Use these links to rapidly review the documentTABLE OF CONTENTS FORM 10-K ITEM 8. Consolidated Financial Statements and Supplementary Data PART IV



SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

Form 10-K

|(Mark One)                              |  |                                                                                         
|--------------------------------------- |  | ----------------------------------------------------------------------------------------
|ý                                       |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934    
|For the fiscal year ended July 31, 2004
|OR                                     
|o                                       |  | 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(State or other jurisdiction of
incorporation or organization) |  | 76-0343152(I.R.S. Employer
Identification No.)
|---------------------------------------------------------------------- |  | ----------------------------------------------
|10300 Town Park
Houston, Texas(Address of principal executive offices) |  | 77072(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 RegisteredCommon Stock, $.01 par value

New York Stock ExchangePreferred 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 o No ý

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. o

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 ý No o

The aggregate market value of the registrant's voting stock held by non-affiliates of the registrant was $412,830,734 as of January 30, 2004.

The
number of shares of the Company's common stock, $.01 par value, outstanding at March 31, 2005 was 33,849,816 (including 155,370 Veritas Energy Services Inc.
exchangeable shares which are identical to the Common Stock in all material respects).



---



TABLE OF CONTENTS        FORM 10-K



|Item |  |                                                                                                             
|---- |  | ------------------------------------------------------------------------------------------------------------
|     |  | Restatement of Financial Statements                                                                         
|     |  | Part I                                                                                                      
|1.   |  | Business                                                                                                    
|     |  | General                                                                                                     
|     |  | Services and Markets                                                                                        
|     |  | Principal Operating Assets                                                                                  
|     |  | Technology and Capital Expenditures                                                                         
|     |  | Competition                                                                                                 
|     |  | Backlog                                                                                                     
|     |  | Significant Customers                                                                                       
|     |  | Employees                                                                                                   
|     |  | Our SEC Reporting                                                                                           
|2.   |  | Properties                                                                                                  
|3.   |  | Legal Proceedings                                                                                           
|4.   |  | Submission of Matters to a Vote of Security Holders                                                         
|     |  | Part II                                                                                                     
|5.   |  | Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
|     |  | Issuer Purchases of Equity Securities                                                                       
|     |  | Equity Compensation Plan Information                                                                        
|6.   |  | Selected Consolidated Financial Data                                                                        
|7.   |  | Management's Discussion and Analysis of Financial Condition and Results of Operations                       
|7A.  |  | Quantitative and Qualitative Disclosures Regarding Market Risk                                              
|8.   |  | Consolidated Financial Statements and Supplementary Data                                                    
|9.   |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                        
|9A.  |  | Controls and Procedures                                                                                     
|9B.  |  | Other information                                                                                           
|     |  | Part III                                                                                                    
|10.  |  | Directors and Executive Officers of the Registrant                                                          
|11.  |  | Executive Compensation                                                                                      
|12.  |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters              
|13.  |  | Certain Relationships and Related Transactions                                                              
|14.  |  | Principal Accountant Fees and Services                                                                      
|     |  | Part IV                                                                                                     
|15.  |  | Exhibits and Financial Statement Schedules                                                                  
|     |  | Signatures                                                                                                  

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The historical financial information in this document has been restated due to accounting errors in prior periods. In September 2004, we found various
types of errors in our balance sheet related primarily to clerical and account reconciliation errors associated with the intercompany transfers of property and foreign currency items. In addition, we
found errors in the accounting for certain customer contracts that contained provisions for customer payment of equipment mobilization fees, revenue sharing with customers and certain other
contingencies. Correction of these errors resulted in a decrease of net income of $1.4 million relating to the first three fiscal quarters of fiscal 2004 and $2.6 million related to
periods prior to fiscal 2004, as shown in the table below. Since recording the required adjustments in the fourth quarter of fiscal 2004 would have had a material impact on the financial statements of
the fourth quarter and those of the full fiscal year, we determined that a restatement of our prior years' financial statements was appropriate. The effect of this restatement on prior periods is
given in detail in Notes 16 and 18 of Notes to Consolidated Financial Statements. Item 9A. Controls and Procedures contains information related to our internal control weaknesses and steps we are
taking to correct them. A summary of the effects of the restatement is presented in the following table:

|                              |                                                 | Increase / (Decrease) from Previously Reported Amounts for the
Years Ended July 31, |  
|----------------------------- | ----------------------------------------------- | ----------------------------------------------------------------------------------- | -
|
|
|Statement of Operations Data: |                                                 |                                                                                     |  
|                              | Revenues                                        |                                                                                     | $
|                              | Operating income (loss)                         |                                                                                     |  
|                              | Income (loss) before provision for income taxes |                                                                                     |  
|                              | Income taxes expense (benefit)                  |                                                                                     |  
|                              | Net income (loss)                               |                                                                                     |  
|                              | Income (loss) per common sharediluted          |                                                                                     |  
|Balance Sheet Data:           |                                                 |                                                                                     |  
|                              | Total assets                                    |                                                                                     | $

The
restatement has not caused us to be in default under any of our financial debt covenants or lease agreements. We obtained waivers from our lenders under our Credit Agreement related
to the timing of our delivery of financial statements to them, extending the due date to May 15, 2005. Additionally, the restatement has delayed the registration of our Convertible Senior
Notes, resulting in our payment of liquidated damages to the holders of the Convertible Senior Notes in the amount of $2,153 per day from August 31, 2004 until the registration is completed.

1

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This annual report on Form 10-K contains 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. 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 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 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 Item 1. "Business" and Item 7. "Management's Discussion and
Analysis of Financial Condition and Results of OperationsRisk Factors" and elsewhere in this annual report on Form 10-K.

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:



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 by repeating specific 3D surveys over time. Our customers use the differences between these subsequent recordings for reservoir characterization. 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. 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 201,550 line kilometers of 2D data and 194,536 square kilometers of 3D data. Our marine data 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
Utah in the United States as well as Alberta and British Columbia in Canada. The portion of our revenue generated from the sale of multi-client data licenses is influenced by a number of factors and,
as a result, will fluctuate from year to year. Approximately half of our fiscal 2004 revenue was generated through the licensing of multi-client data.

2

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

Years Ended July 31,Revenues by Contract Type

2004

2003
Restated

2002
Restated(In thousands)Contract work

$
289,404

$
283,873

$
229,358Licensing of multi-client data


275,065


217,948


222,825Total

$
564,469

$
501,821

$
452,183


Years Ended July 31,Revenues by Geographic Area

2004

2003
Restated

2002
Restated(In thousands)United States

$
245,144

$
190,898

$
182,705Canada


88,283


71,911


75,449Latin America


57,210


113,754


94,910Europe


79,182


33,713


47,224Middle East/Africa


32,513


54,201


25,546Asia Pacific


62,137


37,344


26,349Total

$
564,469

$
501,821

$
452,183


In
fiscal 2004, 2003 and 2002, 57%, 62% 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, 2004, our land survey equipment had a
combined recording capacity of approximately 45,000 channels. We typically deploy equipment in North and South America and Oman by crews of varying size. Our crew count varies widely as land
acquisition is a seasonal activity in many markets, primarily due to weather.

Our
land operations include surveying crews, which lay out the lines to be recorded and mark the sites for shot-hole placement or equipment location, and recording crews,
which use explosive or mechanical vibrating units to produce acoustic impulses and recording units to synchronize the shooting and capture the seismic signals via geophones. On a land survey where
explosives are used, the recording 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 recording crew and bore shallow holes for explosive charges which, when detonated by the recording crew, produce the necessary acoustic 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

3

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data
acquisition services we performed involved 3D surveys. The following table contains certain information concerning the geophysical vessels we operate.

Vessel

Year
Entered
Service

Length

Beam

Charter ExpirationPacific Sword

1999

189 feet

40 feet

October 2005Seisquest

2001

300 feet

60 feet

May 2006Veritas Viking

1998

305 feet

72 feet

May 2006Veritas Viking II

1999

305 feet

72 feet

May 2007Veritas Vantage

2002

305 feet

72 feet

April 2010Veritas Searcher

1982

217 feet

44 feet

Owned


Each
vessel is equipped with 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 acoustic impulses. Streamer cables contain hydrophones that receive the acoustic
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 Vikings,
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. (See Note 15 of the Notes to Consolidated Financial
Statements for a subsequent event related to the Veritas Viking.)

Data Processing and Interpretation

We operate 15 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 from 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:

|North America   |  | South America           |  | Europe/Africa/
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
|                |  |                         |  | Luanda, Angola             |  |                       
|                |  |                         |  | Pau, France                |  |                       
|                |  |                         |  | Milan, Italy               |  |                       

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

4

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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 visualization centers in Houston, Calgary, Perth, and Crawley. These four centers allow teams of our customers' 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 as well as detailed reservoir geology. These
visualization centers allow us to offer our expertise combined with 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 advise 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 from others.

Currently,
we employ approximately 100 people in our research and development activities, substantially all of whom are scientists, engineers or programmers. Our research and development
efforts focus on new acquisition technologies and processes and on our core processing and imaging software. In 2004, we formed a group to develop and apply technologies to record, process and
interpret multi-component waveforms, an area of growing interest among our customers. During fiscal 2004, 2003 and 2002, research and development expenditures were $15.5 million,
$11.6 million and $11.5 million, respectively. Our research and development budget for fiscal 2005 is approximately $18 million.

During
fiscal 2004, 2003 and 2002, capital expenditures for equipment were $30.5 million, $30.5 million and $87.1 million, respectively. The higher capital spending
in 2002 was due primarily to the outfitting of a new seismic vessel. Our original capital expenditure budget for equipment in fiscal 2005 was $43 million, however, we currently expect to spend
approximately $79 million, with the majority of the difference due to the replacement of lost equipment on the Veritas Viking (see Note 15 of Notes to Consolidated Financial Statements.)
Most of this additional spending should be reimbursed through our insurance coverage. Most of our fiscal 2005 capital budget is allocated to replacement and upgrading of existing equipment. During
fiscal 2004, 2003 and 2002, our cash multi-client investment, net of capitalized depreciation, was $126.3 million, $151.8 million and $169.2 million, respectively. For fiscal
2005, we are planning a cash multi-client investment of approximately $128 million. Our total planned cash investment in the company of $171 million is significantly less than our
planned cash flow from operations and, therefore, we expect to generate a significant increase in our cash balance during fiscal 2005. At January 31, 2005, our cash balance had increased to
$205 million.

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,

5

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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 Générale de
Géophysique S.A. and Petroleum Geo-Services ASA. Additionally, there are a large number of seismic companies, mostly small and local, in the land acquisition and land data
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-affiliated companies such as BGP of China. 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. As of July 31, 2004, our competitive analysis showed a total of 66 towed-streamer vessels working in the world,
including: 26 3D vessels capable of towing eight or more streamers, 18 smaller 3D vessels and 22 2D vessels. Additionally, we estimate that there are approximately 17 vessels conducting ocean bottom
cable seismic operations, a service we do not offer. In 2004, global vessel capacity exceeded demand, often resulting in aggressive price competition in this business, although temporary and local
shortages of vessels with specific capabilities occasionally offered margin improvement opportunities. Between contract and multi-client work, we have been able to obtain relatively full utilization
of our fleet with very little downtime between projects.

Backlog

At July 31, 2004, our backlog of commitments for future revenue was $146.6 million, compared with $173.2 million at July 31, 2003.
Approximately 29% of this backlog is related to multi-client surveys. We anticipate that the vast majority of the July 31, 2004 backlog will be completed in fiscal 2005. At January 31,
2005, our backlog had increased to approximately $300 million. 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

Our customers include major oil and gas companies, national oil companies and independent oil and gas companies. In fiscal 2004 and fiscal 2003, no customer
accounted for 10% or more of our total revenue. In fiscal 2002, Petroleo Brasileiro S.A., the national oil company of Brazil, accounted for 12% of our revenue due to their licensing of several
multi-client surveys in Brazil.

Employees

During fiscal 2004, we employed an average of 2,871 people on a full-time basis. Our number of employees varies greatly due to activity changes in our
land acquisition business and during fiscal 2004 ranged from a low of 2,307 to a high of 3,561. This variation typically occurs on a seasonal basis, with higher employee counts and higher revenues
occurring during our second and third fiscal quarters,

6

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coinciding
with the winter seismic acquisition seasons in Alaska and Canada. However, performance of large land surveys in South America or other locales can cause a marked shift from this pattern. A
total of 7 employees in Argentina, 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) and proxy statements; along with any related amendments and supplements thereto. From time-to-time, we may also
file registration 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 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 is 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
658,360 square feet, which is used by our operations around the world, including the locations identified under Item 1. BusinessPrincipal Operating AssetsData Processing and
Interpretation. 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.

ITEM 3.Legal Proceedings

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. As of March 31, 2005, we are not a party to any legal proceeding
that we believe to be material.

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, 2004.

7

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PART II

ITEM 5.Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity  Securities

Our common stock is listed on the New York Stock Exchange under the symbol "VTS." 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.

Fiscal Period

High

Low2004

4th Quarter

$
25.01

$
17.623rd Quarter


23.55


12.052nd Quarter


13.80


8.491st Quarter


9.41


7.582003

4th Quarter


11.60


6.853rd Quarter


8.45


6.102nd Quarter


9.58


6.701st Quarter


13.50


7.45


On
March 31, 2005, the last reported sales price for our common stock on the New York Stock Exchange was $29.96 per share. On March 31, 2005, there were approximately 345
record holders of common stock.

Two
shares of our special voting stock are authorized and outstanding, each existing as a series of our 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. 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 our common stock and when coupled with the voting rights afforded by the special voting shares are virtually identical to our 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.

Our
common stock and the exchangeable shares are listed on the Toronto Stock Exchange. Although our common stock and exchangeable shares continue to be listed on the Toronto Stock
Exchange, trading in our common stock and our exchangeable shares is currently not allowed in any of the provinces within which the shares were registered, including the Provinces of Alberta, British
Columbia, Manitoba, New Brunswick, Newfoundland, Nova Scotia, Ontario, Quebec and Saskatchewan Canada. The securities commissions in those provinces have each issued orders that trading in our common
stock and exchangeable shares cease until such time as we file with them our financial statements for the fiscal year ended July 31, 2004 and the quarters ended October 31, 2004 and
January 31, 2005 and obtain an order reinstating trading. We intend to file our financial statements with each provincial securities commission and seek such orders reinstating trading as soon
as the financial statements are completed.

8

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Issuer Purchases of Equity Securities

The following table summarizes stock repurchases for the fiscal year ended July 31, 2004:

Period

Total Number of
Shares Purchased(1)

Average Price
Paid per Share

Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs(2)

Maximum (or Approximate Value) of Shares (or Units) that were Purchased Under Plans or Programs(2)August 2003

3,486

$
8.17



September 2003

1,168


8.39



October 2003

339


8.27



February 2004

272


13.00



March 2004

1,222,590
(3)

16.36



June 2004

218


19.14






---

We
have not paid any dividends on our common stock during the two most recent fiscal years and have no current plans to pay any dividends. The payment of any future dividends on our
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.

Equity Compensation Plan Information

Information related to our equity compensation plans for both non-employee directors and key employees as of July 31, 2004, and information
related to potential ownership dilution as of such date, may be found under "Equity Compensation Plan Information" in Item 12.

Our
stock option and restricted stock plans are described further in Note 9 of Notes to Consolidated Financial Statements.

9

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ITEM 6.Selected Consolidated Financial Data

|                              |                                               | Years Ended July 31,
|----------------------------- | --------------------------------------------- | --------------------
|
|
|Statement of Operations Data: |                                               |                     
|                              | Revenues                                      |                     
|                              | Income (loss)                                 |                     
|                              | Income (loss) per common sharebasic          |                     
|                              | Income (loss) per common sharediluted        |                     
|Balance Sheet Data:           |                                               |                     
|                              | Total assets                                  |                     
|                              | Long-term debt (including current maturities) |                     

---

ITEM 7.Management's Discussion and Analysis of Financial Condition and Results of Operations

Overview

Seismic spending during fiscal 2004 followed different patterns than in the past, with large numbers of seismic vessels being operated in the Asia Pacific region
and employed by national oil companies. Major petroleum resource holders such as ONGC in India, PEMEX in Mexico and Petronas Carigali in Malaysia, together utilized up to 15 out of an estimated global
fleet of 66 towed-streamer seismic vessels. In June 2004, 24 vessels, or 36% of the estimated global towed-streamer seismic fleet, were operating in Asia, leaving some areas of the world, such
as the North Sea, capacity constrained for the first time in many years. Due to the time lag between bidding and actual performance of work, this short-term supply imbalance did not affect
pricing of fiscal 2004 work. However, we are currently experiencing price improvement in some markets and believe pricing in the overall industry should improve during the remainder of fiscal 2005.

Multi-client
investment by the seismic industry has declined precipitously over the last two to three years. In years past, it was common to find half of the global seismic fleet
occupied on multi-client

10

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work;
now we estimate the figure is in the 20% range. Today, many seismic companies are striving for the immediate and relatively certain cash flows offered by contract work versus the potentially
higher but riskier cash flows offered by multi-client investments. Ordinarily, a shift out of multi-client work of this magnitude would have led to a severe downturn in the industry. However,
large-scale contract projects sponsored by national oil companies have utilized much of the shifted capacity.

Assuming
that oil and gas prices remain near the current historically high range, we believe that the demand for seismic data will increase on a global basis. The national oil companies,
in general, are currently very active in exploring for oil, and are venturing beyond their own borders to do so. Independent oil and gas companies also seem very optimistic about exploration and, from
our experience, are very willing to exploit the advantages offered by multi-client data: its immediate availability and relatively low price as compared to proprietary surveys. Accessing large
reserves in the Middle East and former Soviet Union is proving more complicated than anticipated, fueling growing concerns about reserve replacement and production sustainability, particularly among
the largest oil and gas companies. We are seeing an increase in exploration expenditures by oil and gas companies, which, if the trend continues, bodes well for the seismic industry. Oil and gas
companies have started to react to this surge of exploration activity, trying to secure drilling rigs and seismic vessels several months in advance, a pattern that we have not seen in the recent past
because of industry overcapacity.

We
believe that we are well positioned to take advantage of a market upturn. We have a large, strategically positioned data library that includes many surveys that have not only been
acquired and processed with the latest technology, but that have been enhanced with secondary processing techniques such as pre-stack depth migration. We have invested heavily in new
technology, both in the acquisition and in the processing areas, and we now find that our solid streamer equipped vessels and advanced processing capabilities are in demand where the highest data
quality and latest processing techniques are required. As the positive trends in the market continue, we believe we will generate improved results over recent years in the form of higher revenue,
earnings and cash flow.

Restatement

As described on page 1 of this annual report, we have restated our financial statements to correct certain accounting errors. The restatement has not caused us to
be in default under any of our debt covenants. We obtained waivers from our lenders related to the timing of our delivery of financial statements to them, extending the due date to May 15,
2005. As of March 31, 2005, the total amount utilized under our Credit Agreement was $2.4 million, all in the form of letters of credit. Additionally, the restatement has delayed the
registration of our Convertible Senior Notes, resulting in our payment
of liquidated damages to the holders of the Convertible Senior Notes in the amount of $2,153 per day from August 31, 2004 until the registration is completed.

Results of Operations

Fiscal 2004 Compared with Fiscal 2003 (Restated)

Revenues.Revenues increased 12%, from $501.8 million in fiscal 2003 to $564.5 million in fiscal 2004.
Multi-client revenues were responsible for most of the increase, growing by 26%. Contract revenues increased by a net 2% due to a shift of our vessels from multi-client to contract work, offset by a
decline in our contract land acquisition revenue in South America. In response to this decline, we are reducing our land acquisition presence in South America and redeploying our assets and key
personnel into other markets.

11

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Revenues
consisted of the following:

|              |                | Years Ended July 31, |  
|------------- | -------------- | -------------------- | -
|
|
|Multi-client: |                |                      |  
|              | Land           |                      | $
|              | Marine         |                      |  
|              |                |                      |  
|              |                | Subtotal             |  
|Contract:     |                |                      |  
|              | Land           |                      |  
|              | Marine         |                      |  
|              |                |                      |  
|              |                | Subtotal             |  
|              |                |                      |  
|              | Total Revenues |                      | $
|              |                |                      |  

Operating income (loss).Operating income increased by $39.9 million, from a loss of $12.1 million in fiscal
2003 to operating income of $27.8 million in fiscal 2004. Fiscal 2003 included charges of $51.8 million related to asset impairments and reserves while fiscal 2004 included a
$22.1 million charge related to a change in accounting for multi-client library. The difference in the amount of these charges had the effect of increasing our operating income by
$29.7 million. The remaining $10.2 million increase in operating income is the result of increased multi-client margins of $10.4 million, increased contract margins of
$1.9 million and reduced general and administrative costs of $1.8 million partially offset by $3.9 million of additional R&D spending.

In
fiscal 2003, contract margin included a $2.9 million charge to establish a reserve against an account receivable from one of our customers. This receivable was settled in the
first quarter of fiscal 2004 resulting in a gain of $0.6 million.

General
and administrative expense decreased by $1.8 million. The decrease was due primarily to lower severance cost in the current year, partially offset by expenses associated
with requirements of the Sarbanes-Oxley Act and related rules.

Research
and development expense increased by $3.9 million. A substantial amount of the increase was due to work on multi-component (pressure and shear wave) acquisition and
processing. We spend the majority of our research budget on developing advanced processing techniques.

The
fiscal 2004 charge of $22.1 million is included in cost of services on the "Consolidated Statements of Operations and Comprehensive Income (Loss)" and relates to a change in
accounting for our multi-client library. This charge represents the adjustment necessary to reduce each of our surveys as of August 1, 2003, the first day of fiscal 2004, to a balance no
greater than that which would have been recorded had we been using the new method. While the sales forecast method remains our primary means of expensing multi-client surveys, we have now established
a minimum cumulative amortization for each survey based upon straight-line amortization over five years. The monthly expense recognized for each survey is the greater of the amount derived
by the sales forecast method or the amount of minimum amortization. This is a change from the prior method that provided for a minimum amortization only during the last two years of the survey's book
life.

The
fiscal 2003 charge of $51.8 million includes an impairment of multi-client surveys of $4.9 million, an impairment and severance expense related to the sale of
(RC)2, our reservoir characterization software business, of $7.6 million, and an impairment charge for goodwill of $39.3 million, with each charge described more fully
below.

12

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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 customers have not been willing to pay for the moderately increased resolution.

We
had 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 took a charge in fiscal year 2003 of $7.6 million related to these operations, of which
$5.9 million 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
related 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. In addition, we have
entered into an agreement that allows us to continue as sales agents of the software. The sale closed in September 2003.

Our
reduced earnings in fiscal year 2003, coupled with the instability in our industry, led to a sharp decline in our stock price in fiscal year 2003, 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.

Income taxes.Our provision for income taxes decreased by $24.5 million from fiscal 2003 to fiscal 2004 due
principally to two reasons. First, fiscal 2003 was negatively impacted by unbenefited net operating losses, non-deductibility of our goodwill impairment and increased valuation allowances
on our deferred tax assets. Second, fiscal 2004 was positively affected by the reduction of certain tax contingencies and resolution of certain tax matters in early calendar year 2005, due to the
extended open period of fiscal 2004 caused by our restatement. (See Note 7 of Notes to Consolidated Financial Statements for further information on income taxes.)

Fiscal 2003 (Restated) Compared with Fiscal 2002 (Restated)

Revenues.Revenues increased 11%, from $452.2 million in fiscal 2002 to $501.8 million in fiscal 2003.
Multi-client revenues decreased 2% 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 24% due to projects in the Gulf of Mexico, Trinidad, Asia Pacific and U.S. onshore. Contract revenue represented 57% of the total revenue in fiscal
2003, compared to 51% in 2002.

13

---



Revenues
consisted of:

|              |                | Years Ended July 31, |  
|------------- | -------------- | -------------------- | -
|
|
|Multi-client: |                |                      |  
|              | Land           |                      | $
|              | Marine         |                      |  
|              |                |                      |  
|              |                | Subtotal             |  
|Contract:     |                |                      |  
|              | Land           |                      |  
|              | Marine         |                      |  
|              |                |                      |  
|              |                | Subtotal             |  
|              |                |                      |  
|              | Total Revenues |                      | $
|              |                |                      |  

Operating income (loss).Our operating loss increased from $0.8 million in fiscal 2002 to $12.1 million in
fiscal 2003. Fiscal 2003 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. Fiscal 2002 included a $55.3 million impairment of multi-client surveys and a $14.6 million charge related to our proposed merger with
Petroleum Geo-Services ASA. The total charges described above were $51.8 million in fiscal 2003 and $69.9 million in fiscal 2002, which had the effect of decreasing our
operating loss from fiscal 2002 to fiscal 2003 by $18.1 million. Several other items offset this positive change. 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 multi-client surveys, as compared to $5.3 million of forced amortization 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. Our operating loss in fiscal 2003 was increased by $2.9 million as a result of a charge to establish a reserve against our account receivable from one of our customers.
Our balance sheet exposure to this claim was $2.9 million, as of July 31, 2003. This issue was resolved in the first quarter of fiscal 2004, resulting in a gain of $0.6 million.

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 $55.3 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 was very low in this region since we completed these surveys, and we did 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

14

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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 $9.4 million. We also have two small 2D surveys that were written off with a net charge of $1.1 million.

We
had 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 took a charge in the fourth quarter of fiscal 2003 of $7.6 million related to these
operations, of which $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.

Our
reduced earnings, coupled with the instability in our industry, led to a sharp decline in our stock price, leaving our company's market value below our book value. As a result of our
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 (income) expense, net.Other (income) expense, net decreased from $4.4 million in fiscal 2002 to
$0.2 million in fiscal 2003. Foreign exchange losses in Argentina and Canada contributed $4.0 million of net expense to fiscal 2002. Additionally, a loss on an investment contributed
$1.4 million of additional expense in fiscal 2002. 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. (See Note 1 of Notes to Consolidated Financial Statements for information related to the consolidation of our joint
venture.)

Income taxes.Our provision for income taxes increased by $23.0 million from fiscal 2002 to fiscal 2003 due primarily
to the impact in fiscal 2003 of unbenefited net operating losses, non-deductibility of our goodwill impairment and increased valuation allowances on our deferred tax assets.

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 and private debt financing, equity
sales, equipment financing and 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 the
next twelve months and expect to increase our cash balance during fiscal 2005.

15

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For
the past three fiscal years, cash provided by our operating activities has increased while combined expenditures for capital equipment and multi-client surveys have declined. We
expect spending to increase modestly in fiscal 2005, but also expect that cash provided by operating activities will again exceed our investment in our operations. For fiscal 2005, we budgeted capital
expenditures of approximately $43 million and cash multi-client library investment of approximately $128 million for a combined investment of approximately $171 million. These
amounts are relatively flexible and will be adjusted to meet the needs of the business. We expect replacement of equipment lost from the Veritas Viking will increase our capital expenditures for
fiscal 2005 to approximately $79 million, but we expect reimbursement of most of this additional amount in the form of insurance proceeds. In addition to these amounts, we plan to spend
approximately $18 million for research and development. During the six months ended January 31, 2005, we have spent $17.2 million on capital expenditures, $58.7 million for
multi-client library investment and $9.1 million on research and development.

Debt Structure

On March 3, 2004, we sold $125.0 million aggregate principal amount of Floating Rate Convertible Senior Notes Due 2024 to an initial purchaser in a
private placement. On March 11, 2004, we sold an additional $30.0 million of these Convertible Senior Notes to the initial purchaser. The notes are our senior unsecured obligations and
are convertible under certain circumstances described below into a combination of cash and our common stock at a fixed conversion price of $24.03 (subject to adjustment in certain circumstances),
which is equivalent to an initial conversion ratio of approximately 41.6 shares of our common stock per $1,000 principal amount of Convertible Senior Notes, or a maximum of approximately
6.5 million shares for the $155.0 million aggregate principal amount outstanding. In general, upon conversion of a note, the holder of such note will receive cash equal to the $1,000
principal amount of the note and shares of our common stock for the note's conversion value in excess of such principal amount. We used $129.0 million of net proceeds from the sale of the
Convertible Senior Notes to repay in full the term C loan and to prepay portions of the term A and B loans under our credit facility described below. The remaining $20.0 million of net proceeds
from the Convertible Senior Notes was used to repurchase, in negotiated transactions, 1,222,494 shares of our common stock sold by certain purchasers of the Convertible Senior Notes in connection with
the offering.

The
Convertible Senior Notes bear interest at a per annum rate which is equal to the three-month LIBOR rate, adjusted quarterly, minus a spread of 0.75%. The interest rate of the notes,
from March 15, 2005 through June 14, 2005, is 2.26%, based on a LIBOR rate of 3.01%. The notes will mature on March 15, 2024 and may not be redeemed by us prior to
March 20, 2009. Holders of the notes may require us to repurchase some, or all, of the notes on March 15, 2009, 2014 and 2019. They could also require repurchase upon a change of control
(as defined in the indenture under which the Convertible Senior Notes were issued.)

Under
certain circumstances and at the option of the holder, the Convertible Senior Notes are convertible prior to the maturity date into cash and shares of our common stock. Certain of
these circumstances may result in classification of the Convertible Senior Notes as current on our balance sheet. These circumstances include.



16

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The Convertible Senior Notes were sold to Deutsche Bank Securities, Inc., the initial purchaser, under an exemption provided by section 4(2) of the Securities Act. The
initial purchaser concurrently sold the notes only to qualified institutional buyers in accordance with Rule 144A under the Securities Act of 1933, as amended. The notes and the underlying
common stock issuable upon conversion have not been registered under the Securities Act or any applicable state securities laws and may not be offered or sold in the United States absent registration
or an applicable exemption from such registration requirements. We entered into a registration rights agreement in which we agreed to file within 90 days of March 3, 2004 a registration
statement with the SEC to register resales of the notes and the underlying shares of common stock. We filed a registration statement on May 28, 2004 in compliance with the registration rights
agreement; however, due to the delay in filing required reports as a result of our restatement of our financial information the registration statement is not yet effective. Because we are required to
pay liquidated damages in the event the registration statement was not effective on or before August 31, 2004, or under certain other circumstances, we have been incurring such damages in the
amount of $2,153 per day since August 31.

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 Credit Agreement provided 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. Proceeds from the Term Loans were used to satisfy the obligations under our previous credit agreement and our Senior Notes due October 2003. We used
$129.0 million of net proceeds from the Convertible Senior Notes described above to repay in full the term C loan and to prepay portions of the term A and B loans. In addition, we prepaid the
remaining $51.3 million of Term Loans using cash on hand. We recorded $7.4 million in charges relating to the retirement of the $180.3 million Term Loans which included expensing
of debt issuance costs, cancellation of interest rate swaps and prepayment penalties. These charges are included in interest expense on the "Consolidated Statement of Operations and Comprehensive
Income (Loss)." The revolving loan facility is still available to us, although not currently drawn upon. Loans made under the revolving loan facility, 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 revolving
loan facility expires in February 2006.

As
of July 31, 2004, there were $2.7 million in letters of credit outstanding under the revolving loan facility, leaving $52.3 million available for borrowings. In
addition to the revolving loan facility, we have various unsecured lines of credit with lending institutions that operate in geographic areas not covered by the lending institutions in our revolving
loan facility, totaling $8.5 million that may be used exclusively for the issuance of letters of credit and bank guarantees. As of July 31, 2004, $4.1 million in letters of credit
were outstanding under these lines. The Credit Agreement prohibits us from, among other things, paying cash dividends.

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, 2004, 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. These covenants relate to measurements as of quarter ending dates;
as of July 31, 2004 and as of our last fiscal quarter, ended January 31, 2005, we were in compliance of these financial covenants. During March 2005, we obtained waivers from our
lenders under the Credit Agreement related to the late filing of our financial statements. The waivers allow us to deliver our required reports for fiscal 2004 and for the first and second quarters of
fiscal 2005 to the lenders by no later than May 15, 2005.

17

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If
we are unable to meet this deadline or are unable to extend it further, our ability to borrow under the Credit Agreement may be restricted.

The
following table presents our contractual obligations as of July 31, 2004 for the specified periods:

Payments DueContractual Obligations

Total

Less than
1 year

1 - 3
years

3 - 5
years

More Than
5 years(In thousands)Long-term debt

$
155,000

$


$


$


$
155,000Estimated interest payments(1)


68,894


3,503


7,006


7,006


51,379Operating leases


147,029


44,992


56,540


19,579


25,918Potential payments under letters of credit


6,811


6,014


797





Other long-term liabilities(2)


11,854





139


165


11,550


---

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 Arrangements

As of July 31, 2004, we had no off-balance sheet instruments. Our limited hedging program has consisted 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 fixed the interest rate on
$80.0 million of our variable rate long-term bank debt. 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 included elsewhere in this report.

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 or the degree of subjectivity inherent in the assumptions required by the policies. These are described in detail below.

Revenue Recognition

Customer contracts for our services vary in terms and conditions. We review the deliverables in each contract and, where applicable, apply the accounting guidance
contained in EITF 00-21, "Accounting for Revenue Contracts with Multiple Deliverables (EITF 00-21)".

For
most contract services, we recognize revenue on a proportional performance method based upon output measures as work is performed. This method requires that we recognize revenue
based upon quantifiable measures of progress, such as kilometers shot or processed. In contracts where our

18

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customer
pays separately for the mobilization of equipment, EITF 00-21 requires us to recognize such mobilization fees as revenue during the performance of the seismic acquisition.

Revenues
from the licensing of multi-client surveys are based upon agreed rates set forth in the contract and are recognized upon physical delivery of, or customer access to, the
surveys. During the acquisition and processing phase of a multi-client survey, in most cases we recognize revenue on
in-process multi-client surveys after obtaining a signed license agreement that gives the customers access to survey results as they occur, based upon a proportional performance method,
using quantifiable measures of progress, such as kilometers shot or processed. After completion of a multi-client survey, we recognize revenue upon delivery of data to our customer or the customer's
designee. Provisions exist in certain contracts with our customers that provide for a full refund if certain deadlines are not met or provide for a revenue sharing arrangement with the customer such
that the final sales price is not fixed or determinable. For contracts with these provisions, we will not recognize the revenue under the proportional performance method for that contract and,
instead, will defer revenue recognition until performance is complete or the sales price is fixed or determinable.

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. In some circumstances, we have sold on a non-exclusive basis rights to data prior to our collecting and processing such data, i.e., we have made the first of what we anticipate will
be multiple discrete sales of licenses to the same data.

We
capitalize costs associated with acquiring and processing the data as an investment in our multi-client data library. The capitalized costs of multi-client data are charged to cost of
services in the period sales of licenses occur based upon the greater of the percentage of total costs to total estimated sales for the first five years multiplied by actual sales, a process called
the sales forecast method, or five-year straight-line amortization from the date of survey completion. Effective August 1, 2003, we changed our minimum amortization
policy with regard to multi-client data and recorded a charge of $22.1 million, included in cost of services in our Consolidated Statement of Operations. Under the prior method, capitalized
costs of multi-client surveys were charged to cost of services in the period sales occurred, using the sales forecast method, over an estimated five-year useful life. However, during the
last 24 months of a survey's useful life, amortization was the greater of the amount resulting from the sales forecast method or straight-line amortization of the remaining book
value over the remaining portion of the original five-year estimated useful life. Under the new method, capitalized costs of multi-client surveys are charged to cost of services over an
estimated five-year useful life based upon the greater of the result (higher expense) under the sales forecast method or cumulative straight-line amortization from survey
completion over an estimated five-year useful life. However, the sales forecast method remains our primary method of calculating cost of services. We believe this method of amortizing the
capitalized costs aligns the amount of amortization to the period in which the economic benefits of the capitalized costs are consumed.

Estimated
sales are determined based upon discussions with our clients, our experience and our knowledge of industry trends. Changes in sales estimates may have the effect of changing
the percentage relationship of cost of services to revenues. In applying the sales forecast method, an increase in the projected sales of a survey will result in lower cost of services as a percentage
of revenue, and higher earnings when revenue associated with that particular survey is recognized, while a decrease in projected sales will have the opposite effect.

Assuming
that the overall volume of sales, mix of surveys generating revenue in the period and minimum amortization amounts were held constant in fiscal 2004, an increase of 10% in the
sales forecasts of all of our surveys would have decreased our cost of services by approximately 2%, or approximately $10 million.

19

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Our
ability to accurately forecast sales of our library surveys for several years into the future is affected by unforeseeable changes in commodity prices, exploration success in the
area of the survey and the overall investment decisions of our customers. Therefore, we update our sales forecast for surveys with a significant book value on a quarterly basis to ensure that the most
current market information is considered.

The
total amortization period of 60 months represents the minimum period over which benefits from these surveys are expected to be derived. We have determined the amortization
period of 60 months based upon our historical experience that indicates that the majority of our revenues from multi-client surveys are derived during the acquisition and licensing phases and
during the 5 years subsequent to survey completion. Any future decrease in the minimum amortization period would have the effect of increasing cost of services and reducing the carrying value
of the multi-client data library.

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. Any future reductions in sales estimates may result in an impairment charge that increases cost of services and
reduces the carrying value of the multi-client data library. For example, in fiscal 2003, we recognized a $4.9 million pretax impairment charge related to a survey in the Gulf of Mexico that we
had been unable to license.

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 if the realization
of deferred tax assets subsequently becomes more likely than not.

During
fiscal 2004, our valuation allowances increased $11.9 million principally because historical losses indicated that future taxable income may not be sufficient to realize
deferred tax benefits. If we do not record cumulative losses in future periods, we may determine that the realization of tax assets is more likely than not and revise our valuation allowance. As of
July 31, 2004, we had recorded $73.0 million in valuation allowances, all of which are subject to periodic evaluation.

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 2004, we did not recognize any amount 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 the 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
amortization of capitalized software is the greater of the amount computed using (a) the ratio that current gross revenues for a product bear to the total of current and
anticipated future gross revenues for that product or (b) the straight-line method over the remaining estimated economic life of the product including the period being reported on.
The period of amortization begins when the

20

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software
is released to the market. Estimated useful lives of our software products range from three to five years.

Estimated
sales are determined based upon discussions with our clients, our experience and our knowledge of industry trends. Changes in sales estimates will have the effect of changing
cost of services. An increase in projected sales will result in lower cost of services as a percentage of sales and higher earnings. A decrease in projected sales will result in higher cost of
services as a percentage of sales and lower earnings. Any future increases or decreases in our estimates of useful lives will have the effect of decreasing or increasing future cost of services with
an inverse effect on earnings.

Recent Accounting Pronouncements

We maintain stock-based compensation plans that are accounted for using the intrinsic value based method allowed by APB Opinion No. 25, "Accounting for
Stock Issued to Employees," and related Interpretations. Under that method, compensation expense is recorded in the consolidated financial statements when the quoted market price of the underlying
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 stock options at a price lower than market,
therefore, we do not record any compensation expense related to stock options. In December 2004, the Financial Accounting Standards Board released SFAS No. 123R, a revision to SFAS
No. 123, "Accounting for Stock-Based Compensation." SFAS 123R, which will become effective for us beginning with our first quarter of fiscal 2006, will require us to record the cost of
stock options and other equity-based compensation in our income statement based upon the estimated fair value of those awards. As required by SFAS No. 148, "Accounting for Stock-Based
Compensation," we disclose the pro forma effect of stock-based compensation expense on net income and earnings per share that would have been recorded had we used the fair value based method. As
presented in Note 1 of the Notes to Consolidated Financial Statements, adoption of SFAS No. 123R will likely reduce our reported net income or increase our reported net loss in future
periods.

In
December 2003, the Financial Accounting Standards Board issued FIN 46R, a revision to FIN 46 "Consolidation of Variable Interest Entities". FIN 46R replaces FIN 46 and provides
additional clarification on the application of ARB No. 51, "Consolidated Financial Statements", to certain entities in which equity investors do not have the characteristics of a controlling
financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support. We adopted FIN 46R on April 30, 2004.
Adoption did not have a material effect on our financial position or results of operations, however, it required consolidation as of April 30, 2004 on a prospective basis of our 80% owned
Indonesian joint venture, which was accounted for under the equity method prior to adoption of FIN 46R. The 80% owned joint venture provides processing and acquisition services and licenses to our
multi-client data. This change is reflected in an increase of multi-client data of $2.3 million, an increase in current assets net of current liabilities of $0.6 million and a decrease
in investment in and advances to joint ventures of $3.1 million.

In
December 2003, the Financial Accounting Standards Board issued SFAS No. 132 (Revised 2003), "Employer's Disclosures about Pension and Other Postretirement Benefits."
This statement retains the disclosures required by SFAS No. 132 and adds additional disclosures. Those disclosures include information describing the types of plan assets, investment strategy,
measurement date(s), plan obligations, cash flows, and components of net periodic benefit cost recognized during interim periods. We adopted SFAS No. 132 (Revised 2003) in the quarter ended
April 30, 2004.

21

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Risk Factors

As a provider of geophysical technologies, our business is substantially dependent on the level of capital expenditures by oil and gas companies, and is more specifically
dependent on exploration expenditures.

Capital expenditures by oil and gas companies are affected by several factors including actual and forecasted 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 exploration expenditures
by oil and gas companies the demand for geophysical services likely will drop, adversely affecting our results of operations and cash flow during the affected period. In recent years, 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. While we believe this trend has ended, due to recent commodity price increases and current supply and demand forecasts, there can be no guarantee that oil and
gas companies will engage in substantial or prolonged exploration programs involving seismic spending. While petroleum commodity prices are currently high from a historical perspective, history has
shown these prices to be very volatile.

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 $55.3 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. Additionally, our individual surveys have a book life of five years, so particular surveys may undergo
significant amortization even though sales of licenses are weak or non-existent, reducing the profits of the company.

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. Because 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 we expect 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

22

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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 likely 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 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.

We are still in the process of improving our internal controls and procedures, which we determined were materially weak.

As disclosed in the explanatory note on page 1, Item 9A. "Controls and Procedures," we have identified material weaknesses in our internal controls that have
allowed accounting errors to occur and remain undetected for lengthy periods of time. In response to these deficiencies in our internal controls, we have begun the process of improving our internal
control structure and internal control procedures across our company. Full implementation of these improvements will be accomplished over a period of time, but until these efforts are successfully
completed, we could experience future accounting and financial reporting problems. Accounting and financial reporting problems could result in, among other things, securities litigation claims,
investigations by the SEC and possible fines and penalties, and a loss of investor confidence which could adversely affect the trading prices of our debt and equity securities and adversely affect our
ability to access financing sources.

We face risks associated with our foreign revenue generating activities.

Substantial portions of our revenues are derived from foreign activities. During the fiscal year ended July 31, 2004, approximately 57% of our revenue, or
$319.3 million, was attributable to activities outside the United States. During the fiscal year ended July 31, 2004, we recognized revenue from the

23

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following
foreign countries that represented 1% or more of our consolidated revenue on a gross basis for the fiscal year:

Country of Origin

Revenue(in millions)Argentina

$
21.5Australia


25.6Brazil


32.4Canada


88.3India


17.1Italy


6.4Malaysia


7.7Netherlands


10.6Nigeria


7.5Norway


10.5Oman


19.0United Kingdom


43.3


Foreign
revenues are subject to certain risks, including those related to rates of currency exchange, border disputes, war, terrorism, civil disturbances, embargo, and government
activities such as radical changes in tax regulations or investment laws. We are exposed to these risks in all of our foreign operations to some degree, and our exposure could be material to our
financial condition and results of operations where the political and legal environment is less stable and we generate significant revenue or have large local investments, such as in Argentina,
Brazil, Nigeria, and Oman.

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. These laws change over time and may result in limitations on our ability to compete globally. In addition, non-U.S. persons employed by our separately
incorporated foreign subsidiaries conduct business in foreign jurisdictions that are subject to U.S. trade embargoes, have been identified by the U.S. government as state sponsors of terrorism or are
subject to sanctions by the U.S. Office of Foreign Assets Control. For example, during fiscal 2004 we generated $1.5 million of revenue from Libyan customers, $428,000 of revenue from Iranian
customers and $9,000 of revenue from a Syrian customer. We have typically generated revenue in these countries through the performance of data processing, reservoir consulting services and the sale of
software licenses and software maintenance. The governments of Libya, Iran and Syria have been identified by the U.S. government as state sponsors of terrorism and are subject to sanctions by the U.S.
Office of Foreign Assets Control and either directly or indirectly control the activities of our customers within their borders. Our relations with customers in these countries are current and on
going. We have procedures in place to conduct these operations in compliance with applicable U.S. laws. However, failure to comply with U.S. laws on foreign operations could result in material fines
and penalties.

Finally,
some of our operational activities result in accounts receivable or accounts payable that are denominated in foreign currencies and, therefore, subject to fluctuations in
foreign currency exchange rates. There can be no assurance that we will not experience difficulties in connection with future foreign revenue generation 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. On January 18, 2005, our seismic vessel

24

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Veritas
Viking experienced an engine failure, which resulted in interrupting an ongoing project and damage to her trailing equipment. See Note 15 of Notes to Consolidated Financial Statements.
These types of 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.

We may be unable to repurchase our Convertible Senior Notes as required upon a change in control or on the specified dates at the option of the holder or to pay the required
cash upon conversion of the notes.

Upon a change in control, as defined in the indenture governing our Convertible Senior Notes, and on March 15, 2009, 2014 and 2019, the holders of the
notes have the right to require us to repurchase the notes for cash. In addition, upon conversion of the notes, the holders will have the right to receive a cash payment. If we do not have sufficient
funds to pay the repurchase price for all of the notes tendered upon a change in control, the cash due upon repurchases of the notes on March 15, 2009, 2014 or 2019 or the cash due upon
conversion, an event of default under the indenture governing the notes would occur as a result of such failure. In addition, cash payments in respect of notes tendered for repurchase or conversion
are subject to limits and might be prohibited, or create an event of default, under our Credit Agreement as well as other agreements relating to borrowings that we may enter into from time to time.
Our failure to make cash payments in respect of the Convertible Senior Notes could result in an event of default under our Credit Agreement. There can be no guarantee that our available sources of
cash will be sufficient to allow us to make the required cash payments.

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.

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

25

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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.

The amounts we amortize from our data library each period may fluctuate significantly, and these fluctuations can have a significant effect on our reported results of
operations.

How we account for our multi-client data library has a significant effect on our reported results of operations. We amortize the cost of our multi-client library
based primarily upon our estimates of
future sales of licenses to data, known as the sales forecast method. Although we also employ a minimum amortization for each survey in our data library based on straight-line amortization
over five years, this amortization is secondary to that derived from the sales forecast method. The estimates used in the sales forecast method are inherently imprecise and may vary from period to
period depending upon market developments and our expectations. We update our estimates on a quarterly basis and change our amortization rates accordingly. Substantial changes in amortization rates
can have a significant effect on our reported results of operations.

ITEM 7A.Quantitative and Qualitative Disclosures Regarding Market Risk

At July 31, 2004, we had limited market risk related to foreign currencies. From time to time, we enter into financial transactions designed to reduce our
exposure to foreign currency. In May 2004 and July 2004, we entered into contracts in which we receive payments in pounds sterling. In order to minimize our exposure to currency risk, we
purchased several put and call options. As of July 31, 2004, we had realized a loss of $249,000 from these transactions.

On
February 25, 2003, we entered into interest rate swaps in order to reduce our exposure to the variable interest rates under our Credit Agreement described above. These swaps,
with notional amounts totaling $80.0 million, effectively hedged 41% of our exposure to interest rate changes for the two-year term of the swaps and had no value at inception. On
March 29, 2004, upon prepayment of amounts outstanding under our bank credit facility, the swap agreement was amended to an amount totaling $10.9 million. On June 10, 2004, upon
final payment of amounts outstanding under our bank credit facility, the interest rate swap was terminated. The amendment and subsequent termination of the swap resulted in an expense of $441,000 and
is included in interest expense for fiscal 2004 on the "Consolidated Statements of Operations and Comprehensive Income (Loss)."

In
March 2001, we entered into a contract requiring payments in Norwegian Kroner to charter the seismic vessel M/V Seisquest. The contract required 36 monthly payments
commencing on June 1, 2001. To protect against exposure to exchange rate risk, we entered into multiple forward contracts as cash flow hedges effectively fixing our exchange rate for Norwegian
Kroner to the U.S. dollar. This contract expired on April 30, 2004.

As
of July 31, 2004, we had $155.0 million Convertible Senior Notes bearing interest at LIBOR less 0.75% with a fair value of $199.0 million, based upon the trading
price of 128.375 on July 29, 2004. These notes are not hedged and represent our total exposure to interest rate risk. Each 100 basis point increase in the LIBOR rate will increase our interest
expense by $1.6 million per year.

26

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ITEM 8.Consolidated Financial Statements and Supplementary Data

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



Report of Independent Registered Public Accounting FirmConsolidated Statements of Operations and Comprehensive Income (Loss) for each of the Three Years in the Period Ended July 31, 2004Consolidated Balance Sheets as of July 31, 2004 and 2003Consolidated Statements of Cash Flows for each of the Three Years in the Period Ended July 31, 2004Consolidated Statements of Changes in Stockholders' Equity for each of the Three Years in the Period Ended July 31, 2004Notes to Consolidated Financial StatementsFinancial Statement ScheduleValuation and Qualifying Accounts and Reserves


27

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Report of Independent Registered Public Accounting Firm

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

In
our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Veritas DGC Inc. and its
subsidiaries at July 31, 2004 and 2003, and the results of their operations and their cash flows for each of the three years in the period ended July 31, 2004 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 the standards of the Public Company Accounting Oversight Board (United States). Those standards 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 Notes 1 and 16 to the consolidated financial statements, the Company has restated its consolidated financial statements for the fiscal years ended July 31, 2003
and 2002.

As
discussed in Note 1 to the consolidated financial statements, the Company changed its accounting for amortization of its multi-client data library on August 1, 2003.

PricewaterhouseCoopers LLP

Houston,
Texas
April 28, 2005

28

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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, |        
|------------------------------------------------------------------ | ----------------------------------------------------------------------- | ---------------------------- | -------
|
|Revenues                                                           |                                                                         | $                            | 564,469
|Cost of services                                                   |                                                                         |                              | 495,709
|Research and development                                           |                                                                         |                              | 15,536 
|General and administrative                                         |                                                                         |                              | 25,454 
|Loss on (RC)2 sale                                                 |                                                                         |                              |       
|Impairment of multi-client surveys                                 |                                                                         |                              |       
|Cost of terminated merger                                          |                                                                         |                              |       
|Impairment of goodwill                                             |                                                                         |                              |       
|                                                                   |                                                                         |                              |        
|Operating income (loss)                                            |                                                                         |                              | 27,770 
|Interest expense                                                   |                                                                         |                              | 18,851 
|Other (income) expense, net                                        |                                                                         |                              | (17    
|                                                                   |                                                                         |                              |        
|Income (loss) before provision for income taxes                    |                                                                         |                              | 8,936  
|Provision for income taxes                                         |                                                                         |                              | 3,715  
|                                                                   |                                                                         |                              |        
|Net income (loss)                                                  |                                                                         | $                            | 5,221  
|                                                                   |                                                                         |                              |        
|Net income (loss), per share:                                      |                                                                         |                              |        
|Basic:                                                             |                                                                         |                              |        
|                                                                   | Weighted average common shares                                          |                              |        
|                                                                   | Income (loss) per common share                                          |                              | $      
|Diluted:                                                           |                                                                         |                              |        
|                                                                   | Weighted average common shares                                          |                              |        
|                                                                   | Income (loss) per common share                                          |                              | $      
|Comprehensive income (loss)                                        |                                                                         |                              |        
|Net income (loss)                                                  |                                                                         | $                            | 5,221  
|Other comprehensive income (loss) (net of tax, $0 in all periods): |                                                                         |                              |        
|                                                                   | Foreign currency translation adjustments                                |                              |        
|                                                                   | Unrealized gain (loss) on investments-available for sale                |                              |        
|                                                                   | Unrealized loss on investments-available for sale recognized as expense |                              |        
|                                                                   | Unrealized gain (loss) on hedge transactions                            |                              |        
|                                                                   | Minimum pension liability adjustment                                    |                              |        
|                                                                   |                                                                         |                              |        
|Total other comprehensive income (loss)                            |                                                                         |                              | 3,730  
|                                                                   |                                                                         |                              |        
|Comprehensive income (loss)                                        |                                                                         | $                            | 8,951  
|                                                                   |                                                                         |                              |        

See
Notes to Consolidated Financial Statements

29

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VERITAS DGC INC. AND SUBSIDIARIES        CONSOLIDATED BALANCE SHEET        (Dollars in thousands, except par value)

|                                                                            |                                                                                                                                                                                                       | July 31,                                           |                              
|--------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------- | -----------------------------
|
|ASSETS                                                                      |                                                                                                                                                                                                       |                                                    |                              
|Current assets:                                                             |                                                                                                                                                                                                       |                                                    |                              
|                                                                            | Cash and cash equivalents                                                                                                                                                                             |                                                    | $                            
|                                                                            | Restricted cash investments                                                                                                                                                                           |                                                    |                              
|                                                                            | Accounts and notes receivable (net of allowance for doubtful accounts: 2004, $1,109; 2003, $7,953)                                                                                                    |                                                    |                              
|                                                                            | Materials and supplies inventory                                                                                                                                                                      |                                                    |                              
|                                                                            | Prepayments and other                                                                                                                                                                                 |                                                    |                              
|                                                                            | Income taxes receivable                                                                                                                                                                               |                                                    |                              
|                                                                            |                                                                                                                                                                                                       |                                                    |                              
|                                                                            |                                                                                                                                                                                                       |                                                    | Total current assets         
|Property and equipment:                                                     |                                                                                                                                                                                                       |                                                    |                              
|                                                                            | Land                                                                                                                                                                                                  |                                                    |                              
|                                                                            | Geophysical equipment                                                                                                                                                                                 |                                                    |                              
|                                                                            | Data processing equipment                                                                                                                                                                             |                                                    |                              
|                                                                            | Geophysical ship                                                                                                                                                                                      |                                                    |                              
|                                                                            | Leasehold improvements and other                                                                                                                                                                      |                                                    |                              
|                                                                            |                                                                                                                                                                                                       |                                                    |                              
|                                                                            |                                                                                                                                                                                                       |                                                    | Total                        
|                                                                            | Less accumulated depreciation                                                                                                                                                                         |                                                    |                              
|                                                                            |                                                                                                                                                                                                       |                                                    |                              
|                                                                            |                                                                                                                                                                                                       |                                                    | Property and equipment, net  
|Multi-client data library                                                   |                                                                                                                                                                                                       |                                                    | 313,153                      
|Investment in and advances to joint ventures                                |                                                                                                                                                                                                       |                                                    |                             
|Deferred tax asset, net                                                     |                                                                                                                                                                                                       |                                                    | 1,223                        
|Other assets                                                                |                                                                                                                                                                                                       |                                                    | 24,573                       
|                                                                            |                                                                                                                                                                                                       |                                                    |                              
|                                                                            |                                                                                                                                                                                                       |                                                    | Total                        
|                                                                            |                                                                                                                                                                                                       |                                                    |                              
|LIABILITIES AND STOCKHOLDERS' EQUITY                                        |                                                                                                                                                                                                       |                                                    |                              
|Current liabilities:                                                        |                                                                                                                                                                                                       |                                                    |                              
|                                                                            | Current portion of long-term debt                                                                                                                                                                     |                                                    | $                            
|                                                                            | Accounts payable, trade                                                                                                                                                                               |                                                    |                              
|                                                                            | Accrued interest                                                                                                                                                                                      |                                                    |                              
|                                                                            | Accrued and deferred income taxes                                                                                                                                                                     |                                                    |                              
|                                                                            | Other accrued liabilities                                                                                                                                                                             |                                                    |                              
|                                                                            |                                                                                                                                                                                                       |                                                    |                              
|                                                                            |                                                                                                                                                                                                       |                                                    | Total current liabilities    
|Non-current liabilities:                                                    |                                                                                                                                                                                                       |                                                    |                              
|                                                                            | Long-term debt                                                                                                                                                                                        |                                                    |                              
|                                                                            | Other non-current liabilities                                                                                                                                                                         |                                                    |                              
|                                                                            |                                                                                                                                                                                                       |                                                    |                              
|                                                                            |                                                                                                                                                                                                       |                                                    | Total non-current liabilities
|Commitments and Contingent Liabilities (Note 8)                             |                                                                                                                                                                                                       |                                                    |                              
|Stockholders' equity:                                                       |                                                                                                                                                                                                       |                                                    |                              
|                                                                            | Common stock, $.01 par value; authorized: 78,500,000 shares; issued: 34,821,298 shares in 2004 and 32,156,781 shares in 2003 (excluding Exchangeable Shares of 185,921 in 2004 and 1,443,411 in 2003) |                                                    |                              
|                                                                            | Additional paid-in capital                                                                                                                                                                            |                                                    |                              
|                                                                            | Accumulated earnings (from August 1, 1991 with respect to Digicon Inc.)                                                                                                                               |                                                    |                              
|                                                                            | Accumulated other comprehensive income:                                                                                                                                                               |                                                    |                              
|                                                                            |                                                                                                                                                                                                       | Cumulative foreign currency translation adjustment |                              
|                                                                            |                                                                                                                                                                                                       | Other                                              |                              
|Unearned compensation                                                       |                                                                                                                                                                                                       |                                                    | (604                         
|Treasury stock, at cost; 1,317,532 shares in 2004 and 84,143 shares in 2003 |                                                                                                                                                                                                       |                                                    | (21,628                      
|                                                                            |                                                                                                                                                                                                       |                                                    |                              
|                                                                            |                                                                                                                                                                                                       |                                                    | Total stockholders' equity   
|                                                                            |                                                                                                                                                                                                       |                                                    |                              
|                                                                            |                                                                                                                                                                                                       |                                                    | Total                        
|                                                                            |                                                                                                                                                                                                       |                                                    |                              

See Notes to Consolidated Financial Statements

30

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VERITAS DGC INC. AND SUBSIDIARIES        CONSOLIDATED STATEMENTS OF CASH FLOWS        (Dollars in thousands)

|                                            |                                               | For the Years Ended July 31,                                 |                                                      
|------------------------------------------- | --------------------------------------------- | ------------------------------------------------------------ | -----------------------------------------------------
|
|Operating activities:                       |                                               |                                                              |                                                      
|                                            | Net income (loss)                             |                                                              | $                                                    
|                                            | Non-cash items included in net income (loss): |                                                              |                                                      
|                                            |                                               | Depreciation and amortization, net (other than multi-client) |                                                      
|                                            |                                               | Amortization of multi-client library                         |                                                      
|                                            |                                               | Impairment of multi-client library                           |                                                      
|                                            |                                               | Impairment of goodwill                                       |                                                      
|                                            |                                               | Loss on (RC)2 sale                                           |                                                      
|                                            |                                               | Impairment of land acquisition equipment                     |                                                      
|                                            |                                               | Gain on disposition of property and equipment                |                                                      
|                                            |                                               | Loss on investment in marketable securities                  |                                                      
|                                            |                                               | Equity in (earnings) loss of joint venture                   |                                                      
|                                            |                                               | Deferred taxes provision (benefit)                           |                                                      
|                                            |                                               | Amortization of unearned compensation                        |                                                      
|                                            | Changes in operating assets and liabilities:  |                                                              |                                                      
|                                            |                                               | Accounts and notes receivable                                |                                                      
|                                            |                                               | Materials and supplies inventory                             |                                                      
|                                            |                                               | Prepayments and other                                        |                                                      
|                                            |                                               | Current income tax                                           |                                                      
|                                            |                                               | Accounts payable and other accrued liabilities               |                                                      
|                                            |                                               | Other non-current liabilities                                |                                                      
|                                            |                                               | Other                                                        |                                                      
|                                            |                                               |                                                              |                                                      
|                                            |                                               |                                                              | Total cash provided by operating activities          
|Investing activities:                       |                                               |                                                              |                                                      
|                                            |                                               | Decrease (increase) in restricted cash investments           |                                                      
|                                            |                                               | Investment in multi-client library, net cash                 |                                                      
|                                            |                                               | Acquisitions, net of cash received                           |                                                      
|                                            |                                               | Purchase of property and equipment                           |                                                      
|                                            |                                               | Sale of (RC)2                                                |                                                      
|                                            |                                               | Proceeds from sales of property and equipment                |                                                      
|                                            |                                               |                                                              |                                                      
|                                            |                                               |                                                              | Total cash used by investing activities              
|Financing activities:                       |                                               |                                                              |                                                      
|                                            |                                               | Borrowings of long-term debt                                 |                                                      
|                                            |                                               | Payments of long-term debt                                   |                                                      
|                                            |                                               | Proceeds from the sale of common stock                       |                                                      
|                                            |                                               | Purchase of treasury stock                                   |                                                      
|                                            |                                               |                                                              |                                                      
|                                            |                                               |                                                              | Total cash provided by (used by) financing activities
|Currency loss (gain) on foreign cash        |                                               |                                                              | 242                                                  
|                                            |                                               |                                                              |                                                      
|Change in cash and cash equivalents         |                                               |                                                              | 44,202                                               
|Beginning cash and cash equivalents balance |                                               |                                                              | 72,097                                               
|                                            |                                               |                                                              |                                                      
|Ending cash and cash equivalents balance    |                                               | $                                                            | 116,299                                              
|                                            |                                               |                                                              |                                                      

See
Notes to Consolidated Financial Statements

31

---



VERITAS DGC INC. AND SUBSIDIARIES        SUPPLEMENTARY SCHEDULES TO CONSOLIDATED STATEMENTS OF CASH FLOWS        (Dollars in thousands)

|                                                   |                                                                                                                        | For the Years Ended July 31,           |                  
|-------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------- | -------------------------------------- | -----------------
|
|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 |                  
|                                                   |                                                                                                                        | Additional paid-in capital             |                  
|                                                   | Tax deduction due to exercise of stock options resulting in an increase in:                                            |                                        |                  
|                                                   |                                                                                                                        | Deferred tax asset                     |                  
|                                                   |                                                                                                                        | Additional paid-in capital             |                  
|                                                   | Capitalization of depreciation and amortization resulting in an increase in:                                           |                                        |                  
|                                                   |                                                                                                                        | Multi-client data library              |                  
|                                                   |                                                                                                                        | Other assets                           |                  
|                                                   | Common stock issued for purchase of Hampson-Russell Software Services, Ltd.                                            |                                        |                  
|                                                   | Common stock issued for purchase of Fairweather Geophysical LLC                                                        |                                        |                  
|                                                   | Common stock issued to employees.                                                                                      |                                        |                  
|Supplemental disclosures of cash flow information: |                                                                                                                        |                                        |                  
|                                                   | Cash paid for:                                                                                                         |                                        |                  
|                                                   |                                                                                                                        | Interest:                              |                  
|                                                   |                                                                                                                        |                                        | Senior notes     
|                                                   |                                                                                                                        |                                        | Term notes       
|                                                   |                                                                                                                        |                                        | Convertible notes
|                                                   |                                                                                                                        |                                        | Credit agreements
|                                                   |                                                                                                                        |                                        | Other            
|                                                   |                                                                                                                        | Income taxes, net                      |                  

See
Notes to Consolidated Financial Statements

32

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VERITAS DGC INC. AND SUBSIDIARIES        CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY        For the years ended July 31, 2004, 2003 and 2002        Restated

|                                                                                       |  |            |  |   |     | Treasury Stock
At Cost |            |   |   |         |   |   |         |   |  
|-------------------------------------------------------------------------------------- |  | ---------- |  | - | --- | ---------------------- | ---------- | - | - | ------- | - | - | ------- | - | -
|
|
|
|Balance July, 31, 2001                                                                 |  | 30,920,550 |  | $ | 309 |                        | (65,296    | ) | $ | (1,171  | ) | $ | 407,442 |   | $
|Cumulative restatement adjustments (Note 1)                                            |  |           |  |   |    |                        |           |   |   |        |   |   | (59     | ) |  
|                                                                                       |  |            |  |   |     |                        |            |   |   |         |   |   |         |   |  
|Restated Balance, July 31, 2001                                                        |  | 30,920,550 |  |   | 309 |                        | (65,296    | ) |   | (1,171  | ) |   | 407,383 |   |  
|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 loss, restated                                                                     |  |           |  |   |    |                        |           |   |   |        |   |   |        |   |  
|                                                                                       |  |            |  |   |     |                        |            |   |   |         |   |   |         |   |  
|Restated Balance, July 31, 2002                                                        |  | 31,171,988 |  |   | 311 |                        | (76,607    | ) |   | (1,432  | ) |   | 413,754 |   |  
|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   |   |  
|Utilization of net operating loss carryforwards existing prior to quasi-reorganization |  |           |  |   |    |                        |           |   |   |        |   |   | 4,496   |   |  
|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 loss, restated                                                                     |  |           |  |   |    |                        |           |   |   |        |   |   |        |   |  
|                                                                                       |  |            |  |   |     |                        |            |   |   |         |   |   |         |   |  
|Restated Balance, July 31, 2003                                                        |  | 32,156,781 |  |   | 322 |                        | (84,143    | ) |   | (1,508  | ) |   | 428,402 |   |  
|Common stock issued for exchangeable stock                                             |  | 1,257,490  |  |   | 12  |                        |           |   |   |        |   |   | (12     | ) |  
|Common stock issued to employees                                                       |  | 56,353     |  |   |    |                        |           |   |   |        |   |   | 468     |   |  
|Common stock issued for cash                                                           |  | 1,289,098  |  |   | 13  |                        |           |   |   |        |   |   | 12,530  |   |  
|Restricted stock returned to treasury                                                  |  |           |  |   |    |                        | (10,895    | ) |   | (120    | ) |   |        |   |  
|Treasury stock buy back                                                                |  |           |  |   |    |                        | (1,222,494 | ) |   | (20,000 | ) |   |        |   |  
|Tax deduction for stock option exercises                                               |  |           |  |   |    |                        |           |   |   |        |   |   | 95      |   |  
|Common stock exchanged for purchase of Fairweather                                     |  | 61,576     |  |   | 1   |                        |           |   |   |        |   |   | 499     |   |  
|Cumulative foreign currency translation adjustment                                     |  |           |  |   |    |                        |           |   |   |        |   |   |        |   |  
|Amortization of unearned compensation                                                  |  |           |  |   |    |                        |           |   |   |        |   |   |        |   |  
|Unrealized gain on investments  available for sale                                    |  |           |  |   |    |                        |           |   |   |        |   |   |        |   |  
|Unrealized loss on foreign currency hedge                                              |  |           |  |   |    |                        |           |   |   |        |   |   |        |   |  
|Unrealized gain on interest rate swap                                                  |  |           |  |   |    |                        |           |   |   |        |   |   |        |   |  
|Unrealized minimum pension liability                                                   |  |           |  |   |    |                        |           |   |   |        |   |   |        |   |  
|Net income                                                                             |  |           |  |   |    |                        |           |   |   |        |   |   |        |   |  
|                                                                                       |  |            |  |   |     |                        |            |   |   |         |   |   |         |   |  
|Balance, July 31, 2004                                                                 |  | 34,821,298 |  | $ | 348 |                        | (1,317,532 | ) | $ | (21,628 | ) | $ | 441,982 |   | $
|                                                                                       |  |            |  |   |     |                        |            |   |   |         |   |   |         |   |  

See Notes to Consolidated Financial Statements

33

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VERITAS DGC INC. AND SUBSIDIARIES        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS        For the years ended July 31, 2004, 2003 and 2002

1.     Summary of Significant Accounting Policies

Restatement of Financial Statements

The historical financial information in this document has been restated due to accounting errors in prior periods. In September 2004, we found various
types of errors in our balance sheet related primarily to clerical and account reconciliation errors associated with the intercompany transfers of property and foreign currency items. In addition, we
found errors in the accounting for certain customer contracts that contained provisions for customer payment of equipment mobilization fees, revenue sharing with customers and certain other
contingencies. Correction of these errors resulted in a decrease of net income of $1.4 million relating to the first three quarters of fiscal 2004 and $2.6 million related to periods
prior to fiscal 2004. Since recording the required adjustments in the fourth quarter of fiscal 2004 would have had a material impact on the financial statements of the fourth quarter and those of the
full fiscal year, we determined that a restatement of our prior years' financial statements was appropriate. The effect of this restatement on prior periods is given in detail in Notes 16 and
18 of Notes to Consolidated Financial Statements.

The
restatement has not caused us to be in default under any of our debt covenants or lease agreements. We obtained waivers from our lenders under our Credit Agreement related to the
timing
of our delivery of financial statements to them. Additionally, the restatement has delayed the registration of our Convertible Senior Notes, resulting in our payment of liquidated damages to the
holders of the Convertible Senior Notes in the amount of $2,153 per day from August 31, 2004 until the registration is completed.

Consolidation

The accompanying consolidated financial statements include our accounts and the accounts of majority-owned domestic and foreign subsidiaries. See the discussion
of FIN 46R under Recent Accounting Pronouncements below for changes related to our previously unconsolidated majority-owned joint venture in Indonesia. 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.

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, 2004 is $199.0 million. The carrying value is a reasonable estimate of fair value for all other financial instruments.

34

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Recent Accounting Pronouncements

In December 2003, the Financial Accounting Standards Board issued FIN 46R, a revision to FIN 46 "Consolidation of Variable Interest
Entities." FIN 46R replaces FIN 46 and provides additional clarification on the application of ARB No. 51, "Consolidated Financial Statements," to certain entities in which equity
investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated
financial support. We adopted FIN 46R on April 30, 2004. Adoption did not have a material effect on our financial position or results of operations, however, it required consolidation of
our 80% owned Indonesian joint venture that was accounted for under the equity method prior to adoption of FIN 46R. This entailed consolidating the 80% owned joint venture as of
April 30, 2004 on a prospective basis. The 80% owned joint venture provides processing and acquisition services and licenses multi-client data. This change is reflected in an increase of
multi-client data of $2.3 million, an increase in current assets net of current liabilities of $0.6 million and a decrease in investment in and advances to joint ventures of
$3.1 million.

In
December 2003, the Financial Accounting Standards Board issued SFAS No. 132 (Revised 2003), "Employer's Disclosures about Pension and Other Postretirement Benefits."
This statement retains the disclosures required by SFAS No. 132 and adds additional disclosures. Those disclosures include information describing the types of plan assets, investment strategy,
measurement date(s), plan obligations, cash flows, and components of net periodic benefit cost recognized during interim periods. We adopted SFAS No. 132 (Revised 2003) in the quarter ended
April 30, 2004.

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 and are included in Other (Income) Expense, Net. (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 $111,000 at July 31, 2004 and $205,000 at July 31, 2003 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 $58.8 million and $60.2 million are included in accounts and notes receivable at July 31, 2004 and 2003,
respectively. These 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 are
expected to be billed in one to four months. Our allowance for doubtful accounts is established based upon past due customer accounts specifically identified during our periodic account analyses.

35

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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 YearsGeophysical equipment

3-5Data processing equipment

3Leasehold 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 $18.6 million,
$24.4 million and $29.2 million in fiscal years 2004, 2003, and 2002, 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 perform legally required maintenance and inspections. The ship owner is responsible for all costs of performing the maintenance and inspections, while we continue to incur all of the fixed
charges associated with operation of the vessel including charter fees, depreciation and personnel costs. We accrue for these continuing costs in advance of port calls, as these unavoidable costs are
not directly associated with revenue generation. The balances of such accruals were $2.4 million and $3.2 million at July 31, 2004 and 2003, respectively. Expenditures for
additions and improvements, including capitalized interest, are capitalized and depreciated over the estimated useful life of the related assets.

Multi-Client Data Library

We collect and process geophysical data for our own account and retain ownership rights. We license the data to customers on a non-transferable basis.
In some circumstances, we have sold, on a non-exclusive basis, rights to data prior to our collecting and processing such data, i.e., we have made the first of what we anticipate will be
multiple discrete sales of licenses to the same data. 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 constitutes 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 greater of the percentage of total estimated costs to total estimated
sales in the first five years multiplied by actual sales, known as the sales forecast method, or the straight-line amortization method over five years. The sales forecast method is our
primary method of calculating cost of services. In addition to the sales forecast method, through July 31, 2003, any costs that remained 36 months after completion of a multi-client
survey were charged on a straight-line basis to cost of services over a

36

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period
not to exceed the next 24 months. This minimum straight-line amortization was recorded only if minimum amortization exceeded the cost of services calculated using the sales
forecast method. Effective August 1, 2003, we changed our multi-client policy to commence the minimum amortization from the date of survey completion, instead of only during the last
24 months of survey book life.

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 $55.3 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, the
recorded book value of these surveys was reduced to zero, 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 beset 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 $9.5 million. We also have two small 2D surveys that were written off with a net charge of
$1.0 million.

Multi-Client Data LibraryChange in Estimate Effected by a Change in Accounting Principle

Effective August 1, 2003, we changed our minimum amortization policy with regard to multi-client data and recorded a charge of $22.1 million,
included in cost of services in our Consolidated Statement of Operations. Under the prior method, capitalized costs of multi-client surveys were charged to cost of services in the period sales
occurred, using the sales forecast method, over an estimated five-year useful life. However, during the last 24 months of a survey's useful life, amortization was the greater of the
amount resulting from the sales forecast method or straight-line amortization of the remaining book value over the remaining portion of the original five-year estimated useful
life. Under the new method, capitalized costs of multi-client surveys are charged to cost of services over an estimated five-year useful life based upon the greater of the result (higher
expense) under the sales forecast method or cumulative straight-line amortization from survey completion over an estimated five-year useful life. Notwithstanding this change,
the sales forecast method remains our primary method of calculating cost of services. The total amortization period that concludes sixty months after survey completion represents the minimum period
over which the surveys are expected to provide economic benefits. We believe that commencing the minimum amortization upon survey completion, as opposed to our prior method of doing so only during the
last twenty four months of the survey's life, better reflects the potential diminution of survey value with the passage of time.

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. We discontinued the amortization of goodwill 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

37

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the
calculation. This test indicated a 100% impairment of goodwill and resulted in a charge to earnings of $39.3 million in fiscal 2003. (See Note 3.)

Revenues

Customer contracts for our services vary in terms and conditions. We review the deliverables in each contract and, where applicable, apply the accounting guidance
contained in EITF 00-21.

Revenues
from contract services are recognized in accordance with the terms of the contract. For fixed price contracts, the proportional performance method is used based upon output
measures. Revenue is measured by the amount of data collected or processed compared to the total amount of data to be collected or processed. For day rate contracts, revenue is recognized based on
time incurred. In contracts where our customer pays separately for the mobilization of equipment, we recognize such mobilization fees as revenue during the performance of the seismic acquisition,
using the same proportional performance method as for the acquisition work.

Revenues
from the licensing of multi-client surveys are based upon agreed rates set forth in the contract and are recognized upon delivery of such data. We have no additional obligations
to the customer subsequent to delivery. Revenues generated from licensing of in-process multi-client surveys are recognized after obtaining a signed license agreement that gives the
customers access to survey results as they occur based upon a proportional performance method, using quantifiable measures of progress, such as kilometers shot or processed, similar to the method for
contract services. For partially completed projects, contract customers and customers who enter license agreements on multi-client surveys generally have access to the data as it is being collected.
There are no provisions for updates or enhancements in any of our survey licenses. In accordance with our license terms, the customer generally does not have the right to return the data for refund.
Infrequently we enter into contracts where revenue recognition is affected by certain contingencies. In some contracts the ultimate price paid by the customer may not be fixed or determinable due to
revenue sharing clauses. In these projects, we recognize revenue from those customers only to the extent that the net price of the data to them is, or has become, fixed. We also enter into contracts
where the customer has a right of return based upon date contingencies. In these projects, we do not apply the proportional performance method and, instead, we recognize revenue only after the date
contingency is resolved.

Leases

Our operating leases include those for office space, specialized geophysical equipment, computer 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.

Mobilization Costs

Transportation and other expenses incurred prior to commencement of geophysical operations in an area are deferred and amortized over the term of the related
contract. Unamortized mobilization costs of $6.3 million and $1.6 million were included in other assets at July 31, 2004 and 2003, respectively. Amounts applicable to surveys
performed for our own account are included in the cost of the multi-client data library.

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 the underlying stock at the grant date or other measurement date exceeds the amount an employee must pay to acquire the

38

---



stock.
Our plans do not permit us to grant stock options at a price lower than market, therefore, we do not record any compensation expense related to stock options. In December 2004, the
Financial Accounting Standards Board released SFAS No. 123R, a revision to SFAS No. 123, "Accounting for Stock-Based Compensation." SFAS 123R, which will become effective for us
beginning with our first quarter of fiscal 2006, will require us to record the cost of stock options and other equity-based compensation in our income statement based upon the estimated fair value of
those awards. As required by SFAS No. 148, "Accounting for Stock-Based Compensation," we disclose the pro forma effect of stock-based compensation expense on net income and earnings per share
that would have been recorded had we used the fair value based method. As set forth below, adoption of SFAS No. 123R will likely reduce our reported net income or increase or reported net loss
in future periods.

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

|                                                                                                                                          |                     | For the Years Ended July 31, |       
|----------------------------------------------------------------------------------------------------------------------------------------- | ------------------- | ---------------------------- | ------
|
|
|Net income (loss), as reported                                                                                                            |                     | $                            | 5,221 
|Add: Stock based compensation expense included above                                                                                      |                     |                              | 385   
|Less: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects |                     |                              | (4,994
|                                                                                                                                          |                     |                              |       
|Pro forma net income (loss)                                                                                                               |                     | $                            | 612   
|                                                                                                                                          |                     |                              |       
|Earnings per share:                                                                                                                       |                     |                              |       
|                                                                                                                                          | Basicas reported   |                              | $     
|                                                                                                                                          | Dilutedas reported |                              | $     
|                                                                                                                                          | Basicpro forma     |                              | $     
|                                                                                                                                          | Dilutedpro forma   |                              | $     

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.

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. Potentially dilutive securities include stock options issued to our employees and directors and our Convertible Senior Notes. Because
we recorded net losses for fiscal 2003 and 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

39

---



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
our common stock over the five trading days ending on August 19, 2002. 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 former Chairman and Chief Executive Officer, beneficially
owned 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 Geo-services 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.

3.     Goodwill

Our reduced earnings in fiscal 2003, coupled with the instability in the industry, led to a sharp decline in our stock price, leaving our company's 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 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. Since the close of the sale of the (RC)2 software operation in September 2003, software available for
sale has consisted entirely of the Hampson-Russell suite of products.

In
the fourth quarter of fiscal 2003, 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, of which $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 sale closed in the first quarter of fiscal 2004. The sales agreement allows 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

40

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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 our software was $3.1 million, $4.7 million and $2.6 million for fiscal 2004, 2003 and 2002, respectively.

Debt Issuance Costs

We capitalize costs incurred during the process of obtaining debt financing, including commissions, legal fees, and filing fees. We amortize these costs over the
life of the debt. In the case of our Convertible Senior Notes, which have a life of 20 years, we are amortizing the debt issuance costs over the 5-year period from the Convertible
Senior Notes' issuance to the first date the Convertible Senior Notes are redeemable, absent certain specified conditions. The amortization of debt issuance cost resulted in interest expense of
$7.1 million, $1.7 million and $0.7 million in fiscal 2004, 2003 and 2002, respectively. The debt issuance costs amortization in fiscal 2004 resulted primarily from the retirement
of our Term Debt and the expensing of all associated issuance costs.

The
carrying value of our software and debt issuance costs is as follows:

|                    |  | July 31, 2004 |        | July 31, 2003
|------------------- |  | ------------- | ------ | -------------
|
|
|Software            |  | $             | 15,656 |              
|Debt Issuance Costs |  |               | 5,660  |              

5.     Long-term Debt

Long-term debt is as follows:

July 31,2004

2003(In thousands)Convertible Senior Notes due March 2024

$
155,000

$
Term A loan due February 2006





29,850Term B loan due February 2007





124,375Term C loan due February 2008





40,000Total debt


155,000


194,225Less: Current portion of long-term debt





13,908Total long-term debt

$
155,000

$
180,317


On
March 3, 2004, we sold $125.0 million aggregate principal amount of Floating Rate Convertible Senior Notes Due 2024 (the "Convertible Senior Notes") in a private
placement to an initial purchaser. On March 11, 2004, we sold an additional $30.0 million of Convertible Senior Notes to the initial purchaser. The notes are our senior unsecured
obligations and are convertible under certain circumstances into a combination of cash and our common stock at a fixed conversion price of $24.03 (subject to adjustment in certain circumstances),
which is equivalent to an initial conversion ratio of approximately 41.6 shares of our common stock per $1,000 principal amount of Convertible Senior Notes, or a maximum of approximately
6.5 million shares for the $155.0 million aggregate principal amount. In general, upon conversion of a note, the holder of such note will receive cash equal to the principal amount of
the note and shares of our common stock for the note's conversion value in excess of such principal amount. We used $129.0 million of net proceeds from the sale of the Convertible Senior Notes
to repay in full the term C loan and to prepay portions of the term A and B loans. The

41

---



remaining
$20.0 million of net proceeds from the Convertible Senior Notes was used to repurchase, in negotiated transactions, 1,222,494 shares of our common stock sold by certain purchasers of
the Convertible Senior Notes in connection with the offering.

The
Convertible Senior Notes bear interest at a per annum rate which equals the three-month LIBOR rate, adjusted quarterly, minus a spread of 0.75%. The interest rate of the notes at
July 31, 2004 was 0.77%. The notes will mature on March 15, 2024 and may not be redeemed by us prior to March 20, 2009. Holders of the notes may require us to repurchase some, or
all, of the notes on March 15, 2009, 2014 and 2019. They could also require repurchase upon a change of control (as defined in the indenture under which the Convertible Senior Notes were
issued).

Under
certain circumstances and at the option of the holder, the Convertible Senior Notes are convertible prior to the maturity date into cash and shares of our common stock. Certain of
these circumstances may result in classification of the Convertible Senior Notes as current on our balance sheet. These circumstances include:



Should
any of these circumstances occur, the Convertible Senior Notes would be convertible at the then current stock price times the conversion ratio of 41.6146. This amount would be
payable in cash equal to the principal amount of the notes, the par value adjusted for dividends or other equity transactions, and the additional amount payable in shares of our common stock.
Currently, the maximum amount payable by us on conversion is $155 million in cash plus approximately 6.5 million shares. For clarity, conversion at a $40 stock price would result in our
payment of $155 million in cash and 2.575 million shares of common stock. This settlement method is prescribed in the indenture and is not optional at the discretion of any party. The
shares issuable from such conversion are considered in the calculation of diluted earnings per share.

42

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The Convertible Senior Notes were sold to Deutsche Bank Securities Inc., the initial purchaser, under an exemption provided by section 4(2) of the Securities Act. The
initial purchaser concurrently sold the notes only to qualified institutional buyers in accordance with Rule 144A under the Securities Act. The notes and the underlying common stock issuable
upon conversion have not been registered under the Securities Act or any applicable state securities laws and may not be offered or sold in the United States absent registration or an applicable
exemption from such registration requirements. We entered into a registration rights agreement in which we agreed to file within 90 days of March 3, 2004 a registration statement with
the Securities and Exchange Commission to register resales of the notes and associated shares of common stock. We filed a registration statement on May 28, 2004 in compliance with the
registration rights agreement; however, due to our restatement issue the registration statement is not yet effective. Because we are required to pay liquidated damages in the event the registration
statement is not effective on or before August 31, 2004, or under certain other circumstances, we have been incurring such damages in the amount of $2,153 per day since August 31.

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 Credit Agreement provided 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. Proceeds from the Term Loans were used to satisfy the obligations under our previous credit agreement and our Senior Notes due
October 2003. The Term Loans were retired with the proceeds of the Convertible Senior Notes, described above, and available cash while the revolving loan facility is still available to us,
although not currently drawn upon.

As
of July 31, 2004, there were $2.7 million in letters of credit outstanding under the revolving loan facility, leaving $52.3 million available for borrowings. In
addition to the revolving loan facility, we have various unsecured lines of credit, with lending institutions that operate in geographic areas not covered by the lending institutions in our revolving
loan facility, totaling $8.5 million that may be used exclusively for the issuance of letters of credit and bank guarantees. As of July 31, 2004, $4.1 million in letters of credit
were outstanding under these lines. The Credit Agreement prohibits us from, among other things, paying cash dividends.

The
term A loan was in the original principal amount of $30.0 million, would have matured in February 2006, and required 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 were based on certain of our financial ratios. The term B
loan was in the original principal amount of $125.0 million, would have matured in February 2007, and required 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, would have matured
in February 2008, and required 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 required quarterly combined principal payments of $387,500 representing 0.25% of the initial principal balances. Should there have been an event
of default or if an unmatured event of default exists, or the credit rating of any of the debt was 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 had risen above certain levels, the term A and B loans would have required principal payments of 50% of the prior fiscal year's cash flow, calculated as per the
loan agreement. This payment was due 100 days after the end of the fiscal year and resulted in a ratable reduction of the future required quarterly principal payments. As our lowest debt rating
by Moody's was below the minimum level, we paid $12.4 million of principal in November 2003 related to the company's cash flow from January 1, 2003 through July 31, 2003.
We used $129.0 million of net proceeds from the Convertible Senior Notes

43

---



described
above to repay in full the term C loan and to prepay portions of the term A and B loans. In addition, we prepaid the remaining $51.3 million of Term Loans using cash on
hand. We recorded $7.4 million in charges relating to the retirement of the $180.3 million Term Loans which included expensing of debt issuance costs, cancellation of interest rate swaps
and prepayment penalties. These charges are included in interest expense on the "Consolidated Statement of Operations and Comprehensive Income (Loss)."

Loans
made under the revolving loan facility, 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 revolving loan facility 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, 2004, the carrying value of the secured assets, including intercompany receivables, which are eliminated in consolidation, 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. These covenants
relate to measurements as of quarter ending dates, and, as of our last fiscal quarter, ended January 31, 2005, we were in compliance. During March 2005, we obtained waivers from our
lenders under the Credit Agreement related to the late filing of our financial statements. The waivers allow us to deliver our required reports for fiscal 2004 and for the first and second quarter of
fiscal 2005 to the lenders by no later than May 15, 2005. If we are unable to meet this deadline or are unable to extend it further, our ability to borrow under the Credit Agreement may be
restricted.

6.     Other Accrued Liabilities

Other accrued liabilities include the following:

July 31,2004

2003
Restated(In thousands)Deferred revenue

$
23,688

$
8,090Accrued payroll and benefits


19,698


13,826Accrued taxes other than income taxes


8,083


4,678Reserve for costs related to (RC)2 sale





1,701Accrued insurance


4,728


3,537Accrued dry dock


2,420


3,227Other


8,877


6,863Total

$
67,494

$
41,922


7.     Income Taxes

Income (loss) before provision for income taxes was earned in the following jurisdictions:

For the Years Ended July 31,2004

2003
Restated

2002
Restated(In thousands)U.S.

$
4,192

$
(35,862
)
$
(34,271
)Non-U.S.


4,744


5,000


15,452Total

$
8,936

$
(30,862
)
$
(18,819
)


44

---



Certain
income classified as non-U.S. is also subject to U.S. income taxes. Provision for income taxes consists of the following:

For the Years Ended July 31,2004

2003
Restated

2002
Restated(In thousands)CurrentU.S.

$
(3,293
)
$
7,513

$
(12,176
)DeferredU.S.





13,341


2,954CurrentNon-U.S.


6,052


2,462


12,153DeferredNon-U.S.


956


4,919


2,301Total

$
3,715

$
28,235

$
5,232


A
reconciliation between the provision for income taxes and the amount computed by applying the U.S. statutory income tax rate to income (loss) before provision for income taxes is as
follows:

|                                                                   |                                                                        | For the Years Ended July 31, |      
|------------------------------------------------------------------ | ---------------------------------------------------------------------- | ---------------------------- | -----
|
|
|Income tax provision (benefit) computed at the U.S. statutory rate |                                                                        | $                            | 3,128
|Increase (decrease) in taxes resulting from:                       |                                                                        |                              |      
|                                                                   | Non-U.S. activities                                                    |                              |      
|                                                                   | Adjustments to tax contingencies and resolution of certain tax matters |                              |      
|                                                                   | Deduction of worthless stock of a subsidiary                           |                              |      
|                                                                   | Tax credits                                                            |                              |      
|                                                                   | Valuation allowances on deferred income tax assets                     |                              |      
|                                                                   | Non-deductibles                                                        |                              |      
|                                                                   | Software amortization                                                  |                              |      
|                                                                   | Adjustments to prior year tax returns                                  |                              |      
|                                                                   | State income taxes                                                     |                              |      
|                                                                   | (Gain) loss on investment in marketable securities                     |                              |      
|                                                                   | Goodwill                                                               |                              |      
|                                                                   | Other                                                                  |                              |      
|                                                                   |                                                                        |                              |      
|                                                                   |                                                                        | Total                        |      
|                                                                   |                                                                        |                              |      

The
increase in taxes resulting from non-U.S. activities includes non-U.S. earnings taxed at other than the U.S. statutory rate, non-U.S. withholding
taxes, U.S. foreign tax credit or deductions, U.S. tax on non-U.S. branch operations or foreign dividends, foreign tax contingencies and valuation allowances on foreign deferred taxes. In
fiscal 2002, we recorded $6.5 million of tax expense related to net operating losses ("NOLs") in Argentina that were not expected to be utilized due to our suspension of activity in that
country.

Subsequent
to July 31, 2004, we reached a settlement with the Internal Revenue Service on the audit of certain prior year tax returns. This settlement favorably impacted our 2004
income tax provision.

45

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

July 31,2004

2003
Restated(In thousands)Deferred income tax assets:Net operating loss carryforwards

$
33,867

$
29,427Multi-client data library


20,684


10,431Property and equipment


7,827


9,995Tax credit carryforwards


5,581


Accrued liabilities


5,062


4,970Capitalized costs


3,140


4,989Bad debts


113


1,664Deferred revenues


2,017


3,095Other


1,868


1,165Valuation allowances


(73,036
)

(61,112
)Deferred income tax assetsnet


7,123


4,624Deferred income tax liabilities:Partnerships


(3,840
)

(1,501
)Deferred charges


(3,253
)

(2,174
)Other


(243
)

(227
)Deferred income tax liabilities


(7,336
)

(3,902
)Net deferred income tax assets (liabilities)

$
(213
)
$
722


A
valuation allowance, by tax jurisdiction, is established when it is more likely than not that all or some portion of the deferred income tax assets will not be realized. The valuation
allowances are periodically adjusted based upon the available evidence. Adjustments are also made to recognize the expiration of NOL and tax credit carryforwards, with equal and offsetting adjustments
to the related deferred income tax asset. During fiscal 2004, the valuation allowances increased $11.9 million as the evidence, including historical losses, did not support a more likely than
not conclusion that portions of our deferred income tax assets would be realized. The remaining, unreserved, deferred income 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 NOL carryforwards existing at the date of the quasi-reorganization have been
recognized through a direct

46

---



addition
to paid-in capital, when realization is more likely than not. The following schedule sets forth the expiration dates of the U.S. and non-U.S. NOLs.

Fiscal Year

U.S.
Net
Operating
Losses

Non-U.S.
Net
Operating
Losses(In thousands)2005

$


$
4,8332006


1,352


2462007


2,505


1,7902008





4,4412009





1,3532010





362011





3,3182012





9702013





9872014





1,137Indefinite





83,500Total

$
3,857

$
102,611


As
of July 31, 2004, we had U.S. NOL carryforwards of $3.9 million expiring in periods through fiscal 2007, U.S. foreign tax credits of $1.8 million expiring in
periods through fiscal 2010, U.S. research and development credits of $2.0 million expiring in periods through fiscal 2024 and U.S. minimum tax credits of $0.5 million with no expiration
date, none of which existed prior to the quasi-reorganization. All of these U.S. NOL and tax credit carryforwards have full valuation allowances recorded against them.

Internal
Revenue Code section 382 and Treasury regulations thereunder restrict the utilization of U.S. NOL and tax credit carryforwards for a corporation undergoing an ownership
change (as defined). We had two ownership changes in the past subject to these restrictions. The first ownership change occurred in connection with the issuance of common stock through a public
offering we made on January 6, 1992. The utilization of U.S. NOL and tax credit carryforwards existing at the date of the first ownership change is limited to $4.0 million per year plus
the carryover of any unutilized limitation from prior years. The second ownership change occurred as a result of the stock acquisition of Veritas Energy Services Inc. on August 30, 1996.
The utilization of U.S. NOLs and tax credits generated between the first and second ownership changes is limited to $8.9 million per year, which includes $4.0 million from the first
ownership change, plus the carryover of any unutilized limitation from prior years. During fiscal 2002, we generated a U.S. NOL of $21.1 million, which we expect to carry back and utilize
against prior years' U.S. taxable income. During fiscal 2003, we utilized $21.0 million of U.S. NOL carryforwards and during fiscal 2004, we utilized $8.1 million of U.S. NOL
carryforwards.

Non-U.S.
operations had NOL carryforwards of $102.6 million at July 31, 2004, of which $0.6 million existed prior to the quasi-reorganization, and of
which $99.4 million are subject to valuation allowances. Of the $102.6 million of non-U.S. NOL carryforwards, approximately $39.5 million relate to Brazilian
operations, $20.3 million relate to Australian operations, and $16.5 million relate to United Kingdom operations, all of which have an indefinite carryforward period, and are available
to offset future income (subject to certain limitations). All of the Brazilian, Australian, and United Kingdom NOL carryforwards have full valuation allowances recorded against them.

Of
the $102.6 million of non-U.S. NOL carryforwards, approximately $7.2 million relate to Canadian operations that are available to offset future income
(subject to certain limitations). The

47

---



Canadian
NOL carryforwards expire in periods through fiscal 2011. As of July 31, 2004, we had Canadian research and development tax credits of $0.7 million and Canadian foreign tax
credits of $0.5 million expiring in fiscal 2011 available for carryforward. Of the Canadian NOL and tax credit carryforwards, only $4.0 million of the NOLs have valuation allowances
recorded against them.

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. On
October 22, 2004, the President signed the American Jobs Creation Act of 2004 (the "Act"). The Act creates a temporary incentive for U.S. corporations to repatriate accumulated income earned
abroad by providing an 85 percent dividends received deduction for certain dividends from controlled foreign corporations. The deduction is subject to a number of limitations and, as of today,
uncertainty remains as to how to interpret numerous provisions in the Act. As such, we are not yet in a position to decide on whether, and to what extent, we might repatriate earnings that have not
yet been remitted to the U.S.

8.     Commitments and Contingent Liabilities

Total rentals of vessels, equipment and office facilities charged to operations amounted to $72.6 million, $72.2 million and $65.6 million
for the years ended July 31, 2004, 2003 and 2002, 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)2005

$
44,9922006


37,5842007


18,9562008


9,8872009 and thereafter


35,610Total

$
147,029


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. It is
possible that the actual liability for unreported workers compensation claims could exceed the amounts already accrued. It is not possible to reasonably estimate the range of possible loss.

9.     Employee Benefits

Employee Retirement Plans

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 $13,000 for calendar 2004. 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 was less). As of January 1, 2003, we contribute an amount equal to the employee's contribution up to a maximum of

48

---



5%
of the employee's salary or the statutory maximum. Our matching contributions to the 401(k) plan were $1.8 million, $1.4 million and $1.1 million for fiscal 2004, 2003 and
2002, respectively.

We
maintain a plan, the Canadian RRSP plan, in which employees, primarily in our Canadian subsidiaries, are eligible to participate. Employees are permitted to make contributions of up
to 10% of their salary and we contribute an amount equal to 50% of the employee's contribution up to a maximum of 5% of the employees' salary. An employee may contribute an additional amount so that
the total contribution to the employee's account equals up to 18% of the employee's salary for the
prior year not to exceed $15,000 for calendar year 2004. Our matching contributions to this plan were $0.7 million, $0.7 million and $0.5 million for fiscal 2004, 2003 and 2002,
respectively.

Stock Option Plans

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 was 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 was 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. Options issued to employees under the Share Incentive Plan have exercise prices equal to the fair market value at the date of grant, have five-year lives and
vest over three years. Options issued to continuing non-employee directors under the Share Incentive Plan have exercise prices equal to the fair market value at the date of grant, have
five-year lives and vest immediately. As of July 31, 2004, 1,510,758 shares were reserved for issuance under the Share Incentive Plan, with no more than 450,355 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 share units then issued vest, 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 2004 and 2003, 2,386 and 3,165 deferred share units were issued, respectively.

49

---



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

For the Year Ended July 31, 2004Number of
Shares

Weighted
Average
Exercise
Price

Weighted
Average
Grant Date
Fair Value

Weighted
Average
Contractual
Life
In YearsBeginning balance

4,029,499

$
15.24Options granted

656,400


12.17

$
6.32

5Options exercised

(1,042,866
)

10.30Options forfeited

(463,160
)

15.74Ending balance

3,179,873

$
16.19Options exercisable

1,699,830

$
20.92Options exercisable by range of exercise price:$0.00-$5.65

5,383

$
5.25$5.65-$11.30

652,859


10.21$11.30-$16.95

40,856


14.10$16.95-$22.60

224,487


19.39$22.60-$28.25

355,598


25.99$28.25-$33.90




$33.90-$39.55

405,347


34.56$39.55-$45.20

8,759


43.84$45.20-$50.85

4,828


45.31$50.85-$56.50

1,713


54.80Ending balance

1,699,830Ending balance by range of exercise price:$0.00-$5.65

5,383

$
5.25$5.65-$11.30

2,000,402


10.22$11.30-$16.95

165,856


15.42$16.95-$22.60

231,987


19.39$22.60-$28.25

355,598


25.99$28.25-$33.90




$33.90-$39.55

405,347


34.56$39.55-$45.20

8,759


43.84$45.20-$50.85

4,828


45.31$50.85-$56.50

1,713


54.80Ending balance

3,179,873


For the Year Ended July 31, 2003Number of
Shares

Weighted
Average
Exercise
Price

Weighted
Average
Grant Date
Fair ValueBeginning balance

1,884,665

$
22.97Options granted

2,673,137


9.94

$
5.36Options exercised

(83,896
)

7.09Options forfeited

(444,407
)

17.33Ending balance

4,029,499


15.27Options exercisable

2,083,780


18.96


50

---



For the Year Ended July 31, 2002Number of
Shares

Weighted
Average
Exercise
Price

Weighted
Average
Grant Date
Fair ValueBeginning balance

2,011,619

$
23.16Options granted

30,000


15.09

$
9.87Options exercised

(32,292
)

9.24Options forfeited

(124,662
)

27.96Ending balance

1,884,665


22.95Options exercisable

1,471,018


20.91


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 31,2004

2003

2002Risk-free interest rate

3.7
%
3.0
%
4.9
%Expected volatility

64.9
%
69.0
%
69.0
%Expected life in years

4.0

4.0

6.3


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 2004, 244,232 shares of common stock were issued with a weighted average fair value at grant date of $7.47. During fiscal 2003, 275,614 shares of common stock were
issued with a weighted average fair value at grant of $7.42 per share. During fiscal 2002, 187,998 shares of common stock were issued with a weighted fair value at grant of $12.42 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.

51

---



The
following tables represent the restricted shares issued in fiscal 2004 and 2003:

Year Ended July 31, 2004Number of
Shares Granted

Grant Date

Grant
Price

Vesting
Period (Years)46,289

January 2004

$
11.36

36,000

February 2004


12.91

32,000

July 2004


23.46

3


Year Ended July 31, 2003Number of
Shares Granted

Grant Date

Grant
Price

Vesting
Period (Years)18,664

August 2002

$
10.96

19,000

September 2002


10.40

33,165

January 2003


7.90

12,500

February 2003


7.88

3


Pension Plan

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 5.5% 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 31,2004

2003

2002(In thousands)Service costs (benefits earned during the period)

$
542

$
584

$
530Interest cost on projected benefit obligation


1,061


810


750Expected return on plan assets


(787
)

(665
)

(546
)Net amortization and deferral


194


222


118Net periodic pension costs

$
1,010

$
951

$
852


The
funded status of the Pension Plan is as follows:

July 31,2004

2003(In thousands)Plan assets at fair value

$
14,088

$
10,926Projected benefit obligation in excess of plan assets

$
5,794

$
5,412Unrecognized prior service costs


(1,598
)

(1,592
)Unrecognized actuarial loss


(2,602
)

(2,104
)Net pension liability

$
1,594

$
1,716


52

---



Amounts
included in the consolidated balance sheet consist of:

July 31,2004

2003(In thousands)Accrued benefit liability

$
3,192

$
3,308Intangible asset


(1,598
)

(1,592
)Net pension liability

$
1,594

$
1,716


The
excess of our accumulated benefit obligation over our prior service costs is recorded in "Accumulated comprehensive incomeother" on our balance sheet, and is
$1.2 million in at July 31, 2004 and $1.7 million at July 31, 2003.

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 31,2004

2003

2002Discount 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
expected long-term rate of return on plan assets reflects the average rate of earnings expected on the funds invested or to be invested to provide for the benefits
included in the projected benefit obligation. We have used a rate we believe is appropriate for long-term investment in an equity based portfolio.

The
weighted-average asset allocations by asset category for the plan assets are as follow:

For the Years Ended July 31,Asset Category2004

2003Equity securities

98.8
%
97.7
%Cash

1.2
%
2.3
%Total

100.0
%
100.0
%


Our
target weighted-average asset allocation for the plan assets is 100% in equity securities.

53

---



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

July 31,2004

2003(In thousands)Benefit obligation at beginning of year

$
16,338

$
12,930Service cost


542


584Interest cost


1,061


810Contributions by plan participants


369


273Actuarial (gain) loss


145


988Benefits paid


(196
)

(197
)Foreign currency exchange rate changes


1,623


950Benefit obligation at end of year

$
19,882

$
16,338Fair value of plan assets at beginning of year

$
10,926

$
8,257Actual gain (loss) on plan assets


951


665Employer contributions


927


1,299Plan participants' contributions


369


273Benefits paid


(196
)

(197
)Foreign currency exchange rate changes


1,111


629Fair value of plan assets at end of year

$
14,088

$
10,926


For
fiscal 2005, we plan to contribute approximately $1 million to the pension plan.

10.   Hedge Transactions

In May 2004 and July 2004, we entered into contracts in which we receive payments in pounds sterling. In order to minimize our exposure to currency
risk, we purchased several put and call options. As of July 31, 2004, we had realized a loss of $249,000 from these transactions.

On
February 25, 2003, we entered into interest rate swaps in order to reduce our exposure to the variable interest rates under our Credit Agreement. These swaps, with notional
amounts totaling $80.0 million, effectively hedged 41% of our exposure to interest rate changes for the two-year term of the swaps and had no value at inception. On March 29,
2004, upon
prepayment of amounts outstanding under our Credit Agreement, the swap agreement was amended to an amount totaling $10.9 million. On June 10, 2004, upon final payment of amounts
outstanding under our Credit Agreement, the interest rate swap was terminated. The amendment and subsequent termination of the swap resulted in an expense of $441,000 and is included in interest
expense for the current fiscal year on the "Consolidated Statements on Operations and Comprehensive Income (Loss)."

In
March 2001, we entered into a contract requiring payments in Norwegian Kroner to charter the seismic vessel M/V Seisquest. The contract required 36 monthly payments
commencing on June 1, 2001. To protect against exposure to exchange rate risk, we entered into multiple forward contracts as cash flow hedges effectively fixing our exchange rate for Norwegian
Kroner to the U.S. dollar. This contract expired on April 30, 2004.

11.   Common and Preferred Stock and Special Voting Stock and Exchangeable Shares

At their annual meeting on December 2, 2003, our shareholders voted to authorize 38.5 million additional shares of common stock, increasing the
authorized amount to 78.5 million shares.

54

---



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, 2004.

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 our company. The rights expire on May 15, 2007 and may be redeemed prior
to that date.

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 earnings per share information.

55

---



12.   Other (Income) Expense, Net

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

For the Years Ended July 31,2004

2003
Restated

2002
Restated(In thousands)Net foreign currency exchange loss (gain)

$
1,248

$
(82
)
$
3,873Interest income


(1,602
)

(960
)

(1,414
)Loss (income) from unconsolidated subsidiary(1)


958


1,111


(181
)Unrealized loss on marketable securities








1,368Other


(621
)

147


712Total

$
(17
)
$
216

$
4,358


---

13.   Net Income (Loss) Per Common Share

Net income (loss) per common sharebasic and diluted is computed as follows:

For the Years Ended July 31,2004

2003
Restated

2002
Restated(In thousands, except per share amounts)Net income (loss)

$
5,221

$
(59,097
)
$
(24,051
)Basic:Weighted average common shares (including exchangeable shares)


33,572


33,305


32,409Net income (loss) per share

$
..16

$
(1.77
)
$
(.74
)Diluted:Weighted average common shares (including exchangeable shares)


33,572


33,305


32,409Shares issuable from the assumed exercise of options


660





Shares issuable from the assumed vesting of restricted stock


28





Total


34,260


33,305


32,409Net income (loss) per share

$
..15

$
(1.77
)
$
(.74
)


All
options to purchase common shares have been excluded from the computation assuming dilution for the years ended July 31, 2003 and 2002 because the options are
anti-dilutive due to a net loss. Options excluded are shown in the following table:

For the Years Ended July 31,2004

2003

2002Number of options

1,079,591

4,029,499

1,884,665Exercise price range

$14.56-$55.13

$5.25-$55.13

$5.25-$55.13Expiring through

March 2012

March 2012

March 2012


56

---



The
Convertible Senior Notes are not convertible as of March 31, 2005 and the shares issuable from such conversion, while considered, are not included in this income per share
calculation as they are anti-dilutive (See Note 5 for a description of our Convertible Senior Notes.)

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 customer bases,
operational areas and operating margins of these two segments, however, are relatively distinct. A reconciliation of the reportable segments' results to those of the total enterprise is given below.

For the Year Ended July 31, 2004Land

Marine

Corporate

Total(In thousands)Revenues

$
219,981

$
344,488

$


$
564,469Operating income (loss)


14,584


47,620


(34,434
)

27,770Net income (loss) before income tax


15,652


45,883


(52,599
)

8,936Total assets


155,428


493,728


127,090


776,246


Restated
For the Year Ended July 31, 2003Land

Marine

Corporate

Total(In thousands)Revenues

$
213,873

$
287,948

$


$
501,821Operating income (loss)


10,951


43,468


(66,531
)

(12,112
)Net income (loss) before income tax


10,382


42,627


(83,871
)

(30,862
)Total assets


182,792


510,877


97,276


790,945


Restated
For the Year Ended July 31, 2002Land

Marine

Corporate

Total(In thousands)Revenues

$
191,354

$
260,829

$


$
452,183Operating income (loss)


(15,848
)

61,833


(46,818
)

(833
)Net income (loss) before income tax


(18,715
)

60,322


(60,426
)

(18,819
)Total assets


212,759


489,881


78,763


781,403


As
of September 1, 2004, we restructured our company and organized our operations into three geographic areas. The new structure will be reflected in future segment reporting.
Corporate includes corporate overhead and certain non-recurring adjustments. In fiscal 2003, these adjustments include impairment of goodwill of approximately $35 million. In fiscal
2002, these adjustments include costs of terminated merger of $15 million.

57

---



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, 2004, 2003 and 2002:

For the Years Ended July 31,2004

2003
Restated

2002
Restated(In thousands)Geographic areas:United States

$
245,144

$
190,898

$
182,705Canada


88,283


71,911


75,449Latin America


57,210


113,754


94,910Europe


79,182


33,713


47,224Middle East/Africa


32,513


54,201


25,546Asia Pacific


62,137


37,344


26,349Total

$
564,469

$
501,821

$
452,183


This
table presents property and equipment, net of depreciation, by geographic area based on the location of the assets:

For the Years Ended July 31,2004

2003
Restated

2002
Restated(In thousands)Geographic areas:United States

$
83,181

$
107,159

$
139,123Asia Pacific


7,503


9,125


12,981Canada


17,317


15,481


14,668Europe


8,213


9,705


11,380Latin America


1,958


2,269


3,832Middle East/Africa


3,491


5,914


7,824Total

$
121,663

$
149,653

$
189,808


In
fiscal 2004 and 2003, no customer accounted for 10% or more of total revenue. In fiscal 2002, Petroleo Brasileiro S.A., the national oil company of Brazil, 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.   Subsequent Event

On the evening of January 18, 2005, our seismic vessel Veritas Viking experienced an engine failure while acquiring multi-client seismic data in the Gulf
of Mexico and lost substantial amounts of overboard seismic equipment. Substantially all of the cost associated with the lost equipment is expected to be covered by our insurance at replacement cost.

16.   Restatement

Due to accounting errors described in Note 1, we have restated our consolidated statements of operations and comprehensive income, balance sheets and
statements of cash flows for the fiscal years 2003 and 2002. The restatement also affects periods prior to 2002. These errors were discovered during

58

---



two
separate reviews: a comprehensive review of our balance sheet and a review of specific types of customer contracts.

The Balance Sheet Review

During our year-end balance sheet review, we found various types of clerical and account reconciliation errors related primarily to the intercompany
transfer of property and foreign currency items. The fixed asset errors of approximately $1.9 million affected depreciation and amortization charges over the past seven years. We corrected all
matters identified in the balance sheet review in our restatement, although such items were not individually material.

The Contract Review

We reviewed our accounting for our customer contracts, including those that contain provisions for customer payment of mobilization fees, revenue sharing with
customers and certain date contingencies. Because our contracts vary widely in terms and conditions, we reviewed the deliverables of each type of contract and, where required, applied the guidance of
EITF 00-21. We determined that our accounting treatment for certain of these customer contracts was not in accordance with generally accepted accounting principles and adjusted our
accounts accordingly. We had recognized mobilization fees as revenue during the period of mobilization rather than during the period of seismic data acquisition, as required by Staff Accounting
Bulletin (the "SAB") 104. In contracts with revenue sharing clauses and date contingencies, we recognized revenue before the price to be ultimately paid by the related customer was fixed or
determinable under SAB No. 104. In all cases, our errors related to customer contracts were related to the timing of revenue recognition.

59

---



The
following is a summary of the effect of the restatement adjustments on our previously reported net income, earnings per share and total assets:

Increase / (Decrease) from Previously
Reported Amounts for the
Years Ended July 31,2003

2002

Pre 2002(In thousands, except per share amounts)Net loss as previously reported

$
(59,924
)
$
(23,150
)Pretax adjustments resulting from:The balance sheet review


675


(168
)
$
(2,567
)The contract review


335


(693
)

(286
)Total pretax adjustments


1,010


(861
)

(2,853
)Tax effect of restatement adjustments


183


40


(333
)Total net adjustments


827


(901
)
$
(2,520
)Net loss restated

$
(59,097
)
$
(24,051
)Loss per common sharebasic and diluted:As reported

$
(1.80
)
$
(.71
)Effect of the balance sheet review adjustments


.02


(.00
)Effect of the contract review adjustments


.01


(.03
)As restated

$
(1.77
)
$
(.74
)Total assets as reported

$
788,362

$
780,781

$
796,952Adjustments


2,583


622


(563
)Total assets as adjusted

$
790,945

$
781,403

$
796,389


The
following are restated financial statements for each period compared to the amounts previously reported:

60

---





RESTATED        CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)        FOR THE YEAR ENDED JULY 31, 2003        (In thousands, except per share amounts)

|                                                                   |                                                          | As
Reported |         | Adjustments |   | Restated |    
|------------------------------------------------------------------ | -------------------------------------------------------- | ----------- | ------- | ----------- | - | -------- | ---
|Revenues                                                           |                                                          | $           | 503,001 |             | $ | (1,180   | )  
|Cost of services                                                   |                                                          |             | 425,034 |             |   | (1,763   | )  
|Research and development                                           |                                                          |             | 11,630  |             |   |         |    
|General and administrative                                         |                                                          |             | 27,211  |             |   | 7        |    
|Loss on (RC)2 sale                                                 |                                                          |             | 7,627   |             |   |         |    
|Impairment of multi-client surveys                                 |                                                          |             | 4,893   |             |   | 31       |    
|Impairment of goodwill                                             |                                                          |             | 39,263  |             |   |         |    
|                                                                   |                                                          |             |         |             |   |          |    
|Operating income (loss)                                            |                                                          |             | (12,657 | )           |   | 545      |    
|Interest expense                                                   |                                                          |             | 18,534  |             |   |         |    
|Other expense (income), net                                        |                                                          |             | 681     |             |   | (465     | )  
|                                                                   |                                                          |             |         |             |   |          |    
|Income (loss) before provision for income taxes                    |                                                          |             | (31,872 | )           |   | 1,010    |    
|Income taxes                                                       |                                                          |             | 28,052  |             |   | 183      |    
|                                                                   |                                                          |             |         |             |   |          |    
|Net income (loss)                                                  |                                                          | $           | (59,924 | )           | $ | 827      |    
|                                                                   |                                                          |             |         |             |   |          |    
|Net income (loss), per share:                                      |                                                          |             |         |             |   |          |    
|Basic:                                                             |                                                          |             |         |             |   |          |    
|                                                                   | Weighted average common shares                           |             |         | 33,305      |   |          |   
|                                                                   | Income (loss) per common share                           |             | $       | (1.80       | ) | $        | .03
|Diluted:                                                           |                                                          |             |         |             |   |          |    
|                                                                   | Weighted average common shares                           |             |         | 33,305      |   |          |   
|                                                                   | Income (loss) per common share                           |             | $       | (1.80       | ) | $        | .03
|Comprehensive income (loss):                                       |                                                          |             |         |             |   |          |    
|Net income (loss)                                                  |                                                          | $           | (59,924 | )           | $ | 827      |    
|Other comprehensive income (loss) (net of tax, $0 in all periods): |                                                          |             |         |             |   |          |    
|                                                                   | Foreign currency translation adjustments                 |             |         | 12,361      |   |          | (22
|                                                                   | Unrealized gain (loss) on investments-available for sale |             |         | 944         |   |          |   
|                                                                   | Unrealized gain (loss) on hedge transaction              |             |         | (939        | ) |          |   
|                                                                   | Unrealized minimum pension liability                     |             |         | (1,577      | ) |          |   
|                                                                   |                                                          |             |         |             |   |          |    
|Total other comprehensive income (loss)                            |                                                          |             | 10,789  |             |   | (22      | )  
|                                                                   |                                                          |             |         |             |   |          |    
|Comprehensive income (loss)                                        |                                                          | $           | (49,135 | )           | $ | 805      |    
|                                                                   |                                                          |             |         |             |   |          |    

61

---



RESTATED        CONSOLIDATED BALANCE SHEET        AS OF JULY 31, 2003        (Dollars in thousands, except par value)

|                                             |                                                                                                                                     | As
Reported                                        |         | Adjustments |         | Restated |       
|-------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------- | ------- | ----------- | ------- | -------- | ------
|ASSETS                                       |                                                                                                                                     |                                                    |         |             |         |          |       
|Current assets:                              |                                                                                                                                     |                                                    |         |             |         |          |       
|                                             | Cash and cash equivalents                                                                                                           |                                                    | $       | 72,626      |         | $        | (529  
|                                             | Restricted cash investments                                                                                                         |                                                    |         | 205         |         |          |      
|                                             | Accounts and notes receivable (net of allowance for doubtful accounts of $7,953)                                                    |                                                    |         | 131,645     |         |          | (626  
|                                             | Materials and supplies inventory                                                                                                    |                                                    |         | 5,044       |         |          | (30   
|                                             | Prepayments and other                                                                                                               |                                                    |         | 13,365      |         |          | 898   
|                                             | Income taxes receivable                                                                                                             |                                                    |         | 11,335      |         |          | 1,684 
|                                             |                                                                                                                                     |                                                    |         |             |         |          |       
|                                             |                                                                                                                                     | Total current assets                               |         |             | 234,220 |          |       
|Property and equipment:                      |                                                                                                                                     |                                                    |         |             |         |          |       
|                                             | Land                                                                                                                                |                                                    |         | 7,006       |         |          |      
|                                             | Geophysical equipment                                                                                                               |                                                    |         | 316,617     |         |          |      
|                                             | Data processing equipment                                                                                                           |                                                    |         | 93,865      |         |          | (120  
|                                             | Geophysical ship                                                                                                                    |                                                    |         | 8,331       |         |          |      
|                                             | Leasehold improvements and other                                                                                                    |                                                    |         | 66,820      |         |          | (315  
|                                             |                                                                                                                                     |                                                    |         |             |         |          |       
|                                             |                                                                                                                                     | Total                                              |         |             | 492,639 |          |       
|                                             | Less accumulated depreciation                                                                                                       |                                                    |         | 341,430     |         |          | 1,121 
|                                             |                                                                                                                                     |                                                    |         |             |         |          |       
|                                             |                                                                                                                                     | Property and equipment, net                        |         |             | 151,209 |          |       
|Multi-client data library                    |                                                                                                                                     |                                                    | 371,949 |             |         | 1,110    |       
|Investment in and advances to joint ventures |                                                                                                                                     |                                                    | 4,657   |             |         | (49      | )     
|Deferred tax asset, net                      |                                                                                                                                     |                                                    | 2,546   |             |         | (1,838   | )     
|Other assets                                 |                                                                                                                                     |                                                    | 23,781  |             |         | 3,519    |       
|                                             |                                                                                                                                     |                                                    |         |             |         |          |       
|                                             |                                                                                                                                     | Total                                              |         | $           | 788,362 |          | $     
|                                             |                                                                                                                                     |                                                    |         |             |         |          |       
|LIABILITIES AND STOCKHOLDERS' EQUITY         |                                                                                                                                     |                                                    |         |             |         |          |       
|Current liabilities:                         |                                                                                                                                     |                                                    |         |             |         |          |       
|                                             | Current portion of long-term debt                                                                                                   |                                                    | $       | 13,908      |         | $        |      
|                                             | Accounts payable, trade                                                                                                             |                                                    |         | 43,423      |         |          | (232  
|                                             | Accrued interest                                                                                                                    |                                                    |         | 551         |         |          |      
|                                             | Other accrued liabilities                                                                                                           |                                                    |         | 41,329      |         |          | 593   
|                                             |                                                                                                                                     |                                                    |         |             |         |          |       
|                                             |                                                                                                                                     | Total current liabilities                          |         |             | 99,211  |          |       
|Non-current liabilities:                     |                                                                                                                                     |                                                    |         |             |         |          |       
|                                             | Long-term debt                                                                                                                      |                                                    |         | 180,317     |         |          |      
|                                             | Other non-current liabilities                                                                                                       |                                                    |         | 18,701      |         |          | 4,838 
|                                             |                                                                                                                                     |                                                    |         |             |         |          |       
|                                             |                                                                                                                                     | Total non-current liabilities                      |         |             | 199,018 |          |       
|Stockholders' equity:                        |                                                                                                                                     |                                                    |         |             |         |          |       
|                                             | Common stock, $.01 par value; authorized: 40,000,000 shares; issued: 32,156,781 shares (excluding Exchangeable Shares of 1,443,411) |                                                    |         | 322         |         |          |      
|                                             | Additional paid-in capital                                                                                                          |                                                    |         | 428,402     |         |          |      
|                                             | Accumulated earnings (from August 1, 1991 with respect to Digicon, Inc.)                                                            |                                                    |         | 60,517      |         |          | (2,594
|                                             | Accumulated other comprehensive income:                                                                                             |                                                    |         |             |         |          |       
|                                             |                                                                                                                                     | Cumulative foreign currency translation adjustment |         |             | 3,518   |          |       
|                                             |                                                                                                                                     | Other comprehensive loss                           |         |             | (778    | )        |       
|Unearned compensation                        |                                                                                                                                     |                                                    | (340    | )           |         |         |       
|Treasury stock, at cost; 84,143 shares       |                                                                                                                                     |                                                    | (1,508  | )           |         |         |       
|                                             |                                                                                                                                     |                                                    |         |             |         |          |       
|                                             |                                                                                                                                     | Total stockholders' equity                         |         |             | 490,133 |          |       
|                                             |                                                                                                                                     |                                                    |         |             |         |          |       
|                                             |                                                                                                                                     | Total                                              |         | $           | 788,362 |          | $     
|                                             |                                                                                                                                     |                                                    |         |             |         |          |       

62

---





RESTATED        CONSOLIDATED STATEMENT OF CASH FLOWS        FOR THE YEAR ENDED JULY 31, 2003        (Dollars in thousands)

|                                            |                                               | As
Reported                                                  |                                             | Adjustments |          | Restated |    
|------------------------------------------- | --------------------------------------------- | ------------------------------------------------------------ | ------------------------------------------- | ----------- | -------- | -------- | ---
|Operating activities:                       |                                               |                                                              |                                             |             |          |          |    
|                                            | Net income (loss)                             |                                                              | $                                           | (59,924     | )        | $        | 827
|                                            | Non-cash items included in net income (loss): |                                                              |                                             |             |          |          |    
|                                            |                                               | Depreciation and amortization, net (other than multi-client) |                                             |             | 48,304   |          |    
|                                            |                                               | Amortization of multi-client library                         |                                             |             | 142,029  |          |    
|                                            |                                               | Impairment of multi-client library                           |                                             |             | 4,893    |          |    
|                                            |                                               | Impairment of goodwill                                       |                                             |             | 39,263   |          |    
|                                            |                                               | Loss on (RC)2 sale                                           |                                             |             | 7,627    |          |    
|                                            |                                               | Impairment of land acquisition equipment                     |                                             |             | 1,780    |          |    
|                                            |                                               | (Gain) loss on disposition of property and equipment         |                                             |             | (183     | )        |    
|                                            |                                               | Equity in loss of joint venture                              |                                             |             | 1,111    |          |    
|                                            |                                               | Provision for deferred taxes                                 |                                             |             | 16,831   |          |    
|                                            |                                               | Amortization of unearned compensation                        |                                             |             | 682      |          |    
|                                            | Change in operating assets/liabilities:       |                                                              |                                             |             |          |          |    
|                                            |                                               | Accounts and notes receivable                                |                                             |             | (1,378   | )        |    
|                                            |                                               | Materials and supplies inventory                             |                                             |             | 11,066   |          |    
|                                            |                                               | Prepayments and other                                        |                                             |             | 1,813    |          |    
|                                            |                                               | Current income tax                                           |                                             |             | 4,739    |          |    
|                                            |                                               | Accounts payable and other accrued liabilities               |                                             |             | (23,957  | )        |    
|                                            |                                               | Other non-current liabilities                                |                                             |             | 3,429    |          |    
|                                            |                                               | Other                                                        |                                             |             | 2,589    |          |    
|                                            |                                               |                                                              |                                             |             |          |          |    
|                                            |                                               |                                                              | Total cash provided by operating activities |             |          | 200,714  |    
|Investing activities:                       |                                               |                                                              |                                             |             |          |          |    
|                                            |                                               | Decrease (increase) in restricted cash investments           |                                             |             | (39      | )        |    
|                                            |                                               | Investment in multi-client library, net cash                 |                                             |             | (151,693 | )        |    
|                                            |                                               | Acquisitions, net of cash received                           |                                             |             | (9,547   | )        |    
|                                            |                                               | Purchase of property and equipment                           |                                             |             | (30,497  | )        |    
|                                            |                                               | Sale of property and equipment                               |                                             |             | 3,071    |          |    
|                                            |                                               |                                                              |                                             |             |          |          |    
|                                            |                                               |                                                              | Total cash used by investing activities     |             |          | (188,705 | )  
|Financing activities:                       |                                               |                                                              |                                             |             |          |          |    
|                                            |                                               | Borrowings of long-term debt, net of debt issue costs        |                                             |             | 308,236  |          |    
|                                            |                                               | Payments of long-term debt                                   |                                             |             | (261,275 | )        |    
|                                            |                                               | Proceeds from the sale of common stock                       |                                             |             | 2,601    |          |    
|                                            |                                               |                                                              |                                             |             |          |          |    
|                                            |                                               |                                                              | Total cash provided by financing activities |             |          | 49,562   |    
|Currency loss (gain) on foreign cash        |                                               |                                                              | 469                                         |             |          |         |    
|                                            |                                               |                                                              |                                             |             |          |          |    
|Change in cash and cash equivalents         |                                               |                                                              | 62,040                                      |             |          | 60       |    
|Beginning cash and cash equivalents balance |                                               |                                                              | 10,586                                      |             |          | (589     | )  
|                                            |                                               |                                                              |                                             |             |          |          |    
|Ending cash and cash equivalents balance    |                                               | $                                                            | 72,626                                      |             | $        | (529     | )  
|                                            |                                               |                                                              |                                             |             |          |          |    

63

---



SUPPLEMENTARY SCHEDULES TO CONSOLIDATED STATEMENTS OF CASH FLOWS        FOR THE YEAR ENDED JULY 31, 2003        (Dollars in thousands)

|                                                                                                      |                                                                                                                        | As
Reported       |                                        | Adjustments |       | Restated |  
|----------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------- | ----------------- | -------------------------------------- | ----------- | ----- | -------- | -
|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   | )
|                                                                                                      |                                                                                                                        |                   | Additional paid-in capital             |             |       | 4,437    |  
|Capitalization of depreciation and amortization resulting in an increase in multi-client data library |                                                                                                                        |                   | 24,360                                 |             |       | 81       |  
|Common stock issued for purchase of Hampson-Russell Software Services, Ltd.                           |                                                                                                                        |                   | 7,250                                  |             |       |         |  
|Common stock issued to employees                                                                      |                                                                                                                        |                   | 292                                    |             |       |         |  
|Supplemental disclosures of cash flow information:                                                    |                                                                                                                        |                   |                                        |             |       |          |  
|                                                                                                      | Cash paid for:                                                                                                         |                   |                                        |             |       |          |  
|                                                                                                      |                                                                                                                        | Interest:         |                                        |             |       |          |  
|                                                                                                      |                                                                                                                        |                   | Senior notes                           |             | $     | 11,899   |  
|                                                                                                      |                                                                                                                        |                   | Term notes                             |             |       | 6,289    |  
|                                                                                                      |                                                                                                                        |                   | Credit agreements                      |             |       | 1,485    |  
|                                                                                                      |                                                                                                                        |                   | Other                                  |             |       | 67       |  
|                                                                                                      |                                                                                                                        | Income taxes, net |                                        |             | 3,585 |          |  

64

---





RESTATED        CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)        FOR THE YEAR ENDED JULY 31, 2002        (In thousands, except per share amounts)

|                                                          |                                                                         | As
Reported |         | Adjustments |   | Restated |     
|--------------------------------------------------------- | ----------------------------------------------------------------------- | ----------- | ------- | ----------- | - | -------- | ----
|Revenues                                                  |                                                                         | $           | 455,683 |             | $ | (3,500   | )   
|Cost of services                                          |                                                                         |             | 351,733 |             |   | (3,867   | )   
|Research and development                                  |                                                                         |             | 11,475  |             |   |         |     
|General and administrative                                |                                                                         |             | 23,763  |             |   |         |     
|Merger costs                                              |                                                                         |             | 14,607  |             |   |         |     
|Impairment of multi-client surveys                        |                                                                         |             | 55,204  |             |   | 101      |     
|                                                          |                                                                         |             |         |             |   |          |     
|Operating income (loss)                                   |                                                                         |             | (1,099  | )           |   | 266      |     
|Interest expense                                          |                                                                         |             | 13,628  |             |   |         |     
|Other expense, net                                        |                                                                         |             | 3,231   |             |   | 1,127    |     
|                                                          |                                                                         |             |         |             |   |          |     
|Income (loss) before provision for income taxes           |                                                                         |             | (17,958 | )           |   | (861     | )   
|Provision for income taxes                                |                                                                         |             | 5,192   |             |   | 40       |     
|                                                          |                                                                         |             |         |             |   |          |     
|Net loss                                                  |                                                                         | $           | (23,150 | )           | $ | (901     | )   
|                                                          |                                                                         |             |         |             |   |          |     
|Net income (loss), per share:                             |                                                                         |             |         |             |   |          |     
|Basic:                                                    |                                                                         |             |         |             |   |          |     
|                                                          | Weighted average common shares                                          |             |         | 32,409      |   |          |    
|                                                          | Loss per common share                                                   |             | $       | (.71        | ) | $        | (.03
|Diluted:                                                  |                                                                         |             |         |             |   |          |     
|                                                          | Weighted average common shares                                          |             |         | 32,409      |   |          |    
|                                                          | Loss per common share                                                   |             | $       | (.71        | ) | $        | (.03
|Comprehensive income (loss)                               |                                                                         |             |         |             |   |          |     
|Net loss                                                  |                                                                         | $           | (23,150 | )           | $ | (901     | )   
|Other comprehensive loss (net of tax, $0 in all periods): |                                                                         |             |         |             |   |          |     
|                                                          | Foreign currency translation adjustments                                |             |         | (1,867      | ) |          |    
|                                                          | Unrealized loss on investments-available for sale                       |             |         | (1,354      | ) |          |    
|                                                          | Unrealized gain on investments-available for sale recognized as expense |             |         | 1,368       |   |          |    
|                                                          | Unrealized gain on hedge transaction                                    |             |         | 1,215       |   |          |    
|                                                          |                                                                         |             |         |             |   |          |     
|Total other comprehensive loss                            |                                                                         |             | (638    | )           |   |         |     
|                                                          |                                                                         |             |         |             |   |          |     
|Comprehensive loss                                        |                                                                         | $           | (23,788 | )           | $ | (901     | )   
|                                                          |                                                                         |             |         |             |   |          |     

65

---



RESTATED        CONSOLIDATED STATEMENTS OF CASH FLOWS        FOR THE YEAR ENDED JULY 31, 2002        (Dollars in thousands)

|                                            |                                               | As
Reported                                                                    |                                             | Adjustments |          | Restated |     
|------------------------------------------- | --------------------------------------------- | ------------------------------------------------------------------------------ | ------------------------------------------- | ----------- | -------- | -------- | ----
|Operating activities:                       |                                               |                                                                                |                                             |             |          |          |     
|                                            | Net income (loss)                             |                                                                                | $                                           | (23,150     | )        | $        | (901
|                                            | Non-cash items included in net income (loss): |                                                                                |                                             |             |          |          |     
|                                            |                                               | Depreciation and amortization, net (other than multi-client)                   |                                             |             | 68,341   |          |     
|                                            |                                               | Depreciation and amortization capitalized to multi-client library and software |                                             |             | (29,244  | )        |     
|                                            |                                               | Amortization of multi-client library                                           |                                             |             | 115,287  |          |     
|                                            |                                               | Impairment of multi-client library                                             |                                             |             | 55,204   |          |     
|                                            |                                               | (Gain) / loss on disposition of property and equipment                         |                                             |             | (1,445   | )        |     
|                                            |                                               | Loss on investment in Miller Exploration Company                               |                                             |             | 1,369    |          |     
|                                            |                                               | Equity in (earnings) loss of joint venture                                     |                                             |             | (181     | )        |     
|                                            |                                               | Provision for deferred taxes                                                   |                                             |             | 6,242    |          |     
|                                            |                                               | Amortization of unearned compensation                                          |                                             |             | 654      |          |     
|                                            | Change in operating assets/liabilities:       |                                                                                |                                             |             |          |          |     
|                                            |                                               | Accounts and notes receivable                                                  |                                             |             | 12,608   |          |     
|                                            |                                               | Materials and supplies inventory                                               |                                             |             | (6,039   | )        |     
|                                            |                                               | Prepayments and other                                                          |                                             |             | (120     | )        |     
|                                            |                                               | Income tax receivable                                                          |                                             |             | (11,032  | )        |     
|                                            |                                               | Accounts payable and other accrued liabilities                                 |                                             |             | (4,169   | )        |     
|                                            |                                               | Other non-current liabilities                                                  |                                             |             | 154      |          |     
|                                            |                                               | Other                                                                          |                                             |             | 793      |          |     
|                                            |                                               |                                                                                |                                             |             |          |          |     
|                                            |                                               |                                                                                | Total cash provided by operating activities |             |          | 185,272  |     
|Investing activities:                       |                                               |                                                                                |                                             |             |          |          |     
|                                            |                                               | Decrease (increase) in restricted cash investments                             |                                             |             | (166     | )        |     
|                                            |                                               | Investment in multi-client library, net cash                                   |                                             |             | (169,039 | )        |     
|                                            |                                               | Purchase of property and equipment                                             |                                             |             | (87,096  | )        |     
|                                            |                                               | Sale of property and equipment                                                 |                                             |             | 4,980    |          |     
|                                            |                                               |                                                                                |                                             |             |          |          |     
|                                            |                                               |                                                                                | Total cash used by investing activities     |             |          | (251,321 | )   
|Financing activities:                       |                                               |                                                                                |                                             |             |          |          |     
|                                            |                                               | Net long-term debt borrowings                                                  |                                             |             | 5,000    |          |     
|                                            |                                               | Proceeds from the sale of common stock                                         |                                             |             | 2,622    |          |     
|                                            |                                               |                                                                                |                                             |             |          |          |     
|                                            |                                               |                                                                                | Total cash provided by financing activities |             |          | 7,622    |     
|Currency loss (gain) on foreign cash        |                                               |                                                                                | (205                                        | )           |          |         |     
|                                            |                                               |                                                                                |                                             |             |          |          |     
|Change in cash and cash equivalents         |                                               |                                                                                | (58,632                                     | )           |          | (396     | )   
|Beginning cash and cash equivalents balance |                                               |                                                                                | 69,218                                      |             |          | (193     | )   
|                                            |                                               |                                                                                |                                             |             |          |          |     
|Ending cash and cash equivalents balance    |                                               | $                                                                              | 10,586                                      |             | $        | (589     | )   
|                                            |                                               |                                                                                |                                             |             |          |          |     

66

---





SUPPLEMENTARY SCHEDULES TO CONSOLIDATED STATEMENTS OF CASH FLOWS        FOR THE YEAR ENDED JULY 31, 2002        (Dollars in thousands)

|                                                   |                                                                                                                        | As
Reported  |                                        | Adjustments |        | Restated |  
|-------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------- | ------------ | -------------------------------------- | ----------- | ------ | -------- | -
|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 |             | $      | (1,111   | )
|                                                   |                                                                                                                        |              | Additional paid-in capital             |             |        | 1,111    |  
|                                                   | Tax deduction due to exercise of stock options resulting in an increase in:                                            |              |                                        |             |        |          |  
|                                                   |                                                                                                                        |              | Deferred tax asset                     |             |        | 2,379    |  
|                                                   |                                                                                                                        |              | Additional paid-in capital             |             |        | 2,379    |  
|                                                   | Capitalization of depreciation and amortization resulting in an increase in:                                           |              |                                        |             |        |          |  
|                                                   |                                                                                                                        |              | Multi-client data library              |             |        | 29,025   |  
|                                                   |                                                                                                                        |              | Other assets                           |             |        | 219      |  
|Common stock issued to employees                   |                                                                                                                        |              | 250                                    |             |        |         |  
|Supplemental disclosures of cash flow information: |                                                                                                                        |              |                                        |             |        |          |  
|                                                   | Cash paid for:                                                                                                         |              |                                        |             |        |          |  
|                                                   |                                                                                                                        | Interest:    |                                        |             |        |          |  
|                                                   |                                                                                                                        |              | Senior notes                           |             | $      | 13,163   |  
|                                                   |                                                                                                                        |              | Credit agreements                      |             |        | 202      |  
|                                                   |                                                                                                                        |              | Other                                  |             |        | 134      |  
|                                                   |                                                                                                                        | Income taxes |                                        |             | 10,851 |          |  

67

---



17.   Selected Quarterly Financial Data (Unaudited)

|                                           |  | For the Year Ended July 31, 2004
|------------------------------------------ |  | --------------------------------
|
|
|Revenues                                   |  | $                               
|Net income (loss)                          |  |                                 
|Net income (loss) per common sharebasic   |  |                                 
|Net income (loss) per common sharediluted |  |                                 



|                                                     |  | For the Year Ended July 31, 2003
Restated |        
|---------------------------------------------------- |  | ----------------------------------------- | -------
|
|
|Revenues                                             |  | $                                         | 135,493
|Net income (loss)                                    |  |                                           | 1,361  
|Net income (loss) per common sharebasic and diluted |  |                                           | .04    

---

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.

68

---



18.   Restatement of Quarterly Financial Data (Unaudited)

The following is a summary of the effect of the restatement adjustments, as described in Notes 1 and 16, on our previously reported quarterly net income, earnings
per share and total assets:

|                                         |                                       | Increase / (Decrease) from Previously Reported Amounts for the Quarterly Periods |        
|---------------------------------------- | ------------------------------------- | -------------------------------------------------------------------------------- | -------
|
|
|
|Net income (loss) as previously reported |                                       | $                                                                                | 10,169 
|Pretax adjustments resulting from:       |                                       |                                                                                  |        
|                                         | The balance sheet review              |                                                                                  |        
|                                         | The contract review                   |                                                                                  |        
|                                         |                                       |                                                                                  |        
|Total pretax adjustments                 |                                       |                                                                                  | (157   
|                                         | Tax effect of restatement adjustments |                                                                                  |        
|                                         |                                       |                                                                                  |        
|                                         | Total net adjustments                 |                                                                                  |        
|                                         |                                       |                                                                                  |        
|Net income (loss) restated               |                                       | $                                                                                | 10,064 
|                                         |                                       |                                                                                  |        
|Income (loss) per common sharediluted:  |                                       |                                                                                  |        
|As reported                              |                                       | $                                                                                | .29    
|                                         |                                       | Effect of net adjustments                                                        |        
|                                         |                                       |                                                                                  |        
|As restated                              |                                       | $                                                                                | .29    
|                                         |                                       |                                                                                  |        
|Total assets as reported                 |                                       | $                                                                                | 763,316
|                                         | Effect of net adjustments             |                                                                                  |        
|                                         |                                       |                                                                                  |        
|Total assets as adjusted                 |                                       | $                                                                                | 765,012
|                                         |                                       |                                                                                  |        

69

---





The following are restated financial statements for each period compared to the amounts previously reported on Form 10-Q:

RESTATED        CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)        (UNAUDITED)        (In thousands, except per share amounts)

|                                                                   |                                                                | Three Months Ended April 30, 2004 |         | Nine Months Ended April 30, 2004 |  
|------------------------------------------------------------------ | -------------------------------------------------------------- | --------------------------------- | ------- | -------------------------------- | -
|
|Statement of Operations:                                           |                                                                |                                   |         |                                  |  
|Revenues                                                           |                                                                | $                                 | 176,547 |                                  | $
|Cost of services                                                   |                                                                |                                   | 143,487 |                                  |  
|Research and development                                           |                                                                |                                   | 4,118   |                                  |  
|General and administrative                                         |                                                                |                                   | 7,217   |                                  |  
|                                                                   |                                                                |                                   |         |                                  |  
|Operating income (loss)                                            |                                                                |                                   | 21,725  |                                  |  
|Interest expense                                                   |                                                                |                                   | 8,874   |                                  |  
|Other income, net                                                  |                                                                |                                   | (439    | )                                |  
|                                                                   |                                                                |                                   |         |                                  |  
|Income (loss) before provision for income taxes                    |                                                                |                                   | 13,290  |                                  |  
|Income taxes                                                       |                                                                |                                   | 3,121   |                                  |  
|                                                                   |                                                                |                                   |         |                                  |  
|Net income (loss)                                                  |                                                                | $                                 | 10,169  |                                  | $
|                                                                   |                                                                |                                   |         |                                  |  
|Net income (loss), per share:                                      |                                                                |                                   |         |                                  |  
|Basic:                                                             |                                                                |                                   |         |                                  |  
|                                                                   | Income (loss) per common share                                 |                                   | $       | .30                              |  
|                                                                   | Weighted average common shares (including exchangeable shares) |                                   |         | 33,455                           |  
|Diluted:                                                           |                                                                |                                   |         |                                  |  
|                                                                   | Income (loss) per common share                                 |                                   | $       | .29                              |  
|                                                                   | Weighted average common shares (including exchangeable shares) |                                   |         | 34,641                           |  
|Comprehensive income (loss):                                       |                                                                |                                   |         |                                  |  
|Net income (loss)                                                  |                                                                | $                                 | 10,169  |                                  | $
|Other comprehensive income (loss) (net of tax, $0 in all periods): |                                                                |                                   |         |                                  |  
|                                                                   | Foreign currency translation adjustments                       |                                   |         | (3,541                           | )
|                                                                   | Other unrealized gain (loss)                                   |                                   |         | 19                               |  
|                                                                   |                                                                |                                   |         |                                  |  
|Total other comprehensive income (loss)                            |                                                                |                                   | (3,522  | )                                |  
|                                                                   |                                                                |                                   |         |                                  |  
|Comprehensive income (loss)                                        |                                                                | $                                 | 6,647   |                                  | $
|                                                                   |                                                                |                                   |         |                                  |  

70

---



RESTATED        CONSOLIDATED BALANCE SHEET        AS OF APRIL 30, 2004        (UNAUDITED)        (Dollars in thousands, except par value)

|                                          |                                                                                                                                                                         | As
Reported                                        |                               | Adjustments |         | Restated |       
|----------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------- | ----------------------------- | ----------- | ------- | -------- | ------
|ASSETS                                    |                                                                                                                                                                         |                                                    |                               |             |         |          |       
|Current assets:                           |                                                                                                                                                                         |                                                    |                               |             |         |          |       
|                                          | Cash and cash equivalents                                                                                                                                               |                                                    | $                             | 87,265      |         | $        | (747  
|                                          | Restricted cash investments                                                                                                                                             |                                                    |                               | 111         |         |          |      
|                                          | Accounts and notes receivable (net of allowance of $1,068)                                                                                                              |                                                    |                               | 172,714     |         |          | (977  
|                                          | Materials and supplies inventory                                                                                                                                        |                                                    |                               | 3,245       |         |          | (42   
|                                          | Prepayments and other                                                                                                                                                   |                                                    |                               | 12,279      |         |          | 628   
|                                          | Income taxes receivable                                                                                                                                                 |                                                    |                               | 8,151       |         |          | 2,248 
|                                          |                                                                                                                                                                         |                                                    |                               |             |         |          |       
|                                          |                                                                                                                                                                         |                                                    | Total current assets          |             |         | 283,765  |       
|                                          | Property and equipment                                                                                                                                                  |                                                    |                               | 491,013     |         |          | (652  
|                                          | Less accumulated depreciation                                                                                                                                           |                                                    |                               | 364,295     |         |          | 1,153 
|                                          |                                                                                                                                                                         |                                                    |                               |             |         |          |       
|                                          |                                                                                                                                                                         | Property and equipment, net                        |                               |             | 126,718 |          |       
|                                          | Multi-client data library                                                                                                                                               |                                                    |                               | 324,825     |         |          | 696   
|                                          | Deferred tax asset                                                                                                                                                      |                                                    |                               | 1,755       |         |          | (1,755
|                                          | Other assets                                                                                                                                                            |                                                    |                               | 26,253      |         |          | 3,450 
|                                          |                                                                                                                                                                         |                                                    |                               |             |         |          |       
|                                          |                                                                                                                                                                         |                                                    | Total                         |             | $       | 763,316  |       
|                                          |                                                                                                                                                                         |                                                    |                               |             |         |          |       
|LIABILITIES AND STOCKHOLDERS' EQUITY      |                                                                                                                                                                         |                                                    |                               |             |         |          |       
|Current liabilities:                      |                                                                                                                                                                         |                                                    |                               |             |         |          |       
|                                          | Current portion of long-term debt                                                                                                                                       |                                                    | $                             | 444         |         | $        |      
|                                          | Trade accounts payable                                                                                                                                                  |                                                    |                               | 35,945      |         |          | (266  
|                                          | Other accrued liabilities                                                                                                                                               |                                                    |                               | 46,664      |         |          | 1,021 
|                                          |                                                                                                                                                                         |                                                    |                               |             |         |          |       
|                                          |                                                                                                                                                                         |                                                    | Total current liabilities     |             |         | 83,053   |       
|Non-current liabilities:                  |                                                                                                                                                                         |                                                    |                               |             |         |          |       
|                                          | Long-term debt                                                                                                                                                          |                                                    |                               | 181,543     |         |          |      
|                                          | Other non-current liabilities                                                                                                                                           |                                                    |                               | 19,085      |         |          | 4,966 
|                                          |                                                                                                                                                                         |                                                    |                               |             |         |          |       
|                                          |                                                                                                                                                                         |                                                    | Total non-current liabilities |             |         | 200,628  |       
|Stockholders' equity:                     |                                                                                                                                                                         |                                                    |                               |             |         |          |       
|                                          | Common stock, $.01 par value; authorized: 78,500,000 shares; issued: 33,824,509 shares (excluding common stock equivalent exchangeable shares of subsidiary of 851,931) |                                                    |                               | 338         |         |          |      
|                                          | Additional paid-in capital                                                                                                                                              |                                                    |                               | 438,426     |         |          |      
|                                          | Accumulated earnings (from August 1, 1991 with respect to Digicon Inc.)                                                                                                 |                                                    |                               | 58,578      |         |          | (3,982
|                                          | Accumulated other comprehensive income (loss):                                                                                                                          |                                                    |                               |             |         |          |       
|                                          |                                                                                                                                                                         | Cumulative foreign currency translation adjustment |                               |             | 5,912   |          |       
|                                          |                                                                                                                                                                         | Other comprehensive loss                           |                               |             | (1,363  | )        |       
|Unearned compensation                     |                                                                                                                                                                         |                                                    | (632                          | )           |         |         |       
|Treasury stock, at cost; 1,317,314 shares |                                                                                                                                                                         |                                                    | (21,624                       | )           |         |         |       
|                                          |                                                                                                                                                                         |                                                    |                               |             |         |          |       
|                                          |                                                                                                                                                                         |                                                    | Total stockholders' equity    |             |         | 479,635  |       
|                                          |                                                                                                                                                                         |                                                    |                               |             |         |          |       
|                                          |                                                                                                                                                                         |                                                    | Total                         |             | $       | 763,316  |       
|                                          |                                                                                                                                                                         |                                                    |                               |             |         |          |       

71

---





RESTATED        CONSOLIDATED STATEMENTS OF CASH FLOWS        FOR THE NINE MONTHS ENDED APRIL 30, 2004        (UNAUDITED)        (Dollars in thousands)

|                                                                                                      |                                               | As
Reported                                                  |                                             | Adjustments |         | Restated |       
|----------------------------------------------------------------------------------------------------- | --------------------------------------------- | ------------------------------------------------------------ | ------------------------------------------- | ----------- | ------- | -------- | ------
|Cash flows from operating activities:                                                                 |                                               |                                                              |                                             |             |         |          |       
|                                                                                                      | Net income (loss)                             |                                                              | $                                           | (1,939      | )       | $        | (1,388
|                                                                                                      | Non-cash items included in net income (loss): |                                                              |                                             |             |         |          |       
|                                                                                                      |                                               | Depreciation and amortization, net (other than multi-client) |                                             |             | 31,655  |          |       
|                                                                                                      |                                               | Amortization of multi-client library                         |                                             |             | 163,390 |          |       
|                                                                                                      |                                               | (Gain) / loss on disposition of property and equipment       |                                             |             | 137     |          |       
|                                                                                                      |                                               | Equity in loss of joint venture                              |                                             |             | 958     |          |       
|                                                                                                      |                                               | Deferred taxes                                               |                                             |             | 782     |          |       
|                                                                                                      |                                               | Amortization of unearned compensation                        |                                             |             | 311     |          |       
|                                                                                                      | Change in operating assets/liabilities:       |                                                              |                                             |             |         |          |       
|                                                                                                      |                                               | Accounts and notes receivable                                |                                             |             | (39,730 | )        |       
|                                                                                                      |                                               | Materials and supplies inventory                             |                                             |             | 1,802   |          |       
|                                                                                                      |                                               | Prepayments and other                                        |                                             |             | 603     |          |       
|                                                                                                      |                                               | Income tax receivable                                        |                                             |             | 4,328   |          |       
|                                                                                                      |                                               | Accounts payable and other accrued liabilities               |                                             |             | (3,815  | )        |       
|                                                                                                      |                                               | Other                                                        |                                             |             | (6,126  | )        |       
|                                                                                                      |                                               |                                                              |                                             |             |         |          |       
|                                                                                                      |                                               |                                                              | Total cash provided by operating activities |             |         | 152,356  |       
|Cash flows from investing activities:                                                                 |                                               |                                                              |                                             |             |         |          |       
|                                                                                                      |                                               | Decrease (increase) in restricted cash investments           |                                             |             | 94      |          |       
|                                                                                                      |                                               | Investment in multi-client library, net cash                 |                                             |             | (97,333 | )        |       
|                                                                                                      |                                               | Purchase of property and equipment                           |                                             |             | (20,652 | )        |       
|                                                                                                      |                                               | Sale of property and equipment                               |                                             |             | 1,225   |          |       
|                                                                                                      |                                               | Sale of (RC)2 software operating                             |                                             |             | 2,000   |          |       
|                                                                                                      |                                               |                                                              |                                             |             |         |          |       
|                                                                                                      |                                               |                                                              | Total cash used by investing activities     |             |         | (114,666 | )     
|Cash flows from financing activities:                                                                 |                                               |                                                              |                                             |             |         |          |       
|Borrowing of long-term debt                                                                           |                                               |                                                              | 155,000                                     |             |         |         |       
|Payments on long-term debt                                                                            |                                               |                                                              | (167,238                                    | )           |         |         |       
|Net proceeds from the sale of common stock                                                            |                                               |                                                              | 9,119                                       |             |         |         |       
|Purchase of treasury stock                                                                            |                                               |                                                              | (20,000                                     | )           |         |         |       
|                                                                                                      |                                               |                                                              |                                             |             |         |          |       
|                                                                                                      |                                               |                                                              | Total cash provided by financing activities |             |         | (23,119  | )     
|Currency loss (gain) on foreign cash                                                                  |                                               |                                                              | 68                                          |             |         |         |       
|                                                                                                      |                                               |                                                              |                                             |             |         |          |       
|Change in cash and cash equivalents                                                                   |                                               |                                                              | 14,639                                      |             |         | (218     | )     
|Beginning cash and cash equivalents balance                                                           |                                               |                                                              | 72,626                                      |             |         | (529     | )     
|                                                                                                      |                                               |                                                              |                                             |             |         |          |       
|Ending cash and cash equivalents balance                                                              |                                               | $                                                            | 87,265                                      |             | $       | (747     | )     
|                                                                                                      |                                               |                                                              |                                             |             |         |          |       
|Schedule of non-cash transactions:                                                                    |                                               |                                                              |                                             |             |         |          |       
|Capitalization of depreciation and amortization resulting in an increase in multi-client data library |                                               | $                                                            | 14,380                                      |             | $       |         |       
|                                                                                                      |                                               |                                                              |                                             |             |         |          |       

72

---



RESTATED        CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)        (UNAUDITED)        (In thousands, except per share amounts)

|                                                                   |                                                                | Three Months Ended January 31, 2004 |         | Six Months Ended January 31, 2004 |  
|------------------------------------------------------------------ | -------------------------------------------------------------- | ----------------------------------- | ------- | --------------------------------- | -
|
|Statement of Operations:                                           |                                                                |                                     |         |                                   |  
|Revenues                                                           |                                                                | $                                   | 147,770 |                                   | $
|Cost of services                                                   |                                                                |                                     | 114,988 |                                   |  
|Research and development                                           |                                                                |                                     | 3,695   |                                   |  
|General and administrative                                         |                                                                |                                     | 6,383   |                                   |  
|                                                                   |                                                                |                                     |         |                                   |  
|Operating income (loss)                                            |                                                                |                                     | 22,704  |                                   |  
|Interest expense                                                   |                                                                |                                     | 4,197   |                                   |  
|Other (income) expense, net                                        |                                                                |                                     | (370    | )                                 |  
|                                                                   |                                                                |                                     |         |                                   |  
|Income (loss) before provision for income taxes                    |                                                                |                                     | 18,877  |                                   |  
|Income taxes                                                       |                                                                |                                     | 4,638   |                                   |  
|                                                                   |                                                                |                                     |         |                                   |  
|Net income (loss)                                                  |                                                                | $                                   | 14,239  |                                   | $
|                                                                   |                                                                |                                     |         |                                   |  
|Net income (loss), per share:                                      |                                                                |                                     |         |                                   |  
|Basic:                                                             |                                                                |                                     |         |                                   |  
|                                                                   | Income (loss) per common share                                 |                                     | $       | .42                               |  
|                                                                   | Weighted average common shares (including exchangeable shares) |                                     |         | 33,745                            |  
|Diluted:                                                           |                                                                |                                     |         |                                   |  
|                                                                   | Income (loss) per common share                                 |                                     | $       | .42                               |  
|                                                                   | Weighted average common shares (including exchangeable shares) |                                     |         | 34,003                            |  
|Comprehensive income (loss):                                       |                                                                |                                     |         |                                   |  
|Net income (loss)                                                  |                                                                | $                                   | 14,239  |                                   | $
|Other comprehensive income (loss) (net of tax, $0 in all periods): |                                                                |                                     |         |                                   |  
|                                                                   | Foreign currency translation adjustments                       |                                     |         | 570                               |  
|                                                                   | Other unrealized gain (loss)                                   |                                     |         | (691                              | )
|                                                                   |                                                                |                                     |         |                                   |  
|Total other comprehensive income (loss)                            |                                                                |                                     | (121    | )                                 |  
|                                                                   |                                                                |                                     |         |                                   |  
|Comprehensive income (loss)                                        |                                                                | $                                   | 14,118  |                                   | $
|                                                                   |                                                                |                                     |         |                                   |  

73

---





RESTATED        CONSOLIDATED BALANCE SHEET        AS OF JANUARY 31, 2004        (UNAUDITED)        (Dollars in thousands, except par value)

|                                            |                                                                                                                                                                           | As
Reported                                        |                               | Adjustments |         | Restated |       
|------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------- | ----------------------------- | ----------- | ------- | -------- | ------
|ASSETS                                      |                                                                                                                                                                           |                                                    |                               |             |         |          |       
|Current assets:                             |                                                                                                                                                                           |                                                    |                               |             |         |          |       
|                                            | Cash and cash equivalents                                                                                                                                                 |                                                    | $                             | 69,520      |         | $        | (611  
|                                            | Restricted cash investments                                                                                                                                               |                                                    |                               | 15          |         |          |      
|                                            | Accounts and notes receivable (net of allowance of $1,059)                                                                                                                |                                                    |                               | 172,243     |         |          | (547  
|                                            | Materials and supplies inventory                                                                                                                                          |                                                    |                               | 4,056       |         |          | (40   
|                                            | Prepayments and other                                                                                                                                                     |                                                    |                               | 13,303      |         |          | 2,913 
|                                            | Income taxes receivable                                                                                                                                                   |                                                    |                               | 11,280      |         |          | 1,964 
|                                            |                                                                                                                                                                           |                                                    |                               |             |         |          |       
|                                            |                                                                                                                                                                           |                                                    | Total current assets          |             |         | 270,417  |       
|Property and equipment                      |                                                                                                                                                                           |                                                    | 488,781                       |             |         | (626     | )     
|Less accumulated depreciation               |                                                                                                                                                                           |                                                    | 352,912                       |             |         | 1,142    |       
|                                            |                                                                                                                                                                           |                                                    |                               |             |         |          |       
|                                            |                                                                                                                                                                           | Property and equipment, net                        |                               |             | 135,869 |          |       
|Multi-client data library                   |                                                                                                                                                                           |                                                    | 350,071                       |             |         | 1,417    |       
|Investment in and advances to joint venture |                                                                                                                                                                           |                                                    | 3,483                         |             |         | (49      | )     
|Deferred tax asset                          |                                                                                                                                                                           |                                                    | 1,967                         |             |         | (1,838   | )     
|Other assets                                |                                                                                                                                                                           |                                                    | 24,678                        |             |         | 4,474    |       
|                                            |                                                                                                                                                                           |                                                    |                               |             |         |          |       
|                                            |                                                                                                                                                                           |                                                    | Total                         |             | $       | 786,485  |       
|                                            |                                                                                                                                                                           |                                                    |                               |             |         |          |       
|LIABILITIES AND STOCKHOLDERS' EQUITY        |                                                                                                                                                                           |                                                    |                               |             |         |          |       
|Current liabilities:                        |                                                                                                                                                                           |                                                    |                               |             |         |          |       
|                                            | Current portion of long-term debt                                                                                                                                         |                                                    | $                             | 1,425       |         | $        |      
|                                            | Trade accounts payable                                                                                                                                                    |                                                    |                               | 36,341      |         |          | (253  
|                                            | Other accrued liabilities                                                                                                                                                 |                                                    |                               | 64,606      |         |          | 4,018 
|                                            |                                                                                                                                                                           |                                                    |                               |             |         |          |       
|                                            |                                                                                                                                                                           |                                                    | Total current liabilities     |             |         | 102,372  |       
|Non-current liabilities:                    |                                                                                                                                                                           |                                                    |                               |             |         |          |       
|                                            | Long-term debt                                                                                                                                                            |                                                    |                               | 179,698     |         |          |      
|                                            | Other non-current liabilities                                                                                                                                             |                                                    |                               | 19,089      |         |          | 5,957 
|                                            |                                                                                                                                                                           |                                                    |                               |             |         |          |       
|                                            |                                                                                                                                                                           |                                                    | Total non-current liabilities |             |         | 198,787  |       
|Stockholders' equity:                       |                                                                                                                                                                           |                                                    |                               |             |         |          |       
|                                            | Common stock, $.01 par value; authorized: 78,500,000 shares, issued: 32,487,609 shares (excluding common stock equivalent exchangeable shares of subsidiary of 1,422,711) |                                                    |                               | 324         |         |          |      
|                                            | Additional paid-in capital                                                                                                                                                |                                                    |                               | 430,697     |         |          |      
|                                            | Accumulated earnings (from August 1, 1991 with respect to Digicon Inc.)                                                                                                   |                                                    |                               | 48,409      |         |          | (3,877
|                                            | Accumulated other comprehensive income (loss):                                                                                                                            |                                                    |                               |             |         |          |       
|                                            |                                                                                                                                                                           | Cumulative foreign currency translation adjustment |                               |             | 9,453   |          |       
|                                            |                                                                                                                                                                           | Other comprehensive loss                           |                               |             | (1,382  | )        |       
|Unearned compensation                       |                                                                                                                                                                           |                                                    | (626                          | )           |         |         |       
|Treasury stock, at cost; 89,136 shares      |                                                                                                                                                                           |                                                    | (1,549                        | )           |         |         |       
|                                            |                                                                                                                                                                           |                                                    |                               |             |         |          |       
|                                            |                                                                                                                                                                           |                                                    | Total stockholders' equity    |             |         | 485,326  |       
|                                            |                                                                                                                                                                           |                                                    |                               |             |         |          |       
|                                            |                                                                                                                                                                           |                                                    | Total                         |             | $       | 786,485  |       
|                                            |                                                                                                                                                                           |                                                    |                               |             |         |          |       

74

---



RESTATED        CONSOLIDATED STATEMENTS OF CASH FLOWS        FOR THE SIX MONTHS ENDED JANUARY 31, 2004        (UNAUDITED)        (Dollars in thousands)

|                                                                                                      |                                               | As
Reported                                                  |                                           | Adjustments |         | Restated |       
|----------------------------------------------------------------------------------------------------- | --------------------------------------------- | ------------------------------------------------------------ | ----------------------------------------- | ----------- | ------- | -------- | ------
|Cash flows from operating activities:                                                                 |                                               |                                                              |                                           |             |         |          |       
|                                                                                                      | Net income (loss)                             |                                                              | $                                         | (12,108     | )       | $        | (1,283
|                                                                                                      | Non-cash items included in net income (loss): |                                                              |                                           |             |         |          |       
|                                                                                                      |                                               | Depreciation and amortization, net (other than multi-client) |                                           |             | 19,869  |          |       
|                                                                                                      |                                               | Amortization of multi-client library                         |                                           |             | 105,731 |          |       
|                                                                                                      |                                               | Loss on disposition of property and equipment                |                                           |             | 480     |          |       
|                                                                                                      |                                               | Equity in loss of joint venture                              |                                           |             | 613     |          |       
|                                                                                                      |                                               | Deferred taxes                                               |                                           |             | 717     |          |       
|                                                                                                      |                                               | Amortization of unearned compensation                        |                                           |             | 240     |          |       
|                                                                                                      | Change in operating assets/liabilities:       |                                                              |                                           |             |         |          |       
|                                                                                                      |                                               | Accounts and notes receivable                                |                                           |             | (39,205 | )        |       
|                                                                                                      |                                               | Materials and supplies inventory                             |                                           |             | 993     |          |       
|                                                                                                      |                                               | Prepayments and other                                        |                                           |             | (462    | )        |       
|                                                                                                      |                                               | Income tax receivable                                        |                                           |             | 1,360   |          |       
|                                                                                                      |                                               | Accounts payable and other accrued liabilities               |                                           |             | 14,467  |          |       
|                                                                                                      |                                               | Other                                                        |                                           |             | (3,693  | )        |       
|                                                                                                      |                                               |                                                              |                                           |             |         |          |       
|                                                                                                      |                                               |                                                              | Net cash provided by operating activities |             |         | 89,002   |       
|Cash flows from investing activities:                                                                 |                                               |                                                              |                                           |             |         |          |       
|                                                                                                      |                                               | Decrease in restricted cash investments                      |                                           |             | 190     |          |       
|                                                                                                      |                                               | Investment in multi-client library, net cash                 |                                           |             | (70,315 | )        |       
|                                                                                                      |                                               | Purchase of property and equipment                           |                                           |             | (13,557 | )        |       
|                                                                                                      |                                               | Sale of property and equipment                               |                                           |             | 655     |          |       
|                                                                                                      |                                               | Sale of (RC)2 software operation                             |                                           |             | 2,000   |          |       
|                                                                                                      |                                               |                                                              |                                           |             |         |          |       
|                                                                                                      |                                               |                                                              | Total cash used by investing activities   |             |         | (81,027  | )     
|Cash flows from financing activities:                                                                 |                                               |                                                              |                                           |             |         |          |       
|                                                                                                      |                                               | Payments on long-term debt                                   |                                           |             | (13,102 | )        |       
|                                                                                                      |                                               | Net proceeds from the sale of common stock                   |                                           |             | 1,524   |          |       
|                                                                                                      |                                               |                                                              |                                           |             |         |          |       
|                                                                                                      |                                               |                                                              | Total cash used by financing activities   |             |         | (11,578  | )     
|Currency loss on foreign cash                                                                         |                                               |                                                              | 497                                       |             |         |         |       
|                                                                                                      |                                               |                                                              |                                           |             |         |          |       
|Change in cash and cash equivalents                                                                   |                                               |                                                              | (3,106                                    | )           |         | (82      | )     
|Beginning cash and cash equivalents balance                                                           |                                               |                                                              | 72,626                                    |             |         | (529     | )     
|                                                                                                      |                                               |                                                              |                                           |             |         |          |       
|Ending cash and cash equivalents balance                                                              |                                               | $                                                            | 69,520                                    |             | $       | (611     | )     
|                                                                                                      |                                               |                                                              |                                           |             |         |          |       
|Schedule of non-cash transactions:                                                                    |                                               |                                                              |                                           |             |         |          |       
|Capitalization of depreciation and amortization resulting in an increase in multi-client data library |                                               | $                                                            | 9,915                                     |             | $       |         |       
|                                                                                                      |                                               |                                                              |                                           |             |         |          |       

75

---





RESTATED        CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)        FOR THE THREE MONTHS ENDED OCTOBER 31, 2003        (UNAUDITED)        (In
thousands, except per share amounts)

|                                                                   |                                                          | As
Reported |         | Adjustments |   | Restated |     
|------------------------------------------------------------------ | -------------------------------------------------------- | ----------- | ------- | ----------- | - | -------- | ----
|Revenues                                                           |                                                          | $           | 104,350 |             | $ | (1,943   | )   
|Cost of services                                                   |                                                          |             | 117,017 |             |   | (1,167   | )   
|Research and development                                           |                                                          |             | 3,445   |             |   |         |     
|General and administrative                                         |                                                          |             | 6,191   |             |   |         |     
|                                                                   |                                                          |             |         |             |   |          |     
|Operating loss                                                     |                                                          |             | (22,303 | )           |   | (776     | )   
|Interest expense                                                   |                                                          |             | 4,278   |             |   | 1        |     
|Other income, net                                                  |                                                          |             | (147    | )           |   | (11      | )   
|                                                                   |                                                          |             |         |             |   |          |     
|Loss before provision for income taxes                             |                                                          |             | (26,434 | )           |   | (766     | )   
|Income tax benefit                                                 |                                                          |             | (87     | )           |   | (128     | )   
|                                                                   |                                                          |             |         |             |   |          |     
|Net loss                                                           |                                                          | $           | (26,347 | )           | $ | (638     | )   
|                                                                   |                                                          |             |         |             |   |          |     
|Net income (loss), per share:                                      |                                                          |             |         |             |   |          |     
|Basic:                                                             |                                                          |             |         |             |   |          |     
|                                                                   | Income (loss) per common share                           |             | $       | (.78        | ) | $        | (.02
|                                                                   | Weighted average common shares                           |             |         | 33,608      |   |          |    
|Diluted:                                                           |                                                          |             |         |             |   |          |     
|                                                                   | Income (loss) per common share                           |             | $       | (.78        | ) | $        | (.02
|                                                                   | Weighted average common shares                           |             |         | 33,608      |   |          |    
|Comprehensive income (loss):                                       |                                                          |             |         |             |   |          |     
|Net income (loss)                                                  |                                                          | $           | (26,347 | )           | $ | (638     | )   
|Other comprehensive income (loss) (net of tax, $0 in all periods): |                                                          |             |         |             |   |          |     
|                                                                   | Foreign currency translation adjustments                 |             |         | 5,365       |   |          | 78  
|                                                                   | Unrealized gain (loss) on investments-available for sale |             |         | (247        | ) |          |    
|                                                                   | Unrealized gain on interest rate swap                    |             |         | 462         |   |          |    
|                                                                   | Unrealized gain (loss) on hedge transaction              |             |         | (128        | ) |          |    
|                                                                   |                                                          |             |         |             |   |          |     
|Total other comprehensive income (loss)                            |                                                          |             | 5,452   |             |   | 78       |     
|                                                                   |                                                          |             |         |             |   |          |     
|Comprehensive income (loss)                                        |                                                          | $           | (20,895 | )           | $ | (560     | )   
|                                                                   |                                                          |             |         |             |   |          |     

76

---



RESTATED        CONSOLIDATED BALANCE SHEET        AS OF OCTOBER 31, 2003        (UNAUDITED)        (Dollars in thousands, except par value)

|                                            |                                                                                                                                                                           | As
Reported                                        |                               | Adjustments |         | Restated |       
|------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------- | ----------------------------- | ----------- | ------- | -------- | ------
|ASSETS                                      |                                                                                                                                                                           |                                                    |                               |             |         |          |       
|Current assets:                             |                                                                                                                                                                           |                                                    |                               |             |         |          |       
|                                            | Cash and cash equivalents                                                                                                                                                 |                                                    | $                             | 56,346      |         | $        | (537  
|                                            | Restricted cash investments                                                                                                                                               |                                                    |                               | 205         |         |          |      
|                                            | Accounts and notes receivable (net of allowance of $3,419)                                                                                                                |                                                    |                               | 132,636     |         |          | (586  
|                                            | Materials and supplies inventory                                                                                                                                          |                                                    |                               | 3,415       |         |          | (40   
|                                            | Prepayments and other                                                                                                                                                     |                                                    |                               | 15,251      |         |          | 1,370 
|                                            | Income taxes receivable                                                                                                                                                   |                                                    |                               | 13,748      |         |          | 1,877 
|                                            |                                                                                                                                                                           |                                                    |                               |             |         |          |       
|                                            |                                                                                                                                                                           |                                                    | Total current assets          |             |         | 221,601  |       
|Property and equipment                      |                                                                                                                                                                           |                                                    | 500,549                       |             |         | (595     | )     
|Less accumulated depreciation               |                                                                                                                                                                           |                                                    | 353,883                       |             |         | 1,132    |       
|                                            |                                                                                                                                                                           |                                                    |                               |             |         |          |       
|                                            |                                                                                                                                                                           | Property and equipment, net                        |                               |             | 146,666 |          |       
|Multi-client data library                   |                                                                                                                                                                           |                                                    | 364,963                       |             |         | 1,433    |       
|Investment in and advances to joint venture |                                                                                                                                                                           |                                                    | 4,153                         |             |         | (49      | )     
|Deferred tax asset, net                     |                                                                                                                                                                           |                                                    | 1,953                         |             |         | (1,838   | )     
|Other assets                                |                                                                                                                                                                           |                                                    | 22,214                        |             |         | 3,854    |       
|                                            |                                                                                                                                                                           |                                                    |                               |             |         |          |       
|                                            |                                                                                                                                                                           |                                                    | Total                         |             | $       | 761,550  |       
|                                            |                                                                                                                                                                           |                                                    |                               |             |         |          |       
|LIABILITIES AND STOCKHOLDERS' EQUITY        |                                                                                                                                                                           |                                                    |                               |             |         |          |       
|Current liabilities:                        |                                                                                                                                                                           |                                                    |                               |             |         |          |       
|                                            | Current portion of long-term debt                                                                                                                                         |                                                    | $                             | 13,783      |         | $        |      
|                                            | Trade accounts payable                                                                                                                                                    |                                                    |                               | 41,952      |         |          | (261  
|                                            | Accrued interest                                                                                                                                                          |                                                    |                               | 515         |         |          |      
|                                            | Other accrued liabilities                                                                                                                                                 |                                                    |                               | 36,068      |         |          | 1,909 
|                                            |                                                                                                                                                                           |                                                    |                               |             |         |          |       
|                                            |                                                                                                                                                                           |                                                    | Total current liabilities     |             |         | 92,318   |       
|Non-current liabilities:                    |                                                                                                                                                                           |                                                    |                               |             |         |          |       
|                                            | Long-term debt                                                                                                                                                            |                                                    |                               | 180,055     |         |          |      
|                                            | Other non-current liabilities                                                                                                                                             |                                                    |                               | 18,814      |         |          | 5,284 
|                                            |                                                                                                                                                                           |                                                    |                               |             |         |          |       
|                                            |                                                                                                                                                                           |                                                    | Total non-current liabilities |             |         | 198,869  |       
|Stockholders' equity:                       |                                                                                                                                                                           |                                                    |                               |             |         |          |       
|                                            | Common stock, $.01 par value; authorized: 78,500,000 shares, issued: 32,304,150 shares (excluding common stock equivalent exchangeable shares of subsidiary of 1,443,411) |                                                    |                               | 323         |         |          |      
|                                            | Additional paid-in capital                                                                                                                                                |                                                    |                               | 429,418     |         |          |      
|                                            | Accumulated earnings (from August 1, 1991 with respect to Digicon Inc.)                                                                                                   |                                                    |                               | 34,170      |         |          | (3,231
|                                            | Accumulated other comprehensive income (loss):                                                                                                                            |                                                    |                               |             |         |          |       
|                                            |                                                                                                                                                                           | Cumulative foreign currency translation adjustment |                               |             | 8,883   |          |       
|                                            |                                                                                                                                                                           | Other comprehensive income (loss)                  |                               |             | (691    | )        |       
|Unearned compensation                       |                                                                                                                                                                           |                                                    | (191                          | )           |         |         |       
|Treasury stock, at cost; 89,136 shares      |                                                                                                                                                                           |                                                    | (1,549                        | )           |         |         |       
|                                            |                                                                                                                                                                           |                                                    |                               |             |         |          |       
|                                            |                                                                                                                                                                           |                                                    | Total stockholders' equity    |             |         | 470,363  |       
|                                            |                                                                                                                                                                           |                                                    |                               |             |         |          |       
|                                            |                                                                                                                                                                           |                                                    | Total                         |             | $       | 761,550  |       
|                                            |                                                                                                                                                                           |                                                    |                               |             |         |          |       

77

---





RESTATED        CONSOLIDATED STATEMENTS OF CASH FLOWS        FOR THE THREE MONTHS ENDED OCTOBER 31, 2003        (UNAUDITED)        (Dollars in thousands)

|                                                                                                      |                                             | As
Reported                                                  |       | Adjustments                               |         | Restated |        
|----------------------------------------------------------------------------------------------------- | ------------------------------------------- | ------------------------------------------------------------ | ----- | ----------------------------------------- | ------- | -------- | -------
|Cash flows from operating activities:                                                                 |                                             |                                                              |       |                                           |         |          |        
|                                                                                                      | Net loss                                    |                                                              | $     | (26,347                                   | )       | $        | (638   
|                                                                                                      | Non-cash items included in net loss:        |                                                              |       |                                           |         |          |        
|                                                                                                      |                                             | Depreciation and amortization, net (other than multi-client) |       |                                           | 9,359   |          |        
|                                                                                                      |                                             | Amortization of multi-client library                         |       |                                           | 56,213  |          |        
|                                                                                                      |                                             | Loss on disposition of property and equipment                |       |                                           | 182     |          |        
|                                                                                                      |                                             | Equity in loss of joint venture                              |       |                                           | 249     |          |        
|                                                                                                      |                                             | Deferred taxes                                               |       |                                           | 722     |          |        
|                                                                                                      |                                             | Amortization of unearned compensation                        |       |                                           | 149     |          |        
|                                                                                                      | Change in operating assets/liabilities:     |                                                              |       |                                           |         |          |        
|                                                                                                      |                                             | Accounts and notes receivable                                |       |                                           | 276     |          |        
|                                                                                                      |                                             | Materials and supplies inventory                             |       |                                           | 1,634   |          |        
|                                                                                                      |                                             | Prepayments and other                                        |       |                                           | (2,102  | )        |        
|                                                                                                      |                                             | Income tax receivable                                        |       |                                           | (2,181  | )        |        
|                                                                                                      |                                             | Accounts payable and other accrued liabilities               |       |                                           | (7,246  | )        |        
|                                                                                                      |                                             | Other                                                        |       |                                           | (481    | )        |        
|                                                                                                      |                                             |                                                              |       |                                           |         |          |        
|                                                                                                      |                                             |                                                              |       | Net cash provided by operating activities |         |          | 30,427 
|Cash flows from investing activities:                                                                 |                                             |                                                              |       |                                           |         |          |        
|                                                                                                      |                                             | Investment in multi-client library, net cash                 |       |                                           | (40,507 | )        |        
|                                                                                                      |                                             | Purchase of property and equipment                           |       |                                           | (8,581  | )        |        
|                                                                                                      |                                             | Sale of property and equipment                               |       |                                           | 539     |          |        
|                                                                                                      |                                             | Sale of (RC)2 software operating                             |       |                                           | 2,000   |          |        
|                                                                                                      |                                             |                                                              |       |                                           |         |          |        
|                                                                                                      |                                             |                                                              |       | Net cash used by investing activities     |         |          | (46,549
|Cash flows from financing activities:                                                                 |                                             |                                                              |       |                                           |         |          |        
|                                                                                                      | Payments on long-term debt                  |                                                              |       | (387                                      | )       |          |       
|                                                                                                      | Net proceeds from the sale of common stock  |                                                              |       | 497                                       |         |          |       
|                                                                                                      |                                             |                                                              |       |                                           |         |          |        
|                                                                                                      |                                             |                                                              |       | Net cash provided by financing activities |         |          | 110    
|                                                                                                      | Currency gain on foreign cash               |                                                              |       | (268                                      | )       |          |       
|                                                                                                      |                                             |                                                              |       |                                           |         |          |        
|                                                                                                      | Change in cash and cash equivalents         |                                                              |       | (16,280                                   | )       |          | (8     
|                                                                                                      | Beginning cash and cash equivalents balance |                                                              |       | 72,626                                    |         |          | (529   
|                                                                                                      |                                             |                                                              |       |                                           |         |          |        
|                                                                                                      | Ending cash and cash equivalents balance    |                                                              | $     | 56,346                                    |         | $        | (537   
|                                                                                                      |                                             |                                                              |       |                                           |         |          |        
|Schedule of non-cash transactions:                                                                    |                                             |                                                              |       |                                           |         |          |        
|Capitalization of depreciation and amortization resulting in an increase in multi-client data library |                                             | $                                                            | 5,355 |                                           | $       |         |        
|                                                                                                      |                                             |                                                              |       |                                           |         |          |        
|Cash paid for:                                                                                        |                                             |                                                              |       |                                           |         |          |        
|Interest                                                                                              |                                             | $                                                            | 3,813 |                                           | $       |         |        
|                                                                                                      |                                             |                                                              |       |                                           |         |          |        
|Taxes                                                                                                 |                                             | $                                                            | 1,372 |                                           | $       |         |        
|                                                                                                      |                                             |                                                              |       |                                           |         |          |        

78

---



RESTATED        CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)        (UNAUDITED)        (In thousands, except per share amounts)

|                                                                   |                                                   | Three Months Ended April 30, 2003 |         | Nine Months Ended April 30, 2003 |  
|------------------------------------------------------------------ | ------------------------------------------------- | --------------------------------- | ------- | -------------------------------- | -
|
|Statement of Operations:                                           |                                                   |                                   |         |                                  |  
|Revenues                                                           |                                                   | $                                 | 120,636 |                                  | $
|Cost of services                                                   |                                                   |                                   | 97,497  |                                  |  
|Research and development                                           |                                                   |                                   | 3,274   |                                  |  
|General and administrative                                         |                                                   |                                   | 6,261   |                                  |  
|                                                                   |                                                   |                                   |         |                                  |  
|Operating income (expense)                                         |                                                   |                                   | 13,604  |                                  |  
|Interest expense                                                   |                                                   |                                   | 5,992   |                                  |  
|Other (income) expense, net                                        |                                                   |                                   | (193    | )                                |  
|                                                                   |                                                   |                                   |         |                                  |  
|Income (loss) before provision for income taxes                    |                                                   |                                   | 7,805   |                                  |  
|Provision for income taxes                                         |                                                   |                                   | 3,077   |                                  |  
|                                                                   |                                                   |                                   |         |                                  |  
|Net income (loss)                                                  |                                                   | $                                 | 4,728   |                                  | $
|Other comprehensive income (loss) (net of tax, $0 in all periods): |                                                   |                                   |         |                                  |  
|                                                                   | Foreign currency translation adjustments          |                                   |         | 5,651                            |  
|                                                                   | Unrealized gain on investments available for sale |                                   |         | 61                               |  
|                                                                   | Unrealized loss on interest swap                  |                                   |         | (410                             | )
|                                                                   | Unrealized gain (loss) on foreign currency hedge  |                                   |         | (235                             | )
|                                                                   |                                                   |                                   |         |                                  |  
|Total other comprehensive income (loss)                            |                                                   |                                   | 5,067   |                                  |  
|                                                                   |                                                   |                                   |         |                                  |  
|Comprehensive income (loss)                                        |                                                   | $                                 | 9,795   |                                  | $
|                                                                   |                                                   |                                   |         |                                  |  
|Weighted average common shares:                                    |                                                   |                                   |         |                                  |  
|                                                                   | Basic                                             |                                   |         | 33,348                           |  
|                                                                   | Diluted                                           |                                   |         | 33,355                           |  
|Earnings per share:                                                |                                                   |                                   |         |                                  |  
|                                                                   | Basic and diluted                                 |                                   | $       | .14                              |  
|                                                                   |                                                   |                                   |         |                                  |  

79

---





RESTATED        CONSOLIDATED BALANCE SHEET        AS OF APRIL 30, 2003        (UNAUDITED)        (Dollars in thousands, except par value)

|                                             |                                                                                                                                     | As
Reported                                        |                               | Adjustments |         | Restated |       
|-------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------- | ----------------------------- | ----------- | ------- | -------- | ------
|ASSETS                                       |                                                                                                                                     |                                                    |                               |             |         |          |       
|Current assets:                              |                                                                                                                                     |                                                    |                               |             |         |          |       
|                                             | Cash and cash equivalents                                                                                                           |                                                    | $                             | 73,315      |         | $        | (585  
|                                             | Restricted cash investments                                                                                                         |                                                    |                               | 205         |         |          |      
|                                             | Accounts and notes receivable (net of allowance of $7,391)                                                                          |                                                    |                               | 124,241     |         |          | (921  
|                                             | Materials and supplies inventory                                                                                                    |                                                    |                               | 3,202       |         |          | (43   
|                                             | Prepayments and other                                                                                                               |                                                    |                               | 13,127      |         |          | 468   
|                                             | Income taxes receivable                                                                                                             |                                                    |                               | 10,397      |         |          | (425  
|                                             |                                                                                                                                     |                                                    |                               |             |         |          |       
|                                             |                                                                                                                                     |                                                    | Total current assets          |             |         | 224,487  |       
|Property and equipment                       |                                                                                                                                     |                                                    | 492,083                       |             |         | (354     | )     
|Less accumulated depreciation                |                                                                                                                                     |                                                    | 336,280                       |             |         | 1,087    |       
|                                             |                                                                                                                                     |                                                    |                               |             |         |          |       
|                                             |                                                                                                                                     | Property and equipment, net                        |                               |             | 155,803 |          |       
|Multi-client data library                    |                                                                                                                                     |                                                    | 376,318                       |             |         | 680      |       
|Investment in and advances to joint ventures |                                                                                                                                     |                                                    | 5,011                         |             |         | (50      | )     
|Goodwill                                     |                                                                                                                                     |                                                    | 39,018                        |             |         |         |       
|Deferred tax asset                           |                                                                                                                                     |                                                    | 15,741                        |             |         | 44       |       
|Other assets                                 |                                                                                                                                     |                                                    | 31,685                        |             |         | 1,748    |       
|                                             |                                                                                                                                     |                                                    |                               |             |         |          |       
|                                             |                                                                                                                                     |                                                    | Total                         |             | $       | 848,063  |       
|                                             |                                                                                                                                     |                                                    |                               |             |         |          |       
|LIABILITIES AND STOCKHOLDERS' EQUITY         |                                                                                                                                     |                                                    |                               |             |         |          |       
|Current liabilities:                         |                                                                                                                                     |                                                    |                               |             |         |          |       
|                                             | Trade accounts payable                                                                                                              |                                                    | $                             | 39,867      |         | $        | (253  
|                                             | Accrued interest                                                                                                                    |                                                    |                               | 259         |         |          |      
|                                             | Other accrued liabilities                                                                                                           |                                                    |                               | 47,522      |         |          | 227   
|                                             |                                                                                                                                     |                                                    |                               |             |         |          |       
|                                             |                                                                                                                                     |                                                    | Total current liabilities     |             |         | 87,648   |       
|Non-current liabilities:                     |                                                                                                                                     |                                                    |                               |             |         |          |       
|                                             | Long-term debt                                                                                                                      |                                                    |                               | 194,613     |         |          |      
|                                             | Deferred tax liability                                                                                                              |                                                    |                               | 7,409       |         |          |      
|                                             | Other non-current liabilities                                                                                                       |                                                    |                               | 4,616       |         |          | 2,477 
|                                             |                                                                                                                                     |                                                    |                               |             |         |          |       
|                                             |                                                                                                                                     |                                                    | Total non-current liabilities |             |         | 206,638  |       
|Stockholders' equity:                        |                                                                                                                                     |                                                    |                               |             |         |          |       
|                                             | Common stock, $.01 par value; authorized: 40,000,000 shares; issued: 32,062,631 shares (excluding Exchangeable Shares of 1,443,411) |                                                    |                               | 321         |         |          |      
|                                             | Additional paid-in capital                                                                                                          |                                                    |                               | 425,239     |         |          | (59   
|                                             | Accumulated earnings (from August 1, 1991 with respect to Digicon Inc.)                                                             |                                                    |                               | 131,222     |         |          | (2,917
|                                             | Accumulated other comprehensive income (loss):                                                                                      |                                                    |                               |             |         |          |       
|                                             |                                                                                                                                     | Cumulative foreign currency translation adjustment |                               |             | (1,593  | )        |       
|                                             |                                                                                                                                     | Other comprehensive income                         |                               |             | 575     |          |       
|Unearned compensation                        |                                                                                                                                     |                                                    | (483                          | )           |         |         |       
|Treasury stock, at cost; 83,672 shares       |                                                                                                                                     |                                                    | (1,504                        | )           |         |         |       
|                                             |                                                                                                                                     |                                                    |                               |             |         |          |       
|                                             |                                                                                                                                     |                                                    | Total stockholders' equity    |             |         | 553,777  |       
|                                             |                                                                                                                                     |                                                    |                               |             |         |          |       
|                                             |                                                                                                                                     |                                                    | Total                         |             | $       | 848,063  |       
|                                             |                                                                                                                                     |                                                    |                               |             |         |          |       

80

---



RESTATED        CONSOLIDATED STATEMENTS OF CASH FLOWS        FOR THE NINE MONTHS ENDED APRIL 30, 2003        (UNAUDITED)        (Dollars in thousands)

|                                      |                                             | As
Reported                                                                    |                                             | Adjustments |          | Restated |     
|------------------------------------- | ------------------------------------------- | ------------------------------------------------------------------------------ | ------------------------------------------- | ----------- | -------- | -------- | ----
|Cash flows from operating activities: |                                             |                                                                                |                                             |             |          |          |     
|                                      | Net income                                  |                                                                                | $                                           | 10,781      |          | $        | 504 
|                                      | Non-cash items included in net income:      |                                                                                |                                             |             |          |          |     
|                                      |                                             | Depreciation and amortization, net (other than multi-client)                   |                                             |             | 55,808   |          |     
|                                      |                                             | Depreciation and amortization capitalized to multi-client library and software |                                             |             | (19,606  | )        |     
|                                      |                                             | Amortization of multi-client library                                           |                                             |             | 106,809  |          |     
|                                      |                                             | Impairment of land equipment                                                   |                                             |             | 1,780    |          |     
|                                      |                                             | (Gain) / loss on disposition of property and equipment                         |                                             |             | (225     | )        |     
|                                      |                                             | Equity in loss of joint venture                                                |                                             |             | 1,158    |          |     
|                                      |                                             | Amortization of unearned compensation                                          |                                             |             | 520      |          |     
|                                      | Change in operating assets/liabilities:     |                                                                                |                                             |             |          |          |     
|                                      |                                             | Accounts and notes receivable                                                  |                                             |             | 5,359    |          |     
|                                      |                                             | Materials and supplies inventory                                               |                                             |             | 12,903   |          |     
|                                      |                                             | Prepayments and other                                                          |                                             |             | 1,161    |          |     
|                                      |                                             | Income tax receivable                                                          |                                             |             | 5,693    |          |     
|                                      |                                             | Accounts payable and other accrued liabilities                                 |                                             |             | (19,365  | )        |     
|                                      |                                             | Other non-current liabilities                                                  |                                             |             | 61       |          |     
|                                      |                                             | Other                                                                          |                                             |             | (695     | )        |     
|                                      |                                             |                                                                                |                                             |             |          |          |     
|                                      |                                             |                                                                                | Total cash provided by operating activities |             |          | 162,142  |     
|Cash flows from investing activities: |                                             |                                                                                |                                             |             |          |          |     
|                                      |                                             | Decrease (increase) in restricted cash investments                             |                                             |             | (39      | )        |     
|                                      |                                             | Investment in multi-client library, net cash                                   |                                             |             | (122,652 | )        |     
|                                      |                                             | Purchase of property and equipment                                             |                                             |             | (19,530  | )        |     
|                                      |                                             | Sale of property and equipment                                                 |                                             |             | 2,475    |          |     
|                                      |                                             | Acquisition of business                                                        |                                             |             | (9,547   | )        |     
|                                      |                                             |                                                                                |                                             |             |          |          |     
|                                      |                                             |                                                                                | Total cash used by investing activities     |             |          | (149,293 | )   
|Cash flows from financing activities: |                                             |                                                                                |                                             |             |          |          |     
|                                      |                                             | Borrowing of long-term debt                                                    |                                             |             | 308,236  |          |     
|                                      |                                             | Payments on long-term debt                                                     |                                             |             | (260,887 | )        |     
|                                      |                                             | Net proceeds from the sale of common stock                                     |                                             |             | 2,065    |          |     
|                                      |                                             |                                                                                |                                             |             |          |          |     
|                                      |                                             |                                                                                | Total cash provided by financing activities |             |          | 49,414   |     
|                                      | Currency loss (gain) on foreign cash        |                                                                                |                                             | 466         |          |          |    
|                                      |                                             |                                                                                |                                             |             |          |          |     
|                                      | Change in cash and cash equivalents         |                                                                                |                                             | 62,729      |          |          | 4   
|                                      | Beginning cash and cash equivalents balance |                                                                                |                                             | 10,586      |          |          | (589
|                                      |                                             |                                                                                |                                             |             |          |          |     
|                                      | Ending cash and cash equivalents balance    |                                                                                | $                                           | 73,315      |          | $        | (585
|                                      |                                             |                                                                                |                                             |             |          |          |     
|Cash paid for:                        |                                             |                                                                                |                                             |             |          |          |     
|Interest                              |                                             | $                                                                              | 16,435                                      |             | $        |         |     
|                                      |                                             |                                                                                |                                             |             |          |          |     
|Taxes                                 |                                             | $                                                                              | 1,553                                       |             | $        |         |     
|                                      |                                             |                                                                                |                                             |             |          |          |     

81

---





RESTATED        CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME        (UNAUDITED)        (In thousands, except per share amounts)

|                                                            |                                                   | Three Months Ended January 31, 2003 |         | Six Months Ended January 31, 2003
|----------------------------------------------------------- | ------------------------------------------------- | ----------------------------------- | ------- | ---------------------------------
|
|Statement of Operations:                                    |                                                   |                                     |         |                                  
|Revenues                                                    |                                                   | $                                   | 125,321 |                                  
|Cost of services                                            |                                                   |                                     | 102,013 |                                  
|Research and development                                    |                                                   |                                     | 3,045   |                                  
|General and administrative                                  |                                                   |                                     | 7,810   |                                  
|                                                            |                                                   |                                     |         |                                  
|Operating income                                            |                                                   |                                     | 12,453  |                                  
|Interest expense                                            |                                                   |                                     | 4,425   |                                  
|Other (income) expense, net                                 |                                                   |                                     | 637     |                                  
|                                                            |                                                   |                                     |         |                                  
|Income before provision for income taxes                    |                                                   |                                     | 7,391   |                                  
|Income taxes                                                |                                                   |                                     | 2,901   |                                  
|                                                            |                                                   |                                     |         |                                  
|Net income                                                  |                                                   | $                                   | 4,490   |                                  
|Other comprehensive income (net of tax, $0 in all periods): |                                                   |                                     |         |                                  
|                                                            | Foreign currency translation adjustments          |                                     |         | 1,374                            
|                                                            | Unrealized gain on investments available for sale |                                     |         | 16                               
|                                                            | Other unrealized gain                             |                                     |         | 237                              
|                                                            |                                                   |                                     |         |                                  
|Total other comprehensive income                            |                                                   |                                     | 1,627   |                                  
|                                                            |                                                   |                                     |         |                                  
|Comprehensive income                                        |                                                   | $                                   | 6,117   |                                  
|                                                            |                                                   |                                     |         |                                  
|Per share:                                                  |                                                   |                                     |         |                                  
|Basic:                                                      |                                                   |                                     |         |                                  
|                                                            | Income per common share                           |                                     | $       | .14                              
|                                                            | Weighted average common shares                    |                                     |         | 33,235                           
|Diluted:                                                    |                                                   |                                     |         |                                  
|                                                            | Income per common share                           |                                     | $       | .14                              
|                                                            | Weighted average common shares                    |                                     |         | 33,249                           

82

---



RESTATED        CONSOLIDATED BALANCE SHEET        AS OF JANUARY 31, 2003        (UNAUDITED)        (Dollars in thousands, except par value)

|                                             |                                                                                                                                     | As
Reported                                        |                               | Adjustments |         | Restated |       
|-------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------- | ----------------------------- | ----------- | ------- | -------- | ------
|ASSETS                                       |                                                                                                                                     |                                                    |                               |             |         |          |       
|Current assets:                              |                                                                                                                                     |                                                    |                               |             |         |          |       
|                                             | Cash and cash equivalents                                                                                                           |                                                    | $                             | 79,542      |         | $        | (602  
|                                             | Restricted cash investments                                                                                                         |                                                    |                               | 166         |         |          |      
|                                             | Accounts and notes receivable (net of allowance of $4,393)                                                                          |                                                    |                               | 141,141     |         |          | (1,176
|                                             | Materials and supplies inventory                                                                                                    |                                                    |                               | 3,356       |         |          | (25   
|                                             | Prepayments and other                                                                                                               |                                                    |                               | 13,106      |         |          | 3,362 
|                                             | Income taxes receivable                                                                                                             |                                                    |                               | 12,450      |         |          | (178  
|                                             |                                                                                                                                     |                                                    |                               |             |         |          |       
|                                             |                                                                                                                                     |                                                    | Total current assets          |             |         | 249,761  |       
|Property and equipment                       |                                                                                                                                     |                                                    | 510,842                       |             |         | (342     | )     
|Less accumulated depreciation                |                                                                                                                                     |                                                    | 344,767                       |             |         | 1,053    |       
|                                             |                                                                                                                                     |                                                    |                               |             |         |          |       
|                                             |                                                                                                                                     | Property and equipment, net                        |                               |             | 166,075 |          |       
|Multi-client data library                    |                                                                                                                                     |                                                    | 352,703                       |             |         | 682      |       
|Investment in and advances to joint ventures |                                                                                                                                     |                                                    | 6,293                         |             |         | (50      | )     
|Goodwill                                     |                                                                                                                                     |                                                    | 38,078                        |             |         |         |       
|Deferred tax asset                           |                                                                                                                                     |                                                    | 15,842                        |             |         | 44       |       
|Other assets                                 |                                                                                                                                     |                                                    | 26,060                        |             |         | 1,643    |       
|                                             |                                                                                                                                     |                                                    |                               |             |         |          |       
|                                             |                                                                                                                                     |                                                    | Total                         |             | $       | 854,812  |       
|                                             |                                                                                                                                     |                                                    |                               |             |         |          |       
|LIABILITIES AND STOCKHOLDERS' EQUITY         |                                                                                                                                     |                                                    |                               |             |         |          |       
|Current liabilities:                         |                                                                                                                                     |                                                    |                               |             |         |          |       
|                                             | Trade accounts payable                                                                                                              |                                                    | $                             | 35,367      |         | $        | (241  
|                                             | Accrued interest                                                                                                                    |                                                    |                               | 4,131       |         |          |      
|                                             | Other accrued liabilities                                                                                                           |                                                    |                               | 49,072      |         |          | 3,018 
|                                             |                                                                                                                                     |                                                    |                               |             |         |          |       
|                                             |                                                                                                                                     |                                                    | Total current liabilities     |             |         | 88,570   |       
|Non-current liabilities:                     |                                                                                                                                     |                                                    |                               |             |         |          |       
|                                             | Long-term debt                                                                                                                      |                                                    |                               | 211,160     |         |          |      
|                                             | Deferred tax liability                                                                                                              |                                                    |                               | 7,348       |         |          |      
|                                             | Other non-current liabilities                                                                                                       |                                                    |                               | 4,629       |         |          | 2,336 
|                                             |                                                                                                                                     |                                                    |                               |             |         |          |       
|                                             |                                                                                                                                     |                                                    | Total non-current liabilities |             |         | 223,137  |       
|Stockholders' equity:                        |                                                                                                                                     |                                                    |                               |             |         |          |       
|                                             | Common stock, $.01 par value; authorized: 40,000,000 shares; issued: 31,922,839 shares (excluding Exchangeable Shares of 1,444,411) |                                                    |                               | 319         |         |          |      
|                                             | Additional paid-in capital                                                                                                          |                                                    |                               | 424,525     |         |          | (59   
|                                             | Accumulated earnings (from August 1, 1991 with respect to Digicon Inc.)                                                             |                                                    |                               | 126,494     |         |          | (2,749
|                                             | Accumulated other comprehensive income (loss):                                                                                      |                                                    |                               |             |         |          |       
|                                             |                                                                                                                                     | Cumulative foreign currency translation adjustment |                               |             | (7,244  | )        |       
|                                             |                                                                                                                                     | Unrealized gain on foreign currency hedge          |                               |             | 1,143   |          |       
|                                             |                                                                                                                                     | Unrealized gain on investments available for sale  |                               |             | 16      |          |       
|Unearned compensation                        |                                                                                                                                     |                                                    | (649                          | )           |         |         |       
|Treasury stock, at cost; 83,014 shares       |                                                                                                                                     |                                                    | (1,499                        | )           |         |         |       
|                                             |                                                                                                                                     |                                                    |                               |             |         |          |       
|                                             |                                                                                                                                     |                                                    | Total stockholders' equity    |             |         | 543,105  |       
|                                             |                                                                                                                                     |                                                    |                               |             |         |          |       
|                                             |                                                                                                                                     |                                                    | Total                         |             | $       | 854,812  |       
|                                             |                                                                                                                                     |                                                    |                               |             |         |          |       

83

---





RESTATED        CONSOLIDATED STATEMENTS OF CASH FLOWS        FOR THE SIX MONTHS ENDED JANUARY 31, 2003        (UNAUDITED)        (Dollars in thousands)

|                                            |                                         | As
Reported                                                                    |                                             | Adjustments |         | Restated |    
|------------------------------------------- | --------------------------------------- | ------------------------------------------------------------------------------ | ------------------------------------------- | ----------- | ------- | -------- | ---
|Operating activities:                       |                                         |                                                                                |                                             |             |         |          |    
|                                            | Net income                              |                                                                                | $                                           | 6,053       |         | $        | 672
|                                            | Non-cash items included in net income:  |                                                                                |                                             |             |         |          |    
|                                            |                                         | Depreciation and amortization, net (other than multi-client)                   |                                             |             | 37,994  |          |    
|                                            |                                         | Depreciation and amortization capitalized to multi-client library and software |                                             |             | (12,645 | )        |    
|                                            |                                         | Amortization of multi-client library                                           |                                             |             | 73,558  |          |    
|                                            |                                         | Impairment of land acquisition equipment                                       |                                             |             | 1,780   |          |    
|                                            |                                         | Gain on disposition of property and equipment                                  |                                             |             | (435    | )        |    
|                                            |                                         | Equity in loss of joint venture                                                |                                             |             | 948     |          |    
|                                            |                                         | Amortization of unearned compensation                                          |                                             |             | 354     |          |    
|                                            | Change in operating assets/liabilities: |                                                                                |                                             |             |         |          |    
|                                            |                                         | Accounts and notes receivable                                                  |                                             |             | (12,380 | )        |    
|                                            |                                         | Materials and supplies inventory                                               |                                             |             | 12,744  |          |    
|                                            |                                         | Prepayments and other                                                          |                                             |             | (852    | )        |    
|                                            |                                         | Income tax receivable                                                          |                                             |             | 3,624   |          |    
|                                            |                                         | Accounts payable and other accrued liabilities                                 |                                             |             | (17,074 | )        |    
|                                            |                                         | Other non-current liabilities                                                  |                                             |             | (25     | )        |    
|                                            |                                         | Other                                                                          |                                             |             | (905    | )        |    
|                                            |                                         |                                                                                |                                             |             |         |          |    
|                                            |                                         |                                                                                | Total cash provided by operating activities |             |         | 92,739   |    
|Investing activities:                       |                                         |                                                                                |                                             |             |         |          |    
|                                            |                                         | Investment in multi-client library, net cash                                   |                                             |             | (75,587 | )        |    
|                                            |                                         | Purchase of property and equipment                                             |                                             |             | (12,967 | )        |    
|                                            |                                         | Sale of property and equipment                                                 |                                             |             | 2,235   |          |    
|                                            |                                         | Purchase of Hampson-Russell Software Services Ltd.                             |                                             |             | (9,250  | )        |    
|                                            |                                         |                                                                                |                                             |             |         |          |    
|                                            |                                         |                                                                                | Total cash used by investing activities     |             |         | (95,569  | )  
|Financing activities:                       |                                         |                                                                                |                                             |             |         |          |    
|                                            |                                         | Borrowings on long-term debt                                                   |                                             |             | 120,500 |          |    
|                                            |                                         | Payments on long-term debt                                                     |                                             |             | (49,950 | )        |    
|                                            |                                         | Net proceeds from the sale of common stock                                     |                                             |             | 1,186   |          |    
|                                            |                                         |                                                                                |                                             |             |         |          |    
|                                            |                                         |                                                                                | Total cash provided by financing activities |             |         | 71,736   |    
|Currency loss on foreign cash               |                                         |                                                                                | 50                                          |             |         |         |    
|                                            |                                         |                                                                                |                                             |             |         |          |    
|Change in cash and cash equivalents         |                                         |                                                                                | 68,956                                      |             |         | (13      | )  
|Beginning cash and cash equivalents balance |                                         |                                                                                | 10,586                                      |             |         | (589     | )  
|                                            |                                         |                                                                                |                                             |             |         |          |    
|Ending cash and cash equivalents balance    |                                         | $                                                                              | 79,542                                      |             | $       | (602     | )  
|                                            |                                         |                                                                                |                                             |             |         |          |    
|Cash paid for:                              |                                         |                                                                                |                                             |             |         |          |    
|Interest                                    |                                         | $                                                                              | 7,925                                       |             | $       |          |    
|                                            |                                         |                                                                                |                                             |             |         |          |    
|Taxes                                       |                                         | $                                                                              | 635                                         |             | $       |         |    
|                                            |                                         |                                                                                |                                             |             |         |          |    

84

---



RESTATED        CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)        FOR THE THREE MONTHS ENDED OCTOBER 31, 2002        (UNAUDITED)        (In
thousands, except per share amounts)

|                                                                   |                                           | As
Reported |         | Adjustments |   | Restated
|------------------------------------------------------------------ | ----------------------------------------- | ----------- | ------- | ----------- | - | --------
|Revenues                                                           |                                           | $           | 137,507 |             | $ | (2,014  
|Operating Expenses:                                                |                                           |             |         |             |   |         
|                                                                   | Cost of services                          |             |         | 118,936     |   |         
|                                                                   | Research and development                  |             |         | 3,008       |   |         
|General and administrative                                         |                                           |             | 7,673   |             |   |        
|                                                                   |                                           |             |         |             |   |         
|Operating income                                                   |                                           |             | 7,890   |             |   | (460    
|Interest expense                                                   |                                           |             | 3,942   |             |   |        
|Other (income) loss, net                                           |                                           |             | 1,010   |             |   | (118    
|                                                                   |                                           |             |         |             |   |         
|Income (loss) before provision for income taxes                    |                                           |             | 2,938   |             |   | (342    
|Provision (benefit) for income tax                                 |                                           |             | 1,375   |             |   | (140    
|                                                                   |                                           |             |         |             |   |         
|Net income (loss)                                                  |                                           | $           | 1,563   |             | $ | (202    
|Other comprehensive income (loss) (net of tax, $0 in all periods): |                                           |             |         |             |   |         
|                                                                   | Foreign currency translation adjustments  |             |         | 225         |   |         
|                                                                   | Unrealized gain on foreign currency hedge |             |         | 112         |   |         
|                                                                   |                                           |             |         |             |   |         
|Total other comprehensive income                                   |                                           |             | 337     |             |   |        
|                                                                   |                                           |             |         |             |   |         
|Comprehensive income                                               |                                           | $           | 1,900   |             | $ | (202    
|                                                                   |                                           |             |         |             |   |         
|Per share:                                                         |                                           |             |         |             |   |         
|Basic:                                                             |                                           |             |         |             |   |         
|                                                                   | Income (loss) per common share            |             | $       | .05         |   | $       
|                                                                   | Weighted average common shares            |             |         | 33,151      |   |         
|Diluted:                                                           |                                           |             |         |             |   |         
|                                                                   | Income (loss) per common share            |             | $       | .05         |   | $       
|                                                                   | Weighted average common shares            |             |         | 33,195      |   |         

85

---





RESTATED        CONSOLIDATED BALANCE SHEET        AS OF OCTOBER 31, 2002        (UNAUDITED)        (Dollars in thousands, except par value)

|                                                     |                                                                                                                                     | As
Reported                                        |                               | Adjustments |         | Restated |       
|---------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------- | ----------------------------- | ----------- | ------- | -------- | ------
|ASSETS                                               |                                                                                                                                     |                                                    |                               |             |         |          |       
|Current assets:                                      |                                                                                                                                     |                                                    |                               |             |         |          |       
|                                                     | Cash and cash equivalents                                                                                                           |                                                    | $                             | 47,876      |         | $        | (595  
|                                                     | Restricted cash investments                                                                                                         |                                                    |                               | 166         |         |          |      
|                                                     | Accounts and notes receivable (net of allowance for doubtful accounts of $4,249)                                                    |                                                    |                               | 145,956     |         |          | (1,263
|                                                     | Materials and supplies inventory                                                                                                    |                                                    |                               | 4,247       |         |          | (42   
|                                                     | Prepayments and other                                                                                                               |                                                    |                               | 14,675      |         |          | 207   
|                                                     | Income taxes receivable                                                                                                             |                                                    |                               | 15,645      |         |          | 396   
|                                                     |                                                                                                                                     |                                                    |                               |             |         |          |       
|                                                     |                                                                                                                                     |                                                    | Total current assets          |             |         | 228,565  |       
|Property and equipment                               |                                                                                                                                     |                                                    | 516,157                       |             |         | (232     | )     
|Less accumulated depreciation                        |                                                                                                                                     |                                                    | 334,721                       |             |         | 1,084    |       
|                                                     |                                                                                                                                     |                                                    |                               |             |         |          |       
|                                                     |                                                                                                                                     | Property and equipment, net                        |                               |             | 181,436 |          |       
|Multi-client data library                            |                                                                                                                                     |                                                    | 348,431                       |             |         | 3,057    |       
|Investment in and advances to joint ventures         |                                                                                                                                     |                                                    | 6,573                         |             |         | (50      | )     
|Goodwill (net of accumulated amortization of $6,830) |                                                                                                                                     |                                                    | 38,037                        |             |         |         |       
|Deferred tax asset                                   |                                                                                                                                     |                                                    | 16,072                        |             |         | 44       |       
|Other assets                                         |                                                                                                                                     |                                                    | 26,130                        |             |         | 1,442    |       
|                                                     |                                                                                                                                     |                                                    |                               |             |         |          |       
|                                                     |                                                                                                                                     |                                                    | Total                         |             | $       | 845,244  |       
|                                                     |                                                                                                                                     |                                                    |                               |             |         |          |       
|LIABILITIES AND STOCKHOLDERS' EQUITY                 |                                                                                                                                     |                                                    |                               |             |         |          |       
|Current liabilities:                                 |                                                                                                                                     |                                                    |                               |             |         |          |       
|                                                     | Current maturities of long-term debt and revolver                                                                                   |                                                    | $                             | 210,684     |         | $        |      
|                                                     | Trade accounts payable                                                                                                              |                                                    |                               | 43,751      |         |          | (269  
|                                                     | Accrued interest                                                                                                                    |                                                    |                               | 884         |         |          |      
|                                                     | Other accrued liabilities                                                                                                           |                                                    |                               | 41,446      |         |          | 3,763 
|                                                     |                                                                                                                                     |                                                    |                               |             |         |          |       
|                                                     |                                                                                                                                     |                                                    | Total current liabilities     |             |         | 296,765  |       
|Non-current liabilities:                             |                                                                                                                                     |                                                    |                               |             |         |          |       
|                                                     | Deferred tax liability                                                                                                              |                                                    |                               | 7,323       |         |          |      
|                                                     | Other non-current liabilities                                                                                                       |                                                    |                               | 4,642       |         |          | 2,068 
|                                                     |                                                                                                                                     |                                                    |                               |             |         |          |       
|                                                     |                                                                                                                                     |                                                    | Total non-current liabilities |             |         | 11,965   |       
|Stockholders' equity:                                |                                                                                                                                     |                                                    |                               |             |         |          |       
|                                                     | Common stock, $.01 par value; authorized: 40,000,000 shares; issued: 31,854,220 shares (excluding Exchangeable Shares of 1,444,514) |                                                    |                               | 318         |         |          |      
|                                                     | Additional paid-in capital                                                                                                          |                                                    |                               | 424,230     |         |          | (59   
|                                                     | Accumulated earnings (from August 1, 1991 with respect to Digicon Inc.)                                                             |                                                    |                               | 122,004     |         |          | (3,623
|                                                     | Accumulated other comprehensive income (loss):                                                                                      |                                                    |                               |             |         |          |       
|                                                     |                                                                                                                                     | Cumulative foreign currency translation adjustment |                               |             | (8,618  | )        |       
|                                                     |                                                                                                                                     | Unrealized gain on foreign currency hedge          |                               |             | 906     |          |       
|Unearned compensation                                |                                                                                                                                     |                                                    | (848                          | )           |         |         |       
|Treasury stock, at cost; 81,599 shares               |                                                                                                                                     |                                                    | (1,478                        | )           |         |         |       
|                                                     |                                                                                                                                     |                                                    |                               |             |         |          |       
|                                                     |                                                                                                                                     |                                                    | Total stockholders' equity    |             |         | 536,514  |       
|                                                     |                                                                                                                                     |                                                    |                               |             |         |          |       
|                                                     |                                                                                                                                     |                                                    | Total                         |             | $       | 845,244  |       
|                                                     |                                                                                                                                     |                                                    |                               |             |         |          |       

86

---



RESTATED        CONSOLIDATED STATEMENTS OF CASH FLOWS        FOR THE THREE MONTHS ENDED OCTOBER 31, 2002        (UNAUDITED)        (Dollars in thousands)

|                      |                                             | As
Reported                                                                    |                                             | Adjustments |         | Restated |     
|--------------------- | ------------------------------------------- | ------------------------------------------------------------------------------ | ------------------------------------------- | ----------- | ------- | -------- | ----
|Operating activities: |                                             |                                                                                |                                             |             |         |          |     
|                      | Net income                                  |                                                                                | $                                           | 1,563       |         | $        | (202
|                      | Non-cash items included in net income:      |                                                                                |                                             |             |         |          |     
|                      |                                             | Depreciation and amortization, net (other than multi-client)                   |                                             |             | 18,786  |          |     
|                      |                                             | Depreciation and amortization capitalized to multi-client library and software |                                             |             | (6,034  | )        |     
|                      |                                             | Amortization of multi-client library                                           |                                             |             | 32,026  |          |     
|                      |                                             | Impairment of land acquisition equipment                                       |                                             |             | 1,780   |          |     
|                      |                                             | Loss on disposition of property and equipment                                  |                                             |             | 224     |          |     
|                      |                                             | Equity in loss of joint venture                                                |                                             |             | 599     |          |     
|                      |                                             | Amortization of unearned compensation                                          |                                             |             | 180     |          |     
|                      | Change in operating assets/liabilities:     |                                                                                |                                             |             |         |          |     
|                      |                                             | Accounts and notes receivable                                                  |                                             |             | (17,799 | )        |     
|                      |                                             | Materials and supplies inventory                                               |                                             |             | 11,850  |          |     
|                      |                                             | Prepayments and other                                                          |                                             |             | (2,520  | )        |     
|                      |                                             | Income tax receivable                                                          |                                             |             | 429     |          |     
|                      |                                             | Accounts payable and other accrued liabilities                                 |                                             |             | (19,462 | )        |     
|                      |                                             | Other non-current liabilities                                                  |                                             |             | (12     | )        |     
|                      |                                             | Other                                                                          |                                             |             | 520     |          |     
|                      |                                             |                                                                                |                                             |             |         |          |     
|                      |                                             |                                                                                | Total cash provided by operating activities |             |         | 22,130   |     
|Investing activities: |                                             |                                                                                |                                             |             |         |          |     
|                      |                                             | Investment in multi-client library, net cash                                   |                                             |             | (37,506 | )        |     
|                      |                                             | Purchase of property and equipment                                             |                                             |             | (9,385  | )        |     
|                      |                                             | Sale of property and equipment                                                 |                                             |             | 92      |          |     
|                      |                                             | Purchase of Hampson-Russell Software Services Ltd                              |                                             |             | (9,250  | )        |     
|                      |                                             |                                                                                |                                             |             |         |          |     
|                      |                                             |                                                                                | Total cash used by investing activities     |             |         | (56,049  | )   
|Financing activities: |                                             |                                                                                |                                             |             |         |          |     
|                      |                                             | Borrowings on revolver                                                         |                                             |             | 120,500 |          |     
|                      |                                             | Payments on senior notes and revolver                                          |                                             |             | (49,950 | )        |     
|                      |                                             | Net proceeds from the sale of common stock                                     |                                             |             | 643     |          |     
|                      |                                             |                                                                                |                                             |             |         |          |     
|                      |                                             |                                                                                | Total cash provided by financing activities |             |         | 71,193   |     
|                      | Currency loss on foreign cash               |                                                                                |                                             | 16          |         |          |    
|                      |                                             |                                                                                |                                             |             |         |          |     
|                      | Change in cash and cash equivalents         |                                                                                |                                             | 37,290      |         |          | (6  
|                      | Beginning cash and cash equivalents balance |                                                                                |                                             | 10,586      |         |          | (589
|                      |                                             |                                                                                |                                             |             |         |          |     
|                      | Ending cash and cash equivalents balance    |                                                                                | $                                           | 47,876      |         | $        | (595
|                      |                                             |                                                                                |                                             |             |         |          |     
|Cash paid for:        |                                             |                                                                                |                                             |             |         |          |     
|Interest              |                                             | $                                                                              | 6,771                                       |             | $       |         |     
|                      |                                             |                                                                                |                                             |             |         |          |     
|Taxes                 |                                             | $                                                                              | 950                                         |             | $       |         |     
|                      |                                             |                                                                                |                                             |             |         |          |     

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VERITAS DGC INC. AND SUBSIDIARIES    Financial Statement Schedule    Valuation and Qualifying Accounts and Reserves    Schedule II    Restated

|                                |  |   |        | Additions |   |        |  |  
|------------------------------- |  | - | ------ | --------- | - | ------ |  | -
|
|Allowance for doubtful accounts |  |   |        |           |   |        |  |  
|2004                            |  | $ | 7,953  |           | $ |       |  | $
|2003                            |  |   | 4,143  |           |   | 3,810  |  |  
|2002                            |  |   | 709    |           |   | 3,434  |  |  
|Accrued dry dock                |  |   |        |           |   |        |  |  
|2004                            |  | $ | 3,227  |           | $ | 4,604  |  | $
|2003                            |  |   | 2,857  |           |   | 3,351  |  |  
|2002                            |  |   | 1,432  |           |   | 3,098  |  |  
|Tax valuation allowances        |  |   |        |           |   |        |  |  
|2004                            |  | $ | 61,112 |           | $ | 11,924 |  | $
|2003                            |  |   | 28,445 |           |   | 37,756 |  |  
|2002                            |  |   | 27,741 |           |   | 2,118  |  |  

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ITEM 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Not Applicable.

ITEM 9A.Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We carried out an evaluation, under the supervision of and with the participation of our management, including our Chief Executive Officer and Chief Financial
Officer, as to the effectiveness, design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities and Exchange Act of 1934, as
amended) as of July 31, 2004. The evaluation considered our various procedures designed to ensure that information required to be disclosed by us in reports that we file or submit under the
Exchange Act is recorded, processed, summarized and reported in the time periods specified in the rules and forms of the Securities and Exchange Commission. Our Chief Executive Officer and Chief
Financial Officer concluded, as a result of the material weaknesses described below, that our disclosure controls and procedures were not effective as of July 31, 2004.

Our
management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined as a process
designed to provide reasonable assurance to our management and Board of Directors regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles.

We
are restating our financial statements for fiscal periods of 2002 through 2003 due to our failure to properly record revenue and expenses in the appropriate periods (See details in
Notes 1 and 16 of
Notes to Consolidated Financial Statements.) Based upon our investigations and those of the Audit Committee of our Board of Directors, we believe these accounting errors are the result of mistakes and
omissions, but the fact that they were not detected and corrected in a timely manner leads us to conclude that we had material weaknesses in the operation of our disclosure controls and procedures and
internal control over financial reporting as of the end of the period covered by this report. A material weakness in internal control over financial reporting is a significant deficiency, or
combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the financial statements would not be prevented or detected on a timely basis by
employees in the normal course of their work.

Our
inquiry into these matters indicated that in our largest operating division:



A
global contract review revealed the following issues related to revenue recognition:



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It
should be noted that all of these revenue recognition issues involved only the timing of revenue recognition.

Changes in Internal Controls Over Financial Reporting

During the fourth quarter of fiscal 2004, we did not make any change to our internal control over financial reporting that materially affected, or is reasonably
likely to materially affect, our internal control over financial reporting. However, subsequent to the end of fiscal 2004, due to the material weaknesses noted, our Chief Executive Officer and Chief
Financial Officer, in conjunction with other members of management and our Audit Committee, conducted a review of our internal control over financial reporting. As a result of this review we have
taken the following actions, many of which are ongoing in nature:



Within
the division where the internal control deficiencies were noted we have:



In
response to the requirements of Sarbanes-Oxley Act of 2002 and our material weakness in certain areas, we are formalizing our entire control framework and all of our control
procedures. We have done significant work in evaluating, documenting, testing and remediating this framework and processes in a concerted effort to be in compliance with Section 404 of the
Sarbanes-Oxley Act of 2002 by our required deadline for fiscal 2005.

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ITEM 9B.Other Information

Global Management Incentive Plan

In June 2004, the compensation committee of our board of directors adopted the Global Management Incentive Plan and selected certain of our senior
executives, including executive officers, to participate in the new plan. The incentive plan is effective for the fiscal year commencing August 1, 2004 and subsequent years.

Under
the terms of the incentive plan, which is administered by the compensation committee, each participant is assigned a target bonus percentage that is a percentage of his or her base
annual salary. In the event a participant's salary is increased during the year, the performance awards will be adjusted to reflect the new salary on a prorated basis. The target bonus percentages
under the incentive plan for fiscal year 2005 range from 50% to 75%. Each participant is eligible to earn as incentive compensation a percentage of his or her target bonus percentage not to exceed two
times his or her annual target payout if certain financial and individual goals are met.

Financial
and individual goals under the incentive plan were set prior to the beginning of fiscal year 2005. In the case of participants who are officers or corporate personnel, 50% of
any performance award is conditioned upon the company attaining a specified threshold amount of profit before income
taxes and 25% is conditioned upon the company attaining a specified threshold amount of return on assets.(1)
To earn the remaining 25% of the performance award, the participant must attain one or more discrete business goals set by the participant's immediate supervisor or, in the case of executive officers,
by the compensation committee.

---

The
incentive plan provides that each participant will be paid a partial performance award, if earned, based on the financial results of the first six months of the fiscal year. It is
contemplated that the mid-year award will be made in March each year. The mid-year payment is calculated by multiplying the target bonus percentage times 50% times the
percentage of the financial goal attained, not to exceed 100%. The mid-year payment will not take the achievement of individual goals into accountthis has the practical effect
of limiting the mid-year payment to 37.5% of the target payout.(2)

---

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The
following table shows each executive officer's target bonus percentage, annual base salary as of August 1, 2004, and base salary after increases for certain executive officers
effective April 2, 2005:

Name

Title

Target
Payout

Base Salary as
of July 31, 2004

Base Salary as
of April 2, 2005Thierry Pilenko

Chairman and Chief Executive Officer

75
%
$
450,000

$
475,000Stephen J. Ludlow

Vice Chairman

50
%
$
265,021

$
280,000Timothy L. Wells

President and Chief Operating Officer

60
%
$
330,000

$
350,000Mark E. Baldwin

Executive Vice President, Chief Financial Officer and Treasurer

60
%
$
0
*
$
300,000Vincent M. Thielen

Vice President, Corporate Controller

50
%
$
180,300

$
180,300Larry L. Worden

Vice President, General Counsel and Secretary

50
%
$
225,000

$
240,000


---

Key Contributor Incentive Plan

In June 2004, our compensation committee terminated the company's existing Key Contributor Incentive Plan (as amended and restated March 3, 2003)
and replaced it with a new plan also known as the Key Contributor Incentive Plan. The new key contributor plan is effective for the fiscal year commencing August 1, 2005 and subsequent years.

The
key contributor plan is administered by a management committee comprised of the company's chief executive officer, chief operating officer and vice president, human resources.
Participants in the key contributor plan include managerial and administrative personnel selected by the management committee. Officers and senior managers of the company are not eligible to
participate in the key contributor plan.

Each
participant in the key contributor plan is assigned a target bonus percentage that is a percentage of his or her base annual salary. In the event a participant's salary is increased
during the year, the performance awards will be adjusted to reflect the new salary on a prorated basis. The target bonus percentages under the key contributor plan for fiscal year 2005 range from 5%
to 35%. Each participant is eligible to earn as incentive compensation a percentage of his or her target bonus percentage not to exceed two times his or her annual target payout if certain financial
and individual goals are met.

Financial
and individual goals under the incentive plan were set prior to the beginning of fiscal year 2005. In the case of participants who are corporate personnel, 50% of any
performance award is conditioned upon the company attaining a specified threshold amount of profit before income taxes and 25% is conditioned upon the company attaining a specified threshold amount of
return on assets.(3)
For division personnel, awards are conditioned upon division, rather than company, performance. To earn the remaining 25% of the performance award, the participant must attain one or more discrete
business goals set by the participant's immediate supervisor.

---

The
incentive plan provides that each participant will be paid a partial performance award, if earned, based on the financial results of the first six months of the fiscal year. It is
contemplated that the mid-year award will be made in March each year. The mid-year payment is calculated by multiplying the target bonus percentage times 50% times the
percentage of the financial goal attained, not to exceed 100%. The mid-year payment will not take the achievement of individual goals into accountthis has the practical effect
of limiting the mid-year payment to 37.5% of the target payout.

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PART III

ITEM 10.Directors and Executive Officers of the Registrant

Directors

Certain information concerning each of our eight directors as of December 31, 2004, is set forth below:

Name

Principal Position
with Veritas DGC

Age

Director
Since

Member ofLoren K. Carroll

Director

61

2003

Audit committee; compensation committeeClayton P. Cormier

Director

72

1991

Audit committee (chairman)James R. Gibbs

Director

60

1997

Compensation committee; nominating and corporate governance committee (chairman)Stephen J. Ludlow

Director, Vice Chairman

54

1994Brian F. MacNeill

Director

65

1996

Compensation committee (chairman); nominating and corporate governance committeeThierry Pilenko

Director, Chairman and Chief Executive Officer

47

2004Jan Rask

Director

49

1998

Audit committee; nominating and corporate governance committeeDavid F. Work

Director

59

2004

Compensation committee


Loren K. Carrollis currently president and chief executive officer of M-I Swaco LLC and is also executive vice president of
Smith International, Inc. Mr. Carroll also serves as a director of Smith International, Inc. and as a director of Fleetwood Enterprises, Inc. Mr. Carroll joined
Smith International in December 1984 as vice president and chief financial officer. In January 1988 he was appointed executive vice president and chief financial officer of Smith
International and served in that capacity until March 1989. Mr. Carroll then rejoined Smith International in 1992 as executive vice president and chief financial officer. Smith
International holds a 60% interest in M-I Swaco LLC.

Clayton P. Cormieris currently a financial and insurance consultant. Prior to that, Mr. Cormier was a senior vice president in the
oil and gas division of Johnson & Higgins, an insurance broker, from 1986 to 1991 and previously served as chairman of the board, president, and chief executive officer of Ancon Insurance
Company, S.A. and as an assistant treasurer of ExxonMobil Corp.

James R. Gibbsis chairman, president and chief executive officer of Frontier Oil Corporation, an oil refining and marketing company. He
has been chairman since January 1999, chief executive officer since 1992 and president since 1987. He has been employed there for twenty-two years. Mr. Gibbs is a director of
Frontier Oil Corporation and Smith International, Inc., an advisory director of Frost Bank-Houston, and a member of the Board of Trustees of Southern Methodist University.

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Stephen J. Ludlowbecame vice chairman of Veritas DGC in January 1999. From August 1996, upon consummation of the business
combination between Veritas DGC (formerly Digicon Inc.) and Veritas Energy Services until January 1999, he was president and chief operating officer of Veritas DGC Inc. He has
been employed by Veritas DGC for 33 years and served as president and chief executive officer of Veritas DGC from 1994 to 1996. Prior to 1994, he served as executive vice president of Veritas
DGC for four years following eight years of service in a variety of management positions with increasing levels of responsibility, including several years of service as the executive responsible for
operations in Europe, Africa and the Middle East.

Brian F. MacNeillis currently chairman of PetroCanada, an integrated oil and natural gas energy company and Dofasco Inc., a steel
producer. Prior to his retirement on January 1, 2001, he was president and chief executive officer of Enbridge Inc., a crude oil and liquids transportation and natural gas distribution
company, for more than five years. Mr. MacNeill is also a director of PetroCanada, Dofasco Inc., TELUS Corporation, West Fraser Timber Co., Ltd., Sears Canada Inc.,
Toronto-Dominion Bank, Western Oil Sands, Inc., and Legacy Hotel Real Estate Investment Trust.

Thierry Pilenkobecame chairman and chief executive officer and a director of Veritas DGC in March 2004. Prior to his appointment
and since 2001, Mr. Pilenko served as managing director of SchlumbergerSema, a Schlumberger Ltd. company located in Paris. From 1998-2001, he was president of Geoquest,
another Schlumberger Ltd. company located in Houston, Texas. Mr. Pilenko was employed by Schlumberger Ltd. and its affiliated companies in various parts of the world beginning in
1982 in a variety of progressively more responsible operating positions.

Jan Raskis currently president and chief executive officer and a director of TODCO, formerly known as R & B Falcon, and has held
that position since July 2002. From September 2001 to July 2002, he was
the Managing Director-Acquisitions and Special Projects of Pride International, Inc. and from July 1996 to September 2001, Mr. Rask was president, chief executive officer
and director of Marine Drilling Companies, Inc. Mr. Rask served as president and chief executive officer of Arethusa (Off-Shore) Limited from May 1993 until the
acquisition of Arethusa (Off-shore) Limited by Diamond Offshore Drilling, Inc. in May 1996. Mr. Rask joined Arethusa (Off-shore) Limited's principal
operating subsidiary in 1990 as its president and chief executive officer.

David F. Workis currently an oil and gas industry consultant. From 2001 until October 2003, he served as the chairman of Energy
Virtual Partners, Inc., a privately held company engaged in the business of managing under-resourced oil and gas properties. For more than five years prior to his retirement from BP in
October 2000, he served in various management capacities with Amoco, BP Amoco and BP, including North American vice president of BP. Mr. Work currently also serves as a director of Edge
Petroleum Corporation, CrystaTech, Inc. and TerraTech, Inc.

Executive Officers

Except as described under the heading "Employment Agreements" below, our executive officers serve at the pleasure of our board of directors and are subject to
annual appointment by our board of directors at its first meeting following each annual meeting of stockholders. In addition to Messrs. Pilenko and Ludlow, who are listed under "Directors" with
their biographical information, our executive officers include the following individuals as of March 31, 2005:

Timothy L. Wells, age 51, was appointed president and chief operating officer of Veritas DGC in January 1999. He has been employed
by Veritas DGC for nineteen years, having served as president of Veritas DGC's Asia Pacific division, regional manager of North and South American processing, manager of research and programming and
in various other capacities in North and South America.

Mark E. Baldwin, age 51, was appointed executive vice president, chief financial officer and treasurer of Veritas DGC in
August 2004. Prior to his appointment and since 2003, Mr. Baldwin was an

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operating
partner in First Reserve Corporation, a privately held oilfield services equity firm. From 2001 to 2002, he served as executive vice president and chief financial officer of Nexitraone, LLC,
a privately held telecommunications company. From 1997 to 2001, Mr. Baldwin was chairman and chief executive officer of Pentacon, Inc., then a publicly traded distributor of aerospace
and industrial fasteners. For the seventeen years prior to 1997, Mr. Baldwin held a number of progressively more responsible financial and operating positions with Keystone
International, Inc., then a publicly traded manufacturer of flow control devices.

Vincent M. Thielen, age 44, was appointed vice president, corporate controller of Veritas DGC in September 2003. Prior to his
appointment, he had been employed by Veritas DGC for 4 years as corporate controller. Prior to that time, he served for eighteen years in various technical, operational and financial roles at
Baker-Hughes Incorporated.

Larry L. Worden, age 52, was appointed vice president, general counsel and secretary of Veritas DGC in December 1998. For ten years
prior to that time, Mr. Worden served as vice president, general counsel and secretary of King Ranch, Inc., a privately held Texas corporation. Prior to his employment with King
Ranch, Inc. he served as division counsel at National Gypsum Company and practiced law at two private law firms.

Audit Committee

Our board of directors has appointed a standing audit committee in accordance with the requirements of the Securities Exchange Act of 1934 and the New York Stock
Exchange. The members of the audit committee are Messrs Carroll, Cormier and Rask. The audit committee assists the board of directors in ensuring that our accounting and reporting practices are in
accordance with applicable requirements. Specifically, the audit committee annually reviews and recommends to our board of directors the firm to be engaged to audit the accounts of our company and its
subsidiaries. Additionally, the audit committee reviews with such independent accountant the plan and results of the auditing engagement, makes inquiries as to the adequacy of internal accounting
controls, and considers the independence of our independent accountants. The committee also reviews the scope and scheduling of our internal audits and reviews the results of those audits.

Our
board of directors has determined that each member of the audit committee is financially literate and each has accounting or related financial management expertise, as our Board
interprets those terms in its business judgment. Our board of directors has designated each of Messrs Carroll, Cormier, and Rask as "audit committee financial experts" following its determination that
each meets the criteria for such designation set forth in Item 401(h) of Regulation S-K. In addition, our board has affirmatively determined that Messrs Carroll, Cormier, and Rask
(i) have no relationship to the company that may interfere with the exercise of their independence from management and the company; (ii) have no material relationship with the company
(either directly as a partner, shareholder or officer of an organization that has a relationship with the company) and (iii) are otherwise "independent" as that term is defined in
Section 303A.02 of the New York Stock Exchange Listed Company Manual and Rule 10A-3(b)(1) and Item 7(d)(3)(iv) of Schedule 14A under the Securities Exchange Act
of 1934.

Stockholder Recommendations of Nominee(s) to Our Board

In October 2004, we adopted a new policy governing the method by which stockholders may recommend nominees to our board of directors. Under the terms of
that policy, stockholders or a group of stockholders may recommend potential candidates for consideration by our nominating and corporate governance committee by sending a written request to the
company's corporate secretary not earlier than the 150th calendar day and not later than the 90th calendar day before the anniversary of the date our proxy statement was released to security holders
in connection with our preceding year's

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annual
meeting. Such written request shall be sent to our principal executive offices, 10300 Town Park Drive, Houston, Texas 77072, Attn: Corporate Secretary. The written request must include the
candidate's name, contact information, biographical information and qualifications. The request must also include the potential candidate's written consent to being named in the proxy statement as a
nominee and to serving as a director if nominated and elected. The stockholder or group of stockholders making the recommendation must also disclose, with the written request described above, the
number of shares that the stockholder or group beneficially owns and the period of time the stockholder or group has beneficially owned the shares. The committee may request additional information
from time to time from the nominee or the stockholder.

In
accordance with SEC rules, if the committee receives not later than 120 calendar days before the anniversary of the date we released our prior year's proxy statement to stockholders,
a recommended nominee from any stockholder or group beneficially owning more than 5% of our shares (and who has owned such amount for at least one year), we will disclose the identity of the candidate
and the stockholder or group that recommended the candidate as well as whether the committee chose to nominate the candidate, provided that disclosure of the names will not be made without the written
consent of both the candidate and the stockholder or group that made the recommendation.

Pursuant
to our bylaws, only persons who are nominated in accordance with the following procedures are eligible for election as directors. Nominations of persons for election to our
board of directors may be made at a meeting of stockholders only (a) by or at the direction of our board of directors or (b) by any stockholder of our company who is a stockholder of
record at the time of giving of the required notice described below, who is entitled to vote for the election of directors at the meeting, and who complies with the following notice procedures. All
nominations, other than those made by or at the direction of our board of directors, must be made pursuant to timely notice in writing to the Secretary of the Company. To be timely, a stockholder's
notice must be delivered to or mailed and received at our principal executive offices, 10300 Town Park Drive, Houston, Texas 77072 Attention: Secretary, (i) with respect to an election to be
held at an annual meeting not less than 90 days nor more than 120 days before that date which is the first anniversary of the preceding year's annual meeting and (ii) with respect
to any election to be held at a special meeting of stockholders, no earlier than the ninetieth day prior to such special meeting and not later than the close of business on the later of the seventieth
day prior to such special meeting or the tenth day following the day on which public announcement is first made of the date of the special meeting or of the nominees proposed by our board of directors
to be elected at such meeting. If the annual meeting is advanced by more than
30 days, or delayed by more than 90 days, from the anniversary date of the preceding year's annual meeting, the nomination must be delivered not earlier than the 120th day prior to the
current year's annual meeting and not later than the later of (1) the 90th day prior to the annual meeting or (2) the 10th day following the announcement of the change in the annual
meeting date. A stockholder's notice to the Secretary of our company must set forth (a) as to each person whom the stockholder proposes to nominate for election as a director, all information
relating to the person that is required to be disclosed in solicitations for proxies for election of directors, or is otherwise required, pursuant to Regulation 14A under the Securities
Exchange Act (including the written consent of such person to be named in the proxy statement as a nominee and to serve as a director if elected); and (b) as to the stockholder giving the
notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made (i) the name and address, as they appear on our books, of such stockholder, and (ii) the class
and number of shares of capital stock of our company that are beneficially owned by the stockholder.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934 requires our directors, certain of our officers and persons who own more than 10% of a registered
class of our equity securities to file reports of

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ownership
and changes of ownership with the Securities and Exchange Commission. We believe, based upon a review of the forms and amendments furnished to us, that each of our directors and officers and
greater than 10% stockholders met all applicable filing requirements for the fiscal year ended July 31, 2004.

Code of Ethics

Our board has adopted a code of ethics (we call it our "code of conduct") that governs the business conduct and ethics of our directors, all of our employees and
our executive officers, including our chief executive officer, our chief financial officer and our chief accounting officer. Our code of conduct has been posted on our company's internet website at
www.veritasdgc.com. In addition, we will provide a printed copy of our code of conduct without charge to any stockholder making written request to Larry L. Worden, Vice President, General Counsel and
Secretary, 10300 Town Park Drive, Houston, Texas 77072. It is our intention to disclose on our internet website within four business days of any amendment or waiver



Corporate Governance Guidelines / Committee Charters

Our board of directors has adopted written corporate governance guidelines that address such matters as board and committee functions and board and committee
member qualifications and responsibilities. In addition, our board has adopted written charters for its audit committee, compensation committee, and nominating and corporate governance committee. Each
of these charters was most recently amended in October 2004. Copies of our corporate governance guidelines and each of our committee charters are available on our website at www.veritasdgc.com.
We will provide a written copy of any of these documents without charge to any stockholder making written request to Larry L. Worden, Vice President, General Counsel and Secretary, 10300 Town Park
Drive, Houston, Texas 77072.

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ITEM 11.Executive Compensation

The following table reflects all forms of compensation for services to us for the three years ended July 31, 2004, 2003 and 2002 of those individuals who
(i) served as our chief executive officer during fiscal 2004, or (ii) were among our four most highly compensated executive officers at July 31, 2004, other than the chief
executive officer.

Summary Compensation Table

|                                                               |  |                |  | Annual Compensation     |  | Long-Term Compensation Awards |  |            |    
|-------------------------------------------------------------- |  | -------------- |  | ----------------------- |  | ----------------------------- |  | ---------- | ---
|
|Thierry Pilenko(3) Chairman and Chief Executive Officer        |  | 2004
2003
2002 |  | 181,731

             |  | 75,000

                    |  | 96,669

 | (4)
|David B. Robson(5) Former Chairman and Chief Executive Officer |  | 2004
2003
2002 |  | 274,010
429,583
415,000 |  | 
41,025
298,369              |  | 

      |    
|Stephen J. Ludlow Vice Chairman                                |  | 2004
2003
2002 |  | 265,021
265,021
265,021 |  | 148,544
20,246
90,100         |  | 

3,000  | (9)
|Timothy L. Wells President and Chief Operating Officer         |  | 2004
2003
2002 |  | 315,000
276,154
260,000 |  | 195,054
19,110
88,400         |  | 

11,586 | (9)
|Vincent M. Thielen Vice President, Corporate Controller        |  | 2004
2003
2002 |  | 167,960
140,000
140,000 |  | 84,862
8,022
35,700           |  | 

      |    
|Larry L. Worden Vice President, General Counsel and Secretary  |  | 2004
2003
2002 |  | 210,096
194,039
190,000 |  | 106,145
14,834
64,600         |  | 

      |    

---

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The
following table sets forth options we granted during the fiscal year ended July 31, 2004 to our named executive officers:

OPTION GRANTS IN FISCAL YEAR ENDED JULY 31, 2004

Individual GrantsName of Officer

Number of securities
underlying options
granted

Percent of total
options granted to
employees in fiscal
year

Exercise
price
($/share)

Expiration
date

Grant Date
Present Value(1) $Thierry Pilenko

120,000
(2)
18

$
15.88

3/1/2009

$
1,094,400David B. Robson

5,000
(3)
1


11.19

3/1/2007


25,550Stephen J. Ludlow

24,700
(4)
4


11.19

1/6/2009


158,821Timothy L. Wells

24,700
(4)
4


11.19

1/6/2009


158,821Vincent M. Thielen

12,400
(4)
2


11.19

1/6/2009


79,732Larry L. Worden

12,400
(4)
2


11.19

1/6/2009


79,732


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99

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The
following table sets forth information with respect to options to purchase our shares held by our named executive officers that were exercised during the fiscal year ended
July 31, 2004 or were unexercised at fiscal year end.

AGGREGATED OPTION EXERCISES IN FISCAL YEAR
ENDED JULY 31, 2004
AND FISCAL YEAR END OPTION VALUES

Options Exercised During
Fiscal YearNumber of Unexercised Options
Held at Fiscal Year End (#)

Value of In-the-Money
Unexercised Options
Held at Fiscal Year End ($)(1)Name

Shares Acquired
on Exercise (#)

Value
Realized ($)Exercisable

Unexercisable

Exercisable

UnexercisableThierry Pilenko







120,000



1,050,000David B. Robson

67,106

897,616

121,208



564,514

Stephen J. Ludlow

36,682

308,790

62,818

39,943

265,929

578,934Timothy L. Wells





75,433

45,771

288,990

454,974Vincent M. Thielen





21,082

15,695

235,849

224,452Larry L. Worden





43,104

19,834

445,092

287,654


---

Director Compensation

Effective January 1, 2005, each of our directors who is not also an employee is paid an annual fee of $35,000 plus travel expenses, a fee of $1,500 for
attendance at each regular or special board and committee meeting (other than telephonic meetings) and a fee of $750 for attendance at each telephonic board or committee meeting. The chairman of the
audit committee is paid an additional annual fee of $10,000 and the chairmen of the compensation committee and the nominating and corporate governance committee are each paid an additional fee of
$5,000 annually.

Prior
to January 1, 2005, each of our directors who was not also an employee was paid an annual fee of $25,000 plus travel expenses, a fee of $1,500 for attendance at each regular
or special board and committee meeting (other than telephonic meetings) and a fee of $750 for attendance at each telephonic board or committee meeting. The chairman of the audit committee was paid an
additional fee of $10,000 annually and no additional fees were paid to other committee chairmen.

Under
our Share Incentive Plan, non-employee directors are eligible to receive (1) nonqualified options, (2) share appreciation rights, (3) deferred
share units, (4) restricted shares and (5) performance shares. The compensation committee determines the type of awards granted and the terms of each grant. For periods after
January 1, 2005, each non-employee director will be granted options each year to purchase 6,000 shares of our common stock at fair market value on the date of grant. The options so
granted will vest immediately and have a five-year term. Newly elected or appointed non-employee directors will be granted options to purchase 10,000 shares of our common stock
at fair market value on the date of grant. The options granted to newly elected or appointed non-employee directors will have a five-year term and become exercisable as
follows: 2,500 options immediately upon the date of grant and an additional 2,500 options on each subsequent year on the anniversary of the date of grant. Also, for periods after January 1,
2005, non-employee directors will be allowed to elect to receive deferred share units issued under our Share Incentive Plan in lieu of either 100 percent or 50 percent of
their annual grant of options to purchase 6,000 shares of our common stock. In the event of such an election, the electing director will receive one deferred share unit in lieu of each three options:
2,000 deferred share units in the event of a 100 percent election or 1,000

100

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deferred
share units in the event of 50 percent election. The deferred share units will be vested immediately upon grant. Each deferred share unit automatically converts to one share of our
common stock upon the director's retirement or other termination.

For
periods prior to January 1, 2005, continuing non-employee directors were granted options each year, typically in March, to purchase 5,000 shares of our common
stock. The options so granted vested immediately and have a five-year term. Prior to January 1, 2005, newly elected or appointed non-employee directors were granted
options upon election or appointment to purchase 10,000 shares of our common stock at fair market value on the date of grant. The options granted to newly elected or appointed non-employee
directors had a
five-year term and became exercisable as follows: 2,500 options immediately upon the date of grant and an additional 2,500 options on each subsequent year in which the director continues
to serve on the Board on the anniversary of the date of grant.

For
each calendar year beginning with 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 either 25, 50, 75 or 100 percent of his or her annual director's fee. Once vested, each deferred share unit is convertible into one share of our common stock upon the director's
retirement or other termination. A director who elects to receive deferred share units prior to the end of any calendar year 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 deferred share units then vest on the following dates: 25 percent on
January 1 (the date of grant); and 25 percent on each of the following dates: April 1, July 1, and October 1. Vested deferred share units automatically convert to
shares of our common stock upon the director's retirement or other termination. None of our directors elected to receive deferred share units for calendar year 2005. On January 1, 2004, in lieu
of 100% of his annual director's fee, we issued Mr. MacNeill 2,386 deferred share units based on a price of our common shares of $10.48 per share on December 31, 2003. On
January 1, 2003, in lieu of 100% of his annual director's fee, we issued Mr. MacNeill 3,165 deferred share units based on a price of our common shares of $7.90 per share on
December 31, 2002.

Employment Agreements

We have entered into employment agreements with each of Messrs. Pilenko, Ludlow, Wells, Baldwin, Thielen and Worden. Our agreement with Mr. Pilenko
continues until terminated by prior written notice of either party. Our agreements with Messrs. Ludlow, Wells, Baldwin, Thielen and Worden continue until the employee reaches age 65 unless the
agreement is earlier terminated by prior written notice of either party. As of July 31, 2004, the executive officers are entitled to minimum annual salaries under their employment agreements as
follows: Mr. Pilenko$450,000; Mr. Ludlow$265,020; Mr. Wells$330,000; Mr. Thielen$180,300 and
Mr. Worden$225,000.(4) Mr. Baldwin joined the company in August 2004 at a base salary of $300,000. In the event of a termination without cause (other than in
connection with a change of control of Veritas DGC), each executive officer is entitled to payment under his employment agreement equal to one or more years of annual base salary as follows:
Mr. Pilenkothree years; Messrs. Ludlow, Wells and Baldwintwo years; and Messrs. Thielen and Wordenone year. Payment of these amounts will be
made over the specified period unless we exercise our option to pay them in a lump sum. In the event of a termination without cause within two years after a change of control of Veritas DGC, each
executive officer is entitled to a lump sum payment under his employment agreement equal to the following number times the sum of his annual base salary and annual bonus: Messrs. Pilenko,
Ludlow, Wells and Baldwinthree; and Messrs. Thielen and Wordentwo.

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Compensation Committee Interlocks and Insider Participation

None of the four members of our compensation committeeMessrs. Carroll, Gibbs, MacNeill or Workis or has been at any time an
officer or employee of Veritas DGC or any of its subsidiaries nor has any of them had any relationship with Veritas DGC that would otherwise require disclosure under Items 402 or 404 of
Regulation S-K.

ITEM 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Equity Compensation Plan Information

The following table presents data related to all of our equity compensation plans for both non-employee directors and employees as of July 31,
2004, and provides information related to potential ownership dilution as of such date:

Equity Compensation Plan Information  as of July 31, 2004

|Equity Compensation Plan Category                      |  | Number of securities to
be issued upon exercise
of outstanding options |     | Weighted-average
exercise price of
outstanding options |       | Number of securities available for
future issuance under equity
compensation plans (excluding
securities reserved for issuance in
connection with outstanding options) |          
|------------------------------------------------------ |  | ---------------------------------------------------------------------- | --- | ------------------------------------------------------ | ----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------
|Equity compensation plans approved by stockholders     |  | 1,362,531                                                              | (1) | $                                                      | 12.54 |                                                                                                                                                                        | 2,393,492
|Equity compensation plans not approved by stockholders |  | 1,817,342                                                              | (3) |                                                        | 18.92 |                                                                                                                                                                        | 0        

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On
December 11, 2002, our stockholders approved the adoption of 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. Effective upon the adoption of Share Incentive Plan, we may not award options, restricted stock or other equity compensation to any
director, officer or employee under any other plan, including those previously approved by stockholders.

Prior
to December 11, 2002 we had two employee nonqualified stock option plansour 1992 Employee Non-qualified Stock Option Plan (the "1992 Plan") and our
2001 Key Employee Non-qualified Stock Option Plan (the "2001 Plan"). Prior to December 11, 2002, we granted options to select employees, including our officers, under the 1992 Plan
and to select employees, excluding our officers, under the 2001 Plan. Stockholders approved the adoption of the 1992 Plan in December 1992 and also approved all amendments to the plan through
December 1997. In December 1998 and March 1999, our board adopted amendments to the 1992 Plan that increased the number of options available for grant by 1,204,550 and 550,000,
respectively. We did not seek stockholder approval of these amendments as such approval was not then required by the terms of the plan, applicable law or stock exchange requirements. In
January 2001, we adopted our 2001 Plan, which
allowed the issuance of up to 2 million options. We did not seek stockholder approval of the 2001 Plan as such approval was not then required by applicable law or stock exchange requirements.

Options
granted under the 1992 Plan and 2001 Plan 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 closing price on the New York Stock Exchange on the last trading day prior to the grant date. As of July 31, 2004, a total of 976,246 options were outstanding under
the 1992 Plan and 985,052 were outstanding under our 2001 Plan. No further options may be issued under either plan after December 11, 2002.

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. Stockholders approved the adoption of the Director Plan in December 1992 and also approved all amendments to the plan through December 1994. In
December 1997, our board adopted amendments to the Director Plan that increased the number of options available for grant by 400,000. We did not seek stockholder approval of these amendments as
such approval was not then required by the terms of the plan, applicable law or stock exchange requirements.

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 is the closing price on the New York Stock Exchange on the last trading day prior to the
grant date. As of July 31, 2004, a total of 127,800 options were outstanding under the Director Plan. No further options may be issued under the Director Plan after December 11, 2002.

Our
current Share Incentive Plan is described further in the Note 9 to Notes to Consolidated Financial Statements above.

103

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Security Ownership of Certain Beneficial Owners and Management

The following table sets forth certain information regarding the beneficial ownership of shares at March 31, 2005, by (i) each person we know to own
beneficially more than 5% of the outstanding shares, (ii) all directors, (iii) each executive officer named in the Summary Compensation Table and (iv) all directors and named
executive officers as a group.

|Name and Address                                                                |                                                                            | Amount and Nature of
Beneficial
Ownership(1)(2) |           | Percent of Class(3)
|------------------------------------------------------------------------------- | -------------------------------------------------------------------------- | ----------------------------------------------- | --------- | -------------------
|Beneficial Owners of 5% or more:                                                |                                                                            |                                                 |           |                    
|                                                                                | Barclays Global Investors, NA(4)
45 Fremont Street
San Francisco, CA 94105 |                                                 | 4,059,000 |                    
|                                                                                | Goldman Sachs & Company(5)
85 Broad Street
New York, NY 10004              |                                                 | 3,587,000 |                    
|                                                                                | Dimensional Fund Advisors Inc.(6)
1299 Ocean Avenue
Santa Monica, CA 90401 |                                                 | 2,474,000 |                    
|Named Executive Officers, Directors and Director Nominees:                      |                                                                            |                                                 |           |                    
|                                                                                | Thierry Pilenko                                                            |                                                 | 40,000    |                    
|                                                                                | David B. Robson                                                            |                                                 | 535,234   |                    
|                                                                                | Stephen J. Ludlow                                                          |                                                 | 86,829    |                    
|                                                                                | Timothy L. Wells                                                           |                                                 | 89,783    |                    
|                                                                                | Vincent M. Thielen                                                         |                                                 | 26,182    |                    
|                                                                                | Larry L. Worden                                                            |                                                 | 53,653    |                    
|                                                                                | Loren K. Carroll                                                           |                                                 | 12,500    |                    
|                                                                                | Clayton P. Cormier                                                         |                                                 | 38,304    |                    
|                                                                                | James R. Gibbs                                                             |                                                 | 37,250    |                    
|                                                                                | Brian F. MacNeill                                                          |                                                 | 49,551    |                    
|                                                                                | Jan Rask                                                                   |                                                 | 31,500    |                    
|                                                                                | David F. Work                                                              |                                                 | 2,500     |                    
|All directors, director nominees and executive officers as a group (12 persons) |                                                                            | 1,003,286                                       |           | 2.9                

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ITEM 13.Certain Relationships and Related Transactions

On August 21 2002, we acquired Hampson-Russell Software Services Ltd., 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 a cash payment of $9,250,000, transfer of 589,623 shares of Veritas common stock ($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. David B. Robson, our chairman and chief executive officer until March 1, 2004, beneficially owns and controls Vada Industries Ltd., an Alberta corporation which was a 25%
shareholder of Hampson-Russell at the time of the acquisition. The purchase price was determined at arm's length and was approved by our board of directors without Mr. Robson's presence or
participation. We believe that the price paid was no less favorable to us than would have been obtained from a wholly unrelated party.

Until
April 2004, our Canadian subsidiary, Veritas Energy Services Inc., provided to Vada certain payroll services and allowed Vada's three employees, including
Mr. Robson's two sons, to participate in the same group health, dental and life insurance programs we maintain for our Canadian employees. Vada paid Veritas Energy Services on a monthly basis
for costs incurred on Vada's behalf. For the year ended July 31, 2004, the reimbursement by Vada of costs incurred by Veritas Energy Services amounted to approximately $246,596. In addition,
until June 2004, Veritas Energy Services provided Vada with two offices and certain office services in Calgary. Vada paid Veritas Energy Services a monthly payment approximately equal to
Veritas Energy Services' cost. For the fiscal year ended July 31, 2004, Vada paid Veritas Energy Services approximately $14,101 for such offices and office services. Neither Veritas Energy
Services nor any of our other affiliates has, since June 2004, provided any services to Vada or any other affiliate of Mr. Robson.

ITEM 14.Principal Accountant Fees and Services

PricewaterhouseCoopers LLP, an independent registered public accounting firm, has served as the independent accountants of Veritas DGC since November 1996.

Audit Fees

The aggregate fees billed for professional services rendered for the audit of our consolidated financial statements, statutory audits in foreign jurisdictions,
issuance of consents and the reviews of financial statements included in the company's Forms 10-Q for the fiscal years ended July 31, 2004 and 2003 was $819,000 and $455,000,
respectively. Our audit committee pre-approved all fees for professional services for the audit of our audited financial statements for the year ended July 31, 2004.

105

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Audit Related Fees

The aggregate fees billed for audit related services (audits of our employee benefit plans, accounting consultations, due diligence related to mergers and
acquisitions and certain services related to the Sarbanes-Oxley Act of 2002) for the fiscal years ended July 31, 2004 and 2003 was $474,000 and $70,000, respectively. Our audit committee
pre-approved all fees for audit related services incurred during the year ended July 31, 2004.

Tax Fees

The aggregate fees billed for income tax and tax related services for the fiscal years ended July 31, 2004 and 2003 was $169,000 and $225,000,
respectively. Our audit committee pre-approved all fees for tax and tax related services incurred during the year ended July 31, 2004.

All Other Fees

The aggregate fees billed by PricewaterhouseCoopers LLP during the fiscal years ended July 31, 2004 and 2003 for other services totaled $17,000 and $2,000,
respectively. Our audit committee pre-approved all fees for such other services incurred during the year ended July 31, 2004. These services include primarily subscriptions to
PricewaterhouseCoopers' on-line research tools. In conjunction with our annual plan, we prepare a budget for non-audit services we intend to obtain from PricewaterhouseCoopers
LLP. This budget includes a description of the specific projects and services and an estimated cost. We submit this budget to our Audit Committee for review and approval. We conduct our business with
PricewaterhouseCoopers LLP according to this approved budget and, if circumstances require alternation of the budget, we request approval from the Audit Committee before deviating from the budget in
any manner. We submit a quarterly update of our spending with PricewaterhouseCoopers LLP to the Audit Committee.

106

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PART IV

ITEM 15.Exhibits and Financial Statement Schedules

CONSOLIDATED FINANCIAL STATEMENTS

(a)(1)



Report of Independent Registered Public Accounting FirmConsolidated Statements of Operations for the Three Years Ended July 31, 2004Consolidated Balance Sheets as of July 31, 2004 and 2003Consolidated Statements of Cash Flows for the Three Years Ended July 31, 2004Consolidated Statements of Changes in Stockholders' Equity for the Three Years Ended July 31, 20045Notes to Consolidated Financial StatementsFinancial Statement Schedule IIValuation and Qualifying Accounts


|(a)(2) | CONSOLIDATED FINANCIAL STATEMENT SCHEDULES | 
|------ | ------------------------------------------ | 

Financial
Statement Schedule IIValuation and Qualifying Accounts appears on page 76. 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.

(a)(3)See accompanying Exhibit Index.

107

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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 29th day of April, 2005.

| |  | VERITAS DGC INC.
| |  | ----------------
| |  | By:             

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
29th day of April 2005.

|/s/THIERRY PILENKOThierry Pilenko       |  | Chairman of the Board and Chief Executive Officer, Director    
|--------------------------------------- |  | ---------------------------------------------------------------
|/s/STEPHEN J. LUDLOWStephen J. Ludlow   |  | Vice Chairman, Director                                        
|/s/TIMOTHY L. WELLSTimothy L. Wells     |  | President and Chief Operating Officer                          
|/s/MARK E. BALDWINMark E. Baldwin       |  | Executive Vice President, Chief Financial Officer and Treasurer
|/s/VINCENT M. THIELENVincent M. Thielen |  | Vice President, Corporate Controller                           
|/s/CLAYTON P. CORMIERClayton P. Cormier |  | Director                                                       
|/s/LOREN K. CARROLLLoren K. Carroll     |  | Director                                                       
|/s/JAMES R. GIBBSJames R. Gibbs         |  | Director                                                       
|/s/BRIAN F. MACNEILLBrian F. MacNeill   |  | Director                                                       
|/s/JAN A. RASKJan A. Rask               |  | Director                                                       
|/s/DAVID F. WORKDavid F. Work           |  | Director                                                       

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EXHIBIT INDEX

|Exhibit
No. |   | Description                                                                                                                                                                                                                                                         
|----------- | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1         |  | 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.)                                       
|3.2         |  | 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.)                                                           
|3.3         |  | 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.)                                   
|3.4         |  | Certificate of Amendment to Restated Certificate of Incorporation of Veritas DGC Inc. dated September 30, 1999 (Exhibit 4.4 to Veritas DGC Inc.'s Registration Statement No. 333-111997 dated January 20, 2004 is
incorporated herein by reference.)                
|3.5         |  | By-laws of Veritas DGC Inc. as amended and restated September 23, 2003 (Exhibit 4.5 to Veritas DGC Inc.'s Registration Statement No. 333-111997 dated January 20, 2004 is incorporated herein by reference.)                                                        
|4.1         |  | 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.)                                                                                              
|4.2         |  | 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.)                             
|4.3         |  | Indenture dated March 3, 2004 between Veritas DGC Inc. and U.S. Bank National Association, as trustee. (Exhibit 4.2 to Veritas DGC Inc.'s Current Report on Form 8-K dated March 3, 2004 is incorporated herein by
reference.)                                      
|4.4         |  | Global note representing $125,000,000 aggregate principal amount of Floating Rate Convertible Senior Notes Due 2024 (Exhibit 4.3 to Veritas DGC Inc.'s Current Report on Form 8-K dated March 3, 2004 is incorporated herein by
reference.)                         
|4.5         |  | Registration Rights Agreement dated as of March 3, 2004 by and between Veritas DGC Inc. and Deutsche Bank Securities Inc. (Exhibit 4.1 to Veritas DGC Inc.'s Current Report on Form 8-K dated March 3, 2004 is
incorporated herein by reference.)                   
|9.1         |  | 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.)  
|9.2         |  | Voting and Exchange Trust Agreement dated September 30, 1999 among Veritas DGC Inc., Veritas Energy Services Inc. and CIBC Mellon Trust Company. (Exhibit 9-B to Veritas DGC Inc.'s Form 10-K for the year ended
July 31, 1999 is incorporated herein by reference.)
|10.1        |  | 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.)                                            
|            |   |                                                                                                                                                                                                                                                                     

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|+**10.2 |  | Form of Restricted Stock Grant Agreement.                                                                                                                                                                                                  
|------- | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|**10.3  |  | Key Contributor Incentive Plan as amended and restated March 3, 2003. (Exhibit 10.1 to Veritas DGC Inc.'s Form 8-K dated March 3, 2005 is incorporated herein by reference.)                                                               
|**10.4  |  | 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.)                               
|**10.5  |  | 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.)                               
|**10.6  |  | 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.)                   
|**10.7  |  | 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.)
|**10.8  |  | 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.)                       
|**10.9  |  | 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.)    
|**10.10 |  | 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.)                         
|**10.11 |  | 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.)      
|**10.12 |  | 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.)                        
|**10.13 |  | 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.)     
|**10.14 |  | 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.)                                              
|**10.15 |  | 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.)                           
|**10.16 |  | Deferred Compensation Plan effective January 1, 2001. (Exhibit 10-Q to Veritas DGC Inc.'s Form 10-Q for the quarter ended October 31, 2000 is incorporated by reference.)                                                                  
|        |   |                                                                                                                                                                                                                                            

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|**10.17  |  | 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.)                                                                                                                                                                                                                                                  
|-------- | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|**10.18  |  | 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.)                                                                                                                                                                                                                                                                                                
|**10.19  |  | 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.)                                                                                                                                                                                                                                                                                                       
|**10.20  |  | 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.)                                                                                                                                                                                                                                                                                               
|10.21    |  | 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.)                                                                                                                                                                                                                         
|10.22    |  | 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.)                
|**10.23  |  | Veritas DGC Inc. Employee Share Purchase Plan. (Exhibit 4.8 to Veritas DGC Inc.'s Registration Statement No. 333-111997 dated January 20, 2004 is incorporated herein by reference.)                                                                                                                                                                                                                                                                                                            
|10.24    |  | Third Amendment to Credit Agreement dated February 20, 2004 by and 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 10.2 to Veritas DGC Inc.'s Form 10-Q for the quarter ended January 31, 2004 is incorporated
herein by reference.)
|10.25    |  | Retirement Agreement between Veritas DGC Inc. and David B. Robson dated January 1, 2004. (Exhibit 10.4 to Veritas DGC Inc.'s Form 10-Q for the quarter ended January 31, 2004 is incorporated herein by reference.)                                                                                                                                                                                                                                                                             
|**10.26  |  | Employment Agreement between Veritas DGC Inc. and Thierry Pilenko dated January 26, 2004. (Exhibit 10.3 to Veritas DGC Inc.'s Form 10-Q for the quarter ended January 31, 2004 is incorporated herein by reference.)                                                                                                                                                                                                                                                                            
|+**10.27 |  | Employment Agreement between Veritas DGC Inc. and Mark E. Baldwin dated August 24, 2004.                                                                                                                                                                                                                                                                                                                                                                                                        
|+**10.28 |  | Employment agreement between Veritas DGC Inc. and Vincent M. Thielen dated September 23, 2003.                                                                                                                                                                                                                                                                                                                                                                                                  
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|**10.29  |  | Veritas DGC Inc. Global Management Incentive Plan (including all amendments through October 4, 2004) (Exhibit 10.1 to Veritas DGC Inc.'s Form 8-K dated March 3, 2005 is incorporated herein by reference.)
|-------- | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|**10.30  |  | Veritas DGC Inc. Key Contributor Plan (including all amendments through October 4, 2004) (Exhibit 10.1 to Veritas DGC Inc.'s Form 8-K dated March 3, 2005 is incorporated herein by reference.)            
|+**10.31 |  | Description of director compensation.                                                                                                                                                                      
|+**10.32 |  | Form of Indemnity Agreement for directors and officers.                                                                                                                                                    
|+**10.33 |  | Form of Stock Option Grant Agreement.                                                                                                                                                                      
|+**10.34 |  | Form of Deferred Share Unit Award and Deferral Agreement.                                                                                                                                                  
|+18.1    |  | Preferability letter of PricewaterhouseCoopers LLP.                                                                                                                                                        
|+21      |  | Subsidiaries of the Registrant.                                                                                                                                                                            
|+31.1    |  | Rule 13a-14(a) certification by CEO.                                                                                                                                                                       
|+31.2    |  | Rule 13a-14(a) certification by CFO.                                                                                                                                                                       
|+32.1    |  | Section 1350 certification by CEO.                                                                                                                                                                         
|+32.2    |  | Section 1350 certification by CFO.                                                                                                                                                                         

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