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Takes restructuring charges to rightsize the company

HOUSTON, Feb. 11, 2015 /PRNewswire/ — ION Geophysical Corporation (NYSE: IO) today reported a fourth quarter 2014 net loss of $180.9 million, or $(1.10) per share, which included restructuring and special items totaling $170 million that reduced reported earnings per share by $(1.03).  Excluding these restructuring and special items, ION’s fourth quarter 2014 net loss was $11.0 million on revenues of $136.8 million, or $(0.07) per share, compared to an adjusted net income of $53.4 million on revenues of $218.7 million, or $0.33 per diluted share, in fourth quarter 2013.

During the quarter, the Company recorded $170 million of restructuring charges and special items as detailed below, with $2 million requiring a use of cash:

  • $109 million of charges impacted cost of sales, of which $101 million was primarily related to a write-down of the multi-client data library within the Solutions segment and $8 million related to inventory write-downs and severance-related charges within the Systems segment;
  • $33 million of charges impacted operating expenses, of which $25 million was primarily related to the impairment of goodwill within the Systems segment, $2 million was associated with the write-down of intangible assets within the Solutions segment, and $6 million was primarily attributable to the write-down of receivables due from INOVA Geophysical within the Corporate and Other segment;
  • $34 million of charges impacted equity earnings, primarily due to the full write-down of the Company’s equity method investment in INOVA Geophysical; and
  • $6 million of gains impacted other income, income tax expense and non-controlling interests, primarily related to the Company’s sale of a cost method investment.

A reconciliation of the restructuring and special items can be found in the tables at the end of this press release.

At December 31, 2014, the Company’s cash and cash equivalents were $173.6 million.  The Company generated net cash flows before financing activities of $81.0 million during 2014, compared to a use of cash before financing activities of $11.4 million in 2013.  Full year 2014 Adjusted EBITDA was $108.3 million, compared to $154.3 million in 2013.  A reconciliation of Adjusted EBITDA can be found in the tables of this press release.

Brian Hanson, the Company’s President and Chief Executive Officer, commented, “Our fourth quarter and full year results were significantly impacted by the continued slowdown in exploration spending by E&P companies.  The slowdown has been greater than we originally expected, but our decision over a year ago to conservatively manage our business has been evident through our ability to generate positive cash flows throughout 2014.  While managing for cash, we have narrowed our focus and continue to strategically invest in high potential technologies.

“During the fourth quarter we initiated a restructuring plan to rightsize our segments, with the exception of our Ocean Bottom Services segment, reducing our workforce by approximately 10%.  This reduction should result in an annual cash savings of approximately $15 million.  This restructuring is a significant move to better integrate and align our entire workforce with our strategy of providing solutions directly to E&P companies.

“In light of the expected prolonged slowdown, we recorded several charges that impacted our fourth quarter results.  These charges included a write-down of data library investments associated with our Arctic and onshore North America programs, and a full impairment of goodwill associated with our marine equipment operations.  Also, we wrote down our investment in INOVA Geophysical and are evaluating strategic options related to our ongoing participation in the joint venture.

“We are pleased with our continued penetration into the ocean bottom services market through OceanGeo.  Our investment in and success with OceanGeo and ocean bottom services has positioned us to participate in the less volatile production phase of seismic activity.  During the fourth quarter, OceanGeo completed acquisition of a survey offshore West Africa and was awarded and completed another survey in an adjacent area with a new customer.  During 2014, as we increased our ownership in OceanGeo to 100%, we upgraded our vessels for more efficient operations.  OceanGeo is ready to take advantage of continued demand for ocean bottom seismic, especially in West Africa, where demand is especially high.

“Looking ahead, we expect 2015 exploration budgets across the E&P industry to be down an estimated 25% to 35% compared to 2014. Consistent with 2014, we will continue to maximize cash and to exercise spending discipline across all of our businesses, funding new programs once we have obtained adequate levels of industry underwriting and continuing to invest in key strategic technologies and market opportunities.”

FOURTH QUARTER 2014

The Company’s segment revenues for the fourth quarter were as follows (in thousands):

Three Months Ended December 31,

2014

2013

% Change

Solutions

$

80,170

$

166,148

(52)%

Systems

16,469

40,470

(59)%

Software

8,411

12,059

(30)%

Ocean Bottom Services

31,790

Total

$

136,840

$

218,677

(37)%

Within the Solutions segment, new venture revenues were $22.2 million, a 64% decrease from fourth quarter 2013; data library revenues were $36.1 million, a 52% decrease; and data processing revenues were $21.9 million, a 25% decrease.  All businesses within the Solutions segment were impacted by the continued softness of exploration spending.  Data library revenues were also impacted by the record sales in fourth quarter 2013 that were not repeated in 2014.

The decrease in Systems segment revenues was primarily due to a reduction in sales of new marine positioning system and land geophone strings compared to fourth quarter 2013.

Software segment revenues were down compared to record fourth quarter revenues in 2013, primarily due to lower Orca® licensing revenues.  While Software segment revenues were down year over year, the segment generated overall gross and operating margins, as adjusted, of 66% and 41%, respectively, during the quarter. 

Ocean Bottom Services segment revenues were $31.8 million, related to work performed on OceanGeo’s projects offshore West Africa, which were completed during the fourth quarter.

Excluding the impact of restructuring and special items, consolidated gross margins were 34%, compared to 47% in fourth quarter 2013, and operating margins were 4%, compared to 30% in the earlier period.  The decrease in gross and operating margins was driven primarily by the decrease in revenues within the Solutions and Systems segments, which more than offset the uplift in margins provided by the Ocean Bottom Services segment.

The Company recognized $40.5 million of equity losses, which included the full write-down of its investment in INOVA Geophysical, compared to equity losses of $19.4 million in fourth quarter 2013.  INOVA Geophysical experienced a 70% decline in revenues year over year, a result of a soft land seismic equipment market and reduced purchases by BGP, the majority partner in the joint venture.  See the attached financial tables for the summarized financial results of INOVA.

The Company’s fourth quarter 2013 results included equity losses of $12.4 million related to OceanGeo. In late January 2014, the Company increased its ownership interest to 70%, and subsequently to 100% in July, at that time taking over direct management of OceanGeo.

Income tax expense was $6.3 million for fourth quarter 2014, related to income from the Company’s non-U.S. businesses, including OceanGeo.  This foreign tax expense has not been offset by the tax benefits on losses within the U.S. and other jurisdictions, from which the Company cannot currently benefit, resulting in an income tax expense on a consolidated pre-tax loss.

FULL YEAR 2014

The Company’s segment revenues for the full year were as follows (in thousands):

Years Ended December 31,

2014

2013

% Change

Solutions

$

277,904

$

387,384

(28)%

Systems

88,417

122,432

(28)%

Software

39,993

39,351

2%

Ocean Bottom Services

103,244

Total

$

509,558

$

549,167

(7)%

Within the Solutions segment, new venture revenues were $98.6 million, down 36% year over year; data library revenues were $66.2 million, down 41%; and data processing revenues were $113.1 million, down 6%.  All businesses within the Solutions segment were impacted by the continued softness of exploration spending throughout 2014.  The decline in data processing was partially offset by $15.0 million of revenues recognized in 2014 that related to work performed for a customer in 2013.  

The decrease in Systems segment revenues was primarily due to (i) lower sales of new marine positioning systems; (ii) a lack of ocean bottom cable systems sales in 2014 compared to 2013; (iii) reduced land geophone string sales; partially offset by (iv) additional marine repair and replacement revenues.

Software segment revenues were up slightly compared to 2013.  The Software segment experienced record revenues in the first half of 2014, which were mostly offset by a reduction in revenues in the fourth quarter.  The Software segment generated gross and operating margins, as adjusted, of 72% and 51%, respectively, during 2014. 

Ocean Bottom Services segment revenues were $103.2 million, related to work performed on OceanGeo’s project in Trinidad, completed in May, and from its projects offshore West Africa that were completed in the fourth quarter.

Excluding the impact of restructuring and special items, consolidated gross margins were 34%, compared to 35% in 2013, and operating margins were 5%, compared to 11% in 2013.  The decreases in gross and operating margins were primarily due to the decrease in revenues within the Solutions segment, which more than offset the uplift in margins provided by the Ocean Bottom Services segment.

The Company recognized $50.2 million of equity losses related to INOVA Geophysical, which included the full write-down of the remaining balance of its investment, compared to equity losses of $22.5 million in 2013.  Also, prior to the consolidation of OceanGeo in late January of this year, the Company recorded $0.7 million of equity earnings, compared to equity losses of $19.8 million in 2013.

Income tax expense was $20.6 million for 2014, related to income from the Company’s non-U.S. businesses, including OceanGeo.

The Company reported a net loss of $128.3 million, or $(0.78) per share, compared to a net loss of $251.9 million, or $(1.59) per share, in 2013.  Both periods included special items related to the WesternGeco legal matter and certain restructuring and other special items.  Excluding these special items, in 2014, the Company reported a net loss of $34.1 million, or $(0.21) per share, compared to net income of $19.3 million, or $0.12 per diluted share, in 2013.

CONFERENCE CALL

The Company has scheduled a conference call for Thursday, February 12, 2015, at 10:00 a.m. Eastern Time that will include a slide presentation to be posted in the Investor Relations section of the ION website by 9:00 a.m. Eastern Time.  To participate in the conference call, dial (877) 407-0672 at least 10 minutes before the call begins and ask for the ION conference call.  A replay of the call will be available approximately two hours after the live broadcast ends and will be accessible until February 26, 2015.  To access the replay, dial (877) 660-6853 and use pass code 13598876#.

Investors, analysts and the general public will also have the opportunity to listen to the conference call live over the Internet by visiting www.iongeo.com.  An archive of the webcast will be available shortly after the call on the Company’s website.

About ION

ION is a leading provider of technology-driven solutions to the global oil & gas industry.  ION’s offerings are designed to help companies reduce risk and optimize assets throughout the E&P lifecycle. For more information, visit www.iongeo.com.

Contact

Steve Bate
Executive Vice President and Chief Financial Officer
+1.281.552.3011

The information included herein contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.  These forward-looking statements may include future sales, earnings and market growth, timing of sales, future liquidity and cash levels, future estimated revenues and earnings, sales expected to result from backlog, benefits expected to result from OceanGeo and the INOVA Geophysical joint venture and related transactions, expected outcome of litigation and other statements that are not of historical fact.  Actual results may vary materially from those described in these forward-looking statements. All forward-looking statements reflect numerous assumptions and involve a number of risks and uncertainties.  These risks and uncertainties include risks associated with pending and future litigation, including the risk that the Company does not prevail in its appeal of the judgment in the lawsuit with WesternGeco and that the ultimate outcome of the lawsuit could have a material adverse effect on the Company’s financial results and liquidity; the timing and development of the Company’s products and services and market acceptance of the Company’s new and revised product offerings; the operation of OceanGeo and the INOVA Geophysical joint venture; the Company’s level and terms of indebtedness; competitors’ product offerings and pricing pressures resulting therefrom; the relatively small number of customers that the Company currently relies upon; the fact that a significant portion of the Company’s revenues is derived from foreign sales; that sources of capital may not prove adequate; the Company’s inability to produce products to preserve and increase market share; collection of receivables; and technological and marketplace changes affecting the Company’s product lines.  Additional risk factors, which could affect actual results, are disclosed by the Company from time to time in its filings with the Securities and Exchange Commission (“SEC”), including its Annual Report on Form 10-K for the year ended December 31, 2013 and its Quarterly Reports on Form 10-Q and Current Reports on Form 8-K filed during 2014.

Tables to follow

 

ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

Three Months Ended December 31,

Twelve Months Ended December 31,

2014

2013

2014

2013

Service revenues

$

112,552

$

167,086

$

384,938

$

391,317

Product revenues

24,288

51,591

124,620

157,850

Total net revenues

136,840

218,677

509,558

549,167

Cost of services

77,930

89,014

278,627

272,047

Cost of products

20,892

26,821

68,608

112,346

Impairment of multi-client data library

100,100

100,100

5,461

Gross profit (loss)

(62,082)

102,842

62,223

159,313

Operating expenses:

Research, development and engineering

10,755

9,077

41,009

37,742

Marketing and sales

12,072

13,219

39,682

38,583

General, administrative and other operating expenses

27,843

16,315

76,177

66,592

Impairment of goodwill and intangible assets

23,284

23,284

Total operating expenses

73,954

38,611

180,152

142,917

Income (loss) from operations

(136,036)

64,231

(117,929)

16,396

Interest expense, net

(4,603)

(4,241)

(19,382)

(12,344)

Equity in losses of investments

(40,458)

(31,906)

(49,485)

(42,320)

Other income (expense)

5,890

(2,138)

79,860

(182,530)

Income (loss) before income taxes

(175,207)

25,946

(106,936)

(220,798)

Income tax expense

6,321

6,270

20,582

25,720

Net income (loss)

(181,528)

19,676

(127,518)

(246,518)

Net (income) loss attributable to noncontrolling interests

650

143

(734)

658

Net income (loss) attributable to ION

(180,878)

19,819

(128,252)

(245,860)

Preferred stock dividends

1,014

Conversion payment of preferred stock

5,000

Net income (loss) applicable to common shares

$

(180,878)

$

19,819

$

(128,252)

$

(251,874)

Net income (loss) per share:

Basic

$

(1.10)

$

0.12

$

(0.78)

$

(1.59)

Diluted

$

(1.10)

$

0.12

$

(0.78)

$

(1.59)

Weighted average number of common shares outstanding:

Basic

164,290

163,445

164,089

158,506

Diluted

164,290

163,772

164,089

158,506

 

 

ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited)

December 31,

2014

2013

ASSETS

Current assets:

Cash and cash equivalents

$

173,608

$

148,056

Accounts receivable, net

114,325

149,448

Unbilled receivables

22,599

49,468

Inventories

51,162

57,173

Prepaid expenses and other current assets

13,662

24,772

Total current assets

375,356

428,917

Deferred income tax asset

8,604

14,650

Property, plant, equipment and seismic rental equipment, net

69,840

46,684

Multi-client data library, net

118,669

238,784

Equity method investments

53,865

Goodwill

27,388

55,876

Intangible assets, net

6,788

11,247

Other assets

10,612

14,648

Total assets

$

617,257

$

864,671

LIABILITIES AND EQUITY

Current liabilities:

Current maturities of long-term debt

$

7,649

$

5,906

Accounts payable

36,863

22,654

Accrued expenses

65,264

84,358

Accrued multi-client data library royalties

35,219

46,460

Deferred revenue

8,262

20,682

Total current liabilities

153,257

180,060

Long-term debt, net of current maturities

182,945

214,246

Other long-term liabilities

143,804

210,602

Total liabilities

480,006

604,908

Redeemable noncontrolling interest

1,539

1,878

Equity:

Common stock

1,645

1,637

Additional paid-in capital

887,749

879,969

Accumulated deficit

(734,409)

(606,157)

Accumulated other comprehensive loss

(12,807)

(11,138)

Treasury stock

(6,565)

(6,565)

Total stockholders’ equity

135,613

257,746

Noncontrolling interests

99

139

Total equity

135,712

257,885

Total liabilities and equity

$

617,257

$

864,671

 

 

ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

Years Ended December 31,

2014

2013

Cash flows from operating activities:

Net income (loss)

$

(127,518)

$

(246,518)

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Depreciation and amortization (other than multi-client library)

27,656

18,158

Amortization of multi-client data library

64,374

86,716

Stock-based compensation expense

8,707

7,476

Equity in losses of investments

49,485

42,320

Gain on sale of Source product line

(6,522)

Gain on sale of cost method investments

(5,463)

(3,591)

Accrual for (reduction of) loss contingency related to legal proceedings

(69,557)

183,327

Impairment of goodwill and intangible assets

23,284

Impairment of multi-client data library

100,100

5,461

Write-down of excess and obsolete inventory

6,952

21,197

Write-down of receivables from INOVA Geophysical

5,510

Write-down of receivables from OceanGeo

9,157

Deferred income taxes

(437)

4,844

Change in operating assets and liabilities:

Accounts receivable

41,943

(27,571)

Unbilled receivables

26,762

40,211

Inventories

(13,892)

(8,906)

Accounts payable, accrued expenses and accrued royalties

(4,771)

8,482

Deferred revenue

(8,382)

(6,253)

Other assets and liabilities

11,549

13,077

Net cash provided by operating activities

129,780

147,587

Cash flows from investing activities:

Investment in multi-client data library

(67,785)

(114,582)

Purchase of property, plant, equipment and seismic rental equipment

(8,264)

(16,914)

Repayment of (net advances to) INOVA Geophysical

1,000

(5,000)

Net investment in and advances to OceanGeo B.V. prior to its consolidation

(3,074)

(24,755)

Net proceeds from sale of Source product line

14,394

Proceeds from sale of cost method investments

14,051

4,150

Investment in convertible notes

(2,000)

Other investing activities

928

128

Net cash used in investing activities

(48,750)

(158,973)

Cash flows from financing activities:

Proceeds from issuance of notes

175,000

Payments under revolving line of credit

(50,000)

(97,250)

Borrowings under revolving line of credit

15,000

35,000

Payments on notes payable and long-term debt

(12,998)

(4,361)

Cost associated with issuance of debt

(2,194)

(6,773)

Acquisition of non-controlling interest

(6,000)

Payment of preferred dividends

(1,014)

Conversion payment of preferred stock

(5,000)

Proceeds from employee stock purchases and exercise of stock options

577

2,527

Other financing activities

(359)

573

Net cash provided by (used in) financing activities

(55,974)

98,702

Effect of change in foreign currency exchange rates on cash and cash equivalents

496

(231)

Net increase in cash and cash equivalents

25,552

87,085

Cash and cash equivalents at beginning of period

148,056

60,971

Cash and cash equivalents at end of period

$

173,608

$

148,056

 

 

ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES

SUMMARY OF SEGMENT INFORMATION

(In thousands)

(Unaudited)

Three Months Ended
December 31,

Twelve Months Ended
December 31,

2014

2013

2014

2013

Net revenues:

Solutions:

New Venture

$

22,150

$

60,948

$

98,649

$

154,578

Data Library

36,076

75,845

66,180

111,998

Total multi-client revenues

58,226

136,793

164,829

266,576

Data Processing

21,944

29,355

113,075

120,808

Total

$

80,170

$

166,148

$

277,904

$

387,384

Systems:

Towed Streamer

$

8,213

$

25,530

$

43,995

$

66,991

Ocean bottom equipment

7,307

Other

8,256

14,940

44,422

48,134

Total

$

16,469

$

40,470

$

88,417

$

122,432

Software:

Software Systems

$

7,819

$

11,121

$

36,203

$

35,418

Services

592

938

3,790

3,933

Total

$

8,411

$

12,059

$

39,993

$

39,351

Ocean Bottom Services

$

31,790

$

$

103,244

$

Total

$

136,840

$

218,677

$

509,558

$

549,167

 

 

Three Months Ended December 31, 2014

Three Months Ended December 31, 2013

As Reported

Special Items(1)

As Adjusted

As Reported

Special Items(1)

As Adjusted

Gross profit (loss):

Solutions

$

(75,552)

$

100,825

$

25,273

$

77,508

$

$

77,508

Systems

(1,459)

7,580

6,121

16,804

608

17,412

Software

5,447

137

5,584

8,530

8,530

Ocean Bottom Services

9,482

9,482

Total

$

(62,082)

$

108,542

$

46,460

$

102,842

$

608

$

103,450

Gross margin:

Solutions

(94)%

126

%

32

%

47

%

%

47

%

Systems

(9)%

46

%

37

%

42

%

1

%

43

%

Software

65

%

1

%

66

%

71

%

%

71

%

Ocean Bottom Services

30

%

%

30

%

%

%

%

Total

(45)%

79

%

34

%

47

%

%

47

%

Income (loss) from operations:

Solutions

$

(92,386)

$

102,740

$

10,354

$

60,931

$

$

60,931

Systems

(33,356)

32,492

(864)

11,215

754

11,969

Software

3,227

223

3,450

7,206

7,206

Ocean Bottom Services

6,737

6,737

Corporate and other

(20,258)

6,487

(13,771)

(15,121)

(15,121)

Total

$

(136,036)

$

141,942

$

5,906

$

64,231

$

754

$

64,985

Operating margin:

Solutions

(115)%

128

%

13

%

37

%

%

37

%

Systems

(203)%

198

%

(5)%

28

%

2

%

30

%

Software

38

%

3

%

41

%

60

%

%

60

%

Ocean Bottom Services

21

%

%

21

%

%

%

%

Corporate and other

(15)%

5

%

(10)%

(7)%

%

(7)%

Total

(99)%

103

%

4

%

29

%

1

%

30

%

 

 

Twelve Months Ended December 31, 2014

Twelve Months Ended December 31, 2013

As Reported

Special Items(1)

As Adjusted

As Reported

Special Items(1)

As Adjusted

Gross profit:

Solutions

$

(24,345)

$

100,825

$

76,480

$

111,108

$

5,461

$

116,569

Systems

29,829

7,580

37,409

19,999

25,688

45,687

Software

28,835

137

28,972

28,206

28,206

Ocean Bottom Services

27,904

27,904

Total

$

62,223

$

108,542

$

170,765

$

159,313

$

31,149

$

190,462

Gross margin:

Solutions

(9)%

37

%

28

%

29

%

1

%

30

%

Systems

34

%

8

%

42

%

16

%

21

%

37

%

Software

72

%

%

72

%

72

%

%

72

%

Ocean Bottom Services

27

%

%

27

%

%

%

%

Total

12

%

22

%

34

%

29

%

6

%

35

%

Income (loss) from operations:

Solutions

$

(80,653)

$

102,740

$

22,087

$

61,146

$

5,461

$

66,607

Systems

(23,521)

32,492

8,971

(9,957)

28,050

18,093

Software

20,212

223

20,435

23,602

23,602

Ocean Bottom Services

19,070

19,070

Corporate and other

(53,037)

6,487

(46,550)

(58,395)

9,157

(49,238)

Total

$

(117,929)

$

141,942

$

24,013

$

16,396

$

42,668

$

59,064

Operating margin:

Solutions

(29)%

37

%

8

%

16

%

1

%

17

%

Systems

(27)%

37

%

10

%

(8)%

23

%

15

%

Software

51

%

%

51

%

60

%

%

60

%

Ocean Bottom Services

18

%

%

18

%

%

%

%

Corporate and other

(10)%

1

%

(9)%

(11)%

2

%

(9)%

Total

(23)%

28

%

5

%

3

%

8

%

11

%

(1)

See the tables titled ‘Reconciliation of Restructuring and Special Items to Diluted Earnings per Share’ for descriptions of these restructuring and special items for three and twelve months ended December 31, 2014 and 2013.

 

INOVA GEOPHYSICAL EQUIPMENT LIMITED
SUMMARIZED FINANCIAL HIGHLIGHTS

(In thousands)

(Unaudited)

The Company accounts for its 49% interest in INOVA Geophysical as an equity method investment and records its share of earnings and losses of INOVA Geophysical on a one fiscal quarter lag basis.  The following table reflects the summarized financial information for INOVA Geophysical for the three months ended September 30, 2014 and 2013 and the twelve-month periods from October 1 to September 30, 2014 and 2013:

Three Months Ended September 30,

Period from October 1

through September 30,

2014

2013

2014

2013

Net revenues

$

12,201

$

40,672

$

89,975

$

183,619

Gross profit (loss)

$

(7,773)

(1)

$

(28,366)

(2)

$

247

(1)

$

(1,988)

(2)

Income (loss) from operations

$

(18,446)

(1)

$

(37,360)

$

(34,540)

 

(1)

$

(44,463)

Net income (loss)

$

(20,077)

$

(38,972)

(2)

$

(40,087)

$

(46,149)

(2)

(1)

Impacting INOVA’s gross profit (loss) for the three months ended September 30, 2014, is $3.8 million of a write-down of excess and obsolete inventory.  In addition to the special item impacting gross profit (loss), income (loss) from operations was also impacted by $3.4 million of charges related to customer bad debts.

(2)

Impacting INOVA’s gross profit (loss) for the three months ended September 30, 2013, is $36.5 million of restructuring and special items associated with the impairment of intangible assets, write-down of excess and obsolete inventory and rental equipment, and severance-related charges.  In addition to the restructuring and special items impacting gross profit (loss), net income (loss) was also impacted by $1.8 million of other restructuring and special items.

 

 

Reconciliation of Adjusted EBITDA to Net Income (Loss)

(Non-GAAP Measure)

(In thousands)

(Unaudited)

The term Adjusted EBITDA represents net income (loss) before interest expense, interest income, income taxes, depreciation and amortization, gains on sale of cost method investments and the Source product line, and other non-cash charges including, without limitation, equity in (earnings) losses of investments, accrual for (reduction of) loss contingency related to legal proceedings and the impairment and write-down of assets. Adjusted EBITDA is not a measure of financial performance under generally accepted accounting principles and should not be considered in isolation from or as a substitute for net income (loss) or cash flow measures prepared in accordance with generally accepted accounting principles or as a measure of profitability or liquidity. Additionally, Adjusted EBITDA may not be comparable to other similarly titled measures of other companies. The Company has included Adjusted EBITDA as a supplemental disclosure because its management believes that Adjusted EBITDA provides useful information regarding our ability to service debt and to fund capital expenditures and provides investors a helpful measure for comparing its operating performance with the performance of other companies that have different financing and capital structures or tax rates.

Three Months Ended December 31,

Twelve Months Ended December 31,

2014

2013

2014

2013

Net income (loss)

$

(181,528)

$

19,676

$

(127,518)

$

(246,518)

Interest expense, net

4,603

4,241

19,382

12,344

Income tax expense

6,321

6,270

20,582

25,720

Depreciation and amortization expense

25,027

40,836

92,030

104,874

Equity in losses of investments

40,458

31,906

49,485

42,320

Write-down of multi-client data library

100,100

100,100

5,461

Impairment of goodwill and intangible assets

23,284

23,284

Write-down of receivables from INOVA Geophysical

5,510

5,510

Write-down of excess and obsolete inventory

6,952

6,952

21,197

Gain on sale of cost method investments

(5,463)

(5,463)

(3,591)

Gain on sale of Source product line

(6,522)

Accrual for (reduction of) loss contingency related to legal proceedings

1,551

(69,557)

183,327

Write-down of receivables from OceanGeo

9,157

Adjusted EBITDA

$

25,264

$

104,480

$

108,265

$

154,291

 

 

Reconciliation of Restructuring and Special Items to Diluted Earnings per Share

(Non-GAAP Measure)

(In thousands, except per share data)

(Unaudited)

The financial results are reported in accordance with GAAP. However, management believes that certain non-GAAP performance measures may provide users of this financial information additional meaningful comparisons between current results and results in prior operating periods. One such non-GAAP financial measure is income (loss) from operations or net income (loss) excluding certain charges or amounts. This adjusted income (loss) amount is not a measure of financial performance under GAAP. Accordingly, it should not be considered as a substitute for income (loss) from operations, net income (loss) or other income data prepared in accordance with GAAP.  See the table below for supplemental financial data and the corresponding reconciliation to GAAP financials for the three and twelve months ended December 31, 2014 and 2013:

Three Months Ended December 31, 2014

Restructuring and Special Items by Segment

As Reported

Solutions(1)

Systems(2)

Software(3)

Corporate and Other

As Adjusted

Net revenues

$

136,840

$

$

$

$

$

136,840

Cost of sales

198,922

(100,825)

(7,580)

(137)

90,380

Gross profit (loss)

(62,082)

100,825

7,580

137

46,460

Operating expenses

73,954

(1,915)

(24,912)

(86)

(6,487)

(4)

40,554

Income (loss) from operations

(136,036)

102,740

32,492

223

6,487

5,906

Operating margin

(99)%

4

%

Interest expense, net

(4,603)

(4,603)

Equity in losses of investments

(40,458)

34,199

(5)

(6,259)

Other income (expense), net

5,890

(5,463)

(6)

427

Income tax expense

6,321

283

26

6,630

Net income (loss)

(181,528)

102,457

32,492

197

35,223

(11,159)

Net loss attributable to noncontrolling interests

650

(504)

146

Net income (loss) applicable to common shares

$

(180,878)

$

101,953

$

32,492

$

197

$

35,223

$

(11,013)

Net income (loss) per share:

Basic

$

(1.10)

$

(0.07)

Diluted

$

(1.10)

$

(0.07)

Weighted average number of common shares outstanding:

Basic

164,290

164,290

Diluted

164,290

164,290

(1)

Primarily relates to the write-down of the multi-client data library, in addition to the impairment of intangible assets and severance-related charges within the Solutions segment.

(2)

Primarily relates to the write-down of goodwill, in addition to inventory write-downs, bad debt and severance-related charges within the Systems segment.

(3)

Represents severance-related charges within the Software segment.

(4)

Represents the write-down of receivables due from INOVA Geophysical, in addition to severance-related charges.

(5)

Represents the full write-down of Company’s equity method investment in INOVA Geophysical of $30.7 million, in addition to the Company’s share of charges related excess and obsolete inventory and customer bad debts of $3.5 million.

(6)

Represents a non-recurring gain on sale of a cost method investment.

 

 

Twelve Months Ended December 31, 2014

Restructuring and Special Items by Segment

As Reported

Solutions(a)

Systems(a)

Software(a)

Corporate and Other

As Adjusted

Net revenues

$

509,558

$

$

$

$

$

509,558

Cost of sales

447,335

(100,825)

(7,580)

(137)

338,793

Gross profit

62,223

100,825

7,580

137

170,765

Operating expenses

180,152

(1,915)

(24,912)

(86)

(6,487)

(a)

146,752

Income (loss) from operations

(117,929)

102,740

32,492

223

6,487

24,013

Operating margin

(23)%

5

%

Interest expense, net

(19,382)

(19,382)

Equity in losses of investments

(49,485)

34,199

(a)

(15,286)

Other income (expense), net

79,860

(6,522)

(75,020)

(b)

(1,682)

Income tax expense

20,582

283

(357)

26

20,534

Net income (loss)

(127,518)

102,457

26,327

197

(34,334)

(32,871)

Net income attributable to noncontrolling interests

(734)

(504)

(1,238)

Net income (loss) applicable to common shares

$

(128,252)

$

101,953

$

26,327

$

197

$

(34,334)

$

(34,109)

Net income (loss) per share:

Basic

$

(0.78)

$

(0.21)

Diluted

$

(0.78)

$

(0.21)

Weighted average number of common shares outstanding:

Basic

164,089

164,089

Diluted

164,089

164,089

(a)

Relates to the restructuring and special items impacting the fourth quarter 2014.   See the notes for the three months ended December 31, 2014 for description of these restructuring and special items.

(b)

In addition to the sale of a cost method investment of $5.5 million in the fourth quarter, the Company’s first quarter results were impacted by a reduction in the WesternGeco legal contingency by $69.6 million and in the second quarter a non-recurring gain on the sale of the marine source product line of $6.5 million (before tax).

 

 

Three Months Ended December 31, 2013

Restructuring and Special Items by Segment

As Reported

Systems(1)

Corporate and Other

As Adjusted

Net revenues

$

218,677

$

$

$

218,677

Cost of sales

115,835

(608)

115,227

Gross profit

102,842

608

103,450

Operating expenses

38,611

(146)

38,465

Income from operations

64,231

754

64,985

Operating margin

29

%

30

%

Interest expense, net

(4,241)

(4,241)

Equity in losses of investments

(31,906)

31,238

(2)

(668)

Other expense, net

(2,138)

1,551

(3)

(587)

Income tax expense

6,270

6,270

Net income

19,676

754

32,789

53,219

Net loss attributable to noncontrolling interests

143

143

Net income applicable to common shares

$

19,819

$

754

$

32,789

$

53,362

Net income per share:

Basic

$

0.12

$

0.33

Diluted

$

0.12

$

0.33

Weighted average number of common shares outstanding:

Basic

163,445

163,445

Diluted

163,772

163,772

(1)

Represents restructuring charges related to the Systems segment vacating certain leased facilities in the fourth quarter 2013.

(2)

$18.8 million represents ION’s 49% share of restructuring charges within the INOVA joint venture, associated with the impairment of intangible assets, write-down of excess and obsolete inventory and rental equipment, and severance-related charges and $12.4 million represents losses incurred as a result of ION taking a larger ownership position in OceanGeo.

(3)

Represents additional accrued interest related to the WesternGeco legal contingency.

 

 

Twelve Months Ended December 31, 2013

Restructuring and Special Items by Segment

As Reported

Solutions(a)

Systems(b)

Corporate and Other

As Adjusted

Net revenues

$

549,167

$

$

$

$

549,167

Cost of sales

389,854

(5,461)

(25,688)

358,705

Gross profit

159,313

5,461

25,688

190,462

Operating expenses

142,917

(2,362)

(9,157)

(c)

131,398

Income from operations

16,396

5,461

28,050

9,157

59,064

Operating margin

3

%

11

%

Interest expense, net

(12,344)

(12,344)

Equity in losses of investments

(42,320)

31,238

(d)

(11,082)

Other income (expense), net

(182,530)

184,491

(e)

1,961

Income tax expense

25,720

(7,811)

(f)

17,909

Net income (loss)

(246,518)

5,461

28,050

232,697

19,690

Net loss attributable to noncontrolling interests

658

658

Net income (loss) attributable to ION

(245,860)

5,461

28,050

232,697

20,348

Preferred stock dividends

6,014

(5,000)

(g)

1,014

Net income (loss) applicable to common shares

$

(251,874)

$

5,461

$

28,050

$

237,697

$

19,334

Net income (loss) per share:

Basic

$

(1.59)

$

0.12

Diluted

$

(1.59)

$

0.12

Weighted average number of common shares outstanding:

Basic

158,506

158,506

Diluted

158,506

159,117

(a)

Represents the partial write-down of a multi-client data library.

(b)

Represents excess and obsolete inventory write-downs and severance-related charges as a result of restructuring of the Systems segment.

(c)

Represents the write-down of the carrying value of all receivables due from OceanGeo at September 30, 2013.

(d)

$18.8 million represents ION’s 49% share of restructuring charges within the INOVA joint venture, associated with the impairment of intangible assets, write-down of excess and obsolete inventory and rental equipment, and severance-related charges and $12.4 million represents losses incurred as a result of ION taking a larger ownership position in OceanGeo.

(e)

Primarily represents the loss contingency accrual related to the WesternGeco legal matter.

(f)

Represents a charge to income tax expense related to the Company establishing a valuation allowance on its net deferred tax assets.

(g)

Represents a payment related to the conversion of ION preferred stock into ION common shares.

 

 

To view the original version on PR Newswire, visit:http://www.prnewswire.com/news-releases/ion-reports-fourth-quarter-and-year-end-2014-results-300034846.html

SOURCE ION Geophysical Corporation