Acquisition

6 Months Ended

Jun. 30, 2011

Acquisition

Acquisition

NOTE 3: Acquisition

On December 3, 2009, the Company entered into an agreement with PGS to acquire PGS Onshore.  The Company closed this transaction on February 12, 2010 for cash and stock consideration valued at $202.8 million.  The acquisition of PGS Onshore provided the Company with a significant business expansion of its Data Acquisition segment into Mexico, North Africa, the Far East, and in the United States, including Alaska.  In addition, the acquisition substantially increased the Company’s multi-client data library with data covering approximately 5,500 square miles of 3D data located primarily in Texas, Oklahoma, Wyoming and Alaska.

The operations of PGS Onshore have been combined with those of the Company since February 12, 2010.  Disclosure of earnings of PGS Onshore since the acquisition is not practicable as it is not being operated as a standalone subsidiary.

The acquisition date fair value of the total consideration transferred consisted of the following (in thousands):

Purchase price:
Cash	$	183,411
Issuance of 2,153,616 shares of the Company’s common stock at market value of $9.02 per share	19,426
Total consideration	$	202,837

The following table summarizes the final fair values of the assets acquired and liabilities assumed at the acquisition date (in thousands):

Cash	$	2,579
Accounts receivable	63,843
Prepaid expenses and other current assets	7,487
Current assets	73,909
Property and equipment	103,023
Multi-client data library	26,700
Other intangible assets	6,200
Other long-term assets	1,429
Goodwill	58,962
Total assets acquired	270,223
Current liabilities	47,404
Other long-term liabilities	1,122
Deferred income taxes	18,860
Total liabilities assumed	67,386
Net assets acquired	$	202,837

The acquisition of PGS Onshore was accounted for by the purchase method, with the purchase price being allocated to the fair value of assets purchased and liabilities assumed.  During the first quarter of 2011, the Company finalized the fair values of the assets acquired and liabilities assumed and recorded an adjustment to reduce the value of property and equipment by $1.1 million and increase goodwill by the same amount.  The adjustment reflects the Company’s assessment of certain damaged equipment.

The allocation of the purchase price included multi-client data library, which consisted of data surveys covering portions of the United States and Canada.  Other intangible assets consisted of order backlog and a marine vibrator patented technology license.  The Company determined the fair values for the multi-client data library and other intangibles using the income approach.  Under this method, an intangible asset’s fair value is equal to the present value of the incremental after-tax cash flows (excess earnings) attributable solely to the intangible asset over its remaining useful life.  To calculate fair value, the Company used probability-weighted cash flows discounted at rates considered appropriate given the inherent risks associated with each type of asset.  The Company believes that the level and timing of cash flows appropriately reflect market participant assumptions.

The valuation of the intangible assets acquired and related amortization periods at the acquisition date are as follows (in thousands):

	Useful Life	Fair Value
Order backlog	2 years	$	5,700
License agreement	10 years	500
Total other intangible assets		$	6,200

The Company provided deferred taxes and other tax liabilities as part of the acquisition accounting related to the fair market value adjustments for acquired multi-client data library, property and equipment, intangible assets, and other deferred items as well as for uncertain tax positions taken in prior year tax returns.  The fair value of the deferred taxes and other tax liabilities was $18.9 million at the acquisition date.  As part of the purchase agreement, PGS retained the liability for taxes related to prior years and up to the purchase date and agreed to indemnify the Company for taxes imposed.  Accordingly, we have included compensating amounts in receivables for amounts known at the acquisition date.

Goodwill of approximately $59.0 million was recognized for this acquisition and is calculated as the excess of the consideration transferred over the net assets recognized and represents the future economic benefits arising from other assets acquired that could not be individually identified and separately recognized.  It specifically includes the synergies and other benefits from combining the operations of PGS Onshore with the operations of the Company.  The Company allocated the goodwill to the seismic data acquisition business segment in recognition of the estimated present value of the future synergies paid for in this transaction that will directly benefit that segment.  As described above, the final determination of the fair value of property and equipment in the first quarter of 2011 resulted in a $1.1 million increase to goodwill.  The entire amount of goodwill of $59.0 million is not deductible for tax purposes.

Costs associated with the acquisition of PGS Onshore totaled $5.2 million.  Of this amount, $3.5 million and $5.0 million are included in general and administrative expenses for the three and six months ended June 30, 2010, respectively.

The following unaudited condensed consolidated income statement information for the six months ended June 30, 2011 and unaudited pro forma consolidated income statement information for the six months ended June 30, 2010 assumes that the acquisition of PGS Onshore had occurred at the beginning of the period.  The Company prepared the unaudited pro forma financial results for comparative purposes only.  The unaudited pro forma financial results may not be indicative of the results that would have occurred if Geokinetics had completed the acquisition at the beginning of the period presented or the results that may be attained in the future.  Amounts presented below are in thousands, except for the per share amounts:

	Six months endedJune 30,
	(Unaudited)
	2011			2010
	Actual			Pro Forma
Total revenue	$	333,185		$	245,919
Loss from operations	$	(49,434	)	$	(55,000	)
Net loss	$	(68,207	)	$	(76,286	)
Preferred dividends and accretion of discount on preferred stock	$	(4,474	)	$	(4,208	)
Loss applicable to common stockholders	$	(72,681	)	$	(80,494	)
Basic and diluted loss per common share	$	(4.08	)	$	(4.69	)