(March 24, 2006) The TGS Board of Directors approved the Company's final audited 2005 annual accounts on March 23rd, 2006. These accounts are different from the preliminary Q4 and full year 2005 financial statements released on February 9th, 2005 as a result of an adjustment to recognized revenue based on a new interpretation of IFRS principles from the Company's auditors, KPMG. This adjustment delays the recognition of USD 14 million in net revenues from Q4 2005 to Q1 2006, but does not impact cash flows or lead to any lost revenues.
Immediately prior to the Board of Directors' approval of the Q4-2005 quarterly interim report and preliminary full year 2005 results on February 8th, 2005, KPMG reported to TGS management and its Board of Directors that they had no issues or objections to the interim and preliminary financial statements under IFRS as subsequently filed on February 9th.
During the process of finalizing the audit of the full annual accounts for 2005, KPMG's IFRS experts introduced in March a new issue regarding the timing of revenue recognition of certain TGS contracts under IFRS. Their new interpretation specifies that physical delivery of data licensed by a customer is a prerequisite of revenue recognition regardless of whether or not such physical delivery is specified as a requirement in the contract between TGS and its customer. Until now it has been TGS's practice with the full support of KPMG to recognize revenue from a licensing transaction once a binding, irrevocable licensing agreement has been executed and the data products being licensed are complete and deliverable. Following extensive discussions and investigations, KPMG informed TGS on March 22nd of their opinion that a total value of USD 14 million in net revenues should be recognized in 2006 as opposed to in 2005. The TGS Board of Directors accepts this conclusion.
The following table summarizes the effects of the revenue adjustment to the full year 2005 profit and loss statement.
Click here for the new audited Q4 and full year 2005 financial tables.
The Board of Directors does not propose a dividend for 2005. The Board plans to propose a 3 for 1 stock split at the Annual General Meeting in June 2006.
EFFECT ON 2006 OUTLOOK
TGS does not expect the change in IFRS revenue recognition criteria to change its fundamental guidance for the full year 2006. Because the Company's original 2006 revenue guidance was expressed as a 25%-30% increase over 2005, the movement of USD 14 million in revenue from 2005 to 2006 effectively changes those percentages to a 38%-43% increase over 2005 assuming all other things remain equal. In addition, since the USD 14 million that is now deferred to 2006 carries almost zero amortization charges, TGS now expects the blended average annualized multi-client amortization rate for 2006 to be in the range of 35%-40% as opposed to the original guidance of 37-42%.
Naersnes, March 23rd, 2006
The Board of Directors of TGS-NOPEC Geophysical Company ASA