Veritas DGC Reports Third Fiscal Quarter Results

Veritas DGC announced results for its third fiscal quarter ended April 30, 2004. Revenue and earnings with the comparative amounts for the corresponding periods of the prior fiscal year, were as follows:

                             Three Months Ended    Nine Months Ended
                                   April 30,           April 30,
                                2004       2003       2004      2003
                                (millions, except per share amounts)

Revenues                     $ 176.5   $  120.6    $ 428.7   $ 383.5
Net income (loss)               10.2(1)     4.7       (1.9)(1)  10.8
Earnings (loss) per common
 share - diluted                0.29       0.14      (0.06)     0.32

(1) Results for the current quarter included pretax charges totaling $6.4 million related to the retirement of $154 million of bank debt.

Thierry Pilenko, Chairman and CEO of Veritas commented, "I am pleased with the results of this period, my first quarter at the Company. I have found Veritas to be in sound condition with people and assets capable of good performance, both operationally and financially." Mr. Pilenko commented on the market and immediate prospects, saying, "The market for seismic products and services seems to be improving somewhat as we observe more favorable contract terms and increased bidding activities. However, we are still in a period of significant uncertainty, so I do not believe that the excellent results of our last two quarters necessarily represent the beginning of a trend. These quarters demonstrate that sales of completed multi-client surveys generate a substantial portion of our profit and these sales are always difficult to predict." As to future direction Mr. Pilenko added, "We will continue to focus on free cash flow, seeking well-funded multi-client opportunities as well as profitable contract work. Reflecting the ongoing weakness in the seismic industry, we find it difficult to generate adequate and consistent returns, therefore, we will also explore avenues to improve the overall viability of the seismic business."

Revenues for the third quarter were $176.5 million, an increase of 46% from the third quarter of fiscal 2003. Revenues for the third quarter and nine months ended April 30 were:

                             Three Months Ended    Nine Months Ended
                                  April 30,            April 30,
                                2004       2003       2004      2003
 Land                         $ 22.4     $ 18.9     $ 52.3    $ 48.9
 Marine                         58.0       32.7      151.6     124.6
   Subtotal                     80.4       51.6      203.9     173.5
 Land                           58.5       44.5      126.9     124.9
 Marine                         37.6       24.5       97.9      85.1
   Subtotal                     96.1       69.0      224.8     210.0
Total Revenues                $176.5     $120.6     $428.7    $383.5

Marine multi-client revenue in the third quarter of fiscal 2004 increased 77% compared to the prior year's third quarter. Much of the increase was due to sales of completed surveys of $34.0 million, an increase of 106% over the prior year's comparable period. Revenue from pre-funding of ongoing marine surveys was up by 49%. Land multi-client revenue was also up, with sales of completed surveys of $17.7 million representing a 42% increase over the prior year's third quarter. Land prefunding revenue was down by 27%, due to our decreased investment.

Cash spending on multi-client data library was $27.0 million during the quarter while pre-funding revenue for the quarter was $28.8 million. The multi-client library balance at the end of the quarter was $324.8 million, down from $350.1 million at the end of the prior quarter.

Contract revenue increased by 39% from the prior year's third quarter. Land contract revenue increased by 31% on the strength of additional work in Canada, Alaska, the Lower 48 and Argentina. Marine contract revenue increased by 53% due primarily to work in India and Australia.

Operating Income
Operating income as a percentage of revenue was 12%, compared to 11% in the previous year's third quarter. Contract acquisition pricing has not improved noticeably during recent quarters but the terms of most projects are more favorable, with the customer bearing more risk of downtime due to weather and other factors.

Interest Expense
Interest expense was $2.9 million higher than in the third quarter of the previous year. The current quarter interest expense includes $6.4 million of charges relating to retirement of $154 million of bank debt, including the expensing of debt issuance costs, cancellation of interest rate swaps and prepayment penalties.

Income Taxes
The Company's effective tax rate for the quarter was 23%, lower than the 39% rate in the comparable period last year, due to the current use of previously unbenefited loss carryforwards and foreign tax credits.

At April 30, 2004, the Company's combined backlog was $149 million compared to $172 million at the end of the second quarter with contract backlog down $22 million and multi-client backlog down $1 million. The decline in contract backlog is due to the completion of seasonal land acquisition work in Alaska and Canada and completion of land acquisition contracts in South America.

During the quarter the Company issued $155 million of convertible bonds and used the net proceeds to repay $129 million of bank debt and repurchase $20 million of shares (1.2 million shares) during the marketing of the bonds. The bonds pay interest of LIBOR less 0.75%, currently 0.37% and are subject to put and call provisions after five years or upon the occurrence of certain significant events, such as a merger. The Company repaid an additional $25 million of bank debt using cash on hand, ending the quarter with $87.3 million of cash and $26.5 million of bank debt.

Free Cash Flow
Free cash flow for the quarter was $29.2 million versus $15.8 million last year as shown in the attached table. The Company defines free cash flow as cash flow from operating activities less cash multi-client investment and capital expenditures. They believe that this non-GAAP 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 provides a more complete picture of cash from ongoing operations. Free cash flow does not represent the residual cash flow available for discretionary expenditures since it does not include mandatory debt service requirements or other non-discretionary cash expenditures.

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