Exhibit 10-J to Veritas DGC Inc.'s Form 10-Q for the quarter ended April 30, 1997 is incorporated herein by reference.) 13 16 10-I) Severance Agreement between Veritas DGC Inc. and Richard W. McNairy. (Exhibit 10-K 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 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-K) Employment Agreement executed by Lawrence C. Fichtner. (Exhibit 10-M to Veritas DGC Inc.'s Form 10-K for the year ended July 31, 1997 is incorporated herein by reference.) 10-L) 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-M) 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-N) 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.) *11) Computation of income per common and common equivalent share. *27) Financial Data Schedule. * Filed herewith b) REPORTS ON FORM 8-K There were no reports on Form 8-K during the quarter ended October 31, 1997. 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 15th day of December, 1997. 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 and Accounting Officer and Treasurer 15 18 Index to Exhibits
Exhibit ------- 2) Combination Agreement dated as of May 10, 1996, between Digicon Inc. and Veritas Energy Services Inc. (Exhibit 2.1 of Digicon Inc.'s Current Report on Form 8-K dated May 10, 1996 is incorporated herein by reference.) 3-A) Restated Certificate of Incorporation with amendments of Digicon Inc. dated August 30, 1996. (Exhibit 3.1 to Veritas DGC Inc.'s Current Report on Form 8-K dated September 16, 1996 is incorporated herein by reference.) 3-B) Certificate of Ownership and Merger of New Digicon Inc. and Digicon Inc. (Exhibit 3-B to Digicon Inc.'s Registration Statement No. 33-43873 dated November 12, 1991 is incorporated herein by reference.) 3-C) By-laws of New Digicon Inc. dated June 24, 1991. (Exhibit 3-C to Digicon Inc.'s Registration Statement No. 33-43873 dated November 12, 1991 is incorporated herein by reference). 4-A) Specimen certificate for Senior Notes. (Included as part of Section 2.2 of Exhibit 4-B to Veritas DGC Inc.'s Registration Statement No. 333-12481 dated September 20, 1996 is incorporated herein by reference.) 4-B) Form of Trust Indenture relating to the 9 3/4% Senior Notes due 2003 of Veritas DGC Inc. between Veritas DGC Inc. and Fleet National Bank, as trustee. (Exhibit 4-B to Veritas DGC Inc.'s Registration Statement No. 333-12481 dated September 20, 1996 is incorporated herein by reference.) 4-C) Specimen Veritas 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 as of May 15, 1997. (Exhibit 4.1 of Veritas DGC Inc.'s Current Report on Form 8-K filed May 27, 1997 is incorporated herein by reference.) 10-A) 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-B) Amended and Restated 1992 Non-Employee Director Stock Option Plan. (Exhibit 4.2 to Veritas DGC Inc.'s Registration Statement No. 333-41829 dated December 10, 1997 is incorporated herein by reference.) 10-C) Second Amended and Restated 1992 Employee Nonqualified Stock Option Plan. (Exhibit 4.1 to Veritas DGC Inc.'s Registration Statement No. 333-41829 dated December 10, 1997 is incorporated herein by reference.) 10-D) Support Agreement dated August 30, 1996, between Digicon Inc. and Veritas Energy Services Inc. (Exhibit 10.1 of Veritas DGC Inc.'s Current Report on Form 8-K, dated August 30, 1996 is incorporated herein by reference.)
19 10-E) Credit Agreement dated July 18, 1996, among Digicon Inc. and Digicon Geophysical Corp., Digicon/GFS Inc., Digicon Geophysical Limited and Digicon Exploration, Ltd., as Borrowers, each of the banks named therein, and Wells Fargo Bank (Texas), National Association, as issuing bank, as a bank and as agent for the banks (the "Credit Agreement") (Exhibit 10-G of Veritas DGC Inc.'s Amendment No. 1 to Registration Statement No. 333-12481, dated October 2, 1996 is incorporated herein by reference.) 10-F) Letter dated September 27, 1996, from Wells Fargo Bank (Texas), National Association, agreeing to amend the Credit Agreement. (Exhibit 10-H of Veritas DGC Inc.'s Amendment No. 1 to Registration Statement No. 333-12481, dated October 2, 1996 is incorporated herein by reference.) 10-G) Employment Agreement executed by Anthony Tripodo. (Exhibit 10-I to Veritas DGC Inc.'s Form 10-Q for the quarter ended April 30, 1997 is incorporated herein by reference.) 10-H) Letter dated May 28, 1997, from Wells Fargo Bank (Texas), National Association, agreeing to amend the Credit Agreement. (Exhibit 10-J to Veritas DGC Inc.'s Form 10-Q for the quarter ended April 30, 1997 is incorporated herein by reference.) 10-I) Severance Agreement between Veritas DGC Inc. and Richard W. McNairy. (Exhibit 10-K 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 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-K) Employment Agreement executed by Lawrence C. Fichtner. (Exhibit 10-M to Veritas DGC Inc.'s Form 10-K for the year ended July 31, 1997 is incorporated herein by reference.) 10-L) 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-M) 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-N) 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.) *11) Computation of income per common and common equivalent share. *27) Financial Data Schedule.
* Filed herewith EX-11 2 COMPUTATION OF INCOME 1 EXHIBIT 11 VERITAS DGC INC. AND SUBSIDIARIES COMPUTATION OF INCOME PER COMMON AND COMMON EQUIVALENT SHARE (In thousands, except per share amounts)
FOR THE THREE MONTHS ENDED OCTOBER 31, -------------------------- 1996 1997 --------- --------- PRIMARY INCOME PER SHARE: Weighted average shares of common stock outstanding 18,382 22,424 ========= ========= Primary income per share $ .28 $ .95 ========= ========= FULLY DILUTED INCOME PER SHARE: Weighted average shares of common stock outstanding 18,382 22,424 Shares issuable from assumed conversion of: Warrants 174 37 Stock options 394 334 --------- --------- Weighted average shares outstanding, as adjusted 18,950 22,795(1) ========= ========= Fully diluted income per share $ .27 $ .94 ========= ========= NET INCOME FOR PRIMARY AND FULLY DILUTED COMPUTATION $ 5,168 $ 21,319 ========= =========
(1) This calculation is submitted in accordance with Item 601(b) 11 of Regulation S-K although not required by footnote 2 to paragraph 14 of APB Opinion No. 15 because warrants and options result in dilution of less than 3%. EX-27 3 FINANCIAL DATA SCHEDULE
5 1,000 3-MOS JUL-31-1998 AUG-01-1997 OCT-31-1997 85,859 0 132,015 1,062 2,519 229,289 256,145 116,892 409,533 85,077 0 0 0 200 247,644 409,533 0 142,186 0 93,253 18,779 0 2,034 30,154 9,649 21,319 0 0 0 21,319 .95 .95
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