Ion Geophysical Corporation (IO) 2009 Q4 法說會逐字稿

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the ION Geophysical fourth quarter earnings conference call. (Operator Instructions) This conference is being recorded today, February 18, 2010. I would now like to turn the conference over to Jack Lascar. Please go ahead, sir.

Thank you, Brandy. And good morning, everyone. And welcome to the ION Geophysical Corporation fourth quarter earnings conference call. We appreciate your joining us today.

Your hosts are Bob Peebler, Chief Executive Officer. And Brian Hanson, Executive Vice President and Chief Financial Officer. Before I turn the call over to management, I have a few items to cover. If you would like to be on an e-mail distribution list to receive future news releases or experience a technical problem and didn't receive yours yesterday, please call us at 713-529-6600 and let us know.

If you would like to listen to a replay of today's call, it is available via webcast by going to the investor relations section of the Company's website at www.iongeo.com, or via a recorded instant replay until March 4. The information was provided in yesterday's earnings release.

Information reported on this call speaks only as of today, Feb. 18, 2010, and therefore you are advised that time sensitive information may no longer be accurate as of the time of any replay. Before we begin, let me remind you that certain statements made by management during this call may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on management's current expectations, and include known and unknown risks, uncertainties, and other factors, many of which the Company is unable to predict or control that may cause the Company's actual results or performance to differ materially from any future results or performance expressed or implied by those statements. These risk and uncertainties include the risk factors disclosed by the Company from time to time in its filings with the SEC, including in its annual report on Form 10-K for the year ended Dec. 31, 2009, and its quarterly reports on Form 10-Q.

Furthermore, as we start this call, please refer to the statement regarding forward-looking statements incorporated in our press release issued yesterday and please note that the contents of our conference call this morning are covered by those statements. I will now turn the call over to Bob Peebler.

Thanks, Jack. And good morning. I will discuss three main topics this morning. The market, the BGP joint venture and our business outlook moving into 2010.

First the market. Fourth quarter was mainly repeated a pattern we had experienced all year. The land equipment business was mainly in the tank because an equipment overhang resulting from stack crews from around the world due to lower seismic activity. The only real bright spot has been a growing all-Company interest in FireFly, and significant increase in jobs during 2009 with year-over-year gains in total traces recorded of 280%. Our marine business was slower compared to year ago but still turned in solid results due to the strength of our new technology such as DigiFIN and our marine software product ORCA.

Our data processing business continues to be another bright spot, ending a record year with solid growth as all companies accelerate the reprocessing of recently acquired high end data such as wide azimuth. We also continue to experience strong interest in our multiclient new venture programs such as the ArcticSPANs, but data library sales were significantly off compared to a year ago mainly due to tightness in oil company budgets during all of 2009 and a delay in planned spending. Looking forward, we believe that the equipment market will likely continue to be relatively slow for most of 2010. Our contractor customers are seeing some improvements in their business, more in marine than land.

However, our equipments business will not rebound until filled equipment inventory is reduced and stack crews are back to work. This should begin to happen during the second half of 2010. BGP, for example, expects their crew activity to pick up during the latter part of the year driven by contact -- contracts in their international markets such as Iraq.

As already stated, we also have significant interests in activity with FireFly, mainly from the rental side and anticipate some of these rentals will lead to sales during the second half of the year. In marine, our DigiFIN product is expected to continue to have solid sales, similar to last year, and ORCA is still in a growth phase, being driven by more complex surveys such as wide azimuth, which seems to be experiencing increasing survey activity.

Next I want to discuss the BGP joint venture. We are on track to close on the joint venture by the end of March. We expect to receive all needed U.S. approvals this month with antitrust already cleared and CFIUS approval expected very soon.

We have also finalized the term sheet for the permanent financing for both our Term A loan and our revolver. I'll let Brian provide more detail on the financing a little later. The remaining work before closing includes completing the legal structure for the joint venture entity and moving through the various steps to execute the closing.

We are also in the process of working on the operational aspects of the joint venture, including developing a plan for integrating China and North American R&D and manufacturing. We already have an agreement on a joint venture CEO who will be a current ION executive. We expect 2010 will be mainly about getting the joint venture booted up and functional with improvements in land sales as the year progresses.

The main increase in earnings related to the joint venture will likely start in 2011 when the joint venture is fully functional and BGP's business has improved to the point that their capital spending is back to a more normal run rate.

Finally, I would like to discuss our current business outlook. We do not have the visibility including the potential results of the joint venture to provide specific detailed guidance for 2010. I can say we expect a slow beginning due to normal oil company and contractor budget and planning cycles combined with the fact that increases in equipment sales will lag improvements in overall seismic activity.

We also don't expect any BGP equipment sales in quarter one since it would naturally wait until the joint venture is operating when we get financial benefit of purchasing through the JV. We do expect business improving as the year unfolds, with the year being significantly weighted towards the second half of the year. Our goal is to get ION back to profitability in 2010, less any one time expenses related to the formation of the joint venture.

Overall, we are entering the year with much lower costs than both 2008 and 2009, and we are projecting growth in both our data processing and our multiclient businesses. We expect flat to slight improvements in our equipment businesses. We also get the benefit of a significant reduction in interest payments due to our planned deleveraging which Brian will further discuss. With that I will turn it over to Brian.

Thank you, Bob. Good morning, everyone.

First I want to provide more detail around the one-time charges included in the earnings release for the fourth quarter. The first relates to the fair value adjustment of our embedded derivatives. Part of the proposed joint venture transactions with BGP includes bridge financing involving a stock warrant and the issuance of convertible notes.

This warrant would eventually be converted into equity and credited against the approximately 24 million ION shares that BGP will purchase at the JV closing. However, until then the warrant must be adjusted to fair value quarterly. Additionally the 40 million in convertible notes were issued at a discount which is being accreted until the joint venture closes in March 2010. Combined, the fair value adjustment of the conversion features and the debt discount accretion caused a non-cash loss of $36 million for the fourth quarter. Once the joint venture closes, the warrant will be eliminated and the debt discount will have been fully accreted.

Second relates to an impairment of a cost method investment. Based upon a review of the investment, it was determined that the fair value was lower than the book value and we subsequently took a writeoff of $4.5 million. For the full year, the additional one-time charges relate to the intangible asset impairment of $38 million in the first quarter. The out of period stock base compensation expense true up of $3.3 million in the second quarter of 2009. And the 2009 restructuring charges of $3 million. All of these items have been discussed in prior quarters. In total, we booked approximately $85 million before tax of special charges in 2009. .

Next I'd like to point out a few items on the balance sheet. The first relates to our continued monetization of our inventory, which showed a decrease of 19 million over prior period. The decrease excludes the non-cash transfer of 49 million from inventory into our rental pool in 2009. As a majority of our inventory relates to our land business, our inventory levels will drop significantly upon the closing of the joint venture. Our current maturities contain $253 million in long term indebtedness that has a contractual maturity of more than one year.

Similar to last quarter, because we have not yet closed the joint venture, accounting rules consider the one time -- the time limit to be a limiting factor, which forces the reclassification from long term to short term. When you remove the impact of the $253 million debt reclassification, and adjust for the impact of the fair value of the warrant, working capital is $239 million compared to $267 million in 2008.

Moving into 2010, we are moving forward on our refinancing arrangements related to the joint venture. While the deals have not yet closed, I wanted to give you some direction on the anticipated changes to our debt structure. As part of the closing of the joint venture, we will replace our Term A loan, currently of $102 million, with a new term loan facility of $106 million and a new undrawn revolver of $100 million borrowing capacity.

With the moneys from the closing of the joint venture, we will pay off both our existing revolver and the subordinated seller note of $35 million. The secured equipment financing of $19 million will move into the joint ventures financials. From a cash perspective, our cash position continues to improve from that at year end. We have additional capacity in a revolver of approximately $20 million, and a cash balance of approximately $41 million.

As we announced previously in October of 2009, we obtained a jury verdict against Wilson Greatbatch related to our marine batteries and battery packs, and in January 2010 we obtained a jury verdict against Sercel for infringement of our VectorSeis patent. The amount of the Greatbatch judgment is approximately $33 million and the verdict is currently on appeal. The amount of the Sercel verdict was $25 million and we expect Sercel to appeal that verdict. Although we expect both judgments to be upheld on appeal, neither of these amounts will be reflected in our financial statements until we actually collect the final amounts after the appeal process is completed.

Our overall goal this year is to return to profitability again in 2010. We believe that the seismic markets bottomed out in late 20 -- 2009, and our contracted customers are starting to see an increase in activity in their business. Although we do expect some related pickup in our equipment business, we expect that it will be toward the latter part of 2010, positioning us for 2011 as we see this activity level ultimately translate into orders for ION. We anticipate growth and increased profitability in 2010 in both our data processing business and our new venture multiclient business. We will also see the full year benefits of the cost savings from our restructuring activities implemented in late 2008 and into 2009.

In addition to lower interest expense associated with the deleveraging and refinancings concurrent with the closing of the joint venture. The market volatility that began in 2008 has greatly impacted our ability to accurately forecast our business and as a result we continue to suspend guidance. We will, however, be coming out with improved metrics after we close the joint venture both around the joint venture itself and the ION business. Our goal is to provide better visibility into ION for our shareholders as we navigate through a difficult to predict environment.

While we are not providing earnings guidance, we are providing some guidelines on major expenses that will change with the closing of the joint venture. The first relates to interest expense. We are anticipating interest expense during 2010 of between $18 million and $22 million for the year compared to $36 million in 2009. The 2010 anticipated expense includes approximately $7 million from the current financing arrangements that will exist until the closing of the joint venture projected in March 2010. Secondly, related to amortization of intangibles, ARAM was the largest driver of our intangible asset amortization.

When the proposed joint venture closes in 2010, in March 2010, we anticipate that our intangible asset amortization will likewise decrease by approximately $1.5 million per quarter to approximately $2 million per quarter. Excluding investments into our multiclient library. Our effective tax rate is anticipated to be between 24% and 28% for 2010. And with the closing of the proposed joint venture our shares will increase from approximately 119 million shares at December 31, 2009. To 143 million shares by the end of the first quarter of 2010. Finally, I wanted to give some background on how we will be accounting for the new joint venture. When the joint venture closes, we will remove the affected land businesses from our financial statements because we own a minority interest, and will account for it under the equity method of accounting. Under this method, we will record the joint venture's proportionate earnings or losses in our income statement under a minority interest as part of other income and expenses.

We will also have our investment of 49% in the joint venture on our balance sheet as an asset. Additionally, we will provide in our quarterly reports the financial results of the joint venture to again provide better transparency into our operations. With that, we will open up the calls for

Thank you, sir. We will now begin the question and answer session. (Operator Instructions) And our first question comes from the line of James West with Barclays Capital. Please go ahead.

Hey. Good morning, guys.

Good morning, James.

Bob, if we've seen the pickup I think in tender and activity for your customers that's starting to translate into contracts here for, certainly for the land business and the marine business I think were mostly sold out for the first half of this year.

So in that context what's the normal or what would you expect to be the normal lag time between your customers seeing much better activity levels and you seeing a pickup in equipment sales?

That's a good question. James, I can only speculate just using sort of the historical experiences looking back. And I, you know, I would say it's going to be, it's going to vary a little bit from market to market. So, and areas that -- such as North America and Russia -- I think Russia will take longer just because the business itself is, you've got a lot of small players that undercapitalized, and, even though their activity is picking up, it's picking up at much lower prices for them.

And, so I think it's just going to take a while for that one to work through and get tightened up now. But I think the good news in Russia, there is a trend of more consolidation and we actually welcome that. We feel like, that consolidation will bring people with probably stronger balance sheets. But I think Russia will be, that one will will be a while. I would, just to speculate, I'd probably say that's sort of 2011 gain. We'll see some activity. We foresee some, but it's not going to be great.

North America is a little more -- North America is a little more confused, and I think everybody is sort of pondering what the gas market's going to do. We do know -- we do know that our customers are seeing increase in projects being left and those kinds of things. So that one, I think, we could see probably start seeing benefits in the second half of, second half of this year. I know our land guys are at least seeing some increase in discussions with customers. And then you go into the rest of the world. I don't have real good visibility right now into India, for example, which is a a pretty big install base.

You do have China, which interesting enough, I was surprised that China in fact had quite a few stack crews. But, again, we're being told that the, both CNPC and Sinopec are increasing their budgets substantially. And if that happens that sort of flows, probably again, into sort of the second half of this year to see some -- we're not expecting any kind of gangbuster land pick up in the year, but we do expect to see some improvement year-over-year and it's going to be just, sort of, as the year, as year unfolds. The joint venture -- the joint venture puts a little bit of an anomaly in our business because this is probably the first year that we haven't had some purchases from BGP in the first quarter in some form or another.

But BGP, number one, BGP probably is one of their slower, and it is in fact one of the slowest years in capital spend this period this year. But they are also seeing their activity, they're telling us they're seeing their activities pick up international. A lot of projects being bid. As you know, they're going to be big in Iraq.

So, again, I think once we get the venture closed, they can buy from the venture plus their business getting better. So that's a long, a long question. You know, I would guess it's any place from a year from when it all starts to longer. But this thing started well into last year, so.

Okay, Bob. And then what about in the marine side on the Digi products given that, you know, a lot of higher end vessels are going to be well utilized.

Or they may not be well utilized at good pricing, but they're going to be working. What's the normal kind of cycle time for those products in the aftermarket business there?

Yeah, and actually marine is a whole different story than land in the sense of our new technology in marine is, like DigiFIN, is basing selling in the install base that exists and then going into the higher market. And we anticipate, we had a good strong year last year of DigiFIN sales, and we believe we're going to have a good strong year this year.

If you notice where a lot of the activity is increasing, we're hearing a lot about white azimuth surveys coming back, some big surveys going on there. 4-D is coming back in the North Sea and some other areas, and that requires more and more people specing in, [starable] streamers. So I think that market is going to be more or less driven by our ability to have the new technology go in and there is a demand for it.

ORCA is going to have, should have a good solid year of growth. And there's still a few new vessels coming into the market. Most of that is -- we are pretty much done with new vessels. Even last year was pretty small.

So that's, we've already sort of taken than line down. But there are a few, there are a few out there that still coming in that we'll have some probably the positioning technology sales too.

And then just the last question for me. With the joint venture, if I heard you correctly, you guys have, along with BGP, mostly set strategic goals for the joint venture, and so I'm assuming there is an R&D budget being discussed and perhaps in place.

What's going to be the focus of the R&D effort and the JV? Will it still be on FireFly? Will it be different technologies? Could you give us some color there?

Yeah. There is two, there's two focuses. One -- one of the main attractions of ION by BGP was our new technology. They believe like we believe that we're more at the beginning than even the middle of a new technology cycle on land, and they were most impressed with our FireFly and the things we're doing in source technology, et cetera.

So,they have a strong interest there. And R&D on that will continue and if anything because we're picking up some engineering resources in China, if anything we can even strengthen some of those programs. Just with the resources that are coming to the venture. Secondly, now we have a very large customer.

They have some very important features they want in the, in our cable systems and they are working closely with us on sort of our, if you want to call it next generation cable, that we had already been working on at ARAM. It's just sort of the evolution of the ARAM product line. And they are very interested in helping us accelerate that with very targeted feedback from them. So that will -- as those feature functions are added, that will continue to open up their ability to purchase more and more from the venture.

Okay. Thanks, Bob.

Thank you. Our next question comes from the line of Stephen Gengaro with Jefferies. Please go ahead.

Thank you. Good morning, gentlemen.

Good morning.

Can you -- I'm not sure how much you can tell us, but can you give us a sense for what portion of BGP's business you're currently doing. And sort of how that shift, we're trying to get a, sort of frame some upside or realistic views of the JV's profitability.

Yeah, if you -- I will say historically, if we look at the, if we look at our market share with BGP, we've been rocking around 20%, and that includes vibes. And, so, and I'll say that our sales to them was very, in the last two or three years, a lot of the dollars was more in the vibe side than the system side. The sort of the stated objective of the JV is to increase that market share significantly.

We sort of looked at over a planning, or sort of a five year plan, we don't see any reason that over the time that can't flip. And so we'll get it closer to 70%-80% over time. And that will be obviously dependent on having all of the feature functions they need. And so it'll evolve, and also they have a large install base that they'll have to continue to maintain at some level. But they certainly are going to have a preference.

I think the other thing that we've told all the investors how to think about this is that in addition to BGP, BGP is owned by CNPC, which is the large state oil, oil and gas company of China. And they, they also own -- CNPC also owns seismic crews that are in the oil fields, their China oil fields that are not part of BGP. So this will also help open up those markets that we've historically had a difficult time penetrating, just because now basically they are going to be buying from their joint venture, and they are owned by CNPC.

And then, even further down the path, we think it will, just by being in China associated with the Chinese industry that we also should have some leverage into Sinopec. So I think that the future is bright in that sense and then we also are -- will have access to markets that's been very difficult for us to get into. So, for example, as Iraq opens up, CNPC is a big player. They will be bringing BGP in, and that, then, helps pull us in.

That's very helpful. And then as a sort of follow-up question, you -- I know you are shying away from giving guidance and can understand that.

But when we look at the, sort of the progression as we go through the year it sounds like it's more back half weighted. You mentioned return to profitability. Do you mean for the year return profitability? Or for a quarter or two in the back half of the year?

No, we're saying for the year.

Okay. That's helpful. Thank you.

Thank you, our next question comes from the line of Terese Fabian with Sidoti and Company. Please go ahead.

Why thank you. I have a question on other seismic data acquisition companies that are your customers. You had said at the last conference call, there was a positive reaction to the JV. Now a couple of months into the process, have you -- do you have an update on -- discussions with your clients.

Yeah, you know, we talked, we have conversations with them off and on, continuously I guess, and it's, really not a whole lot has changed from the initial reaction. I would say net-net we've gotten positive response.

I think number one people want to make sure they see a viable alternative in the market. The idea of having a sort of a competitor own the equipment company you're buying from, I think the market already got over that a long time ago.

If you look at our main competitor, they are owned by a very large seismic service contractor who they compete against every day. And so that, that issue I don't think has really grown any -- we really haven't seen that swell to any really concern on our part.

But as I understand you to say, that you would expect BGP to be up to 80% of the JV business?

No, no. What I said was we would expect BG -- we would expect to get 80% of BGP's spend, not right out of the gate. We are saying over time we should go from maybe, approximately a 20% spend to over time we'd hope to get to an 80% spend.

So a substantial amount of sales from the JV to them.

Correct.

Okay. One other question. On the ION solutions business, can you give a breakdown between the seismic data processing and the span sales? For the fourth quarter.

Well, we haven't historically done that. But, we are actually going to be, we're going to be producing those metrics like that Terese. Probably, it's after the JV closes. It'll probably be on the next call.

Okay. I think that would be helpful. But you also said that the span sales were down. What are you seeing going in --

No, what we said was the -- if you got into the actual multiclient business in 2009, what happened in that business, although it was down off of prior year, it wasn't down like our land business. And what we saw as we drove into that multiclient business. When you broke it down into two parts, the actual new venture activity, where we were actually sanctioning projects and floating the boat and shooting data, versus finished projects and the data was in the data library.

What we noticed was the majority of spend that was coming in from the oil companies was directed to all of the new venture activity. So we had a -- our actual data library sales was considerably softer in 2009 versus 2008. And, as you know, those data library sales typically enjoy the benefit of the year end spend from oil companies as they have extra capital available.

We just didn't see that occur in the fourth quarter. So if you went back to prior years as you know '06, '07, '08, we typically enjoyed sort of nice discretionary spend in Q4 to that finished data library data set, and that just didn't happen in Q4 of '09.

I think one of the things that was encouraging to me if you consider that our new ventures are underwritten, pretty much the portfolio is pretty much 100% underwritten. And so that tells you that the oil companies were still willing to spend on underwriting which also says something about their view of what's going to happen over the next two, three, four years, whereas the data library purchase is a more of a discretionary spend.

They can, they can move that out, you know, a month or quarter or half a year and it doesn't really affect them that much because most of those projects are very long term projects whereas a new venture, they may want new data in the Arctic soon, and they know the only way they're going to get that is to get the new venture going. So I think they were prioritizing their spend more toward, in our case, our customers more towards the collecting new data that will be available in library form soon versus buying the older [span] data.

And just to give you a perspective of, as Bob said, you know, that program is an underwritten program. In 2008 we did somewhere over $100 million of investment in that program through those new venture projects.

And in 2009 we actually spent close to $85 million. So it wasn't down dramatically.

I think looking at the numbers the fourth quarter ION solutions division number really is within expectations reflecting the market.

But it seems then that you must have had a pic up of some of your data processing work. And can you talk a little bit about what reprocessing that data provides for your customers?

If you look at the kind of processing we do, we mainly in percent of work, mainly do, our proprietary, mainly is reprocessing. And there has been a tremendous amount of data shot over the last several years. If you just think about all of the white azimuth surveys that's been shot in very complex areas as an example, and so now the oil companies are going back and really wanting to reprocess. Part of it is because we have state-of-art reverse time migration and no one's nearly close to saying that we've completely solved sub surface salt imaging.

And so companies are going back and anytime anything really new comes out, like reverse time migration, they go back and reprocess. So we have a lot of reprocessing going on. It's very high end. Being driven by very complex problems. And in fact that business grew all through the year and we have entered this year with really a strong pipeline of business, and we expect it to grow, continue to grow, this year.

And just one last quick question on the interest expense you gave 2010 guidance. What do you expect the first quarter will be?

7.

Thank you.

Thank you. (Operator Instructions) And our next question comes from the line of David Griffiths with Copia Capital. Please go ahead.

Morning guys.

Morning.

Just a quick question on the multiclient spend. You spent almost $85 million in 2009. And I know you're not really giving guidance for this year, but, you know, what should we expect for multiclient interest level from your clients this year? And you know what, like you know round numbers, what do you think you'll spend this year in multiclient?

That's a good question. Not, not that it's guidance but sort of an approximate range, is probably -- it will be up off 2009 and we're probably going to spend in the 90 to 100 range.

That's a little difficult to predict. Every year we are typically wrong. So, you know, it can be more, it can be less. But that's, that represents sort of a normal and healthy business for us.

Okay. And then how do, how do you explain -- it's just interesting that you had I think other seismic companies had pretty decent year end multiclient sales and then your multiclient sales didn't seem to show up in the fourth quarter. And I was just wondering, is that just because of project timing or specific areas that you had your library in? Or --

I think it's where our libraries are. There is a, for example, there's a lease sale coming up in the gulf, a big lease sale that's in March. And, just talking, we don't have 3-D data libraries to speak of. And most those lease sales really drive the 3-D data library sales.

So I think there was quite a bit of year end activity where people, they knew they, if you think about if you're preparing for lease sales, you get that data as soon as you can get it. So I think that's where some of the discretionary money likely went to cover then. I think there was also some stuff going on in the North Sea but not as certain on that on lease sales.

But I do know that, talking to some of the other companies in the multiclient business, that's what they saw was mainly -- where our spans are mainly located in basins sort of new basins where the oil companies are looking out 10, 15 years. So for example we've been big up in the Arctic, and still are big up in the Arctic. But, if you think about the planning horizons for the guys working up there, they can, they can easily slide the data library sale three, six months, it doesn't impact a whole lot.

Right. Would you expect a similar -- you know, because you basically said that, you know, you are basically 100% prefunded last year. Do you expect a similar level of prefunding for 2010?

Yep.

Yes?

Yeah. That's a, that is the way that we run our business. So it's a discipline more than an expectation.

Great. That's all have I for you. Thank you very much.

Uh-huh.

Thank you. Our next question is a follow-up question from the line of Stephen Gengaro with Jeffreries. Please go ahead.

Thank you. I was wondering if we look at the, the blow to -- well, the items like G&A and your marketing and sales expense. How should we think about the change in those numbers as the JV gets formed?

That's a good question, Stephen. What I tried to do in this call was give you the general direction around things like amortization, interest, the big buckets that have sort of grey clouds around them.

The actual -- you know, from there I would say that the SG&A is going to be more or less a kind of a relative split. So what we have 100% of today of, you know, a portion of that will go into the joint venture and the remaining amount will stay, stay at [I'm]. A lot of the SG&A activities will either be directly, the expense will be directly incurred by the joint venture or the joint venture will pay a shared service expense to ION to perform a service.

Okay, okay. That's helpful. The -- I guess the only other follow-up I had was when the effective tax rate for the quarter excluding all of the charges that you used to kind of get to the $0.11 loss.

Are you asking that?

Yeah, yeah. I'm asking you what that number is.

If you back up the effective tax rate after taking into consideration all that noise, you know, I don't have that number in front of me, but I can, I can get it for you.

Okay. Thank you.

(Operator Instructions) And our next question comes from the line of Nathaniel Pulsifer with Pulsifer & Associates. Please go ahead.

Good morning and thank you for taking my call. I have a question about the current asset current liability information on the balance sheet. There has been a substantial change in notes due. And I wanted to get some comfort as to how the company was going to be proceeding on that and the balance of this year and I have a follow on.

Could you be more specific to the line items on the balance sheet you're, you're ref -- ?

Sure. The total current assets decreased by $130 million. But the, let's see, where am I? Current portion --

Yeah, I can, I think I know where you are going. Let me help you with that. There is a couple of things that are going on in current assets. The first thing is, I called it in my part of the script was you have the effect of our debt being reclassified in the current.

Right.

Really get an apples to apples, you've got to pull it out of current, because that's more accounting magic than it is reality. And then the other thing you have to do is you have to adjust those current assets for the impact of the, of the derivative feature of those, of the warrants. So, that shrinks the current assets by another $36 million.

So if you take both of those out and do a comparison year-over-year, we're sitting at somewhere around $237 million of current assets versus 260-ish prior years. So, the delta's about a $25 million delta year-over-year, and that delta is really driven by the decrease of inventory levels over 2009.

Okay. And then a follow on, the notes payable increased by a substantial amount. You spoke about that in your opening remarks but could you remind me of the plans to bring that number back down to a perhaps maybe more manageable level.

Well, notes, notes in general as in total debt, the total debt balance of the company we're going to be delevering as we close the joint venture in March.

Yes.

So the proceeds that we'll receive from that joint venture will be entirely used to delever the company. And, so we will be dropping from effectively, you know, close to 300-ish million in debt down to more in the 125 range.

Satisfying. And then finally, if I may, the text refers to five items which were to be illuminated in the table at the end of the note. But I only count four.

What was the fifth item that went into this set of adjustments. Impairment stock base compensation restructuring adjustment. What was the fifth one?

Yeah, two of those charges are under the impairment column. The first was the $38 million that we incurred in tangible assets in the first quarter and the second was a write down of a cost method investment of $4.5 million.

And what was that investment?

It was an investment made many, many years ago into a -- it was actually a result of the contribution of assets into another business that we did many years ago. Back in 2004 I believe.

Okay. Thank you.

And at this time we have no further questions. I'd like to turn the call back over to management for any closing remarks.

Well thanks for taking the time to attend the call and we look forward to talking to you to during our second quarter, or first quarter call. Thanks.

Ladies and gentlemen, this concludes the ION Geophysical fourth quarter earnings conference call.