UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report: (Date of earliest event reported): October 29, 2009
ION Geophysical Corporation
(Exact name of registrant as specified in its charter)
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Delaware
(State or other jurisdiction of
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1-12691
(Commission file number)
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22-2286646
(I.R.S. Employer Identification No.) |
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2105 CityWest Blvd, Suite 400
Houston, Texas 77042-2839
(Address of principal executive offices, including Zip Code)
(281) 933-3339
(Registrant’s telephone number, including area code)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the
filing obligation of the registrant under any of the following provisions:
o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17
CFR 240.14d-2(b))
o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17
CFR 240.13e-4(c))
TABLE OF CONTENTS
Item 2.02. Results of Operations and Financial Condition.
On November 4, 2009, ION Geophysical Corporation (the “Company”) issued a press release
announcing its results of operations for the three and nine months ended September 30, 2009. A
copy of the press release is furnished with this filing as Exhibit 99.1.
In the press release, the Company also announced that it had determined to restate its
unaudited consolidated financial statements as of and for the three and six month periods ended
June 30, 2009.
The information contained in this Item 2.02 and Exhibit 99.1 of this report (i) is not to be
considered “filed” under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and
(ii) shall not be incorporated by reference into any previous or future filings made by or to be
made by the Company with the Securities and Exchange Commission (SEC) under the Securities Act of
1933, as amended, or the Exchange Act.
Item 4.02. Non-Reliance on Previously Issued Financial Statements or a Related Audit Report or
Completed Interim Review.
(a) On November 4, 2009, the Company issued a press release disclosing its determination to
restate its unaudited consolidated financial statements as of and for the three and six months
ended June 30, 2009.
The determination to restate these financial statements resulted from an error in revenue
recognition of certain product revenues in connection with the delivery of the Company’s
FireFly® land seismic data acquisition system and related hardware and components in
China, which the Company had recorded for the second fiscal quarter of 2009. The error resulted
from the fact that the sales records in the possession of the Company’s management at June 30, 2009
did not contain all relevant documentation relating to that particular sale. On October 28, 2009,
after obtaining and reviewing all additional documentation related to the sale, management for the
Company ascertained that the additional documentation provided additional terms with respect to
that sale. On October 29, 2009, management and the Board of Directors of the Company, upon the
recommendation of the Audit Committee of the Board of Directors, concluded that the Company should
not have recognized the revenues from the sale in its results of operations for the second fiscal
quarter of 2009, and, that as a result, the Company’s previously reported unaudited consolidated
financial statements as of and for the three and six month periods ended June 30, 2009 should no
longer be relied upon.
The reason for the incomplete documentation in the Company’s sales records for this sale
resulted from a sales employee in the Company’s China sales office failing to forward all material
documentation related to the sale, as is required by the Company’s revenue recognition policies.
The discovery of the existence of the additional documentation relating to the sale in question
occurred during the course of due diligence procedures that had been performed in connection with
the Company’s joint venture and related transactions with BGP Inc., China National Petroleum
Corporation (“BGP”), which was publicly announced on October 16, 2009. In connection with this due
diligence process, Company employees discovered certain documentation irregularities regarding the
sale of the FireFly system, including that a portion of the documentation reflecting the terms for
the sale had not been made available to the Company’s management for assessment with respect to the
recording and reporting of the sale.
The purchaser of this equipment has confirmed to the Company that it has accepted the
delivered system in question, and the Company is currently working with this customer to collect
payment and anticipates its collection in the fourth quarter of 2009.
The principal adjustments made as a result of the restatement of the consolidated financial
statements include a reduction in product revenues of approximately $11.3 million, a
reduction in
cost of products and services of approximately
$8.2 million and a reduction in gross profits of approximately
$3.1 million, for each of the three and six month periods ended June 30, 2009. The restated
financial statements will also reflect the inclusion of several other adjustments for the first six
months of fiscal 2009, of which the largest was approximately $3.3 million of additional
stock-based compensation expense related to 2006, 2007 and 2008. Accounting Standards Codification
(ASC) 718, “Share-Based Payments,” requires estimates of forfeitures of share-based awards to be
made at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures
differ from those estimates. This prior-period stock-based compensation expense relates to
adjustments between estimated and actual forfeitures, which should have been recognized over the
vesting periods of such awards. These adjustments were not deemed material with respect to either the
results of prior years or the anticipated results and the trends of earnings for the current
year and were therefore considered appropriate to include in
an otherwise-required restatement of the second quarter.
As a
result of these adjustments, the Company’s loss from operations was increased (i)
from approximately ($0.2) million to approximately ($7.5) million for the three months ended June
30, 2009, and (ii) from approximately ($44.8) million to approximately ($52.1) million for the six
months ended June 30, 2009. A more detailed explanation of the impact of these adjustments on the
Company’s reported results is as follows:
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As Previously |
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Reported |
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Adjustments |
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As Restated |
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(In thousands, except per share amounts) |
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Total net revenues |
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207,400 |
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(11,253 |
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196,147 |
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Cost of products |
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81,907 |
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(8,014 |
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73,893 |
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Cost of services |
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58,756 |
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(174 |
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58,582 |
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Gross profit |
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66,737 |
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(3,065 |
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63,672 |
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Research, development and engineering |
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22,215 |
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1,043 |
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23,258 |
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Marketing and sales |
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18,701 |
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(500 |
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18,201 |
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General and administrative |
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32,556 |
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3,700 |
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36,256 |
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Total operating expenses |
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111,516 |
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4,243 |
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115,759 |
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Income (loss) from operations |
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(44,779 |
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(7,308 |
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(52,087 |
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Income (loss) before income taxes |
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(64,464 |
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(7,308 |
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(71,772 |
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Income tax benefit |
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(16,505 |
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(1,968 |
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(18,473 |
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Net income (loss) |
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(47,959 |
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(5,340 |
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(53,299 |
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Net loss applicable to common shares |
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(49,709 |
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(5,340 |
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(55,049 |
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Basic net loss per common share |
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(0.49 |
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(0.05 |
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(0.54 |
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Diluted net loss per common share |
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(0.49 |
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(0.05 |
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(0.54 |
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Statement of Cash Flows for the six months ended June 30, 2009: |
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Net income (loss) |
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(47,959 |
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(5,340 |
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$ |
(53,299 |
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Stock-based compensation expense related to stock options,
nonvested stock and employee stock purchases |
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4,139 |
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3,267 |
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7,406 |
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Deferred income taxes |
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(22,729 |
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(1,968 |
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(24,697 |
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Accounts and notes receivable |
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60,285 |
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11,253 |
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71,538 |
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Inventories |
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(2,548 |
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(7,564 |
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(10,112 |
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Accounts payable and accrued expenses |
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(58,935 |
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(1,124 |
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(60,059 |
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Other assets and liabilities |
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12,595 |
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1,476 |
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14,071 |
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The Company expects to file with the SEC by November 9, 2009, a Quarterly Report on Form
10-Q/A to amend its Form 10-Q for the quarterly period ended June 30, 2009, in order to reflect the
restated unaudited consolidated financial condition of the Company as of June 30, 2009, the
restated unaudited consolidated results of operations for the three and six months ended June 30,
2009 and the restated unaudited consolidated statement of cash flows for the six months ended June
30, 2009.
The Audit Committee of the Company’s Board of Directors and authorized Company officers have
discussed the matters disclosed in this Current Report on Form 8-K with Ernst & Young LLP, the
Company’s independent registered public accounting firm. Ernst & Young has not audited the
adjustments described in this Current Report on Form 8-K.
The information contained in this report contains certain forward-looking statements within
the meaning of Section 21E of the Exchange Act. These forward-looking statements include statements
concerning the estimated timing of filing the Company’s Form 10-Q/A and restated consolidated
financial statements, as well as statements concerning timing of future sales and estimated
revenues, net income and earnings per share. 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
events or developments currently unforeseen in the completion of the review procedures concerning,
and the preparation of, the Company’s consolidated financial statements. Additional risk factors,
which could affect actual results, are disclosed by the Company from time to time in its filings
with the SEC.
Item 9.01 Financial Statements and Exhibits.
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(a) |
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Financial statements of businesses acquired. |
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Not applicable. |
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