Acquisition of Controlling Interest in OceanGeo

6 Months Ended

Jun. 30, 2014

Business Combinations [Abstract]

Acquisition of Controlling Interest in OceanGeo

Acquisition of Controlling Interest in OceanGeo

In February 2013, the Company acquired 30% of OceanGeo B.V. (“OceanGeo”), the Company’s seabed data acquisition joint venture. In October 2013, the Company reached agreement with its joint venture partner in OceanGeo, Georadar Levantamentos Geofisicos S/A (“Georadar”), for the Company to have the option to increase its ownership percentage in OceanGeo from 30% to 70%, subject to certain conditions. OceanGeo is headquartered in Rio de Janeiro, Brazil, and specializes in seismic acquisition operations using ocean bottom cables deployed from vessels leased by OceanGeo.

To further assist OceanGeo in acquiring backlog, in October 2013, the Company also agreed to loan OceanGeo additional funds for working capital, as necessary, up to a maximum of $25.0 million. Prior to obtaining the controlling interest in OceanGeo, the Company advanced a total of $18.9 million to OceanGeo.

In late January 2014, the Company acquired an additional 40% interest in OceanGeo, through the conversion of certain outstanding amounts loaned to OceanGeo by the Company into additional equity interests of OceanGeo, bringing the Company’s total equity interest in OceanGeo to 70% and giving the Company control over OceanGeo. The Company has included in its results of operations, the results of OceanGeo from the date of the Company’s acquisition of the controlling interest.

The Company acquired its ownership interest in OceanGeo as part of its strategy to expand the range of service offerings it can provide to oil and gas exploration and production customers and to put its Calypso^® seabed acquisition technology to work in a service model to meet the growing demand for seabed seismic services. In June 2014, the Company reached an agreement with Georadar to acquire the remaining 30% owned by Georadar. However, the acquisition of the remaining 30% was not completed as of June 30, 2014 (see “— Subsequent Event” below).

In July, the Company paid $6.0 million to Georadar and increased its equity interest in OceanGeo to 100%. In addition to the $6.0 million purchase price, the Company also agreed to pay Georadar the amount of $5.0 million, contingent upon the occurrence of certain future events, including the award of a future material project in 2014 and a minimal amount of vessel downtime. Since the initial investment in early 2013, the Company has invested or contributed assets totaling approximately $40.5 million to OceanGeo.

The acquisition of the controlling interest was accounted for by the acquisition method, whereby the assets acquired and liabilities assumed were recorded at their fair values as of the acquisition date based on an income approach. The estimated fair value of the assets acquired and liabilities assumed approximated the purchase price and therefore no goodwill or bargain purchase was recognized. As of June 30, 2014, the allocation of the purchase price of OceanGeo was based upon preliminary fair value studies and may be subject to change as additional information becomes available. In connection with the acquisition, the Company incurred $1.3 million in acquisition-related transaction costs related to professional services and fees. These costs were expensed as incurred and were included in other income (expense), net in the Company’s condensed consolidated statement of operations for the six months ended June 30, 2014. As a result of consolidating OceanGeo’s results into the Company’s consolidated results of operations for the period from the acquisition date at the end of January 2014 to June 30, 2014, the Company’s results of operations include $25.9 million of OceanGeo revenues and $6.5 million of income from OceanGeo’s operations for the three months ended June 30, 2014, and $46.5 million of OceanGeo revenues and $10.7 million of income from OceanGeo’s operations for the six months ended June 30, 2014. The following table summarizes the fair value assigned to the assets acquired and liabilities assumed, as well as the noncontrolling interest, at the acquisition date (in thousands):

Estimated Fair Value of Assets Acquired and Liabilities Assumed:
Cash and cash equivalents	$	609
Accounts receivable	9,247
Prepaid expenses and other current assets	1,433
Multi-client data library	3,876
Property, plant, equipment and seismic rental equipment, net	14,598
Other assets	2,227
Total identifiable assets	31,990
Accounts payable and accrued liabilities	(13,464		)
Bank loans	(6,135		)
Other liabilities	(1,026		)
Net assets	11,365
Noncontrolling interest	(3,410		)
Total consideration	$	7,955

The following summarized unaudited pro forma consolidated income statement information for the six months ended June 30, 2014 and 2013 and for the three months ended June 30, 2013, assumes that the OceanGeo acquisition had occurred as of the beginning of the periods presented. The Company has prepared these unaudited pro forma financial results for comparative purposes only. These unaudited pro forma financial results may not be indicative of the results that would have occurred if ION had completed the acquisition as of the beginning of the periods presented or the results that may be attained in the future. Amounts presented below are in thousands, except for the per share amounts:

Pro forma Consolidated ION Income Statement Information	Three Months Ended June 30, 2013			Six Months Ended June 30,
				2014		2013
Net revenues	$	134,613		$	275,362	$	282,319
Income from operations	$	2,867		$	26,730	$	7,158
Net income (loss)	$	(73,073	)	$	79,649	$	(69,063	)
Net income (loss) attributable to ION	$	(71,948	)	$	77,448	$	(68,784	)
Basic net income (loss) per common share	$	(0.46	)	$	0.47	$	(0.44	)
Diluted net income (loss) per common share	$	(0.46	)	$	0.47	$	(0.44	)