Edgar Filing: VERITAS DGC INC

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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FORM 10-K

(MARK ONE)
[X]
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED JULY 31, 2003

[ ]
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 (I.R.S. Employer
incorporation or 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)

Securities registered pursuant to Section 12(b) of the Act:

TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
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Common Stock, $.01 par Value New York Stock Exchange
Preferred Stock Purchase Rights New York Stock Exchange

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 [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]

Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Securities and Exchange Act of 1934). Yes [x]
No [ ]

The aggregate market value of the registrant's voting stock held by
non-affiliates of the registrant was $252,979,536 as of January 31, 2003.

The number of shares of the Company's common stock, $.01 par value,
outstanding at September 30, 2003 was 33,650,097 (including 1,443,411 Veritas
Energy Services Inc. exchangeable shares which are identical to the Common Stock
in all material respects).

Portions of the registrant's definitive proxy statement to be filed in
connection with the registrant's 2003 Annual Meeting of Stockholders are
incorporated by reference into Part III of this annual report.

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TABLE OF CONTENTS

FORM 10-K

PAGE
ITEM NUMBER
---- ------

PART I
1. Business
General ............................................................... 1
Services and Markets .................................................. 1
Principal Operating Assets ............................................ 2
Technology and Capital Expenditures ................................... 3
Competition ........................................................... 4
Backlog ............................................................... 4
Significant Customers ................................................. 4
Employees ............................................................. 4
SEC Reporting ......................................................... 4
2. Properties ............................................................... 5
3. Legal Proceedings ........................................................ 5
4. Submission of Matters to a Vote of Security Holders ...................... 5

PART II
5. Market for Registrant's Common Equity and Related Stockholder Matters .... 5
6. Selected Consolidated Financial Data ..................................... 6
7. Management's Discussion and Analysis of Financial Condition and Results of
Operations ............................................................ 6
7A. Quantitative and Qualitative Disclosures Regarding Market Risk ........... 15
8. Consolidated Financial Statements and Supplementary Data ................. 17
9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure ............................................................ 44
9A. Controls and Procedures .................................................. 44

PART III
10. Directors and Executive Officers of the Registrant ....................... 44
11. Executive Compensation ................................................... 44
12. Security Ownership of Certain Beneficial Owners and Management ........... 44
13. Certain Relationships and Related Transactions ........................... 44
14. Principal Accountant Fees and Services ................................... 44

PART IV
15. Exhibits, Financial Statement Schedules and Reports on Form 8-K .......... 45
Signatures ............................................................... 46

This annual report on Form 10-K and the documents incorporated by
reference contain forward-looking statements that involve risks and
uncertainties. Forward-looking statements include, among other things, business
strategy and expectations concerning industry conditions, market position,
future operations, margins, profitability, liquidity and capital resources.
These expectations are based on management's assumptions and current beliefs
based on currently available information. Although we believe that the
expectations reflected in such statements are reasonable, we can give no
assurance that such expectations will be correct. You are cautioned not to place
undue reliance on these forward-looking statements, which speak only as of the
date of this annual report on Form 10-K. Our actual results could differ
materially from those anticipated in the forward-looking statements as a result
of risks and uncertainties to which they are subject, including those set forth
under Item 1 Business and Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Risk Factors.

PART I

ITEM 1. BUSINESS

GENERAL

We are a leading provider of integrated geophysical services to the
petroleum industry worldwide. Our customers include major, national and
independent oil and gas companies that utilize geophysical technologies to:

- Identify new areas where subsurface conditions are favorable
for the production of hydrocarbons.

- Determine the size and structure of previously identified oil
and gas fields.

- Optimize development and production of hydrocarbon reserves.

We acquire, process, and interpret geophysical data and produce
geophysical surveys that are either 2D or 3D images of the subsurface geology in
the survey area. We also produce 4D surveys, which record fluid movement in the
reservoir, by repeating specific 3D surveys over time. Additionally, we use
geophysical data for reservoir characterization to enable our customers to
maximize their recovery of oil and natural gas.

SERVICES AND MARKETS

We conduct geophysical surveys on both a contract and a multi-client
basis. When we conduct surveys on a contract basis, we acquire and process data
for a single client who pays us to conduct the survey and owns the data we
acquire. When we conduct surveys on a multi-client basis, we acquire and process
data for our own account and license that data and associated products to
multiple clients. Approximately 44% of our fiscal 2003 revenue was generated
through the licensing of multi-client data. The high cost of acquiring and
processing geophysical data on an exclusive basis has prompted many oil and gas
companies to license surveys on a multi-client basis. In response to this
demand, we have built a large library of surveys consisting of 200,326 line
kilometers of 2D survey data and 169,172 square kilometers of 3D data. Our
marine library includes surveys in the Gulf of Mexico, the North Atlantic,
Southeast Asia, West Africa, North Africa, Canada and Brazil. Our land data
library includes surveys in Texas, Mississippi, Oklahoma, Wyoming and Alberta,
Canada.

The following tables describe our revenues by contract type and
geographic area:

YEARS ENDED JULY 31,
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REVENUES BY CONTRACT TYPE 2003 2002 2001
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(IN THOUSANDS)

Contract work ..................... $282,971 $229,709 $258,403
Licensing of multi-client data .... 220,030 225,974 218,899
-------- -------- --------
Total ................... $503,001 $455,683 $477,302
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YEARS ENDED JULY 31,
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REVENUES BY GEOGRAPHIC AREA 2003 2002 2001
----------------------------------- -------- -------- --------
(IN THOUSANDS)

United States ..................... $188,768 $185,238 $193,204
Canada ............................ 71,911 75,885 113,334
Latin America ..................... 113,020 95,382 68,501
Europe ............................ 37,516 47,224 48,427
Middle East/Africa ................ 54,495 25,610 18,363
Asia Pacific ...................... 37,291 26,344 35,473
-------- -------- --------
Total ................... $503,001 $455,683 $477,302
======== ======== ========

In fiscal 2003, 2002 and 2001, 62%, 59% and 60%, respectively, of our
revenues were attributable to non-U.S. operations and export sales. (See Note 14
of Notes to Consolidated Financial Statements for additional geographic and
segment information)

PRINCIPAL OPERATING ASSETS

We acquire, process, and interpret geophysical information utilizing a
wide array of assets as follows:

LAND ACQUISITION

Our land acquisition activities are performed with technologically
advanced geophysical equipment. As of July 31, 2003, the equipment had a
combined recording capacity of 45,929 channels. This equipment is deployed in
North and South America and Oman by crews of varying size. Crew count varies
widely as land acquisition is a seasonal activity in many markets, primarily due
to weather.

Each crew consists of a surveying unit that lays out the lines to be
recorded and marks the site for shot-hole placement or equipment location, an
explosive or mechanical vibrating unit that produces the acoustical impulse and
a recording unit that synchronizes the shooting and captures the signal via
geophones. On a land survey where explosives are used, the geophysical crew is
supported by several drill crews, which are typically furnished by third parties
under short-term contracts. Drill crews operate in advance of the geophysical
crew and bore shallow holes for explosive charges which, when detonated by the
geophysical crew, produce the necessary acoustical impulse.

MARINE ACQUISITION

Our marine acquisition crews operate from both owned and chartered
vessels that have been modified or equipped to our specifications. All of the
vessels we utilize are equipped to perform both 2D and 3D geophysical surveys.
During the last several years, the majority of the marine geophysical data
acquisition services we performed involved 3D surveys. The following table
contains certain information concerning the geophysical vessels we operate.

YEAR
ENTERED
VESSEL SERVICE LENGTH BEAM CHARTER EXPIRATION
------------------- ------- -------- -------- ------------------

Pacific Sword...... 1999 189 feet 40 feet October 2004
Seisquest.......... 2001 302 feet 61 feet May 2004
Veritas Viking..... 1998 305 feet 72 feet May 2006
Veritas Viking II.. 1999 305 feet 72 feet May 2007
Veritas Vantage.... 2002 305 feet 72 feet April 2010
Veritas Searcher... 1983 217 feet 44 feet Owned

Each vessel has an equipment complement consisting of geophysical
recording instrumentation, digital geophysical streamer cable, cable location
and geophysical data location systems, multiple navigation systems, a source
control system that controls the synchronization of the energy source and a
firing system that generates the acoustical impulses. Streamer cables contain
hydrophones that receive the acoustical impulses reflected by variations in the
subsurface strata.

At present, five of our vessels are equipped with multiple streamers
and multiple energy sources. These vessels acquire more lines of data with each
pass, which reduces completion time and the acquisition cost. The Veritas
Vikings and the Veritas Vantage are each capable of deploying 12 streamers
simultaneously, although each is currently equipped to tow eight. The Veritas
Viking, Veritas Vantage and Veritas Searcher are equipped with solid streamers
that offer numerous advantages over oil-filled streamers. The solid streamers
allow these vessels to work in rougher seas and record more desirable
frequencies with less noise and less downtime than is possible with oil-filled
streamers. The Viking II is expected to be equipped with solid streamers during
fiscal 2004. We plan to upgrade the remainder of the fleet with solid streamers
as replacement is required through normal attrition.

DATA PROCESSING AND INTERPRETATION

We operate 12 data processing centers capable of processing 2D and 3D
data. Most of our data processing services are performed on 3D seismic data. The
centers process data received from the field, both from our own and other
geophysical crews, to produce an image of the earth's subsurface using
proprietary computer software and techniques. We also reprocess older
geophysical data using new techniques designed to enhance the quality of the
data. Our data processing centers have opened at various times since 1966 and
are at present located in:

EUROPE/AFRICA/
NORTH AMERICA SOUTH AMERICA MIDDLE EAST ASIA PACIFIC
--------------- ----------------------- ------------------ ----------------------

Houston, Texas Buenos Aires, Argentina Crawley, England Singapore
Calgary, Canada Caracas, Venezuela Stavanger, Norway Perth, Australia
Aberdeen, Scotland Jakarta, Indonesia
Lagos, Nigeria Kuala Lumpur, Malaysia

Our processing centers operate high capacity, advanced technology data
processing systems on high-speed networks. These systems run our proprietary
data processing software. The marine and land data acquisition crews have
software compatible with that utilized in the processing centers, allowing for
ease in the movement of data from the field to the data processing centers. Our
centers can generally process both land and marine data and we tailor the
equipment and software deployed in an area to meet the local market demands.

We operate four visualization centers in Houston, Calgary, Perth, and
Crawley. These centers allow teams of geoscientists and engineers to view and
interpret large volumes of complex 3D data. The visualization centers have
imaging tools used for advanced interpretive techniques that enhance the
understanding of regional geology and reservoir modeling. These visualization
centers allow us to offer the type of collaborative geophysical model building
that is enabling oil companies to explore areas of complex geology such as the
large sub-salt plays in the deepwater Gulf of Mexico.

We have groups of scientists and engineers located in Calgary, Houston,
and Leoben, Austria who perform advanced geophysical interpretation on a
contract basis. These geophysical experts work around the world, using
third-party and our proprietary software to create subsurface models for our
clients and advising our clients on how best to exploit their reservoirs. Their
work is related to exploration as well as production activities. Additionally,
we license the proprietary software obtained through our acquisition of
Hampson-Russell to companies desiring to do their own geophysical
interpretation.

TECHNOLOGY AND CAPITAL EXPENDITURES

The geophysical industry is highly technical, and the requirements for
the acquisition and processing of geophysical data have evolved continuously
during the past 50 years. Accordingly, it is critical that our technological
capabilities are comparable or superior to those of our competitors. We maintain
our technological capabilities through continuing research and development,
strategic alliances with equipment manufacturers, and by acquiring technology
under license from others.

Currently, we employ approximately 75 people in our research and
development activities, substantially all of who are scientists, engineers or
programmers. During fiscal 2003, 2002 and 2001, research and development
expenditures were $11.6 million, $11.5 million and $9.9 million, respectively.
Our research and development budget for fiscal 2004 is $12.0 million.

During fiscal 2003, 2002 and 2001, capital expenditures for equipment
were $30.5 million, $87.1 million and $96.9 million, respectively. The higher
capital spending in 2002 and 2001 was due primarily to the outfitting of new
seismic vessels. Our capital expenditure budget for equipment in fiscal 2004 is
approximately $60 million. The actual level of future capital expenditures for
equipment will depend on the availability of funding and market requirements as
dictated by oil and gas company spending levels. A substantial portion of our
fiscal 2004 capital budget is allocated to replacement and upgrading of existing
equipment, particularly land acquisition equipment. Only $12 million of the
budget is allocated to capacity expansion, contingent upon execution of a new
land acquisition contract in Oman. During fiscal 2003, 2002 and 2001, cash
multi-client investment was $151.7 million, $169.0 million and $177.1 million,
respectively. For fiscal 2004, we are planning to reduce our cash multi-client
investment to approximately $130 million. We intend to manage our capital
spending and investment in multi-client library data in order to generate
positive free cash flow in fiscal 2004.

COMPETITION

The acquisition and processing of geophysical data for the oil and gas
industry has historically been highly competitive worldwide. Success in
marketing geophysical services is based on several factors, including price,
crew experience, equipment availability, technological expertise, reputation for
quality and dependability and, in the case of multi-client surveys, availability
of surveys in the area of current customer interest.

Our largest global competitors are Western-Geco (a joint venture
between Schlumberger and Baker Hughes), Compagnie Generale de Geophysique and
Petroleum Geo-Services ASA. Additionally, there are a large number of seismic
companies, mostly small and local, in the land acquisition and land processing
areas where financial and technical barriers to entry are minimal. In the
multi-client library business, we compete with the full-service seismic
companies mentioned above, as well as with specialty library companies such as
TGS Nopec Geophysical Company ASA and Seitel Inc.

We compete to a lesser degree with large, state-controlled companies
such as BGP of China (primarily land acquisition) and SMNG of Russia (primarily
marine acquisition). These companies are large providers of seismic services in
their home countries and have recently been expanding their operations to
include other parts of the world. They are particularly aggressive in price
sensitive markets, such as those involving large tenders to national oil
companies, where low price is of paramount importance.

Due to the constantly changing configurations of seismic crews and the
immense numbers of channels in the market, it is impossible to discuss the
global competition in land acquisition in any quantitative fashion. Tracking is
easier in the marine acquisition market, where our six vessels routinely compete
against 45 to 50 other vessels. As of July 31, 2003, our competitive analysis
showed a total of 52 vessels working in our markets, 34 of which were 3D capable
and 18 which were used only on 2D surveys. Vessel capacity exceeds current
demand, often resulting in aggressive price competition in this business. We
have been able to obtain relatively full utilization of our fleet, with very
little downtime between projects, with a combination of contract and
multi-client work.

BACKLOG

At July 31, 2003, our backlog of commitments for future revenue was
$173.2 million, compared with $216.4 million at July 31, 2002. Approximately 31%
of this backlog is related to multi-client surveys. We anticipate that the vast
majority of the July 31, 2003 backlog will be completed in the next 12 months.
This backlog consists of written orders or firm commitments. Contracts for
services are subject to modification by mutual consent and in certain instances
are cancelable by the customer on short notice without penalty. As a result of
these factors, our backlog as of any particular date may not be indicative of
our actual operating results for any succeeding period.

SIGNIFICANT CUSTOMERS

Historically, our principal customers have been major oil and gas
companies, national oil companies and independent oil and gas companies. In
fiscal 2003 and 2001, no customer accounted for 10% or more of total revenues.
In fiscal 2002, Petroleo Brasileiro S.A. accounted for 12% of our revenue due to
their funding of several multi-client surveys in Brazil.

EMPLOYEES

During fiscal 2003, we employed an average of 3,052 people on a
full-time basis. Our number of employees varies greatly due to changing activity
in our land acquisition business and ranged this year from a low of 2,517 to a
high of 5,106. A total of 358 employees in Bolivia, 1 in Argentina, 2 in Peru
and 32 in Singapore are subject to collective bargaining agreements. We consider
our relations with our employees to be good.

OUR SEC REPORTING

We electronically file certain documents with the SEC. We file annual
reports on Form 10-K; quarterly reports on Form 10-Q; current reports on Form
8-K (as appropriate); along with any related amendments and supplements thereto.
From time-to-time, we may also file registration and related statements
pertaining to equity or debt offerings. You may read and copy any materials we
file with the SEC at the SEC's Public Reference Room at 450 Fifth Street, NW,
Washington, DC 20549. You may obtain information regarding the Public Reference
Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an
internet website at www.sec.gov that contains reports, proxy and information
statements, and other information regarding issuers that file electronically
with the SEC.

We provide electronic access to our periodic and current reports on our
internet website, www.veritasdgc.com. These reports are available on our website
as soon as reasonably practicable after we electronically file such materials
with the SEC. You may also contact our investor relations department at
832-351-8821 for paper copies of these reports free of charge.

ITEM 2. PROPERTIES

Our headquarters are located in Houston, Texas in a 218,151 square foot
office and warehouse complex, which is leased. The complex houses data
processing operations, as well as executive, accounting, research and
development and operating personnel. This lease expires in the beginning of
fiscal 2016. We lease additional space, aggregating approximately 528,498 square
feet, which is used by operations around the world. These leases expire at
various times through fiscal 2013. We also own and charter seismic acquisition
vessels as listed under Item 1. Business--Principal Operating Assets--Marine
Acquisition of this report.

ITEM 3. LEGAL PROCEEDINGS

On September 28, 2002, we filed suit in Federal Court against one of
our customers seeking $6.8 million in damages for its failure to pay past due
invoices and for other damages. The customer has, in turn, filed a counterclaim
against us alleging that the services were not properly performed, although the
counterclaim did not specify the amount of damages claimed. We believe the facts
in the matter are in our favor, however, during our third quarter we reserved
$2.9 million of the related receivable in response to a "going concern"
qualification to the audit opinion in the customer's Form 10-K filing. As of its
most recent 10-Q, the customer is continuing to have borrowing base issues with
its lenders. We will continue to monitor the financial condition of the customer
and, if necessary, adjust the allowance for doubtful accounts to reflect current
circumstances. The matter has currently been ordered to mediation by the judge.
Our remaining balance sheet exposure to this claim is $2.9 million at July 31,
2003.

On occasion, we are named as a defendant in litigation relating to our
normal business operations. Although we are insured against various business
risks to the extent we believe prudent, there is no assurance that the nature
and amount of such insurance will be adequate in every case.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matter was submitted to a vote of security holders during the fourth
quarter of the fiscal year ended July 31, 2003.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The following table sets forth the high and low sales prices for our
common stock as reported by the New York Stock Exchange for the fiscal periods
shown. Our stock is also listed on the Toronto Stock Exchange.

FISCAL PERIOD HIGH LOW
---------------------------------------- --------- -------

2003 4th Quarter...................... $ 11.60 $ 6.85
3rd Quarter...................... 8.45 6.10
2nd Quarter...................... 9.58 6.70
1st Quarter...................... 13.50 7.45
2002 4th Quarter...................... $ 18.61 $ 7.00
3rd Quarter...................... 18.99 12.20
2nd Quarter...................... 18.75 13.80
1st Quarter...................... 17.55 10.00

On September 30, 2003, the last reported sales price for our common
stock on the New York Stock Exchange was $7.98 per share. On September 30, 2003,
there were approximately 396 record holders of common stock.

We have not paid any dividends on our common stock and have no plans to
pay any dividends. The payment of any future dividends on common stock would
depend upon our financial condition and upon a determination by our Board of
Directors that the payment of dividends would be desirable. Our current bank
debt agreement prohibits the payment of cash dividends.

For information related to equity compensation plans, see Note 9 of
Notes to Consolidated Financial Statements.

Two shares of special voting stock of Veritas are authorized and
outstanding, each existing as a series of Veritas common stock. The shares were
issued in 1996 and 1999 in connection with business combinations. These special
voting shares possess a number of votes equal to the number of Veritas Energy
Services Inc. Exchangeable Shares and Veritas Energy Services Inc. Class A
Exchangeable Shares, Series 1 outstanding at any time. Veritas Energy Services
Inc. is a wholly owned subsidiary of Veritas DGC, Inc. These exchangeable shares
were issued to provide beneficial Canadian tax treatment for the Canadian
shareholders of the Canadian corporations participating in the combination
transactions. The exchangeable shares may be exchanged on a one-for-one basis
for Veritas DGC, Inc. common stock, and when coupled with the voting rights
afforded by the special voting shares are virtually identical to Veritas DGC,
Inc.'s common stock. Any reference to our shares in this annual report refers to
all shares, including the exchangeable shares, unless the reference expressly
excludes the exchangeable shares. The exchangeable shares are traded in Canada
on the Toronto Stock Exchange.

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

YEARS ENDED JULY 31,
---------------------------------------------------------------
2003(1) 2002(2) 2001 2000 1999
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

STATEMENT OF OPERATIONS DATA:
Revenues ........................................ $503,001 $455,683 $477,302 $353,079 $388,905
Income (loss) ................................... (59,924) (23,150) 22,458 6,481 20,294

Income (loss) per common share -- basic ........ (1.80) (.71) .73 .25 .89
Income (loss) per common share -- diluted ...... (1.80) (.71) .73 .25 .88

BALANCE SHEET DATA:
Total assets .................................... $788,362 $780,781 $796,952 $611,808 $541,846
Long-term debt (including current maturities) ... 194,225 140,000 135,000 135,106 135,251

(1) Fiscal 2003 included charges of $39.3 million for goodwill impairment, $4.9
million for impairment of a multi-client survey, $7.6 million loss related
to the sale of our (RC)(2) software operations and $20.1 million related to
deferred tax asset valuation allowances.

(2) Fiscal 2002 included charges of $55.2 million for impairment of
multi-client surveys, $14.6 million for costs of a terminated merger , and
$6.5 million valuation allowance for Argentine deferred tax assets.

In July 2001, the Financial Accounting Standards Board issued SFAS
No.141 (Business Combinations) and SFAS No.142 (Goodwill and Other Intangible
Assets.) We adopted the use of these new accounting statements in August 2001.
SFAS No.142 defines the booking and subsequent treatment of goodwill and other
intangible assets derived from business combinations and supercedes APB Opinion
No.17. This statement required us to discontinue our amortization of goodwill.
Goodwill amortization is not included in the net losses for fiscal 2003 and
2002. In fiscal 2003, due to market conditions, we determined that all of our
goodwill was impaired and, as a result, incurred a $39.3 million charge, which
was included in our operating loss for the year.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

OVERVIEW

Fiscal 2003 was a transitional year for Veritas. Since the
Veritas-Digicon merger in 1996, we have been focused on growing the company
using prudent amounts of cash from outside sources, including equity sales and
debt. At the beginning of fiscal 2003, we decided to grow only as fast as our
internal cash generation would allow and we set a goal to be free cash flow
positive for the year. In order to achieve that goal we sought contract work
more aggressively and reduced our capital spending to a level well below that of
prior years. We also reduced our investment in multi-client library. These
actions enabled us to generate $18.5 million of free cash flow in a difficult
market environment. The $18.5 million of free cash flow is the difference
between the $200.7 million of cash we generated from operating activities and
the $182.2 million we reinvested in our multi-client library and capital
equipment. We believe this achievement represents a turning point for our
company and we expect to continue to generate positive free cash flow in the
coming year.

The past year was also a transitional year for many other companies in
the seismic industry. Two of our competitors, Petroleum Geo Services and Seitel
Inc. have filed for bankruptcy protection and several others are re-evaluating
their business strategies. Few, if any, companies in the industry are operating
in a "business as usual" manner.

While this has been a difficult year for the seismic industry, our
customer base, overall, has been financially healthy due to continued high
commodity prices. However, many of our customers have been using a substantial
portion of their discretionary cash

to pay down debt, buy back their stock, drill low-risk prospects and maximize
production from existing fields rather than exploring for new prospects. We do
not see any indications that this spending pattern will change much in the next
12 to 18 months.

Fiscal 2004 looks like it will again be a difficult year as we foresee
the operating environment will be similar to that of fiscal 2003. Our plans
include maintaining our focus on cash flow and, therefore, doing more contract
work and investing less in our multi-client library. With other full-service
geophysical contractors adopting a similar strategy, this may increase pricing
pressure in the contract business.

On a longer-term basis, we believe that our customers will need to
explore more aggressively to maintain their petroleum reserves. There are many
areas where an upturn in exploration is possible, most significantly the
deepwater Gulf of Mexico and offshore Brazil. Licenses to many of the deepwater
blocks in the Gulf of Mexico, originally licensed in the mid-to-late 1990's will
be expiring over the years 2005 - 2008, stimulating interest from new players in
that market. We have extensive multi-client surveys in this region and could
profit from the turnover of licenses. Similarly, Petrobras has made large
discoveries in offshore Brazil, where we have invested heavily in multi-client
surveys and blocks are licensed in a manner resulting in turnover every three
years. Our data will provide timely information to potential new entrants in
that growing market. In the current environment, meanwhile, we will continue to
improve and expand our technical capabilities while maintaining our financial
flexibility.

RESULTS OF OPERATIONS

FISCAL 2003 COMPARED WITH FISCAL 2002

Revenues. Revenues increased 10.4%, from $455.7 million in fiscal 2002
to $503.0 million in fiscal 2003. Multi-client revenues decreased 3% primarily
due to lower sales of completed surveys in the Gulf of Mexico and Canada
offshore partially offset by increased revenue from the Canadian foothills,
Nigeria and Brazil. Contract revenues increased 23% due to projects in the Gulf
of Mexico, Trinidad, Asia Pacific and U.S. onshore. Contract revenue represented
56% of the total revenue in fiscal 2003, compared to 50% in 2002, and management
expects it to comprise the majority of our revenue in the upcoming years.

Operating income (loss). The operating loss increased from $2.5 million
in fiscal 2002 to $12.8 million in fiscal 2003. The current year includes an
impairment charge for goodwill of $39.3 million, an impairment of multi-client
surveys of $4.9 million and a reserve for the sale of (RC)(2) of $7.6 million.
The prior year included a $55.2 million impairment of multi-client surveys and a
$14.6 million charge for merger costs. Operating income, excluding the charges
of $51.8 for the current year and $69.8 million for the prior year, decreased by
42%. Although contract margins increased due to higher pricing and favorable
geographic mix, overall margins declined due to lower margins from multi-client
revenue caused by lower sales of fully amortized, 100% margin, surveys.

Operating income in fiscal 2003 was further reduced by $10.6 million of
forced amortization of slow moving surveys, as compared to $5.3 million in
fiscal 2002. Forced amortization is the amortization required to reduce the book
value of a survey to the value that would have been recorded had the survey been
subject to straight-line amortization over the last 24 months of book life,
rather than amortization resulting from application of the sales forecast
method. (See Note 1 of Notes to Consolidated Financial Statements for a detailed
description of multi-client accounting) Forced amortization does not indicate
that a survey is impaired, only that sales-to-date have been insufficient to
maintain a minimum cumulative amortization.

As of the first quarter of fiscal 2004, we will change our multi-client
amortization policy to include minimum amortization of surveys from their date
of completion instead of only in the last 24 months of survey book life.
However, the sales forecast method will continue to be the primary method of
recording cost of services. This change will result in a catch-up adjustment of
$21.7 million that will be recognized as additional amortization expense during
the first quarter of fiscal 2004. Additionally, we expect the new policy to
result in at least $19 million of forced amortization, up from the $10.6 million
recognized in fiscal 2003.

We periodically review the carrying value of the multi-client data
library to assess whether there has been a permanent impairment of value and
record losses when it is determined that estimated sales would not be sufficient
to cover the carrying value of the asset. In fiscal 2003, we recognized a $4.9
million pretax impairment charge related to a survey in the Gulf of Mexico that
we have been unable to license. This survey was acquired at right angles to an
existing survey, and while a technical success, customers have not been willing
to pay for the increased resolution. In fiscal 2002, we recognized a $55.2
million pretax impairment charge related to 11 of our multi-client library
surveys. Seven of these were land surveys located in the Gulf Coast region.
Exploration spending has been very low in this region since we completed these
surveys, and we do not anticipate any sales of these surveys in the foreseeable
future. Therefore, these surveys were written off, with a net charge of $28.8
million. We have one survey in the Gulf of Mexico that was shot at a cost
significantly exceeding its original budget. As we did not forecast enough sales
to amortize the remainder of the cost of the survey, we wrote it down by $16.0
million. This left $10.0 million of cost for this survey, an amount we believed
to be the fair value

of the survey based on future estimated sales. In the Shetland-Faroes area of
the North Sea, we have a large survey that has been troubled by an ongoing
territorial dispute. When the dispute was settled, nine-year concessions were
awarded to various licensees. Given the length of the license period, we did not
foresee significant near-term additional licensing of this survey, and we wrote
it off with a net charge of $9.3 million. We also have two small 2D surveys off
Africa that were written off with a net charge of $1.1 million.

Operating income in fiscal 2003 was reduced by $2.9 million as a result
of a charge to establish a reserve against our account receivable from one of
our customers. We have filed suit against the customer for full recovery of our
receivable, as described in Item 3, Legal Proceedings, on page 5 of this report.
Our remaining balance sheet exposure to this claim is $2.9 million, as of July
31, 2003.

Operating income in fiscal 2002 was reduced by $14.6 million due to
costs associated with our terminated merger with PGS.

We have not been satisfied with the results of the software operation
acquired with the (RC)(2) business in February 2001. We were not making the
software sales projected in our acquisition plan and were ineffective at
bringing any new products to market. In the fourth quarter of fiscal 2003, we
decided to sell this operation and entered into a letter of intent with Seismic
Micro-Technology, Inc., a company more focused on software development. We have
also taken a charge in the fourth quarter of $7.6 million related to these
operations. $5.9 million of this charge was applied to reduce the carrying value
of the (RC)(2) software to its estimated market value of $2 million. The
remaining $1.7 million primarily relates to employee severance and facility
costs. The sales agreement allows us to continue using the (RC)(2) suite of
software in our reservoir consulting business. The sale closed in September
2003, as described in Note 16 of Notes to Consolidated Financial Statements.

Our reduced earnings, coupled with the instability in the industry,
have led to a sharp decline in our stock price, leaving our market value below
our book value. As a result of our continued weak stock price and the sale of
the (RC)(2) software business, we performed an evaluation of our existing
goodwill balance at the end of fiscal 2003. This analysis indicated our goodwill
was impaired and, as a result, we recognized an impairment charge of $39.3
million, an amount equal to our entire goodwill balance.

General and administrative expense increased by $3.4 million from the
prior year primarily due to severance costs related to our overhead reduction
efforts.

Interest expense increased by 36%, or $4.9 million, due to the
increased average balance of outstanding long-term debt and the expensing of the
remainder of unamortized debt issuance costs associated with our senior notes,
which were retired in the third quarter of fiscal 2003.

Other expense (income), net. Other expense (income), net decreased from
an expense of $1.8 million in fiscal 2002 to an expense of $0.5 million in
fiscal 2003. Foreign exchange losses in Argentina and Canada contributed $1.3
million of net expense to the prior year. Additionally, a loss on investment
contributed $1.4 million of additional expense in the prior year. This was
partially offset by a decrease in interest income from $1.4 million in fiscal
2002 to $1.0 million in fiscal 2003 as a result of lower cash balances in the
first half of the fiscal 2003 as compared to fiscal 2002. Additionally, our
unconsolidated joint venture in Indonesia incurred a loss of $1.1 million in
fiscal 2003 compared to income of $0.2 million in fiscal 2002.

Income taxes. The provision for income taxes increased by $22.9 million
from fiscal 2002 to fiscal 2003 due to unbenefitted net operating losses in the
current year, non-deductibility of our goodwill impairment and increased
valuation allowances on our deferred tax assets. (See Note 7 of Notes to
Consolidated Financial Statements for further information on deferred taxes)

FISCAL 2002 COMPARED WITH FISCAL 2001

Revenues. Revenues decreased 5%, from $477.3 million in fiscal 2001 to
$455.7 million in fiscal 2002. Multi-client revenues increased 3% due to highly
pre-funded projects in Brazil and the North Sea, offset by declines in licenses
of U.S. land surveys. Contract revenues decreased 11% due to continued
overcapacity and aggressive industry pricing which kept our marine fleet focused
on multi-client projects.

Operating income (loss). Operating income decreased by $49.0 million,
to a loss of $2.5 million, due to the impairment of multi-client surveys and
merger costs. Operating income, excluding the charges of $69.8 million
previously described, increased by 45%. The largest contributor to the increase
was improved contract margins and a favorable revenue mix towards multi-client,
rather than contract, work. This is reflected in the reduction in cost of
services as a percentage of revenues from 83% in fiscal 2001 to 78% this year.
We also benefited by $2.3 million from the elimination of goodwill amortization
in fiscal 2002 due to a change in accounting

rules, and by $2.6 million of reduced general and administrative costs related
to reduced information technology expenses and lower employee bonuses. In fiscal
2002, we recorded an expense of $2.2 million related to the doubtful collection
of our Miller Exploration Company long-term receivable. In fiscal 2001, we had
released the $1.0 million reserve related to this receivable based on Miller
Exploration Company's public reporting of their intent and ability to pay
amounts owed to us. Partially offsetting these decreases was an additional $1.6
million, a 16% increase, in research and development expense in fiscal 2002.

Other expense (income), net. Other expense (income), net was reduced
from $5.6 million of income in fiscal 2001 to an expense of $1.8 million in
fiscal 2002. Interest income of $5.1 million in the prior year was reduced to
$1.4 million in fiscal 2002 due to lower cash balances. Foreign exchange losses
in Argentina and Canada added $1.3 million of net expense. Additionally, a loss
on investment in Miller Exploration Company's stock and warrants in 2002
contributed $1.4 million of additional expense. In the fourth quarter of 2002,
we initiated a program to liquidate our investment in Miller Exploration Company
and recognized the unrealized loss as expense, as we felt that the reduction in
value was other than temporary.

Income taxes. The provision for income taxes decreased by $10.7 million
from fiscal 2001 to fiscal 2002 due to the tax loss incurred in 2002. The tax
benefit related to the $69.8 million charge was $20.8 million. Additionally, we
recorded a $6.5 million tax valuation allowance related to net operating losses
in Argentina, the value of which are not likely to be realized due to our
suspension of activity there.

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,
equipment financing, our revolving loan facility and trade credit. We believe
that our current cash balance and cash flow from operations are adequate to meet
our liquidity needs for fiscal 2004.

For the past three years, cash provided by our operating activities has
been relatively constant, varying between $185.3 million and $200.7 million.
However, combined expenditures for capital equipment and multi-client surveys
have consistently dropped over the three periods, from $273.9 million in fiscal
2001 to $256.1 million in fiscal 2002 and finally to $182.2 million in fiscal
2003. We expect spending to increase modestly in fiscal 2004, but also expect
that cash provided by operating activities will again exceed our investment in
our operations. For fiscal 2004, we have budgeted capital expenditures of
approximately $60 million (approximately $11 million committed) and cash
multi-client library investment of approximately $130 million, for a combined
$190 million investment. These amounts are relatively flexible and will be
adjusted to meet the needs of the business. In addition to these amounts we plan
to spend approximately $12 million for research and development, approximately
equal to the $11.6 million we spent in fiscal 2003.

Free cash flow from operations has become an important measure of
liquidity for us. We define free cash flow as cash from operating activities
less cash multi-client spending and capital expenditures. This non-GAAP
liquidity measure is useful as an addition to the most directly comparable GAAP
measure of "cash provided by operating activities" because free cash flow
includes investments in operational assets and therefore presents a more
complete picture of net cash flow from ongoing operations. This measure excludes
items such as proceeds from the disposal of assets, cash paid for acquisitions
and all financing activities.

A reconciliation of free cash flow to cash provided by operating
activities is presented in the following table:

YEARS ENDED JULY 31,
---------------------------------
2003 2002 2001
-------- -------- --------
(IN THOUSANDS)

Free cash flow ................................... $ 18,524 $(70,863) $(79,691)
Add back:
Multi-client expenditures, net cash .............. 151,693 169,039 177,060
Capital expenditures ............................. 30,497 87,096 96,881
-------- -------- --------
Total cash provided by operating activities ...... $200,714 $185,272 $194,250

institutions. The Credit Agreement provides term financing of $195.0 million
under term A, term B and term C tranches (the "Term Loans"), a revolving loan
facility aggregating $55.0 million, including a facility for swing line loans of
up to $10 million and the issuance of letters of credit in an aggregate amount
of up to $40.0 million. Proceeds from the Term Loans were used to satisfy the
obligations under our previous credit agreement and our senior notes.

The term A loan was in the original principal amount of $30.0 million
and matures in February 2006, and requires quarterly interest payments at a
rate, at our election, of LIBOR plus a margin ranging from 3.5% to 4.0% or a
base rate plus a margin ranging from 2.25% to 2.75%. These margins are based on
certain of our financial ratios. The term B loan was in the original principal
amount of $125.0 million, matures in February 2007, and requires quarterly
interest payments at a rate, at our election, of LIBOR plus 5.0%, subject to a
2% LIBOR floor or a base rate plus 3.75%. The term C loan was in the original
principal amount of $40.0 million, matures in February 2008, and requires
quarterly interest payments at a rate, at our election, of LIBOR plus 7.5%,
subject to a 3% LIBOR floor or a base rate plus 6.25%.

The term A and term B loans require quarterly combined principal
payments of $387,500, representing 0.25% of the initial principal balances.
Should there be an event of default or an unmatured event of default exists, or
the credit rating of any of the debt falls below Moody's Ba2 or S&P's BB, or our
leverage ratio as of the last day of the most recent excess cash flow
calculation period rises above certain levels, the term A and B loans also
require principal payments of 50% of the prior fiscal year's cash flow,
calculated as per the loan agreement. This payment is due 100 days after the end
of the fiscal year. As our lowest debt ratings are Ba3 by Moody's and BB+ by
S&P, Veritas will pay $12.4 million of principal in November 2003 related to the
company's cash flow from January 1, 2003 through July 31, 2003. Future payments
of this type, if any, will be based on cash flow for full fiscal years.

Loans made under the revolving loan facilities, including swing-line
loans, bear interest at a variable rate determined on the date of borrowing that
is related to various base rates and margins depending upon our leverage ratio
and the location of the borrowing. The revolver expires in February 2006.

The financing is secured by assets, including equipment, vehicles,
multi-client data library, intellectual property, and stock of certain material
subsidiaries, owned by us and certain of our subsidiaries. At July 31, 2003, the
carrying value of the secured assets, including intercompany receivables, was
$1.1 billion. The Credit Agreement and related documents contain a number of
covenants, including financial covenants relating to interest coverage, leverage
and net worth. On February 14, 2003, the Term Loans totaling $195 million were
funded and letters of credit in the amount of approximately $5.7 million then
outstanding from the previous credit agreement were transferred to the Credit
Agreement. Proceeds from the Term Loans were used to satisfy the obligations
under the previous credit agreement and the Senior Notes.

We incurred $7.3 million of debt issuance costs related to the new
Credit Agreement. These costs were capitalized to prepayments and other assets
and are being amortized to interest expense over the life of the debt.

The following represents our financial contractual obligations and
commitments as of July 31, 2003 for the fiscal years 2004 through 2008 and
thereafter:

2008 AND
CONTRACTUAL CASH OBLIGATIONS TOTAL 2004 2005 2006 2007 THEREAFTER
---------------------------- -------- -------- -------- -------- -------- ----------
(IN THOUSANDS)

Scheduled principal payments under
debt obligations .................... $194,225 $13,908 $1,550 $27,958 $110,031 $40,778
Potential payments under letters
of credit ........................... 3,905 2,812 1,093
Payments due for lease obligations ..... 137,832 34,854 29,676 20,896 12,084 40,322
Forward exchange contracts ............. 2,780 2,780

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.

OFF-BALANCE SHEET INSTRUMENTS

Our limited hedging program consists of off-balance sheet instruments
to fix the U.S. dollar value of foreign currency payments to be made under a
Norwegian vessel charter and interest rate swap contracts that effectively fix
the interest rate on $80.0 million of our variable rate long-term debt. None of
these hedges are critical to our operations but they reduce our exposure to
currency and

interest rate fluctuations and allow us to better plan our future cash flows.
These instruments are described in detail in Item 7A. Quantitative and
Qualitative Disclosures Regarding Market Risk as well as in Note 10 of Notes to
Consolidated Financial Statements.

CRITICAL ACCOUNTING POLICIES

While all of our accounting policies are important in assuring that we
adhere to current accounting standards, certain policies are particularly
important due to their impact on our financial statements. These are described
in detail below.

REVENUE RECOGNITION

For contract work, we recognize revenue on a percent complete basis as
work is performed. This method requires that we recognize revenue based upon
quantifiable measures of progress, such as kilometers shot or processed. During
the acquisition and processing phase of a multi-client survey, we recognize
pre-funding revenue based on percentage completion, similar to the method for
contract projects. After completion of a multi-client survey, we recognize
revenue upon delivery of data to our customer or the customer's designee.

MULTI-CLIENT DATA LIBRARY

For our multi-client data library, we collect and process geophysical
data for our own account and retain all ownership rights. We license the data to
clients on a non-transferable basis. We capitalize costs associated with
acquiring and processing the data as an investment in our multi-client data
library. The capitalized cost of multi-client data is charged to cost of
services in the period sales occur based on the percentage of total estimated
costs to total estimated sales multiplied by actual sales, a process called the
sales forecast method. Any costs remaining 36 months after completion of a
survey are charged to cost of services over a period not to exceed 24 months.
The total amortization period of 60 months represents the minimum period over
which benefits from these surveys are expected to be derived. We periodically
review the carrying value of the multi-client data library to assess whether
there has been a permanent impairment of value and record losses when it is
determined that estimated sales would not be sufficient to cover the carrying
value of the asset.

Beginning in the first quarter of fiscal 2004, we changed our
multi-client policy to include a minimum amortization from the date of survey
completion, instead of only during the last 24 months of survey book life.
However, the sales forecast method remains the primary method of calculating
cost of services. (See Note 16 of Notes to Consolidated Financial Statements for
further information)

DEFERRED TAX ASSET

Deferred taxes result from the effect of transactions that are
recognized in different periods for financial and tax reporting purposes. A
valuation allowance, by tax jurisdiction, is established when it is more likely
than not that some portion or all of the deferred tax assets will not be
realized. The valuation allowance is then adjusted when the realization of
deferred tax assets becomes more likely than not. During fiscal 2003, we
increased our valuation allowances by $20.1 million as the available evidence,
including historical losses, did not support a more likely than not conclusion
that this portion of our deferred tax assets would be realized. Adjustments are
also made to recognize the expiration of net operating loss and investment tax
credit carryforwards. In the future, should available evidence result in a
different judgment concerning the realization of deferred tax assets, further
adjustments, up or down, to the valuation allowances will be made.

Since our quasi-reorganization on July 31, 1991 with respect to Digicon
Inc., 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.
During fiscal 2003, we recognized $4.4 million related to these benefits.

SOFTWARE CAPITALIZATION AND AMORTIZATION

Software available for sale is included in other assets on our
Consolidated Balance Sheets. Software acquired through the purchase of software
companies is capitalized at estimated fair market value through allocation of
the purchase price. For internally developed software, we capitalize costs
associated with the development of the product from the time the product reaches
technological feasibility until it is ready for commercial release. The
capitalized cost of the software, whether developed or purchased, is charged to
cost of services in the period sales occur based on the percentage of total cost
to total estimated sales multiplied by actual sales during the period. The
period of amortization begins when the software is released to the market. In no
case is the cumulative amortization for a product allowed to fall below the
amount that would be recorded using straight-line amortization for that
product's

estimated useful life. Estimated useful lives of our software products range
from three to five years.

OTHER ACCOUNTING POLICIES

In August 2001, the Financial Accounting Standards Board issued SFAS
No. 143 (Asset Retirement Obligations). This standard requires that obligations
associated with the retirement of a tangible long-lived asset be recorded as a
liability when those obligations are incurred with the liability being initially
measured at fair value. We adopted the use of this accounting statement in
August 2002. Adoption did not have a material effect on our financial position
or results of operations.

In October 2001, the Financial Accounting Standards Board issued SFAS
No. 144 (Accounting for the Impairment or Disposal of Long Lived Assets). This
standard develops one accounting model for long-lived assets that are to be
disposed of by sale, requiring such assets to be measured at the lower of book
value or fair value less cost to sell. The standard also provides guidance on
the recognition of liabilities for the obligations arising from disposal
activities. We adopted the use of this accounting statement in August 2002.
Adoption did not have a material effect on our financial position or results of
operations.

In April 2002, the Financial Accounting Standards Board issued SFAS No.
145 (Rescission of FASB Statement No. 4, 44, and 64, Amendment of FASB Statement
No. 13 and Technical Corrections as of April 2002). Among other things, this
statement addresses how to report gains or losses resulting from the early
extinguishment of debt. Previously, any gains or losses were reported as an
extraordinary item. Upon adoption of SFAS No. 145, an entity is required to
evaluate whether the debt extinguishment is truly extraordinary in nature, in
accordance with Accounting Principles Board Opinion No. 30. We adopted the use
of this accounting statement in August 2002. The adoption of this statement
precluded extraordinary classification of costs related to the early retirement
of our senior notes.

In July 2002, the Financial Accounting Standards Board issued SFAS No.
146 (Accounting for Costs Associated with Exit or Disposal Activities). This
standard requires recognition of costs associated with exit or disposal
activities when they are incurred rather than when management commits to an exit
or disposal plan. Examples of costs covered by this guidance include lease
termination costs, employee severance costs that are associated with
restructuring, discontinued operations, plant closings, or other exit or
disposal activities. We adopted the use of this accounting statement for all
exit and disposal activities initiated after December 31, 2002. Adoption did not
have a material effect on our financial position or results of operations.

In December 2002, the FASB issued Interpretation No. 45 (FIN 45),
Guarantor's Accounting and Disclosure Requirements. FIN 45 expands required
disclosures for certain types of guarantees and recognition of a liability at
fair value of such guarantees at the time of issuance. The disclosure
requirements are effective for our second fiscal quarter financial statements,
while the fair value accounting requirements apply prospectively to guarantees
issued or modified after December 31, 2002. Adoption of FIN 45 did not have a
material effect on our financial position or results of operations.

In January 2003, the FASB issued Interpretation No. 46 (FIN 46),
Consolidation of Variable Interest Entities. FIN 46 amended ARB 51, Consolidated
Financial Statements, and established standards for determining under what
circumstances a variable interest entity (VIE) should be consolidated with its
primary beneficiary. FIN 46 also requires disclosures about VIEs that the
company is not required to consolidate, but in which it has a significant
variable interest. Adoption of FIN 46 did not have a material effect on our
financial position or results of operations.

In January 2003, the FASB issued Statement No. 148, Accounting for
Stock-Based Compensation, to provide alternative methods of transition for a
voluntary change to the fair value based method of accounting for stock-based
employee compensation. In addition, this Statement amends the disclosure
requirements of Statement 123 to require prominent disclosures in both annual
and interim financial statements about the method of accounting for stock-based
employee compensation and the effect of the method used on reported results. We
adopted the use of this accounting statement in January 2003 by implementing the
disclosure requirements. Adoption did not have a material effect on our
financial position or results of operations as no accounting change was
required. We plan to maintain our stock-based compensation programs and have no
plans to voluntarily expense stock options.

In April 2003, the FASB issued Statement No. 149, Amendment of
Statement 133 on Derivative Instruments and Hedging Activities. This Statement
amends and clarifies financial accounting and reporting for derivative
instruments, including certain derivative instruments embedded in other
contracts (collectively referred to as derivatives) and for hedging activities
under FASB Statement No. 133, Accounting for Derivative Instruments and Hedging
Activities. We adopted the use of this accounting statement in June 2003.
Adoption did not have a material effect on our financial position or results of
operations.

In May 2003, the FASB issued Statement No. 150, Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity. This
Statement established standards on how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity and
requires an issuer to classify a financial instrument that is within its scope
as a liability, or an asset in some circumstances. We adopted the use of this
accounting statement in May 2003. Adoption did not have a material effect on our
financial position or results of operations.

RISK FACTORS

An investment in our common stock is subject to a number of risks
discussed below. You should carefully consider these discussions of risks and
the other information included in this report.

AS A PROVIDER OF GEOPHYSICAL TECHNOLOGIES, OUR BUSINESS IS SUBSTANTIALLY
DEPENDENT ON THE LEVEL OF CAPITAL EXPENDITURES BY OIL AND GAS COMPANIES.

Capital expenditures by oil and gas companies are affected by several
factors including actual and forecast petroleum commodity prices and the
companies' own short term and strategic plans. These capital expenditures may
also be affected by worldwide economic conditions. Should there be a sustained
period of substantially reduced capital expenditures by oil and gas companies
the demand for geophysical services likely will drop and there will be an
adverse effect on our results of operations and cash flow during the affected
period. Recently, many of our customers have been using a substantial portion of
their discretionary cash to pay down debt, buy back their stock, drill low-risk
prospects and maximize production from existing fields rather than exploring for
new prospects. We do not see any indications that this spending pattern will
change much in the next 12 to 18 months.

WEAK DEMAND OR TECHNOLOGICAL OBSOLESCENCE COULD IMPAIR THE VALUE OF OUR
MULTI-CLIENT DATA LIBRARY.

We have invested significant amounts in acquiring and processing
multi-client data and expect to continue to do so for the foreseeable future.
There is no assurance that we will recover all the costs of such surveys.
Technological, regulatory or other industry or general economic developments
could render all or portions of our multi-client data library obsolete or reduce
its value. For example, in fiscal 2003 and fiscal 2002 we incurred $4.9 million
and $55.2 million, respectively, in impairment charges related to slow moving
surveys in our multi-client library. These surveys were found to be impaired for
various reasons, including slow acreage turnover in the case of U.S. land
surveys, a border dispute in the case of a Shetland-Faroes survey and excessive
acquisition cost in the case of a Gulf of Mexico survey.

WE ARE DEPENDENT ON ACHIEVING AND MAINTAINING TECHNOLOGICAL ADVANCES, WHICH
CREATES RISKS REGARDING TECHNOLOGICAL OBSOLESCENCE, REQUIREMENTS FOR SUBSTANTIAL
FUTURE CAPITAL EXPENDITURES, THE UNAVAILABILITY OF NECESSARY TECHNOLOGY AND THE
FAILURE OF NEW TECHNOLOGIES.

The development of geophysical data acquisition and processing
equipment has been characterized by rapid technological advancements in recent
years. We expect this trend to continue. We will be required to invest
substantial capital in the future to maintain our technology. Furthermore,
manufacturers of geophysical equipment may develop new systems that render our
equipment, even if recently acquired, obsolete or less desirable, requiring
significant additional capital expenditures. Since some of our competitors are
themselves leading designers and manufacturers of seismic equipment, we may not
have access to their technology. Even if critical new and advanced equipment is
available to us, we may not have funds available or be able to obtain necessary
financing on acceptable terms to acquire it. Further, any investment we may make
in a perceived technological advance may not be effective, economically
successful or otherwise accepted in the market.

WE FACE INTENSE COMPETITION IN OUR INDUSTRY, WHICH COULD ADVERSELY AFFECT OUR
RESULTS.

Competition among geophysical service providers historically has been,
and will continue to be, intense. Competitive factors in recent years have
included price, crew experience, equipment availability, technological expertise
and reputation for quality, safety and dependability. Some of our competitors
operate substantially more data acquisition crews and have significantly greater
financial and other resources than we do. These larger and better-financed
operators could enjoy an advantage over us in a competitive environment for
contract awards and data sales and in the development of new technologies. Other
competitors operate with extremely low overhead and compete vigorously on price
in certain markets where that is the determining factor in awarding work. These
low-cost competitors can have a competitive advantage over us in these markets.

HIGH FIXED COSTS COULD RESULT IN OPERATING LOSSES.

Our business has high fixed costs. As a result, downtime or low
productivity due to reduced demand, weather interruptions, equipment failures or
other causes can result in significant operating losses. Low utilization rates
may hamper our ability to recover the cost of necessary capital investments.

OUR REVENUES ARE SUBJECT TO FLUCTUATIONS THAT ARE BEYOND OUR CONTROL, WHICH
COULD ADVERSELY AFFECT OUR RESULTS OF OPERATIONS IN ANY FINANCIAL PERIOD.

Our operating results vary in material respects from quarter to quarter
and will most probably continue to do so in the future. Factors that cause
variations include the timing of the receipt and commencement of contracts for
data acquisition, customers' budgetary cycles, the timing of offshore lease
sales and the effect of such timing on the demand for geophysical activities,
seasonal factors and the timing of sales of geophysical data from our
multi-client data library, which may be significant to us and which are not
typically made in a linear or consistent pattern. Combined with our high fixed
costs, these revenue fluctuations could produce unexpected adverse results of
operations in any fiscal period.

WE MAY BE UNABLE TO ATTRACT AND RETAIN KEY EMPLOYEES, WHICH COULD ADVERSELY
AFFECT OUR BUSINESS.

Our success depends upon attracting and retaining highly skilled
professionals and other technical personnel. A number of our employees are
highly skilled scientists and highly trained technicians, and our failure to
continue to attract and retain such individuals could adversely affect our
ability to compete in the geophysical services industry. We may confront
significant and potentially adverse competition for key personnel, particularly
during periods of increased demand for geophysical services. In addition, our
success will depend to a significant extent upon the abilities and efforts of
members of our senior management, the loss of whom could adversely affect our
business. Of relevance to this risk factor, our Chairman of the Board and Chief
Executive Officer, David Robson, has announced his intention to resign and our
Board of Directors has initiated a search for his replacement.

WE FACE RISKS ASSOCIATED WITH OUR FOREIGN REVENUE GENERATING ACTIVITIES.

Substantial portions of our revenues are derived from foreign
activities and, as a result, significant portions of our revenues are
denominated in foreign currencies. These revenues are impacted by foreign
currency fluctuations. In addition, net assets reflected on the balance sheets
of our foreign subsidiaries, and therefore on our consolidated balance sheet,
are subject to currency fluctuations. Foreign revenues are also subject to
special risks that may disrupt markets, including the risk of war, terrorism,
civil disturbances, embargo, and government activities. Revenue generating
activities in certain foreign countries may require prior United States
government approval in the form of an export license and otherwise be subject to
tariffs and import/export restrictions. There can be no assurance that we will
not experience difficulties in connection with future foreign revenues and, in
particular, adverse effects from foreign currency fluctuations.

WE OPERATE UNDER HAZARDOUS CONDITIONS THAT SUBJECT US TO RISK OF DAMAGE TO
PROPERTY OR PERSONAL INJURIES AND MAY INTERRUPT OUR BUSINESS.

Our seismic data acquisition activities involve operating under extreme
weather and other hazardous conditions. These operations are subject to risks of
loss to property and injury to personnel from fires, accidental explosions, ice
floes, and high seas. These events could result in an interruption of our
business or significant liability. We may not obtain insurance against all risks
or for certain equipment located from time to time in certain areas of the
world.

THE TRADING PRICE OF OUR SECURITIES COULD BE SUBJECT TO SIGNIFICANT
FLUCTUATIONS.

The trading prices of our securities fluctuate. Factors such as
fluctuations in our financial performance, and that of our competitors, as well
as general market conditions could have a significant impact on the future
trading prices of our securities. The trading prices also may be affected by
weakness in oil prices, changes in interest rates and other factors beyond our
control. These factors may have an adverse effect on the trading price of our
securities.

OUR BUSINESS IS SUBJECT TO GOVERNMENTAL REGULATION, WHICH MAY ADVERSELY AFFECT
OUR FUTURE OPERATIONS OR THE ACCOUNTING THEREOF.

Our operations are subject to a variety of federal, provincial, state,
foreign and local laws and regulations, including environmental laws. We invest
financial and managerial resources to comply with these laws and related permit
requirements. Failure to timely

obtain the required permits may result in crew downtime and operating losses.
Because laws and regulations change frequently, we cannot predict the impact of
government regulations on our future operations. The adoption of laws and
regulations that have the effect of curtailing exploration by oil and gas
companies could also adversely affect our operations by reducing the demand for
our geophysical services.

We follow the generally accepted accounting principles of the United
States (GAAP) as promulgated and/or enforced by the Financial Accounting
Standards Board, the Securities and Exchange Commission and other organizations.
GAAP is subject to change, with such changes occurring at a rapid rate in recent
years. Changes in GAAP can affect the reporting of our future results. For
example, we do not currently expense stock options granted to our employees and
directors. It is possible that the accounting rules will change, directing us to
expense stock options. This could reduce the reported earnings of the company,
as shown on a pro forma basis in Note 9 of Notes to Consolidated Financial
Statements.

CERTAIN PROVISIONS OF OUR CHARTER, DELAWARE LAW AND OUR SHAREHOLDER RIGHTS PLAN
MAY MAKE IT DIFFICULT FOR A THIRD PARTY TO ACQUIRE US, EVEN IN SITUATIONS THAT
MAY BE VIEWED AS DESIRABLE BY OUR STOCKHOLDERS.

The General Corporation Law of the State of Delaware contains
provisions that may delay or prevent an attempt by a third party to acquire
control of the company. Our certificate of incorporation and bylaws contain
provisions that authorize the issuance of preferred stock, and establish advance
notice requirements for director nominations and actions to be taken at
stockholder meetings. These provisions could also discourage or impede a tender
offer, proxy contest or other similar transaction involving control of us, even
if viewed favorably by stockholders. In addition, we have adopted a stockholder
rights plan that would likely discourage a hostile attempt to acquire control of
us.

CAUTIONARY STATEMENTS ABOUT FORWARD-LOOKING STATEMENTS

This annual report on Form 10-K and the documents incorporated by
reference contain forward-looking statements, within the meaning of Section 27A
of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934. These statements include statements incorporated by reference to other
documents we file with the SEC. Forward-looking statements include, among other
things, business strategy and expectations concerning industry conditions,
market position, future operations, margins, profitability, liquidity and
capital resources. Forward-looking statements generally can be identified by the
use of terminology such as "may," "will," "expect," "intend," "estimate,"
"anticipate" or "believe" or similar expressions or the negatives thereof. These
expectations are based on management's assumptions and current beliefs based on
currently available information. Although we believe that the expectations
reflected in such statements are reasonable, we can give no assurance that such
expectation will be correct. You are cautioned not to place undue reliance on
these forward-looking statements, which speak only as of the date of this report
on Form 10-K. Our operations are subject to a number of uncertainties, risks and
other influences, many of which are outside our control, and any one of which,
or a combination of which, could cause our actual results of operations to
differ materially from the forward-looking statements. Important factors that
could cause actual results to differ materially from our expectations are
disclosed in Risk Factors and elsewhere in this report on Form 10-K.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES REGARDING MARKET RISK

At July 31, 2003, we had limited market risk related to foreign
currencies. In March 2001, we entered into a contract requiring payments in
Norwegian kroner to charter the seismic vessel M/V Seisquest. The contract
requires 36 monthly payments commencing on June 1, 2001. To protect our exposure
to exchange rate risk, we entered into multiple forward contracts as cash flow
hedges fixing our exchange rates for Norwegian kroner to the U.S. dollar. The
total fair value of the open forward contracts at July 31, 2003 in U.S. dollars
was $3.4 million.

As of February 14, 2003, with the signing of the Credit Agreement, we
are exposed to interest rate risk based upon fluctuations in the LIBOR rate. To
partially mitigate this risk, on February 25, 2003, we entered into interest
rate swaps in the notional amount of $80 million, effectively hedging 41% of our
exposure to interest rate fluctuations for the two-year terms of the swaps.
These swaps had no value at inception.

Details of the swaps are summarized in the following table:

LIBOR
TRANCHE HEDGED AMOUNT TERM PAY % RECEIVE FLOOR
-------------------------------------- ------------ --------- ----- ------- -----
(IN THOUSANDS)

Term A................................ $ 25,000 24 months 1.86 LIBOR None
Term B................................ $ 55,000 24 months 2.49 LIBOR 2%

The fair value of the swaps on July 31, 2003 was a negative $777,000
and is included in other accrued liabilities on the Consolidated Balance Sheets.

At July 31, 2003, we had $194.2 million of variable rate debt. The Term
A debt has an outstanding balance of $29.9 million and matures in February 2006.
The Term B debt has an outstanding balance of $124.4 million and matures in
February 2007. The Term C debt has an outstanding balance of $40.0 million and
matures in February 2008. The total fair market value of the debt at July 31,
2003 was $192.3 million.

ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

PAGE

Report of Independent Auditors ...................................................... 18
Consolidated Statements of Operations and Comprehensive Income (Loss) for the
Three Years Ended July 31, 2003 .................................................. 19
Consolidated Balance Sheets as of July 31, 2003 and 2002 ............................ 20
Consolidated Statements of Cash Flows for the Three Years
Ended July 31, 2003 .............................................................. 21
Consolidated Statements of Changes in Stockholders' Equity
for the Three Years Ended July 31, 2003 .......................................... 23
Notes to Consolidated Financial Statements .......................................... 24
Financial Statement Schedule -- Valuation and Qualifying Accounts ................... 43

REPORT OF INDEPENDENT AUDITORS

To the Board of Directors and Stockholders of
Veritas DGC Inc.

In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations and comprehensive income (loss), of
changes in stockholders' equity and of cash flows present fairly, in all
material respects, the financial position of Veritas DGC Inc. and its
subsidiaries at July 31, 2003 and 2002, and the results of their operations and
their cash flows for each of the three years in the period ended July 31, 2003
in conformity with accounting principles generally accepted in the United States
of America. In addition, in our opinion, the financial statement schedule listed
in the accompanying index presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related
consolidated financial statements. These financial statements and financial
statement schedule are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits. We conducted our audits of
these statements in accordance with auditing standards generally accepted in the
United States of America, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

As discussed in Note 3 of Notes to Consolidated Financial Statements, effective
August 1, 2001, the Company changed its method of accounting for goodwill in
accordance with Statement of Financial Accounting Standards No. 142, Goodwill
and Other Intangible Assets.

PRICEWATERHOUSECOOPERS LLP

Houston, Texas
October 10, 2003

VERITAS DGC INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

FOR THE YEARS ENDED JULY 31,
--------------------------------------
2003 2002 2001
---------- ---------- ----------

Revenues .......................................................... $ 503,001 $ 455,683 $ 477,302
Cost of services .................................................. 425,217 353,178 394,602
Research and development .......................................... 11,630 11,475 9,934
General and administrative ........................................ 27,211 23,763 26,332
Loss on (RC)(2) sale .............................................. 7,627
Impairment of multi-client surveys ................................ 4,893 55,204
Cost of terminated merger ......................................... 14,607
Impairment of goodwill ............................................ 39,263
---------- ---------- ----------
Operating income (loss) ........................................... (12,840) (2,544) 46,434
Interest expense .................................................. 18,534 13,628 13,660
Other expense (income), net ....................................... 498 1,786 (5,567)
---------- ---------- ----------
Income (loss) before provision for income taxes ................... (31,872) (17,958) 38,341
Income taxes ...................................................... 28,052 5,192 15,883
---------- ---------- ----------
Net income (loss) ................................................. $ (59,924) $ (23,150) $ 22,458
========== ========== ==========

NET INCOME (LOSS), PER SHARE:
BASIC:
Weighted average common shares .................................. 33,305 32,409 30,727
Income (loss) per common share .................................. $ (1.80) $ (.71) $ .73

DILUTED:
Weighted average common shares .................................. 33,305 32,409 31,479
Income (loss) per common share .................................. $ (1.80) $ (.71) $ .71

COMPREHENSIVE INCOME (LOSS)
Net income (loss) ................................................. $ (59,924) $ (23,150) $ 22,458
Other comprehensive income (loss) (net of tax, $0 in all periods)
Foreign currency translation adjustments ........................ 12,361 (1,867) (3,205)
Unrealized gain (loss) on investments-available for sale ........ 944 (1,354) 1,600
Unrealized loss on investments-available for sale recognized
as expense...................................................... 1,368
Unrealized gain (loss) on hedge transaction ..................... (939) 1,215 (420)
Unrealized minimum pension liability ............................ (1,577)
---------- ---------- ----------
Total other comprehensive income (loss) 10,789 (638) (2,025)
---------- ---------- ----------
Comprehensive income (loss) ....................................... $ (49,135) $ (23,788) $ 20,433
========== ========== ==========

See Notes to Consolidated Financial Statements

VERITAS DGC INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PAR VALUE)

JULY 31,
------------------------
2003 2002
---------- ----------

ASSETS
Current assets:
Cash and cash equivalents .................................................................... $ 72,626 $ 10,586
Restricted cash investments .................................................................. 205 166
Accounts and notes receivable (net of allowance for doubtful accounts: 2003, $7,953; 2002,
$4,143).................................................................................... 131,645 128,045
Materials and supplies inventory ............................................................. 5,044 16,096
Prepayments and other ........................................................................ 13,365 12,059
Income taxes receivable ...................................................................... 11,335 16,074
---------- ----------
Total current assets ...................................................................... 234,220 183,026
Property and equipment:
Land ......................................................................................... 7,006 7,006
Geophysical equipment ........................................................................ 316,617 322,128
Data processing equipment .................................................................... 93,865 107,163
Geophysical ship ............................................................................. 8,331 8,331
Leasehold improvements and other ............................................................. 66,820 71,195
---------- ----------
Total ..................................................................................... 492,639 515,823
Less accumulated depreciation ................................................................ 341,430 324,742
---------- ----------
Property and equipment, net ............................................................... 151,209 191,081
Multi-client data library ....................................................................... 371,949 336,475
Investment in and advances to joint ventures .................................................... 4,657 7,433
Goodwill ........................................................................................ 34,086
Deferred tax asset, net ......................................................................... 2,546 13,756
Other assets .................................................................................... 23,781 14,924
---------- ----------
Total ..................................................................................... $ 788,362 $ 780,781
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt ............................................................ $ 13,908
Accounts payable, trade ...................................................................... 43,423 $ 46,471
Accrued interest ............................................................................. 551 3,965
Other accrued liabilities .................................................................... 41,329 54,169
---------- ----------
Total current liabilities ................................................................. 99,211 104,605
Non-current liabilities:
Long-term debt ............................................................................... 180,317 140,000
Other non-current liabilities ................................................................ 18,701 11,964
---------- ----------
Total non-current liabilities ............................................................. 199,018 151,964

Stockholders' equity:
Common stock, $.01 par value; authorized: 40,000,000 shares; issued: 32,156,781 shares in 2003
and 31,171,988 shares in 2002 (excluding Exchangeable Shares of 1,443,411 in 2003 and
1,444,514 in 2002)............................................................................ 322 311
Additional paid-in capital .................................................................... 428,402 413,813
Accumulated earnings (from August 1, 1991 with respect to Digicon Inc.) ....................... 60,517 120,441
Accumulated other comprehensive income:
Cumulative foreign currency translation adjustment ........................................... 3,518 (8,843)
Other comprehensive income (loss) ............................................................ (778) 794
Unearned compensation ........................................................................... (340) (872)
Treasury stock, at cost; 84,143 shares in 2003 and 76,607 shares in 2002 ........................ (1,508) (1,432)
---------- ----------
Total stockholders' equity ................................................................ 490,133 524,212
---------- ----------
Total ..................................................................................... $ 788,362 $ 780,781
========== ==========

See Notes to Consolidated Financial Statements

VERITAS DGC INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)

FOR THE YEARS ENDED JULY 31,
--------------------------------------
2003 2002 2001
---------- ---------- ----------

Operating activities:
Net income (loss) .................................................. $ (59,924) $ (23,150) $ 22,458
Non-cash items included in net income (loss):
Depreciation and amortization, net (other than multi-client) ..... 48,304 39,097 46,021
Amortization of multi-client library ............................. 142,029 115,287 119,208
Impairment of multi-client library ............................... 4,893 55,204
Impairment of goodwill ........................................... 39,263
Loss on (RC)(2) sale ............................................. 7,627
Impairment of land acquisition equipment ......................... 1,780
Gain on disposition of property and equipment .................... (183) (1,445) (1,266)
Loss on investment in marketable securities ...................... 1,369
Equity in (earnings) loss of joint venture ...................... 1,111 (181) 103
Provision for deferred taxes ..................................... 16,831 6,242 22,158
Amortization of unearned compensation ............................ 682 654 712
Change in operating assets/liabilities:
Accounts and notes receivable .................................... (1,378) 12,608 (22,020)
Materials and supplies inventory ................................. 11,066 (6,039) (5,048)
Prepayments and other ............................................ 1,813 (120) (5,264)
Current income tax ............................................... 4,739 (11,032) (8,209)
Accounts payable and other accrued liabilities ................... (23,957) (4,169) 27,683
Other non-current liabilities .................................... 3,429 154 (232)
Other ............................................................ 2,589 793 (2,054)
---------- ---------- ----------
Total cash provided by operating activities ................... 200,714 185,272 194,250
Investing activities:
Decrease (increase) in restricted cash investments ............... (39) (166) 206
Investment in multi-client library, net cash ..................... (151,693) (169,039) (177,060)
Acquisitions, net of cash received ............................... (9,547) (424)
Purchase of property and equipment ............................... (30,497) (87,096) (96,881)
Sale of marketable securities .................................... 4,098
Sale of property and equipment ................................... 3,071 4,980 3,390
---------- ---------- ----------
Total cash used by investing activities ....................... (188,705) (251,321) (266,671)
Financing activities:
Borrowings of long-term debt, net of debt issuance costs ......... 308,236 5,000
Payments of long-term debt ....................................... (261,275) (448)
Proceeds from the sale of common stock ........................... 2,601 2,622 99,117
---------- ---------- ----------
Total cash provided by financing activities ................... 49,562 7,622 98,669
Currency loss (gain) on foreign cash ............................... 469 (205) (184)
---------- ---------- ----------
Change in cash and cash equivalents ................................ 62,040 (58,632) 26,064
Beginning cash and cash equivalents balance ........................ 10,586 69,218 43,154
---------- ---------- ----------
Ending cash and cash equivalents balance ........................... $ 72,626 $ 10,586 $ 69,218
========== ========== ==========

See Notes to Consolidated Financial Statements

VERITAS DGC INC. AND SUBSIDIARIES

SUPPLEMENTARY SCHEDULES TO CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)

FOR THE YEARS ENDED JULY 31,
--------------------------------
2003 2002 2001
-------- -------- --------

SCHEDULE OF NON-CASH TRANSACTIONS:
Utilization of net operating losses existing prior to the
quasi-reorganization resulting in an increase (decrease) in:
Deferred tax asset valuation allowance ......................... $ (4,437) $ (1,111) $ (1,728)
Additional paid-in capital ..................................... 4,437 1,111 1,728
Tax deduction due to exercise of stock options resulting in an
increase in:
Deferred tax asset ............................................. 2,379 1,636
Additional paid-in capital ..................................... 2,379 1,636
Capitalization of depreciation and amortization resulting in an
increase in:
Multi-client data library ...................................... 24,360 29,025 22,511
Other assets ................................................... 219 106
Common stock issued for purchase of Reservoir Characterization
Research and Consulting Inc. ..................................... 34,392
Common stock issued for purchase of Hampson-Russell Software
Services, Ltd. ................................................... 7,250

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for:
Interest:
Senior notes ................................................... $ 11,899 $ 13,163 $ 13,163
Term notes ..................................................... 6,289
Equipment purchase obligations ................................. 97
Credit agreements .............................................. 1,485 202 450
Other .......................................................... 67 134 18
Income taxes, net ............................................... 3,585 10,851 1,863

See Notes to Consolidated Financial Statements

VERITAS DGC INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JULY 31, 2003, 2002 AND 2001

TREASURY STOCK
COMMON STOCK AT COST ADDITIONAL
--------------------- -------------------- PAID-IN-
SHARES PAR VALUE SHARES COST CAPITAL
---------- --------- --------- -------- -----------
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

BALANCE, JULY 31, 2000 ................. 25,069,834 $ 251 $(104,175) $ (1,812) $ 269,355
Common stock issued for
exchangeable stock .................... 529,257 5 (5)
Common stock issued to employees ....... 860,957 9 12,987
Common stock issued for cash............ 3,302,793 33 86,634
Common stock issued in acquisition of
Reservoir Characterization Research
and Consulting Inc..................... 1,137,466 11 34,381
Common stock issued for investment in
Fairweather Geophysical LLC........... 20,243 500
Treasury stock issued for services
under restricted stock Agreements ..... 38,879 641 682
Registration and filing fees ........... (456)
Utilization of net operating loss
carryforwards existing prior to
quasi-reorganization .................. 1,728
Tax deduction for stock option
exercises ............................. 1,636
Cumulative foreign currency
translation adjustment ................
Amortization of unearned
compensation ..........................
Unrealized gain on investments --
available for sale ....................
Unrealized loss on foreign
currency hedge
Net income .............................
---------- ------ --------- -------- -----------
BALANCE, JULY 31, 2001 ................. 30,920,550 309 (65,296) $ (1,171) $ 407,442
Common stock issued for
exchangeable stock .................... 40,794
Common stock issued to employees........ 17,061 250
Common stock issued for cash ........... 193,583 2 2,623
Restricted stock returned to
treasury .............................. (11,311) (261) 11
Registration and filing fees............ (3)
Utilization of net operating loss
carryforwards existing prior to
quasi-reorganization .................. 1,111
Tax deduction for stock option
exercises ............................. 2,379
Cumulative foreign currency
translation adjustment.................
Amortization of unearned compensation...
Unrealized gain on investments --
available for sale.....................
Unrealized gain on foreign
currency hedge ........................
Net income (loss) ......................
---------- ------ --------- -------- -----------
BALANCE, JULY 31, 2002 ................. 31,171,988 $ 311 (76,607) $ (1,432) $ 413,813
Common stock issued for
exchangeable stock .................... 1,103
Common stock issued to employees........ 34,557 292
Common stock issued for cash ........... 359,510 5 (7,536) (76) 2,596
Restricted stock returned to treasury... 20
Common stock exchanged for purchase
of Hampson-Russell .................... 589,623 6 7,244
Registration and filing fees ...........
Utilization of net operating loss
carryforwards existing prior to
quasi-reorganization .................. 4,437
Tax deduction for stock option
exercises .............................
Cumulative foreign currency
translation adjustment.................
Amortization of unearned compensation...
Unrealized gain on investments --
available for sale.....................
Unrealized loss on foreign currency
hedge..................................
Unrealized loss on interest rate swap...
Unrealized minimum pension liability....
Net income (loss).......................
---------- ------ --------- -------- -----------
BALANCE, JULY 31, 2003 ................. 32,156,781 $ 322 (84,143) $ (1,508) $ 428,402
========== ====== ========= ======== ===========

ACCUMULATED
EARNINGS FROM
AUGUST 1, 1991 ACCUMULATED
WITH RESPECT TO UNEARNED COMPREHENSIVE
DIGICON INC. COMPENSATION INCOME(LOSS)
--------------- ------------ -------------
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

BALANCE, JULY 31, 2000 ................. $ 121,133 $ (597) $ (5,386)
Common stock issued for
exchangeable stock ....................
Common stock issued to employees ....... (90)
Common stock issued for cash............
Common stock issued in acquisition of
Reservoir Characterization Research
and Consulting Inc.....................
Common stock issued for investment in
Fairweather Geophysical LLC. ..........
Treasury stock issued for services
under restricted stock Agreements ..... (1,322)
Registration and filing fees ...........
Utilization of net operating loss
carryforwards existing prior to
quasi-reorganization ..................
Tax deduction for stock option
exercises .............................
Cumulative foreign currency
translation adjustment ................ (3,205)
Amortization of unearned
compensation .......................... 712
Unrealized gain on investments --
available for sale .................... 1,600
Unrealized loss on foreign
currency hedge (420)
Net income ............................. 22,458
--------------- ------------ -------------
BALANCE, JULY 31, 2001 ................. $ 143,591 $ (1,297) $ (7,411)
Common stock issued for
exchangeable stock ....................
Common stock issued to employees........ (229)
Common stock issued for cash ...........
Restricted stock returned to
treasury ..............................
Registration and filing fees............
Utilization of net operating loss
carryforwards existing prior to
quasi-reorganization ..................
Tax deduction for stock option
exercises .............................
Cumulative foreign currency
translation adjustment................. (1,867)
Amortization of unearned compensation... 654
Unrealized gain on investments --
available for sale..................... 14
Unrealized gain on foreign
currency hedge 1,215
Net income (loss) ...................... (23,150)
--------------- ------------ -------------
BALANCE, JULY 31, 2002 ................. $ 120,441 $ (872) $ (8,049)
Common stock issued for
exchangeable stock ....................
Common stock issued to employees........ (301)
Common stock issued for cash ...........
Restricted stock returned to treasury... 151
Common stock exchanged for purchase
of Hampson-Russell ....................
Registration and filing fees ...........
Utilization of net operating loss
carryforwards existing prior to
quasi-reorganization ..................
Tax deduction for stock option
exercises .............................
Cumulative foreign currency
translation adjustment................. 12,361
Amortization of unearned compensation... 682
Unrealized gain on investments --
available for sale..................... 944
Unrealized loss on foreign currency
hedge.................................. (162)
Unrealized loss on interest rate swap... (777)
Unrealized minimum pension liability.... (1,577)
Net income (loss)....................... (59,924)
--------------- ------------ -------------
BALANCE, JULY 31, 2003 ................. $ 60,517 $ (340) $ 2,740
=============== ============ =============

See Notes to Consolidated Financial Statements

VERITAS DGC INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JULY 31, 2003, 2002 AND 2001

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

CONSOLIDATION

We provide integrated geophysical technologies to the petroleum
industry worldwide. The accompanying consolidated financial statements include
our accounts and the accounts of majority-owned domestic and foreign
subsidiaries. Our investment in a joint venture in which we own an 80% interest
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.

RECLASSIFICATION OF PRIOR YEAR BALANCES

Certain prior year balances have been reclassified for consistent
presentation.

FAIR VALUE OF FINANCIAL INSTRUMENTS

Our financial instruments include cash and short-term investments,
restricted cash investments, accounts and notes receivable, accounts payable and
debt. The fair market value of our variable rate debt at July 31, 2003 is $192.3
million. The carrying value is a reasonable estimate of fair value for all other
financial instruments.

RECENT ACCOUNTING PRONOUNCEMENTS

2002. Adoption did not have a material effect on our financial position or
results of operations.

In December 2002, the FASB issued Interpretation No. 45 (FIN 45),
Guarantor's Accounting and Disclosure Requirements. FIN 45 expands required
disclosures for certain types of guarantees and recognition of a liability at
fair value of such guarantees at the time of issuance. The disclosure
requirements are effective beginning with our second fiscal quarter financial
statements, ending January 31, 2002, while the fair value accounting
requirements apply prospectively to guarantees issued or modified after December
31, 2002. Adoption of FIN 45 did not have a material effect on our financial
position or results of operations.

In January 2003, the FASB issued Statement No. 148, Accounting for
Stock-Based Compensation, to provide alternative methods of transition for a
voluntary change to the fair value based method of accounting for stock-based
employee compensation. In addition, this Statement amends the disclosure
requirements of Statement 123 to require prominent disclosures in both annual
and interim financial statements about the method of accounting for stock-based
employee compensation and the effect of the method used on reported results. We
adopted the use of this accounting statement in January 2003 by implementing the
disclosure provisions. Adoption did not have a material effect on our financial
position or results of operations as no accounting change was required We have
no plans to voluntarily expense stock options or change our current stock-based
compensation program.

TRANSLATION OF FOREIGN CURRENCIES

The U.S. dollar is the functional currency of all of our operations
except in Canada, which uses the Canadian dollar as its functional currency.
Currency gains and losses result from the re-measurement of assets and
liabilities denominated in currencies other than their functional currency. (See
Note 12)

CASH EQUIVALENTS

For purposes of the Consolidated Balance Sheets and Consolidated
Statements of Cash Flows, we define cash equivalents as items readily
convertible into known amounts of cash with original maturities of three months
or less.

RESTRICTED CASH INVESTMENTS

Restricted cash investments in the amounts of $205,000 at July 31, 2003
and $166,000 at July 31, 2002 were pledged as collateral on certain bank
guarantees related to contracts entered into in the normal course of business
and are classified as restricted cash investments on the Consolidated Balance
Sheets.

ACCOUNTS AND NOTES RECEIVABLE

Unbilled amounts of approximately $60.2 million and $47.8 million are
included in accounts and notes receivable at July 31, 2003 and 2002,
respectively. The amounts represent work done or services or products delivered
to customers but not billable at the fiscal year ends in accordance with
contract provisions and generally will be billed in one to four months.

INVENTORIES

Inventories of materials and supplies are stated at the lower of
average cost or market.

INVESTMENTS AVAILABLE FOR SALE

Our marketable securities are considered available for sale and are
reported at fair value, with changes in fair values recorded as unrealized gains
and losses in Accumulated Other Comprehensive Income within stockholders'
equity. Realized gains and losses are calculated using the specific
identification method.

PROPERTY AND EQUIPMENT

Property and equipment are recorded at cost. Depreciation is computed
using the straight-line method based on estimated useful lives as follows:

ESTIMATED
USEFUL LIFE
IN YEARS
-----------

Geophysical equipment....................... 3-5
Data processing equipment................... 3
Geophysical vessel 5
Leasehold improvements and other............ 3-15

Depreciation related to assets used in the production of the
multi-client library and development of certain software is capitalized. Amounts
capitalized were $24.4 million, $29.2 million and $22.6 million in fiscal years
2003, 2002, and 2001, respectively.

Expenditures for routine repairs and maintenance are charged to expense
as incurred. We are contractually obligated to periodically put our chartered
vessels into port so that the vessel owner can have legally required maintenance
and inspections performed. We accrue for the costs of these port calls in
advance. Such accruals were $3.2 million and $2.9 million at July 31, 2003 and
2002, respectively. Expenditures for additions and improvements, including
capitalized interest, are capitalized and depreciated over the estimated useful
life of the related assets. The net gain or loss on disposed property and
equipment is included in other expense (income), net. (See Note 12)

MULTI-CLIENT DATA LIBRARY

We collect and process geophysical data for our own account and retain
all ownership rights. We license the data to clients on a non-transferable
basis. We capitalize all costs directly associated with acquiring and processing
the data, including the depreciation of the assets used in production of the
surveys. We refer to these costs as our gross multi-client investment. All costs
excluding the capitalized depreciation are our net multi-client investment, or
as used in this document "investment in multi-client library, net cash," and
represent cash investment in the library. The capitalized cost of multi-client
data is charged to cost of services in the period sales occur based on the
percentage of total estimated costs to total estimated sales multiplied by
actual sales, known as the sales forecast method. Any costs remaining 36 months
after completion of a survey are charged to cost of services over a period not
to exceed 24 months. The total amortization period of sixty months represents
the minimum period over which benefits from these surveys are expected to be
derived.

We periodically review the carrying value of the multi-client data
library to assess whether there has been a permanent impairment of value and
record losses when it is determined that estimated sales would not be sufficient
to cover the carrying value of the asset. In 2003, we recognized a $4.9 million
pretax impairment charge related to a survey in the Gulf of Mexico that we have
been unable to license. This survey was acquired at right angles to an existing
survey and, while a technical success, customers have not been willing to pay
for the increased resolution. In 2002, we recognized a $55.2 million pretax
impairment charge related to 11 of our multi-client library surveys. Seven of
these were land surveys located in the Gulf Coast region. Exploration spending
has been very low in this region since shortly after we completed these surveys,
and we do not anticipate any sales of these surveys in the foreseeable future.
Therefore, these surveys were written completely off of our books, with a net
charge of $28.8 million. We have one survey in the Gulf of Mexico that was shot
at a cost significantly exceeding its original budget. As we did not forecast
enough sales to amortize the remainder of the cost of the survey, we wrote it
down by $16.0 million. This left $10.0 million of cost for this survey, an
amount we believed to be the fair value of the survey based on future estimated
sales. In the Shetland-Faroes area of the North Sea, we have a large survey that
has been troubled by an ongoing territorial dispute. When the dispute was
settled, nine-year concessions were awarded to various licensees. Given

the length of the license period, we did not foresee significant near-term
additional licensing of this survey, and we wrote it off with a net charge of
$9.3 million. We also have two small 2D surveys off Africa that were written off
with a net charge of $1.1 million. We recorded no such impairment charges in
fiscal 2001.

During the fourth quarter of fiscal 2001, we changed the useful life of
marine surveys from 48 months to 60 months. We believe that 60 months more
accurately represents the minimum period over which we will derive benefits from
our current portfolio of marine surveys. This change in accounting estimate was
made prospectively and had an immaterial impact on our results for fiscal 2001.

During the first quarter of fiscal 2004, we changed our multi-client
policy to include a minimum amortization from the date of survey completion,
instead of only during the last 24 months of survey book life. However, the
sales forecast method remains the primary method of calculating cost of
services. (See Note 16)

GOODWILL

For acquisitions accounted for under the purchase method, we record the
purchase price of businesses or joint venture interests in excess of the fair
value of net assets acquired as goodwill. During fiscal 2001, goodwill was
amortized using the straight-line method over a period of 10 to 20 years, which
approximated the period in which benefits were expected to be derived. This
amortization was discontinued in the beginning of fiscal 2002 with our adoption
of SFAS No. 142. We test goodwill by deriving an approximate fair market value
for the reporting unit carrying the goodwill, using its estimated earnings for
the upcoming fiscal year and our overall stock multiple in the calculation. This
test indicated a 100% impairment of goodwill and resulted in a charge to
earnings of $39.3 million. (See Note 3 of Notes to Consolidated Financial
Statements)

MOBILIZATION COSTS

Transportation and other expenses incurred prior to commencement of
geophysical operations in an area are deferred and amortized over the lesser of
the term of the related contract or one year. Unamortized mobilization costs of
$0.9 million and $2.6 million were included in other assets at July 31, 2003 and
2002, respectively. Amounts applicable to surveys performed for our own account
are included in the cost of the multi-client data library.

LEASES

Operating leases include those for office space, specialized
geophysical equipment, and our geophysical vessels, which are chartered on a
short-term basis, of up to 8 years, relative to their useful economic lives of
approximately 30 years.

REVENUES

Revenues from the licensing of multi-client data surveys are based upon
agreed rates set forth in the contract and are recognized upon delivery of such
data. Revenues from contract services are recognized on the percentage-of-
completion method measured by the amount of data collected or processed to the
total amount of data to be collected or processed, or by time incurred to total
time expected to be incurred. Revenues generated from external pre-funding of
data library projects are recognized on a similar percentage-of-completion
method, modified slightly to account for the timing of pre-funding.

STOCK-BASED COMPENSATION

We maintain stock-based compensation plans that are accounted for using
the intrinsic value based method allowed by Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees", and related Interpretations.
Under that method, compensation expense is recorded in the accompanying
consolidated financial statements when the quoted market price of stock at the
grant date or other measurement date exceeds the amount an employee must pay to
acquire the stock. Our plans do not permit us to grant options at a price lower
than market, therefore, we do not record any compensation expense related to
stock options. As required by SFAS No. 148, "Accounting for Stock-Based
Compensation," we disclose the pro forma effect of stock option expense on net
income and earnings per share that would have been recorded using the fair value
based method. (See Note 9)

EARNINGS PER SHARE

The computation of basic earnings per share is based on the weighted
average common shares outstanding, including exchangeable shares. The
computation of diluted earnings per share is based upon the weighted average
common shares outstanding and additional common shares, utilizing the treasury
stock method and average market prices, which would have been outstanding if
dilutive potential common shares had been issued. Since we recorded net losses
for fiscal 2003 and fiscal 2002, no securities are dilutive and basic and
diluted earnings per share are the same for those years. (See Note 13)

2. BUSINESS COMBINATIONS

On August 21, 2002, we acquired Hampson-Russell Software Services Ltd.
("Hampson-Russell"), a Canadian provider of software tools and consulting
services related to reservoir interpretation. Under the terms of the agreement,
we acquired substantially all of the assets of Hampson-Russell in exchange for
$9.2 million in cash 589,623 shares of our common stock (valued at $12.30 per
share), and Hampson-Russell's right to receive a percentage of the revenues
generated by the purchased assets over the five years following the closing of
the transaction, provided that certain financial targets are obtained. The
$12.30 value for our common stock price was based on the average closing price
for Veritas common stock for a short period prior to the closing date of the
transaction. Our allocation of the $16.8 million purchase price was based on
fair value as follows: $0.3 million of fees and expenses, $13.2 million to
software, $3.9 million to goodwill, of which none is expected to be tax
deductible, $1.1 million to accrued liabilities, $0.3 million to fixed assets
and $0.2 million to other assets. The software will be amortized over no more
than five years. David B. Robson, our Chairman and Chief Executive Officer,
beneficially owns a controlling interest in Vada Industries Ltd., which was a
25% shareholder of Hampson-Russell at the time of the acquisition. The results
of operations for Hampson-Russell are included in our results of operations as
of August 21, 2002.

During fiscal 2002, we entered into an agreement with Petroleum
Geoservices ASA to merge our two companies. During this process we incurred
banking, legal, and other professional fees of $7.1 million. We incurred an
additional $7.5 million of expense due to our termination of the merger and
triggering of the termination fee under the agreement. All of the $14.6 million
of expense related to the proposed merger is presented as operating expense on
the Consolidated Statement of Operations and Comprehensive Income (Loss) for
Fiscal 2002.

On February 2, 2001, we acquired Reservoir Characterization Research
and Consulting, Inc., ("(RC)(2)"), a Colorado corporation, in exchange for
1,137,466 shares of our common stock and 149,370 options to purchase our common
stock The total purchase price of (RC)(2) was $34.4 million, comprised of $33.0
million of stock and $1.4 million of options. The acquisition was accounted for
as a purchase with the initial allocation of purchase price, in accordance with
APB 16, yielding $2.2 million of current assets, $8.5 million of property and
long-term assets, $2.3 million of liabilities, and $26.0 million of goodwill. In
September 2003, we sold the software business of (RC)(2). (See Note 16)

3. GOODWILL

In July 2001, the Financial Accounting Standards Board issued SFAS No.
142 (Goodwill and Other Intangible Assets). We adopted SFAS No. 142 as of August
1, 2001. SFAS No. 142 defines the accounting treatment of goodwill and other
intangible assets derived from business combinations and supersedes APB Opinion
No.17. This statement no longer permits us to amortize goodwill but requires
that we test goodwill and other intangible assets for impairment in a specific
manner on an annual basis or when certain events trigger such a test.

The "as adjusted effect" of implementing SFAS No. 142 is as follows:

FOR THE YEARS ENDED JULY 31,
----------------------------------------
2003 2002 2001
---------- ----------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

Reported net income (loss) ...................... $ (59,924) $ (23,150) $ 22,458
Goodwill amortization ........................... 2,292
---------- ----------- ----------
Adjusted net income (loss) ...................... $ (59,924) $ (23,150) $ 24,750
========== =========== ==========

Earnings per share:
Basic:
Reported net income (loss) per share ........ $ (1.80) $ (.71) $ .73
Goodwill amortization per share ............. .07
---------- ----------- ----------
Adjusted net income (loss) per share ........ $ (1.80) $ (.71) $ .80
========== =========== ==========
Diluted:
Reported net income (loss) per share ........ $ (1.80) $ (.71) $ .71
Goodwill amortization per share ............ .07
---------- ----------- ----------
Adjusted net income (loss) per share ........ $ (1.80) $ (.71) $ .78
========== =========== ==========

Our reduced earnings, coupled with the instability in the industry,
have led to a sharp decline in our stock price, leaving our market value below
our book value. As a result of the continued weak stock price and the expected
sale of the (RC)(2) software business, we performed an evaluation of our
existing goodwill as of July 31, 2003. We test goodwill by deriving an
approximate fair market value for the reporting unit carrying the goodwill,
using its estimated earnings for the upcoming fiscal year and our overall stock
multiple in the calculation. This test indicated a 100% impairment of goodwill
and resulted in a charge to earnings of $39.3 million in the fourth quarter of
fiscal 2003. The majority of the goodwill impairment, $25.1 million, originated
in the (RC)(2) acquisition, with the remainder arising from multiple smaller
acquisitions.

4. OTHER ASSETS - SOFTWARE

Software available for sale is included in other assets on our
Consolidated Balance Sheets. A portion of the software was developed internally
and the rest was obtained through the acquisition of (RC)(2) and
Hampson-Russell. After the close of the sale of the (RC)(2) software operation
in September 2003, software available for sale will consist entirely of the
Hampson-Russell suite of products.

In the fourth quarter of this year, we decided to sell the (RC)(2)
software operation and entered into a letter of intent to sell it to Seismic
Micro-Technology, Inc. We recorded a charge in the fourth quarter of $7.6
million related to these operations. $5.9 million of this charge was applied to
reduce the carrying value of the (RC)(2) software to its estimated market value
of $2.0 million. The remaining $1.7 million primarily relates to employee
severance and facility costs. The sales agreement will allow us to continue
using the (RC)(2) suite of software in our reservoir consulting business and we
have entered into a dealer arrangement that allows us to continue as sales
agents of the software.

For internally developed software designed for external licensing, we
capitalize costs associated with the development of the product from the time
the product reaches technological feasibility until it is ready for commercial
release. The capitalized cost of the software, whether developed or purchased,
is charged to cost of services in the period sales occur based on the percentage
of total cost to total estimated sales multiplied by actual sales during the
period. The software is also subject to a minimum amortization equal to the
software balance at the beginning of the period divided by the remaining book
life. Estimated useful lives of our software products range from three to five
years.

Amortization expense for the software is as follows:

FOR THE YEARS ENDED
JULY 31,
---------------------------
(IN THOUSANDS)
2003 2002 2001
------- ------- -------

Amortization expense............. $ 4,730 $ 2,576 $ 1,287

The carrying value of our software is as follows:

JULY 31, 2003 JULY 31, 2002
------------------------------------- -----------------------------------
GROSS GROSS
CARRYING ACCUMULATED CARRYING ACCUMULATED
AMOUNT AMORTIZATION NET AMOUNT AMORTIZATION NET
---------- ------------ ---------- --------- ------------ ---------
(IN THOUSANDS)

Software ........... $ 22,629 $ 8,581 $ 14,048 $ 13,631 $ 3,851 $ 9,780

5. LONG-TERM DEBT

Long-term debt is as follows:

JULY 31,
-------------------
2003 2002
-------- --------
(IN THOUSANDS)

Term A loan due February 2006 .............................. $ 29,850
Term B loan due February 2007 .............................. 124,375
Term C loan due February 2008 .............................. 40,000
Senior Notes due October 2003, at 9 3/4% ................... $135,000
Revolving credit agreement, balance due August 2003 ........ 5,000
-------- --------
Total debt ............................................. 194,225 140,000
Less: Current portion of long-term debt .................... 13,908
-------- --------
Total long-term debt $180,317 $140,000
======== ========

On February 14, 2003, we entered into a Credit Agreement (the "Credit
Agreement") with Deutsche Bank AG, New York Branch, as Administrative Agent,
Deutsche Bank AG, Canada Branch, as Canadian Administrative Agent, and certain
other lending institutions. The facility provides term financing of $195.0
million under term A, term B and term C tranches (the "Term Loans"), a revolving
loan facility aggregating $55.0 million, including a facility for swing line
loans of up to $10.0 million and the issuance of letters of credit in an
aggregate amount of up to $40.0 million. Among other restrictions the Credit
Agreement prohibits us from paying cash dividends.

The term A and term B loans require quarterly combined principal
payments of $387,500 representing 0.25% of the initial principal balances.
Should there be an event of default or an unmatured event of default exists, or
the credit rating of any of the debt falls below Moody's Ba2 or S&P's BB, or our
leverage ratio as of the last day of the most recent excess cash flow
calculation period rises above certain levels, the term A and B loans also
require principal payments of 50% of the prior fiscal year's cash flow,
calculated as per the loan agreement. This payment is due 100 days after the end
of the fiscal year. As our lowest debt ratings are Ba3 by Moody's and BB+ by
S&P, we will pay $12.4 million of principal in November 2003 related to the
company's cash flow from January 1, 2003 through July 31, 2003. Future payments
of this type, if any, will be based on cash flow for full fiscal years.

Loans made under the revolving loan facilities, including swing line
loans, bear interest at a variable rate determined on the date of borrowing that
is related to various base rates and margins depending upon our leverage ratio
and the location of the borrowing. The revolver expires in February 2006.

Borrowings under the Credit Agreement are secured by assets, including
equipment, vehicles, multi-client data library, intellectual property, and stock
of certain material subsidiaries, owned by us and certain of our subsidiaries.
At July 31, 2003, the carrying value of the secured assets was $1.1 billion. The
Credit Agreement and related documents contain a number of covenants, including
financial covenants relating to interest coverage, leverage and net worth. On
February 14, 2003, the Term Loans totaling $195.0 million were funded and
letters of credit in the amount of approximately $5.7 million then outstanding
from the previous credit agreement were transferred to the Credit Agreement.
Proceeds from the Term Loans were used to satisfy the obligations under the
previous credit agreement and our senior notes.

During fiscal 2003, we incurred interest costs of $18.5 million. For
fiscal years 2002 and 2001, we capitalized $1.1 million and $0.5 million
respectively, of such interest costs. The capitalized amounts are related to
capital improvements made to the chartered vessels Veritas Viking II and the
Veritas Vantage. No interest was capitalized in fiscal 2003.

6. OTHER ACCRUED LIABILITIES

Other accrued liabilities include the following:

JULY 31,
-------------------
2003 2002
-------- --------
(IN THOUSANDS)

Accrued payroll and benefits ................ $ 13,929 $ 17,310
Deferred revenue ............................ 7,441 12,187
Accrued taxes other than income taxes ....... 4,678 4,364
Reserve for costs related to (RC)(2) sale ... 1,701
Merger termination fee ...................... 7,500
Other ....................................... 13,580 12,808
-------- --------
Total ....................................... $ 41,329 $ 54,169
======== ========

7. INCOME TAXES

Pretax income (loss) was taxed under the following jurisdictions:

FOR THE YEARS ENDED JULY 31,
------------------------------------
2003 2002 2001
-------- --------- --------
(IN THOUSANDS)

U.S. ................. $(37,045) $ (32,376) $ 15,073
Non-U.S. ............. 5,173 14,418 23,268
-------- --------- --------
Total....... $(31,872) $ (17,958) $ 38,341
======== ========= ========

The provision for income taxes consists of the following:

FOR THE YEARS ENDED JULY 31,
--------------------------------------
2003 2002 2001
--------- --------- ---------
(IN THOUSANDS)

Current -- U.S. ....... $ 7,540 $ (12,494) $ (6,552)
Deferred -- U.S. ...... 13,341 7,403 15,534
Current -- Non-U.S. ... 3,681 11,444 277
Deferred -- Non-U.S. .. 3,490 (1,161) 6,624
--------- --------- ---------
Total........ $ 28,052 $ 5,192 $ 15,883
========= ========= =========

A reconciliation of income tax expense computed at the U.S. statutory
rate to the provision reported in the consolidated statements of operations and
comprehensive income (loss) is as follows:

FOR THE YEARS ENDED JULY 31,
--------------------------------------
2003 2002 2001
--------- --------- ---------
(IN THOUSANDS)

Income tax (benefit) at the U.S. statutory rate.. $ (11,155) $ (6,285) $ 13,419
Increase (reduction) in taxes resulting from:
Tax effect resulting from foreign activities... 7,927 10,029 3,749
Adjustments to prior year tax returns.......... 2,482 403 147
State income taxes............................. (391) 343
Software amortization.......................... 616 848 425
Loss on investment in marketable securities.... 477
Goodwill impairment............................ 8,687
Valuation allowance on deferred tax assets..... 20,306 (1,692)
Other.......................................... (811) 111 (508)
--------- --------- ---------
Total.................................. $ 28,052 $ 5,192 $ 15,883
========= ========= =========

The tax effect resulting from foreign activities category includes
non-U.S. earnings taxed at other than the U.S. statutory rate, non-U.S. losses
with no tax recovery, loss of foreign tax credits and deductions, foreign
withholding taxes and U.S. tax on Subpart F income, dividends and foreign branch
operations. In fiscal 2002 we recorded $6.5 million of expense related to net
operating losses in Argentina that were not expected to be utilized due to our
suspension of activity in that country.

Deferred taxes result from the effect of transactions that are
recognized in different periods for financial and tax reporting purposes. The
primary components of our deferred tax assets and liabilities are as follows:

JULY 31,
--------------------
2003 2002
-------- --------
(IN THOUSANDS)

Deferred tax assets:
Difference between book and tax basis of property and equipment ........ $ 8,243 $ 10,080
Difference between book and tax basis of multi-client data library ...... 10,431 4,388
Net operating loss carryforwards ........................................ 19,166 20,910
Deferred revenues ....................................................... 1,379 1,899
Accrued liabilities ..................................................... 12,210 797
Capitalized research and development costs .............................. 2,255
Other deferred tax assets ............................................... 350 1,607
-------- --------
Total ........................................................... 51,779 41,936
Deferred tax liabilities .................................................. (1,848) (865)
-------- --------
Net deferred tax asset .................................................... 49,931 41,071
Valuation allowance ....................................................... (47,385) (27,315)
-------- --------
Net deferred tax asset .................................................... $ 2,546 $ 13,756
-------- --------

A valuation allowance, by tax jurisdiction, is established when it is
more likely than not that some portion or all of the deferred tax assets will
not be realized. The valuation allowance is periodically adjusted based upon the
available evidence. Adjustments are also made to recognize the expiration of net
operating loss and investment tax credit carryforwards, with equal and
offsetting adjustments to the related deferred tax asset. During fiscal 2003, we
provided an additional $20.1 million valuation allowance as the evidence,
including historical losses, did not support a more likely than not conclusion
that portions of our deferred tax assets would be realized. The remaining,
unreserved, deferred tax assets are in jurisdictions where we have been
historically profitable.

Since the quasi-reorganization with respect to Digicon 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.

As of July 31, 2003, we had U.S. net operating loss carryforwards of
$10.7 million. A total of $3.7 million of net operating loss carryforwards
existed prior to the quasi-reorganization.

The following schedule sets forth the expiration dates of the U.S. and
non-U.S. net operating losses:

FISCAL YEAR U.S. NON-U.S.
--------------- -------- --------
(IN THOUSANDS)

2004 .......... $ 2,495 $ 352
2005 .......... 1,198 519
2006 .......... 1,347 294
2007 .......... 2,505 1,830
2008 .......... 0 3,167
2009 .......... 0 770
2010 .......... 0 5,337
2011 .......... 3,181 91
2012 .......... 0 185
2013 .......... 0 1,772
Indefinite .... 0 35,703
-------- --------
Total .... $ 10,726 $ 50,020
======== ========

Internal Revenue Service regulations restrict the utilization of U.S.
net operating loss carryforwards and other tax benefits (such as investment tax
credits) for any company in which an "ownership change" (as defined in Section
382 of the Internal Revenue Code) has occurred. We performed the required
testing and concluded that two "ownership changes" occurred. The first occurred
in connection with the issuance of common stock through a public offering we
made on January 6, 1992. The utilization of U.S. net operating loss
carryforwards existing at the date of the first "ownership change" is limited to
$4.0 million per year. The second "ownership change" occurred in 1996 as a
result of the stock acquisition of Veritas Energy Services Inc. The utilization
of U.S. net operating losses incurred between the first and second ownership
changes is limited to $8.9 million per year, which includes the limitation of
$4.0 million from the first ownership change. During fiscal 2001, we utilized
$8.9 million of limitation carryover. During fiscal 2002, we generated a U.S.
net operating loss of $27.9 million, which we expect to carry back and utilize
against prior years' taxable income. During fiscal 2003, we utilized $17.8
million of limitation carryover.

Non-U.S. operations had net operating loss carryforwards of $50.0
million at July 31, 2003, of which $0.6 million existed prior to the
quasi-reorganization, and of which $43.6 million are subject to valuation
allowances. Approximately $14.8 million of the non-U.S. net operating loss
carryforwards are related to United Kingdom operations and $15.2 million are
related to Australian operations. Both have an indefinite carryforward period,
and are available to offset future profits in our current trade or business. At
July 31, 2003, none of the United Kingdom or Australian net operating loss
carryforwards existed prior to the quasi-reorganization.

We consider the undistributed earnings of our non-U.S. subsidiaries to
be permanently reinvested. We have not provided deferred U.S. income tax on
those earnings, as it is not practicable to estimate the amount of additional
tax that might be payable should these earnings be remitted or deemed remitted
as dividends or if we should sell our stock in the subsidiaries.

8. COMMITMENTS AND CONTINGENT LIABILITIES

Total rentals of vessels, equipment and office facilities charged to
operations amounted to $72.2 million, $65.6 million and $78.8 million for the
years ended July 31, 2003, 2002 and 2001, respectively.

Minimum rentals payable under operating leases, principally for office
space and vessel charters with remaining non-cancelable terms of at least one
year are as follows:

FISCAL YEAR MINIMUM RENTALS
---------------
(IN THOUSANDS)

2004.................................. $ 34,854
2005.................................. 29,676
2006.................................. 20,896
2007.................................. 12,084
2008 and thereafter................... 40,322

We carry workers compensation insurance that limits our liability on a
per claim and per policy year basis. Management has evaluated the adequacy of
the accrual for the liability for incurred but unreported workers compensation
claims and has determined that the ultimate resolution of any such claims would
not have a material adverse impact on our financial position.

9. EMPLOYEE BENEFITS

We maintain a 401(k) plan in which employees of our majority-owned
domestic subsidiaries and certain foreign subsidiaries are eligible to
participate. Employees of foreign subsidiaries who are covered under a foreign
deferred compensation plan are not eligible. Employees are permitted to make
contributions of up to 50% of their salary up to the statutory maximum dollar
amount, which is $12,000 for calendar 2003. Prior to January 1, 2003 we
contributed an amount equal to one-half of the employee's contribution of up to
$8,000 or 8% of the employee's salary (whichever is less). As of January 1, 2003
we contribute an amount equal to the employee's contribution up to a maximum of
5% of the employee's salary. Our matching contributions to the 401(k) plan were
$1.4 million, $1.1 million and $1.0 million for fiscal years 2003, 2002 and
2001, respectively.

Prior to December 11, 2002 we had two employee nonqualified stock
option plans under which options were granted to officers and select employees.
Options generally vested over three years and were exercisable over a five to
ten-year period from the date of grant. The exercise price for each option is
the fair market value of the common stock on the grant date. Our Board of
Directors authorized 5,954,550 shares of common stock to be issued under these
option plans.

Prior to December 11, 2002 we also maintained a stock option plan for
non-employee directors (the "Director Plan") under which options were granted to
our non-employee directors. The Director Plan provided that every year each
eligible director was granted options to purchase 5,000 shares of our common
stock which vest over a period of three years from the date of grant and are
exercisable over five to ten years from the date of grant. The exercise price
for each option granted is the fair market value at the date of grant. The Board
of Directors has authorized 600,000 shares of common stock to be issued under
the Director Plan.

On December 11, 2002, we adopted our current Share Incentive Plan that
provides for the issuance to directors, officers and select employees: (1)
nonqualified options to purchase our common stock, (2) incentive options to
purchase our common stock, (3) share appreciation rights, (4) deferred share
units, (5) restricted shares and (6) performance shares. The options issued
under the Plan have exercise prices equal to the fair market value at the date
of grant, have 5-year lives and vest over three years. As of July 31, 2003
1,750,228 shares were reserved for issuance under the Share Incentive Plan, with
no more than 300,000 of those shares issuable in any form other than stock
options.

Commencing with annual director's fees to be paid in calendar year
2003, each of our non-employee directors may elect to receive deferred share
units issued under our Share Incentive Plan in lieu of 25, 50, 75 or 100% of his
or her annual director's fees. Once vested, each share unit is convertible into
one share of our common stock. A director who elects to receive share units
prior to the end of any calendar year, in lieu of all or a portion of the
following year's annual director fees, is entitled to receive on January 1 of
the following year that number of deferred share units with a fair market value,
as defined in the plan, equal to the amount deferred. The shared units then
issued vest on the following dates, coinciding with the normal payment of
quarterly director's fees: 25 percent on each of the following dates: January 1
(the grant date), April 1, July 1 and October 1. Vested share units convert to
shares of our common stock upon the director's retirement or other termination.
In calendar year 2003, 3,165 deferred share units were issued.

The following tables provide additional information related to our
stock option plans:

FOR THE YEAR ENDED JULY 31, 2003
---------------------------------------------------
WEIGHTED
WEIGHTED WEIGHTED AVERAGE
AVERAGE AVERAGE CONTRACTUAL
NUMBER OF EXERCISE GRANT DATE LIFE
SHARES PRICE FAIR VALUE IN YEARS
---------- ---------- ---------- -----------

Beginning balance ..................................... 1,884,665 $ 22.97
Options granted ....................................... 2,673,137 $ 9.94 $ 5.36 5
Options exercised ..................................... (83,896) $ 7.09
Options forfeited ..................................... (444,407) $ 17.33
---------
Ending balance .................................. 4,029,499 $ 15.27
=========
Options exercisable ............................. 2,083,780 $ 18.96
=========
Options exercisable by range of exercise price:
$ 0.00-$ 5.65 ....................................... 8,333 $ 5.25
$ 5.65-$11.30 ....................................... 978,077 $ 10.13
$11.30-$16.95 ....................................... 51,365 $ 13.73
$16.95-$22.60 ....................................... 246,662 $ 19.39
$22.60-$28.25 ....................................... 432,656 $ 25.90
$28.25-$33.90 ....................................... 790 $ 30.78
$33.90-$39.55 ....................................... 350,204 $ 34.64
$39.55-$45.20 ....................................... 9,152 $ 43.76
$45.20-$50.85 ....................................... 4,828 $ 45.31
$50.85-$56.50 ....................................... 1,713 $ 54.80
---------
Ending balance .................................. 2,083,780
=========
Ending balance by range of exercise price:
$ 0.00-$ 5.65 ....................................... 8,333 $ 5.25
$ 5.65-$11.30 ....................................... 2,794,722 $ 9.96
$11.30-$16.95 ....................................... 61,365 $ 13.95
$16.95-$22.60 ....................................... 246,662 $ 19.39
$22.60-$28.25 ....................................... 447,150 $ 25.84
$28.25-$33.90 ....................................... 790 $ 30.78
$33.90-$39.55 ....................................... 454,784 $ 34.60
$39.55-$45.20 ....................................... 9,152 $ 43.76
$45.20-$50.85 ....................................... 4,828 $ 45.31
$50.85-$56.50 ....................................... 1,713 $ 54.80
---------
Ending balance .................................. 4,029,499
=========

FOR THE YEAR ENDED JULY 31, 2002
-------------------------------------
WEIGHTED
WEIGHTED AVERAGE
AVERAGE GRANT
NUMBER OF EXERCISE DATE
SHARES PRICE FAIR VALUE
---------- ---------- ----------

Beginning balance ............ 2,011,619 $ 23.16
Options granted .............. 30,000 $ 15.09 $ 9.87
Options exercised ............ (32,292) $ 9.24
Options forfeited ............ (124,662) $ 27.96
--------- ----------
Ending balance ........ 1,884,665 $ 22.95
========= ==========
Options exercisable ... 1,471,018 $ 20.91
========= ==========

FOR THE YEAR ENDED JULY 31, 2001
-------------------------------------
WEIGHTED
WEIGHTED AVERAGE
AVERAGE GRANT
NUMBER OF EXERCISE DATE
SHARES PRICE FAIR VALUE
---------- ---------- ----------

Beginning balance ................. 2,278,562 $ 17.43
Options granted ................... 568,456 $ 34.44 $ 26.96
Options converted from (RC)(2)..... 149,370 $ 21.02 $ 23.22
Options exercised ................. (857,757) $ 15.05
Options forfeited ................. (127,012) $ 23.31
--------- ----------
Ending balance ............. 2,011,619 $ 23.15
========= ==========
Options exercisable ........ 1,087,533 $ 20.50
========= ==========

The weighted average fair values of options granted are determined
using the Black-Scholes option valuation method assuming no expected dividends.
Other assumptions used are as follows:

FOR THE YEARS ENDED
JULY 31,
--------------------
2003 2002 2001
---- ---- ----

Risk-free interest rate.. 3.0% 4.9% 5.1%
Expected volatility ..... 69.0% 69.0% 67.5%
Expected life in years... 4.0 6.3 10.0

On November 1, 1997, we initiated an employee stock purchase plan. This
plan was amended and restated on December 11, 2002 and called the Employee Share
Purchase Plan. The Board of Directors has authorized 1,000,000 shares available
for issuance under the plan. Participation is voluntary and substantially all
full-time employees meeting limited eligibility requirements may participate.
Contributions are made through payroll deductions and may not be less than 1% or
more than 15% of the participant's base pay as defined. The participant's option
to purchase common stock is deemed to be granted on the first day and exercised
on the last day of the fiscal quarter at a price that is the lower of 85% of the
market price on the first or last day of the fiscal quarter. During fiscal 2003,
275,614 shares of common stock were issued with a weighted average fair value at
grant date of $7.42. During fiscal 2002, 187,998 shares of common stock were
issued with a weighted average fair value at grant of $12.42 per share. During
fiscal 2001, 61,001 shares of common stock were issued with a weighted fair
value at grant of $27.04 per share.

On June 9, 1998, we initiated a restricted stock plan. This plan was
amended and restated on March 7, 2000 to make an aggregate of 173,975 shares
available for issuance under the plan. On March 8, 2001, an additional 200,000
shares were reserved for use under the plan. The Board of Directors'
Compensation Committee determines the eligibility of an employee and the terms
and amount of each grant. In addition, we have issued restricted stock in
conjunction with certain employment agreements.

The following tables represent the restricted shares issued in fiscal
2003 and 2002:

YEAR ENDED JULY 31, 2003
-----------------------------------------------------------
NUMBER OF GRANT VESTING
SHARES GRANTED GRANT DATE PRICE PERIOD (YEARS)
-------------- -------------- -------- --------------

18,664 August 2002 $ 10.96 1
9,000 September 2002 $ 10.40 3
3,165 January 2003 $ 7.90 1
2,500 February 2003 $ 7.88 3

YEAR ENDED JULY 31, 2002
-----------------------------------------------------------
NUMBER OF GRANT VESTING
SHARES GRANTED GRANT DATE PRICE PERIOD (YEARS)
-------------- -------------- -------- --------------

1,200 August 2001 $ 15.75 3
99 August 2001 $ 16.06 1
14,286 August 2001 $ 16.10 3
4,500 October 2001 $ 13.79 3

Compensation expense relating to the stock-based compensation plans
described above was $682,000, $654,000 and $712,000 for the years ended July 31,
2003, 2002 and 2001, respectively.

The effect on net income and earnings per share that would have been
recorded using the fair value based method for stock options as required by SFAS
148 is as follows:

FOR THE YEARS ENDED JULY 31,
--------------------------------------
2003 2002 2001
---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

Net income (loss), as reported ................... $ (59,924) $ (23,150) $ 22,458
Less: Total stock-based employee compensation
expense determined under fair value based method
for all awards, net of related tax effects ....... (11,072) (6,200) (13,621)
---------- ---------- ----------
Pro forma net income (loss) ...................... $ (70,996) $ (29,350) $ 8,837
========== ========== ==========

Earnings per share:
Basic - as reported .............................. $ (1.80) $ (.71) $ .73
Basic - pro forma ................................ $ (2.13) $ (.91) $ .29

Diluted - as reported ............................ $ (1.80) $ (.71) $ .71
Diluted - pro forma .............................. $ (2.13) $ (.91) $ .28

The pro forma effect on net income and earnings per share may not be
representative of the pro forma effects on future net income and earnings per
share because some options vest over several years and additional awards may be
granted.

We maintain a contributory defined benefit pension plan (the "Pension
Plan") for eligible participating employees in the United Kingdom. Monthly
contributions by employees are equal to 4% of their salaries. We provide an
additional contribution in an actuarially determined amount necessary to fund
future benefits to be provided under the Pension Plan. Benefits provided are
based upon 1/60 of the employee's final pensionable salary (as defined) for each
complete year of service up to 2/3 of the employee's final pensionable salary
and increase annually in line with inflation subject to a maximum of 5% per
annum. The Pension Plan also provides for 50% of such actual or expected
benefits to be paid to a surviving spouse upon the death of a participant.
Pension Plan assets consist mainly of investments in marketable securities that
are held and managed by an independent trustee.

The net periodic pension costs are as follows:

FOR THE YEARS ENDED
JULY 31,
---------------------------------
2003 2002 2001
-------- ------- --------
(IN THOUSANDS)

Service costs (benefits earned during the period).. $ 584 $ 530 $ 550
Interest cost on projected benefit obligation...... 810 750 656
Expected return on plan assets..................... (665) (546) (551)
Net amortization and deferral...................... 222 118 46
-------- ------- --------
Net periodic pension costs......................... $ 951 $ 852 $ 701
======== ======= ========

The funded status of the Pension Plan is as follows:

JULY 31,
-----------------------
2003 2002
--------- --------
(IN THOUSANDS)

Plan assets at fair value................................ $ 10,926 $ 8,257
========= ========

Projected benefit obligation in excess of plan assets.... $ 5,412 $ 4,673
Unrecognized prior service costs......................... (1,592) (1,620)
Unrecognized actuarial loss.............................. (2,104) ( 1,664)
--------- --------
Net pension liability.................................... $ 1,716 $ 1,389
========= ========

Amounts included in the consolidated balance sheet consist of:

JULY 31,
-----------------------
2003 2002
--------- --------
(IN THOUSANDS)

Accrued benefit liability........................ $ 3,308 $ 3,009
Intangible asset................................. (1,592) (1,620)
--------- --------
Net pension liability............................ $ 1,716 $ 1,389
========= ========

The weighted average assumptions used to determine the projected
benefit obligation and the expected long-term rate of return on assets are as
follows:

FOR THE YEARS ENDED
JULY 31,
--------------------------------
2003 2002 2001
--------- -------- ------

Discount rate.................................... 6.0% 6.0% 6.0%
Rates of increase in compensation levels......... 4.0% 4.0% 4.0%
Expected long-term rate of return on assets...... 6.5% 6.5% 6.5%

The following is a reconciliation of the beginning and ending balances
of the benefit obligation and the fair value of plan assets:

JULY 31,
--------------------
2003 2002
-------- --------
(IN THOUSANDS)

Benefit obligation at beginning of year .......... $ 12,930 $ 12,293
Service cost ..................................... 584 530
Interest cost .................................... 810 750
Contributions by plan participants ............... 273 233
Actuarial (gain) loss ............................ 988 (1,989)
Benefits paid .................................... (197) (48)
Foreign currency exchange rate changes ........... 950 1,161
-------- --------
Benefit obligation at end of year ................ $ 16,338 $ 12,930
======== ========

Fair value of plan assets at beginning of year ... $ 8,257 $ 7,935
Actual gain (loss) on plan assets ................ 665 (1,853)
Employer contributions ........................... 1,299 1,247
Plan participants' contributions ................. 273 233
Benefits paid .................................... (197) (48)
Foreign currency exchange rate changes ........... 629 743
-------- --------
Fair value of plan assets at end of year ......... $ 10,926 $ 8,257
======== ========

10. HEDGE TRANSACTIONS

In March 2001, we entered into a contract requiring payments in
Norwegian kroner to charter the seismic vessel M/V Seisquest. The contract
requires 36 monthly payments commencing on June 1, 2001. To protect our exposure
to exchange rate risk, we entered into multiple forward contracts as cash flow
hedges, effectively locking our exchange rate for Norwegian kroner to the U.S.
dollar.

In February 2003, we entered into interest rate swaps in order to
reduce our exposure to the variable interest rates of the Credit Agreement
described in Note 5. These swaps, with notional amounts totaling $80.0 million,
effectively hedge 41% of our exposure to interest rate changes for the two-year
terms of the swaps and had no value at inception.

Details of the interest rate swaps are summarized in the following
table:

TRANCHE HEDGED AMOUNT TERM PAY % RECEIVE LIBOR FLOOR
---------------------- -------------- --------- -------- ------- -----------
(IN THOUSANDS)

Term A................ $25,000 24 months 1.86 LIBOR None
Term B................ $55,000 24 months 2.49 LIBOR 2%

The values of the kroner contracts and the interest rate swaps are as
follows:

JULY 31, 2003 JULY 31, 2002
---------------------------------- --------------------------------
FORWARD UNREALIZED FORWARD UNREALIZED
VALUE GAIN/(LOSS) FAIR VALUE VALUE GAIN FAIR VALUE
-------- ----------- ---------- -------- ---------- ----------
(IN THOUSANDS)

Forward contracts ....... $ 2,780 $ 632 $ 3,412 $ 6,032 $ 794 $ 6,826
Interest rate swaps ..... (777) (777)

11. COMMON AND PREFERRED STOCK AND SPECIAL VOTING STOCK AND EXCHANGEABLE SHARES

The Board of Directors, without any action by the stockholders, may
issue up to one million shares of preferred stock, par value $.01, in one or
more series and determine the voting rights, preferences as to dividends,
liquidation, conversion, and other rights of such stock. There are no shares of
preferred stock outstanding as of July 31, 2003.

On May 27, 1997, our Board of Directors declared a distribution of one
right for each outstanding share of common stock or Exchangeable Stock to
shareholders of record at the close of business on June 12, 1997 and designated
400,000 shares of the authorized preferred stock as a class to be distributed
under a shareholder rights agreement. Upon the occurrence of certain events
enumerated in the shareholder rights agreement, each right entitles the
registered holder to purchase a fraction of a share of our preferred stock or
the common stock of an acquiring company. The rights, among other things, will
cause substantial dilution to a person or group that attempts to acquire Veritas
DGC Inc. The rights expire on May 15, 2007 and may be redeemed prior to that
date. Our current number of authorized shares is insufficient to allow for the
full conversion of all available preferred shares into common shares.
Authorization of 38.5 million additional shares of common stock is an issue
being put to a shareholder vote with the 2003 proxy.

Two shares of special voting stock of Veritas DGC Inc. are authorized
and outstanding, each as a series of common shares. One special voting share was
issued in connection with the combination of Digicon Inc. (Veritas DGC Inc.'s
former name) and Veritas Energy Services Inc. in August of 1996. The other
special voting share was issued in connection with the combination of Veritas
DGC Inc., Veritas Energy Services and Enertec Resources Inc. in September 1999.

These special voting shares possess a number of votes equal to the
number of outstanding Veritas Energy Services exchangeable shares and Veritas
Energy Services Class A exchangeable shares, Series 1 that are not owned by
Veritas DGC Inc. or any of its subsidiaries. Such exchangeable shares were
issued to the former stockholders of Veritas Energy Services and Enertec
Resources in business combinations with Veritas DGC Inc.. In any matter
submitted to Veritas DGC Inc.stockholders for a vote, each holder of a Veritas
Energy Services exchangeable share has the right to instruct a trustee as to the
manner of voting for one of the votes comprising the Veritas Energy Services
special voting share for each Veritas Energy Services exchangeable share owned
by the holder. Likewise, each holder of a Veritas Energy Services class A
exchangeable share, series 1 has the right to instruct a trustee as to the
manner of voting for one of the votes comprising the Enertec special voting
share for each Veritas Energy Services Class A exchangeable shares, Series 1
owned by the holder. The Veritas Energy Services exchangeable shares and the
Veritas Energy Services Class A exchangeable shares, Series 1 are convertible on
a one-for-one basis into shares of the common stock and, when coupled with the
voting rights afforded by the special voting shares, have rights virtually
identical to Veritas DGC Inc. common stock. As a result, we treat the
exchangeable shares as shares of our common stock for all purposes including the
calculation of per share information.

12. OTHER EXPENSE (INCOME), NET

Other expense (income), net consists of the following:

FOR THE YEARS ENDED
JULY 31,
--------------------------------
2003 2002 2001
-------- -------- --------
(IN THOUSANDS)

Net foreign currency exchange loss ................. $ 383 $ 2,746 $ 745
Net gain on disposition of property and equipment .. (183) (1,445) (1,266)
Interest income .................................... (960) (1,414) (5,126)
Loss (income) from unconsolidated subsidiary ....... 1,111 (181) 103
Unrealized loss on marketable securities ........... 1,368
Other .............................................. 147 712 (23)
-------- -------- --------
Total ..................................... $ 498 $ 1,786 $ (5,567)
======== ======== ========

13. EARNINGS PER COMMON SHARE

Earnings per common share -- basic and earnings per common share --
diluted are computed as follows:

FOR THE YEARS ENDED JULY 31,
--------------------------------------
2003 2002 2001
---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

Net income (loss) .................................................... $ (59,924) $ (23,150) $ 22,458
Basic:
Weighted average common shares (including exchangeable shares) ..... 33,305 32,409 30,727
---------- ---------- ----------
Net income (loss) per share ........................................ $ (1.80) $ (.71) $ .73
========== ========== ==========
Diluted:
Weighted average common shares (including exchangeable shares) ..... 33,305 32,409 30,727
Shares issuable from assumed conversion of options(1) 752
---------- ---------- ----------
Total ...................................................... 33,305 32,409 31,479
---------- ---------- ----------
Net income (loss) per share ........................................ $ (1.80) $ (.71) $ .71
========== ========== ==========

(1) The outstanding options are anti-dilutive in fiscal 2003 and 2002 due
to the net loss.

The following options to purchase common shares have been excluded from
the computation assuming dilution for the years ended July 31, 2003, 2002 and
2001 because the options' exercise price exceeded the average market price of
the underlying common shares or the options are anti-dilutive due to a net loss.

FOR THE YEARS ENDED JULY 31,
----------------------------------------------------
2003 2002 2001
------------ ------------ -------------

Number of options................... 4,029,499 1,884,665 664,516
Exercise price range................ $5.25-$55.13 $5.25-$55.13 $26.00-$55.13
Expiring through.................... March 2012 March 2012 March 2011

14. SEGMENT AND GEOGRAPHICAL 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.

FOR THE YEAR ENDED JULY 31, 2003
-------------------------------------
SEGMENTS CORPORATE TOTAL
---------- ---------- ----------
(DOLLARS IN THOUSANDS)

Revenues ............................... $ 503,001 $ 503,001
Operating income (loss) ................ 54,778 $ (67,618) (12,840)
Net income (loss) before income tax .... 53,086 (84,958) (31,872)
Total assets ........................... 690,531 97,831 788,362

FOR THE YEAR ENDED JULY 31, 2002
-------------------------------------
SEGMENTS CORPORATE TOTAL
---------- ---------- ----------
(DOLLARS IN THOUSANDS)

Revenues ............................... $ 455,683 $ 455,683
Operating income (loss) ................ 43,225 $ (45,769) (2,544)
Net income (loss) before income tax .... 41,419 (59,377) (17,958)
Total assets ........................... 703,802 76,979 780,781

FOR THE YEAR ENDED JULY 31, 2001
-------------------------------------
SEGMENTS CORPORATE TOTAL
---------- ---------- ----------
(DOLLARS IN THOUSANDS)

Revenues ............................... $ 477,302 $ 477,302
Operating income (loss) ................ 80,441 $ (34,007) 46,434
Net income (loss) before income tax .... 82,737 (44,396) 38,341
Total assets ........................... 676,936 120,016 796,952

This table presents consolidated revenues by geographic area based on
the location of the use of the product or service for the years ended July 31,
2003, 2002 and 2001:

FOR THE YEARS ENDED
JULY 31,
------------------------------------
2003 2002 2001
---------- ---------- ----------
(IN THOUSANDS)

Geographic areas:
United States ......... $ 188,768 $ 185,238 $ 193,204
Canada ................ 71,911 75,885 113,334
Latin America ......... 113,020 95,382 68,501
Europe ................ 37,516 47,224 48,427
Middle East/Africa .... 54,495 25,610 18,363
Asia Pacific .......... 37,291 26,344 35,473
---------- ---------- ----------
Total ......... $ 503,001 $ 455,683 $ 477,302
========== ========== ==========

This table presents long-lived assets by geographic area based on the
location of the assets:

FOR THE YEARS ENDED
JULY 31,
------------------------------------
2003 2002 2001
---------- ---------- ----------
(IN THOUSANDS)

Geographic areas:
United States ......... $ 108,254 $ 140,082 $ 120,077
Asia Pacific .......... 9,125 12,981 13,710
Canada ................ 15,481 14,668 18,071
Europe ................ 9,769 11,444 9,931
Latin America ......... 2,666 4,082 4,821
Middle East/Africa .... 5,914 7,824 7,325
---------- ---------- ----------
Total ......... $ 151,209 $ 191,081 $ 173,935
========== ========== ==========

In fiscal 2003 and 2001, no customer accounted for 10% or more of total
revenue. In fiscal 2002, a single large national oil company accounted for 12%
of our revenue.

We generate our revenue in the exploration and production ("E&P")
sector of the petroleum industry and, therefore, are subject to fluctuations in
E&P spending. E&P spending is directly related to the actual and expected prices
of oil and gas, which are subject to wide and relatively unpredictable
variations.

15. SELECTED UNAUDITED QUARTERLY FINANCIAL DATA

FOR THE YEAR ENDED JULY 31, 2003
--------------------------------------------------------
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER(1)
----------- ----------- ----------- --------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

Revenues ......................................... $ 137,507 $ 125,321 $ 120,636 $ 119,537
Net income (loss) ................................ 1,563 4,490 4,728 (70,705)
Net income (loss) per common share -- basic ...... .05 .14 .14 (2.11)
Net income (loss) per common share -- diluted .... .05 .14 .14 (2.11)

(1) The fourth quarter of fiscal 2003 includes charges of $59.9 million
consisting of $4.9 million for impairment of multi-client surveys, $7.6
million for loss on the (RC)(2) sale, $39.3 million for the impairment
of goodwill and $19.9 for deferred tax valuation.

FOR THE YEAR ENDED JULY 31, 2002
--------------------------------------------------------
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER(2)
----------- ----------- ----------- --------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

Revenues ......................................... $ 121,378 $ 119,623 $ 109,267 $ 105,415
Net income (loss) ................................ 7,645 7,677 8,045 (46,517)

Net income (loss) per common share -- basic ...... .24 .24 .25 (1.43)
Net income (loss) per common share -- diluted .... .24 .24 .25 (1.43)

(2) The fourth quarter of fiscal 2002 includes charges of $71.9 million
consisting of $55.2 million for impairment of multi-client surveys,
$10.2 million for merger costs and merger termination expense, and a
$6.5 million allowance for Argentine net operating losses.

Quarterly per share amounts may not total to annual per share amounts
because weighted average common shares for the quarter may vary from weighted
average common shares for the year.

16. SUBSEQUENT EVENTS

MULTI-CLIENT LIBRARY ACCOUNTING CHANGE

As of August 1, 2003 we changed our multi-client amortization policy to
the greater of straight-line or sales forecast method. The impact of the change
will be to record a minimum amortization of surveys from their date of
completion instead of only in the last 24 months of survey book life. This
change will result in a catch-up adjustment of $21.7 million that will be
recognized as additional amortization expense during the first quarter of fiscal
2004. A minimum amortization schedule, excluding the catch-up adjustment, is
shown below. This table is based upon the recorded net book value of all
surveys, both complete and in-progress, as of July 31, 2003. However, cost of
sales attributed to any survey may be higher than that resulting from the
minimum amortization due to sales during the period.

FISCAL YEAR MINIMUM
AMORTIZATION
--------------
(IN THOUSANDS)

2004.................................. $ 46,928
2005.................................. 72,024
2006.................................. 89,465
2007.................................. 80,535
2008 and thereafter................... 61,269

SALE OF (RC)(2)

In the fourth quarter of this year we decided to sell the (RC)(2)
software operation and entered into a letter of intent with Seismic
Microtechnology Inc. ("SMT"). On September 16, 2003, we closed the sale as
described in Note 4. Under the terms of the agreement, SMT will acquire the
software developed and marketed by (RC)(2) and certain related trade names and
trademarks. SMT is to pay us a cash payment of $2.0 million plus a percentage of
the revenues from the licensing of (RC)(2) software over a four-year period. SMT
will also assume certain maintenance and support obligations for the software
and grant Veritas and its subsidiaries a royalty-free license to continue use of
all SMT software including the software being sold. We do not anticipate any
additional charges as a result of the sale.

VERITAS DGC INC. AND SUBSIDIARIES

FINANCIAL STATEMENT SCHEDULE
VALUATION AND QUALIFYING ACCOUNTS
SCHEDULE II

FOR THE YEARS ENDED JULY 31,
-----------------------------------
2003 2002 2001
-------- -------- --------
(DOLLARS IN THOUSANDS)

ALLOWANCE FOR DOUBTFUL ACCOUNTS
Beginning balance ............... $ 4,143 $ 709 $ 1,749
Expenses/(adjustments) .......... 3,810 3,434 (1,040)(1)
-------- -------- --------
Ending balance .................. $ 7,953 $ 4,143 $ 709
======== ======== ========
ALLOWANCE FOR LONG-TERM
RECEIVABLES
Beginning balance ............... $ 1,000
Expenses/(adjustments) .......... (1,000)(2)
--------
Ending balance .................. $ -
========
ACCRUED DRY DOCK
Beginning balance ............... $ 2,857 $ 1,432 $ 2,958
Additions ....................... 3,351 3,098 2,485
Reduction ....................... (2,981) (1,673) (4,011)
-------- -------- --------
Ending balance .................. $ 3,227 $ 2,857 $ 1,432
======== ======== ========
TAX VALUATION ALLOWANCE
Beginning balance ............... $ 27,315 $ 27,273 $ 36,229
Valuation allowance charge ...... 25,103 6,541
Projected utilization/adjustment
of net operating carryforwards.. (5,033) (6,499) (8,956)
-------- -------- --------
Ending balance .................. $ 47,385 $ 27,315 $ 27,273
======== ======== ========

(1) Estimates were revised due to improved collections of past due
receivables.

(2) Estimate was revised due to published report of debtor's intent and
ability to repay debt.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

Not Applicable.

ITEM 9A. CONTROLS AND PROCEDURES

As of the end of the period covered by this report, our principal
executive officer and principal financial officer evaluated the effectiveness of
our disclosure controls and procedures. Based on the evaluation, our principal
executive officer and principal financial officer believe that

- our disclosure controls and procedures are designed to ensure
that information required to be disclosed by us in reports we
file under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods
specified in the SEC's rules and forms; and

- our disclosure controls and procedures were effective to
ensure such information was accumulated and communicated to
our management, including our principal executive officer and
principal financial officer, as appropriate, to allow timely
decisions regarding required disclosure.

There have been no significant changes in our internal controls or in
other factors that could significantly affect our internal controls subsequent
to their evaluation, nor have there been any corrective actions with regard to
significant deficiencies or material weaknesses.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Information required by this item is incorporated by reference to the
material to appear under the headings "Election of Directors" in the Proxy
Statement for the 2003 Annual Meeting of Stockholders, to be filed pursuant to
Regulation 14A. We have adopted a Code of Conduct that applies to all of our
directors, officers and employees and which may be viewed on our internet
website at www.veritasdgc.com.

ITEM 11. EXECUTIVE COMPENSATION

Information required by this item is incorporated by reference to the
material to appear under the heading "Management" in the Proxy Statement for the
2003 Annual Meeting of Stockholders, to be filed pursuant to Regulation 14A.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Information required by this item is incorporated by reference to the
material to appear under the headings "Security Ownership of Certain Beneficial
Owners and Management" and "Management-Equity Compensation Plan Information" in
the Proxy Statement for the 2003 Annual Meeting of Stockholders, to be filed
pursuant to Regulation 14A.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Information required by this item is incorporated by reference to the
material to appear under the heading "Certain Relationships and Related
Transactions" in the Proxy Statement for the 2003 Annual Meeting of
Stockholders.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Information required by this item is incorporated by reference to the
material to appear under the headings "Independent Accountants" in the Proxy
Statement for the 2003 Annual Meeting of Stockholders, to be filed pursuant to
Regulation 14A.

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

CONSOLIDATED FINANCIAL STATEMENTS

PAGE NUMBER
-----------

Report of Independent Auditors............................ 18
Consolidated Statements of Operations for the Three
Years Ended July 31, 2003............................... 19
Consolidated Balance Sheets as of July 31, 2003 and 2002.. 20
Consolidated Statements of Cash Flows for the Three
Years Ended July 31, 2003............................... 21
Consolidated Statements of Changes in Stockholders'
Equity for the Three Years Ended July 31, 2003.......... 23
Notes to Consolidated Financial Statements................ 24
Financial Statement Schedule II -- Valuation and
Qualifying Accounts..................................... 43

CONSOLIDATED FINANCIAL STATEMENT SCHEDULES

Financial Statement Schedule II -- Valuation and Qualifying Accounts
appears on page 43. All other financial statement schedules are omitted for the
reason that they are not required or are not applicable, or the required
information is shown in the consolidated financial statements or the notes
thereto.

Individual financial statements of 50% or less-owned companies and
joint ventures accounted for by the equity method have been omitted because such
50% or less-owned companies and joint ventures, considered in the aggregate as a
single subsidiary, would not constitute a significant subsidiary.

FORM 8-K REPORTS FILED DURING THE QUARTER ENDED JULY 31, 2003

The Company filed two reports on Form 8-K during the fourth quarter of
the period covered by this report, one dated May 30, 2003 which reported
information under Item 9 and one dated June 26, 2003 which reported information
under Item 5.

SIGNATURES

Pursuant to the requirements of Sections 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned; thereunto duly authorized, on the 14th day of
October, 2003.

VERITAS DGC INC.

By: /s/ DAVID B. ROBSON
--------------------------------------------------
David B. Robson
(Chairman of the Board and Chief Executive Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934,
the following persons on behalf of the Registrant in the indicated capacities
have signed this report below on the 14th day of October 2003.

/s/ DAVID B. ROBSON Chairman of the Board and Chief Executive
--------------------------------- Officer, Director
David B. Robson

/s/ STEPHEN J. LUDLOW Vice Chairman, Director
---------------------------------
Stephen J. Ludlow

/s/ TIMOTHY L. WELLS President and Chief Operating Officer
---------------------------------
Timothy L. Wells

/s/ MATTHEW D. FITZGERALD Executive Vice President, Chief Financial
--------------------------------- Officer and Treasurer
Matthew D. Fitzgerald

/s/ VINCENT M. THIELEN Vice President, Corporate Controller
---------------------------------
Vincent M. Thielen

/s/ CLAYTON P. CORMIER Director
---------------------------------
Clayton P. Cormier

/s/ LOREN K. CARROLL Director
---------------------------------
Loren K. Carroll

/s/ JAMES R. GIBBS Director
---------------------------------
James R. Gibbs

/s/ BRIAN F. MACNEILL Director
---------------------------------
Brian F. MacNeill

/s/ JAN A. RASK Director
---------------------------------
Jan A. Rask

EXHIBIT INDEX

EXHIBIT
NO. DESCRIPTION
---------- --------------------------------------------------------------------

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 -- Certificate of Amendment to Restated Certificate of
Incorporation of Veritas DGC Inc. dated September 30, 1999.
(Exhibit 3-D to Veritas DGC Inc.'s For 10-K for the year ended
July 31, 1999 is incorporated herein by reference.)
3-D -- 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 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-B -- Rights Agreement between Veritas DGC Inc. and ChaseMellon
Shareholder Services, L.L.C. dated as of May 15, 1997.
(Exhibit 4.1 to Veritas DGC Inc.'s Current Report on form 8-K
filed May 27, 1997 is incorporated herein by reference.)
**4-C -- 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-D -- 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 is incorporated herein by reference.)
**4-E -- Key Contributor Incentive Plan as amended and restated 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.)
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 of 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 CIBC
Mellon Trust Company.

10-A -- 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-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 is 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 -- Amended and Restated Employment Agreement between Veritas DGC
Inc. and Matthew D. Fitzgerald. (Exhibit 10-A to Veritas DGC,
Inc.'s Form 10-Q for the quarter ended October 31, 2001 is
incorporated herein by reference.)
10-F -- Amendment No. 1 to Amended and Restated Employment Agreement
between Veritas DGC Inc. and Matthew D. Fitzgerald. (Exhibit
10-B to Veritas DGC, Inc.'s Form 10-Q for the quarter ended
October 31, 2001 is incorporated herein by reference.)
10-G -- Amended and Restated Employment Agreement between Veritas DGC
Inc. and Stephen J. Ludlow. (Exhibit 10-C to Veritas DGC,
Inc.'s Form 10-Q for the quarter ended October 31, 2001 is
incorporated herein by reference.)
10-H -- Amendment No. 1 to Amended and Restated Employment Agreement
between Veritas DGC Inc. and Stephen J. Ludlow. (Exhibit 10-D
to Veritas DGC, Inc.'s Form 10-Q for the quarter ended October
31, 2001 is incorporated herein by reference.)
10-I -- Amended and Restated Employment Agreement between Veritas DGC
Inc. and David B. Robson. (Exhibit 10-E to Veritas DGC, Inc.'s
Form 10-Q for the quarter ended October 31, 2001 is
incorporated herein by reference.)
10-J -- Amendment No. 1 to Amended and Restated Employment Agreement
between Veritas DGC Inc. and David B. Robson. (Exhibit 10-F to
Veritas DGC, Inc.'s Form 10-Q for the quarter ended October
31, 2001 is incorporated herein by reference.)
10-K -- Amended and Restated Employment Agreement between Veritas DGC
Inc. and Anthony Tripodo. (Exhibit 10-G to Veritas DGC, Inc.'s
Form 10-Q for the quarter ended October 31, 2001 is
incorporated herein by reference.)
10-L -- Amendment No. 1 to Amended and Restated Employment Agreement
between Veritas DGC Inc. and Anthony Tripodo. (Exhibit 10-H to
Veritas DGC, Inc.'s Form 10-Q for the quarter ended October
31, 2001 is incorporated herein by reference.)

10-M -- Amended and Restated Employment Agreement between Veritas DGC
Inc. and Rene M.J. VandenBrand. (Exhibit 10-I to Veritas DGC,
Inc.'s Form 10-Q for the quarter ended October 31, 2001 is
incorporated herein by reference.)
10-N -- Amendment No. 1 to Amended and Restated Employment Agreement
between Veritas DGC Inc. and Rene M.J. VandenBrand. (Exhibit
10-J to Veritas DGC, Inc.'s Form 10-Q for the quarter ended
October 31, 2001 is incorporated herein by reference.)
10-O -- Amended and Restated Employment Agreement between Veritas DGC
Inc. and Timothy L. Wells. (Exhibit 10-K to Veritas DGC,
Inc.'s Form 10-Q for the quarter ended October 31, 2001 is
incorporated herein by reference.)
10-P -- Amendment No. 1 to Amended and Restated Employment Agreement
between Veritas DGC Inc. and Timothy L. Wells. (Exhibit 10-L
to Veritas DGC, Inc.'s Form 10-Q for the quarter ended October
31, 2001 is incorporated herein by reference.)
10-Q -- Employment Agreement between Veritas DGC Inc. and Larry L.
Worden. (Exhibit 10-M to Veritas DGC, Inc.'s Form 10-Q for the
quarter ended October 31, 2001 is incorporated herein by
reference.)
10-R -- Amendment No. 1 to Employment Agreement between Veritas DGC
Inc. and Larry L. Worden. (Exhibit 10-N to Veritas DGC, Inc.'s
Form 10-Q for the quarter ended October 31, 2001 is
incorporated herein by reference.)
**10-S -- Deferred Compensation Plan effective January 1, 2001. (Exhibit
10-Q to Veritas DGC Inc.'s for 10-Q for the quarter ended
October 31, 2000 is incorporated by reference.)
**10-T -- Rabbi Trust Agreement between Veritas DGC Inc. and Austin
Trust Company relating to the Deferred Compensation Plan.
(Exhibit 10-R to Veritas DGC Inc.'s Form 10-Q for the quarter
ended October 31, 2000 is incorporated herein by reference.)
**10-U -- 2001 Key Employee Nonqualified Stock Option Plan effective
February 1, 2001. (Exhibit 10-S to Veritas DGC Inc.'s Form
10-Q for the quarter ended January 31, 2001 is incorporated by
reference.)
**10-V -- Key Employee Restricted Stock Plan effective February 1, 2001.
(Exhibit 10-T to Veritas DGC Inc.'s Form 10-Q for the quarter
ended January 31, 2001 is incorporated herein by reference.)
10-W -- Employment Agreement between Veritas DGC Inc. and Matthew D.
Fitzgerald. (Exhibit 10-U to Veritas DGC Inc.'s Form 10-Q for
the quarter ended April 30, 2001 is incorporated herein by
reference.)
10-X -- Employment Agreement between Veritas DGC Inc. and Anthony
Tripodo. (Exhibit 10-V to Veritas DGC Inc.'s Form 10-K for the
year ended July 31, 2002 is incorporated herein by reference.)
10-Y -- Credit Agreement among Veritas DGC Inc., as borrower, and
Wells Fargo, Inc., as a bank and agent for the banks named
therein, dated July 19, 2001. (Exhibit 10-W to Veritas DGC
Inc.'s Form 10-K for the year ended July 31, 2001 is
incorporated herein by reference.)

10.1 -- Credit Agreement, dated as of February 14, 2003, among Veritas
DGC Inc., Veritas DGC Limited, Veritas Energy Services Inc.,
Veritas Energy Services Partnership, Deutsche Bank AG, New
York Branch, as Administrative Agent, Deutsche Bank AG, Canada
Branch, as Canadian Administrative Agent, and the various
lending institutions named therein. (Exhibit 10.1 to Veritas
DGC Inc.'s Current Report on Form 8-K dated February 19, 2003
is incorporated herein by reference.)
10.2 -- Letter of Agreement between Veritas DGC Inc. and Anthony
Tripodo dated November 8, 2002 (Exhibit 10.4 to Veritas DGC
Inc.'s Form 10-Q for the quarter ended January 31, 2003 is
incorporated herein by reference.)
10.3 -- Agreement and Release of All Claims dated April 23, 2003,
between Veritas DGC Inc. and Anthony Tripodo. 2002 (Exhibit
10.5 to Veritas DGC Inc.'s Form 10-Q for the quarter ended
April 30, 2003 is incorporated herein by reference.)
10.4 -- Consulting Services Agreement dated effective May 1, 2003 by
and between Veritas DGC Inc. and Arch Creek Advisors LLC.
(Arch Creek Advisors LLC is owned and controlled by Anthony
Tripodo, who, until April 30, 2003, was Executive Vice
President, Special Projects of Veritas DGC Inc. and prior to
that, was Executive Vice President, Chief Financial Officer &
Treasurer of the Veritas DGC Inc.) (Exhibit 10.6 to Veritas
DGC Inc.'s Form 10-Q for the quarter ended April 30, 2003 is
incorporated herein by reference.)
*21 -- Subsidiaries of the Registrant.
*23 -- Consent of PricewaterhouseCoopers LLP.
*31.1 -- Certification pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 by CEO.
*31.2 -- Certification pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 by CFO.
*32.1 -- Certification pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002 by CEO.
*32.2 -- Certification pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002 by CFO.

----------
* Filed herewith

** Management Compensation Plan or Arrangement