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News and Information Article
Announces Restatement of 2004 and Quarterly 2005 Results
HOUSTON, March 16 /-FirstCall/ -- Input/Output, Inc. (NYSE: IO)
today announced preliminary fourth quarter 2005 net income of approximately
$17.4 million, or $0.22 per basic share, on revenues of $131.3 million. The
preliminary fourth quarter 2005 results include the estimated effect of
certain revenue recognition restatements described below. For the year ended
December 31, 2005, including the impact of similar revenue recognition
restatements for fiscal 2004 as described below, I/Os estimated net income
was $17.3 million, or $0.22 per basic share, on estimated revenues of $362.3
million. These 2005 fourth quarter and fiscal 2005 results of operations have
not been audited.
These 2005 fourth quarter and fiscal 2005 results of operations reflect a
positive increase due to financial restatements of 2004 and the first three
quarters of 2005 relating to timing of revenue recognition from certain
licenses of multi-client seismic survey data by GX Technology, a subsidiary of
I/O. The restatements, which are discussed in more detail below, had no
impact on the amount of cash received by GXT from its multi-client license
transactions during 2004 or 2005, and in effect shift the amounts of revenue
recognized from these multi-client license transactions to subsequent periods.
Excluding the impact of the restatements, I/Os fourth quarter net income
would have been $12.4 million, or $0.16 per basic share, on revenues of $122.1
million and I/Os full year 2005 net income would have been $12.3 million, or
$0.16 per basic share, on revenues of $355.6 million.
As a result of the above revenue recognition issue and the related
restatements, I/Os independent auditors have not yet completed their audit of
I/Os 2005 financial statements, their audit of I/Os internal control over
financial reporting for 2005 or their discussions of the revenue recognition
matters with the independent auditing firm that audited I/Os annual financial
statements for fiscal 2004. Consequently, all results reported in this press
release should be considered preliminary until I/O files its Annual Report on
Form 10-K for the year ended December 31, 2005, which is expected to be filed
on or before March 31, 2006. I/O plans to file a notice under Rule 12b-25
with the Securities and Exchange Commission that extends the period in which
it may file its Form 10-K for the year ended December 31, 2005, to March 31,
2006.
Bob Peebler, I/Os President and Chief Executive Officer, said, "It is
unfortunate that the GXT revenue recognition matter arose and caused a delay
and distraction from an otherwise strong operating performance. The gradual
improvement we have enjoyed since the beginning of 2005 culminated in a very
good fourth quarter performance. Operationally, the Marine Imaging Systems
Division had an exceptional quarter, led by a strong seismic marine market as
we continue to deliver VectorSeis(R) Ocean system orders to our VSO customer,
Reservoir Exploration Technology (RXT). The Land Imaging Systems Division also
had a strong revenue quarter, driven by both System Four(R), including
VectorSeis, and legacy product sales. Our Sensor business unit operated at
full capacity, and sales by Concept Systems ended with a near-record quarter.
GXT also had record sales in the quarter, driven by improved levels of seismic
data processing, higher data library sales, and an increase in multi-client
project activity. We also commenced the delivery of the second version of
VectorSeis Ocean (VSO System 2.0) to RXT, with delivery of the remaining
portion of the order to be completed during the second half of 2006. This
morning we announced an agreement with BP to assist in the launch of our
recently-introduced cableless land imaging system, FireFly(TM). We expect
FireFly to enter the field trial/pilot phase starting in the second half of
the year, with early field tests during the second quarter."
FOURTH QUARTER 2005
The following discussion of fourth quarter 2005 results of operations
excludes the anticipated impact of the restatements described above with
regard to I/O consolidated and GXT results. The estimated combined impact of
the 2005 quarterly restatements reduces the combined revenues and net income
of the first three quarters of 2005 by an estimated $9.2 million and $5.0
million, respectively, or $0.06 earnings per share, and subsequently increases
fourth quarter 2005 results by approximately the same estimated amounts.
Before impact of restatements, fourth quarter revenues of $122.1 million
increased 80 percent over the fourth quarter of 2004, led by improved results
in all segments. Land Imaging revenues during the fourth quarter increased 59
percent to $48.4 million, compared to $30.4 million a year ago. Marine
Imaging revenues during the quarter more than doubled to $25.6 million,
compared to $11.0 million a year ago. GXTs performance during the fourth
quarter was exceptional, with revenues before restatements increasing 98
percent to $42.1 million, compared to $21.3 million before restatements in the
fourth quarter of 2004.
Gross margins in the fourth quarter before restatements improved to 32
percent, compared to 30 percent for the same period a year ago and 28 percent
in the third quarter, primarily due to margin improvement within GXT and our
Sensor geophone sales. Both GXT and Sensor experienced improved demand and a
higher margin product mix during the fourth quarter. The Land Imaging
division experienced lower margins related to cost and competitive pricing
issues with System Four.
Operating expenses before restatements as a percentage of revenues
declined in the fourth quarter to 21 percent of revenues, compared to 31
percent in the fourth quarter of 2004 and 23 percent in the third quarter of
2005.
Before impact of restatements, EBITDA (earnings before net interest
expense, taxes, depreciation and amortization) for the fourth quarter was
$23.5 million, compared to $9.8 million in the fourth quarter of 2004. A
reconciliation of EBITDA to reported earnings before restatements can be found
at the end of this press release.
FULL YEAR 2005
The following discussion of full year 2005 results of operations excludes
the anticipated impact of the restatements described above with regard to I/O
consolidated and GXT results. The estimated impact of the financial
restatement of 2004s results of operations reduces revenues for 2004 by
approximately $6.7 million, or approximately $0.07 earnings per basic share,
and increases the fiscal 2005 results by approximately the same amounts.
Before impact of restatements, consolidated revenues for 2005 increased 44
percent to $355.6 million, compared to $247.3 million in 2004. The improvement
in revenue growth was driven by a generally strong seismic market and improved
performance at GXT and the Marine and Land divisions, and the added revenues
due to the acquisitions of Concept Systems and GXT during 2004. Gross margin
before impact of restatements for 2005 was 28.4 percent, compared to a 29.0
percent gross margin in 2004.
Before impact of restatements, EBITDA for 2005 increased to $52.1 million
from $27.3 million in the same period a year ago. Income from operations
before impact of restatements for 2005 increased to $19.7 million from $2.5
million during 2004. For the year, I/O reported net income before impact of
restatements of $12.3 million, or $0.16 per basic share, compared to a net
loss before restatements of $3.0 million, or $(0.05) loss per share in 2004.
VectorSeis land system sales were a record $22 million in 2005, a 69%
revenue growth year over year. VectorSeis marine sales (VSO) during 2005 were
approximately $7 million, and excluded over $27 million of VSO deliveries
that were planned for 2005 but were impacted by manufacturing delays related
to Hurricane Rita. Most of the delayed VSO deliveries will be completed in
the first half of 2006. Total VectorSeis bookings for 2005 were $49 million,
compared to $30 million a year ago, or a 63% growth rate.
Marketing and sales expenses and general and administration expenses
increased $7.4 million during 2005 from the prior year, due principally to the
GXT and Concept Systems acquisitions. Fees associated with Sarbanes-Oxley
compliance comprised over $1 million of costs in 2005.
RESTATEMENTS
Section 404 of the Sarbanes-Oxley Act of 2002 requires I/Os Annual Report
on Form 10-K to include a report on managements assessment of I/Os internal
control over financial reporting and an attestation report by I/Os
independent auditing firm on managements assessment, as well as the
independent auditing firms own assessment of such internal controls. Because
GXT was acquired by I/O in June 2004, its internal control over financial
reporting was excluded from managements assessment of I/Os internal control
over financial reporting as of December 31, 2004. In the process of assessing
GXT internal controls, I/O determined that GXTs policies and procedures for
timing of recognizing revenue generated from licenses of multi-client seismic
survey data were not in accordance with Securities and Exchange Commission
guidance. As a result, I/O determined that the revenues from certain GXT
multi-client data transactions in 2004 and the first three quarters of 2005
were recognized by GXT upon the signing of customer letter agreements and
delivery of the multi-client data, but prior to the receipt from the customer
of a signed final master geophysical data license agreement and accompanying
license supplement. This accounting error has a material impact on the timing
of recognition of certain GXT multi-client data license revenues during 2004
and the first three quarters of 2005 and, as a result, I/O will restate the
financial statements included in I/Os Annual Report on Form 10-K for the year
ended December 31, 2004, and I/Os Quarterly Reports on Form 10-Q for the
quarterly periods ended March 31, 2005, June 30, 2005 and September 30, 2005.
I/Os previously reported consolidated financial statements as of and for
those periods should no longer be relied upon.
I/O intends to revise the GXT license agreement forms to enable GXT to
recognize revenue from future multi-client data license transactions in
proximity to the consummation of the license transaction itself.
2006 OUTLOOK
The following statements are based on our current expectations. These
statements are forward looking and actual results may differ materially.
Factors affecting these forward-looking statements are detailed below.
Bob Peebler, President and Chief Executive Officer, commented, "Based on
our preliminary view for the year and our current pipeline of business, we
expect 2006 revenues to range between $410 and $450 million, with much of the
revenue growth originating from continued market penetration of our new field
acquisition systems, improving financial performance at GXT and a strong
overall seismic market. We expect ongoing margin improvement, led by higher
System Four gross margins through lowered costs and improved quality
associated with new releases later this year. We also expect overall
improvement in pricing due to an even stronger market for our products and
services. We expect full year 2006 gross margins to range between 30 and 33
percent. We anticipate operating expenses to range between 20 and 24 percent
of revenue, including a significant addition to R&D and marketing expenses
related to FireFly. Furthermore, we expect to incur an additional $2 million
in expenses related to the amortization of stock option expense. As a result,
we anticipate 2006 earnings to be between $0.20 and $0.35 per share. We
remind our investors that our business is not evenly spread from quarter-to-
quarter and therefore we only provide annual guidance. Similar to last year,
we anticipate 2006 to be back-end loaded, mainly due to timing issues related
to permitting and other operational considerations for GXTs new venture
multi-client business, the natural pattern of data library sales that tend to
occur more in the second half of the year, and the natural budget/planning
cycle of our larger contractor customers who formulate capital spending plans
during the first quarter of each year. We are experiencing some short-term
weakness in first quarter 2006 land System Four sales as the result of
customers delaying purchases until the availability of a planned new land
System Four release that is designed to increase quality and add new
functionality. We would expect these short-term purchase delays to result in
renewed purchase activity commencing in the second quarter of 2006. Similar to
last year, we anticipate that 60 percent or more of our revenue will come in
the second half of the year."
Mr. Peebler continued, "Looking at 2005, I/O made some great strides as
the year unfolded. The highlights included making significant progress at GXT
with a much stronger backlog of data processing business and broadening the
base of Span projects, including starting data acquisition for IndiaSpan,
which we expect to be a flagship product. We started 2005 with challenging
operational start-up issues with our new VectorSeis Ocean system, but through
the focused efforts of our technical and operational teams we turned it
around, and ended with a new contract and new orders with RXT. We have also
made progress with VectorSeis on land with System Four, ending with a record
year, and, even more importantly, launching our next generation land system,
FireFly, at the SEG. We believe that FireFly will bring efficiencies and much
improved image quality to land by combining a cableless system with our
leading VectorSeis full-wave sensor. Most importantly, we made significant
gains with our financial performance with strong improvements in both earnings
and EBITDA year over year.
"For 2006, our management team will continue to devote our energies to
improving operational effectiveness with a strong emphasis on continuing to
improve gross margins and net income. We expect to see additional traction
with VectorSeis and continued double digit growth year over year. We will
also continue to enhance our presence in the growing markets of Russia, China,
the Middle East and South America. Overall, 2006 will be another year focused
on our customers and on proving new technology that will create value for both
contractors and E&P companies."
CONFERENCE CALL
I/O has scheduled a conference call for Thursday, March 16, 2006, at 9:00
a.m. eastern time. To participate in the conference call, dial 303-205-0033
at least 10 minutes before the call begins and ask for the Input/Output
conference call. A replay of the call will be available approximately two
hours after the live broadcast ends and will be accessible until March 23,
2006. To access the replay, dial 303-590-3000 and use pass code 11054798.
Investors, analysts and the general public will also have the opportunity
to listen to the conference call live over the Internet by visiting
http://www.i-o.com. Also, an archive of the web cast will be available
shortly after the call on the companys website.
I/O is a leading seismic services provider. The company provides cutting-
edge seismic acquisition equipment, software, and planning and seismic
processing services to the global oil and gas industry. The companys
technologies are applied in both land and marine environments, in traditional
2D and 3D surveys, and in rapidly growing areas like time-lapse (4D) reservoir
monitoring and full-wave imaging. I/O has offices in the United States,
Canada, Europe, China, Russia and the Middle East. Additional information is
available at http://www.i-o.com.
The results of operations for completed periods discussed in this press
release are unaudited and are subject to the Companys independent auditors
competing their audit of the Companys financial statements and the Companys
internal control over financial reporting. The results reported in this press
release should be considered preliminary until the Company files its Annual
Report on Form 10-K for the year ended December 31, 2005 that contains audited
consolidated financial statements.
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 include statements concerning the expected impact of restating
historical results of operations for certain accounting periods as described
herein, estimated revenues, earnings and earnings per share for fiscal 2006,
expected timing of revenues and growth rates in fiscal 2006, estimated gross
margins and operating expenses for fiscal 2006, future sales and market
growth, timing of product introduction and commercialization, and other
statements that are not statements 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 audit
adjustments and other modifications to the Companys financial statements not
currently foreseen, unanticipated delays in the timing and development of the
Companys products and services and market acceptance of the Companys new and
revised product offerings; risks associated with 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 Companys revenues is derived from foreign sales;
the risks that sources of capital may not prove adequate; the Companys
inability to produce products to preserve and increase market share;
collection of receivables; and technological and marketplace changes affecting
the Companys product line. 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, including its Quarterly Report on
Form 10-Q for the quarterly period ended September 30, 2005.
INPUT/OUTPUT, INC. AND SUBSIDIARIES
PRELIMINARY CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended Three Months Ended
December 31, 2005 December 31, 2004
Report
Results As
before Impact Reported Previously Impact As
Restatements of Results Reported of Restated
Restatements Restatements
Net Sales $ 122,055 $ 9,198 $ 131,253 $ 67,824 $ (2,558) $ 65,266
Cost of sales 82,714 3,760 86,474 47,747 (1,485) 46,262
Gross profit 39,341 5,438 44,779 20,077 (1,073) 19,004
Operating expenses (income):
Research and
development 6,118 -- 6,118 5,731 -- 5,731
Marketing and
sales 10,417 403 10,820 8,102 -- 8,102
General and
administrative 8,557 -- 8,557 7,674 -- 7,674
Loss (gain) on
sale of assets 24 -- 24 (586) -- (586)
Total operating
expenses 25,116 403 25,519 20,921 -- 20,921
Income (loss)
from
operations 14,225 5,035 19,260 (844) (1,073) (1,917)
Interest
expense (1,408) -- (1,408) (1,615) -- (1,615)
Interest income 361 -- 361 256 -- 256
Other income 759 -- 759 27 -- 27
Income (loss)
before income
taxes 13,937 5,035 18,972 (2,176) (1,073) (3,249)
Income tax
expense
(benefit) 1,001 -- 1,001 (542) -- (542)
Net income
(loss) 12,936 5,035 17,971 (1,634) (1,073) (2,707)
Preferred stock
dividends and
accretion 531 -- 531 -- -- --
Net income (loss)
applicable to
common
shares $ 12,405 $ 5,035 $ 17,440 $ (1,634) $(1,073) $(2,707)
Earnings (loss)
per share:
Basic $ 0.16 $ 0.06 $ 0.22 $ (0.02) $ (0.01) $ (0.03)
Diluted $ 0.14 $ 0.05 $ 0.19 $ (0.02) $ (0.01) $ (0.03)
Weighted average
number of
common shares
outstanding:
Basic 78,926 -- 78,926 77,624 -- 77,624
Diluted 98,234 -- 98,234 77,624 -- 77,624
INPUT/OUTPUT, INC. AND SUBSIDIARIES
PRELIMINARY CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
(Unaudited)
Twelve Months Ended Twelve Months Ended
December 31, 2005 December 31, 2004
Report
Results As
before Impact Reported Previously Impact As
Restatements of Results Reported of Restated
Restatements Restatements
Net sales $ 355,626 $ 6,658 $ 362,284 $ 247,299 $ (6,658) $240,641
Cost of
sales 254,654 1,662 256,316 175,705 (1,662) 174,043
Gross
profit 100,972 4,996 105,968 71,594 (4,996) 66,598
Operating expenses (income):
Research
and
development 20,266 -- 20,266 19,611 -- 19,611
Marketing
and sales 33,089 -- 33,089 23,758 -- 23,758
General and
admini-
strative 27,784 -- 27,784 29,748 -- 29,748
Loss (gain)
on sale of
assets 99 -- 99 (3,980) -- (3,980)
Total
operating
expenses 81,238 -- 81,238 69,137 -- 69,137
Income (loss)
from
operations 19,734 4,996 24,730 2,457 (4,996) (2,539)
Interest
expense (6,134) -- (6,134) (6,231) -- (6,231)
Interest
income 843 -- 843 1,276 -- 1,276
Other income 820 -- 820 220 -- 220
Income (loss)
before income
taxes 15,263 4,996 20,259 (2,278) (4,996) (7,274)
Income tax
expense 1,343 -- 1,343 701 -- 701
Net income
(loss) 13,920 4,996 18,916 (2,979) (4,996) (7,975)
Preferred stock
dividends and
accretion 1,635 -- 1,635 -- -- --
Net income (loss)
applicable to
common
shares $ 12,285 $ 4,996 $ 17,281 $ (2,979) $(4,996) $ (7,975)
Earnings (loss)
per share:
Basic $ 0.16 $ 0.06 $ 0.22 $ (0.05) $ (0.07) $ (0.12)
Diluted $ 0.15 $ 0.05 $ 0.21 $ (0.05) $ (0.07) $ (0.12)
Weighted average
number of
common shares
outstanding:
Basic 78,600 -- 78,600 65,759 -- 65,759
Diluted 79,842 -- 79,842 65,759 -- 65,759
INPUT/OUTPUT, INC. AND SUBSIDIARIES
PRELIMINARY CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
December 31, December 31, 2004
2005 As Reported Adjustment As Restated
Current assets:
Cash and cash
equivalents $15,853 $14,935 $ -- $14,935
Restricted cash 2,465 2,345 -- 2,345
Accounts receivable,
net 120,961 61,598 -- 61,598
Current portion of
notes receivable, net 8,372 10,784 -- 10,784
Unbilled receivables 15,070 7,309 -- 7,309
Inventories 80,378 86,659 -- 86,659
Prepaid expenses and
other current assets 10,919 7,974 -- 7,974
Total current assets 254,018 191,604 -- 191,604
Notes receivable 6,508 4,143 -- 4,143
Property, plant and
equipment, net 28,997 46,051 -- 46,051
Multi-client data
library, net 19,852 9,572 1,094 10,666
Investments at cost 4,000 3,500 -- 3,500
Goodwill 154,794 147,066 -- 147,066
Intangible and other
assets, net 66,830 77,180 -- 77,180
Total assets $534,999 $479,116 $1,094 $480,210
LIABILITIES AND STOCKHOLDERS EQUITY
Current liabilities:
Notes payable and
current maturities
of long-term debt
and lease obligations: $4,405 $6,564 $ -- $6,564
Accounts payable 30,693 40,856 -- 40,856
Accrued expenses 48,810 26,686 (568) 26,118
Deferred revenue 12,337 8,423 6,658 15,081
Total current
liabilities 96,245 82,529 6,090 88,619
Long-term debt and lease
obligations, net of
current maturities 71,541 79,387 -- 79,387
Deferred income taxes 5,140 -- -- --
Other long-term
liabilities 4,340 2,688 -- 2,688
Total liabilities 177,266 164,604 6,090 170,694
Cumulative convertible
preferred stock 29,838 -- -- --
Stockholders equity:
Common stock 807 795 -- 795
Additional paid-in
capital 487,232 480,845 -- 480,845
Accumulated deficit (149,231) (161,516) (4,996) (166,512)
Accumulated other
comprehensive (loss)
income (1,154) 2,449 -- 2,449
Treasury stock (5,968) (5,844) -- (5,844)
Unamortized restricted
stock compensation (3,791) (2,217) -- (2,217)
Total stockholders
equity 327,894 314,512 (4,996) 309,516
Total liabilities and
stockholders equity $534,999 $479,116 $1,094 $480,210
Preliminary Reconciliation of EBITDA before Restatements to Net Income
(Non-GAAP Measures)
(In thousands)
(Unaudited)
EBITDA before restatements is a Non-GAAP measurement that is presented as
an additional indicator of operating performance and is not a substitute for
net income (loss) or net income (loss) per share calculated under generally
accepted accounting principals (GAAP). We believe that EBITDA provides useful
information to investors because it is an indicator of the strength and
performance of our ongoing business operations, including our ability to
service our debt. The calculation of EBITDA shown below is based upon amounts
derived from the companys financial statements prepared in conformity with
GAAP.
Three Months Ended Twelve Months Ended
December 31, December 31,
2005 2004 2005 2004
Net income (loss)
applicable to common
shares before
restatements $12,405 $(1,634) $12,285 $(2,979)
Interest expense 1,408 1,615 6,134 6,231
Interest income (361) (256) (843) (1,276)
Income tax expense
(benefit) 1,001 (542) 1,343 701
Depreciation and
amortization expense
before restatements 9,057 10,654 33,147 24,668
EBITDA before
restatements $23,510 $9,837 $52,066 $27,345
CONTACTS: Robert P. Peebler
Chief Executive Officer
Input/Output (281) 879-3615
Jack Lascar, Partner
Karen Roan, SVP
DRG&E (713) 529-6600
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