SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 6-K

REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16 OF THE
SECURITIES EXCHANGE ACT OF 1934

For the month of November, 2005

General Company of Geophysics

1, rue Léon Migaux
91341 Massy
France
(33) 1 64 47 3000
(Address of principal executive offices)

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

Form 20-F þ Form 40-F

(Indicate by check mark whether the registrant by furnishing the information contained in this form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.)

Yes o No þ

(If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82 - ___.)

 

 

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Compagnie générale de géophysique, S.A.

TABLE OF CONTENTS

FORWARD-LOOKING STATEMENTS			3
PRESENTATION OF FINANCIAL INFORMATION (TRANSITION TO IFRS)			4
FINANCIAL STATEMENTS			6
Unaudited Interim Consolidated Balance Sheets as of September 30, 2005 and December 31, 2004			6
Unaudited Interim Consolidated Statements of Operations for the three months ended September 30, 2005 and 2004, for the nine months ended September 30, 2005 and 2004 and for the year ended December 31, 2004			7
Unaudited Interim Consolidated Statements of Cash Flows for the nine months ended September 30, 2005 and 2004 and for the year ended December 31, 2004			8
Unaudited Interim Consolidated Statements of Changes in Shareholders’ Equity for the year ended December 31, 2004 , for the nine months ended September 30, 2005 and for the nine months ended September 30, 2004			9
Notes to Unaudited Interim Consolidated Financial Statements			11
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			36

     

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FORWARD-LOOKING STATEMENTS

     This document includes forward-looking statements. We have based these forward-looking statements on our current views and assumptions about future events.

     These forward-looking statements are subject to risks, uncertainties and assumptions we have made, including, among other things:

•		changes in international economic and political conditions, and in particular in oil and gas prices;
•		our ability to reduce costs;
•		our ability to finance our operations on acceptable terms;
•		the timely development and acceptance of our new products and services;
•		the effects of competition;
•		political, legal and other developments in foreign countries;
•		the timing and extent of changes in exchange rates for non-U.S. currencies and interest rates;
•		the accuracy of our assessment of risks related to acquisitions, projects and contracts, and whether these risks materialize;
•		our ability to integrate successfully the businesses or assets we acquire, including Exploration Resources ASA;
•		our ability to sell our seismic data library;
•		our ability to access the debt and equity markets during the periods covered by the forward-looking statements, which will depend on general market conditions and on our credit ratings for our debt obligations; and
•		our success at managing the risks of the foregoing.

     We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this document might not occur.

     

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PRESENTATION OF FINANCIAL INFORMATION

     As Compagnie Générale de Géophysique S.A. (“CGG” or the “Company”) is listed in France, a European Union country and, in accordance with EC regulation No. 1606/2002 dated July 19, 2002, our financial information for the year ended December 31, 2005 will be prepared in accordance with International Financial Reporting Standards (“IFRS”) as endorsed by the European Union (“EU”).

     The IFRS consolidated financial statements for the nine-month period ended September 30, 2005 were prepared according to the following rules :

	•		IAS/IFRS and related interpretations whose application will be compulsory at December 31, 2005, based on current information;
	•		IAS/IFRS and related interpretations whose application will be compulsory after December 31, 2005 and for which we have opted for earlier application, as authorized under IFRS first application;
	•		the outcome expected at this point in time of technical issues and exposure drafts currently being examined by the IASB and IFRIC, which may be applicable in the publication of its 2005 IFRS consolidated statements; and
	•		the options and exemptions we expect to apply for the preparation of our first 2005 IFRS consolidated financial statements.

     The 2004 comparative information, which we originally presented in accordance with accounting principles generally accepted in France (“French GAAP”) in our report on Form 6-K submitted to the SEC on November 16, 2004, has been restated to conform to IFRS standards and interpretations with the same rules.

     The first annual financial statements to be issued according to IFRS will be those for the year ended December 31, 2005, presented with 2004 comparative information prepared according to the IFRS 1 standard upon First time application of IFRS.

     We decided to opt for the alternative to presentation under standard IAS 34, “Interim financial reporting”, as proposed in article 221-5 of the regulations of the “Autorité des Marchés Financiers” (the “AMF”), the French financial markets authority, which provides that notes to the financial statements can be prepared according to recommendation CNC-99-R-01 and can include only a selection of the most significant notes. IFRS differs in certain significant respects from French GAAP, which we used to prepare our financial statements as of and for the years ended December 31, 2004, 2003 and 2002 included in our annual report on Form 20-F filed with the SEC on April 18, 2005 (as subsequently amended on September 19, 2005 and October 31, 2005). Our financial statements prepared in accordance with IFRS as endorsed by the EU are not comparable to our financial statements prepared in accordance with French GAAP.

     Further standards and interpretations may be issued that will be applicable for financial years beginning on or after 1 January 2005 or that are applicable to later accounting periods but may be adopted early. Our first annual IFRS financial statements may, therefore, be prepared in accordance with some accounting policies that differ from those used to prepare the financial information presented in this report.

     Additionally, IFRS is currently being applied in France and in a large number of other countries simultaneously for the first time. Furthermore, due to a number of new and revised standards included within the body of standards that comprise IFRS, there is not yet a significant body of established practice on which to draw in forming opinions regarding interpretation and application. Accordingly, practice is continuing to evolve. At this preliminary stage, therefore, the full financial effect of reporting under IFRS as it will be applied and reported on in our first annual IFRS financial statements cannot be determined with certainty and may be subject to change.

     For all these reasons, it is possible that the audited opening balance would not be the opening balance from which consolidated financial statements for the year ended December 31, 2005 would actually be prepared. For the same reasons, it is possible that the comparative financial information, which will be presented in the consolidated financial statements for the year ended December 31, 2005 might be different from the information presented in this report.

     Our report “Transition to IFRS” on Form 6-K submitted to the SEC on May, 12, 2005 describes all the restatements realized to change of our financial statements for the year ended December 31, 2004 from French GAAP to IFRS. The $85 million 7.75% convertible bonds due 2012 issued by CGG on November 4, 2004, which were previously presented entirely as financial debt under French GAAP are accounted for under IFRS as a compound financial instrument according to IAS 32 “Financial instruments: information and presentation”, as applied at January 1, 2005 in our report on Form 6K “Transition to IFRS” submitted to the SEC on May 12, 2005. In September 2005, the IASB concluded that convertible bonds denominated in foreign currency include derivatives and do not contain an equity

     

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Compagnie générale de géophysique, S.A.

component. We have thus restated our IFRS consolidated statements at December 31, 2004, as described in our report on Form 6-K submitted to the SEC on October 18, 2005.

     IFRS differs in certain significant respects from accounting principles generally accepted in the United States (“U.S. GAAP”). Note 11 to our consolidated financial statements describes the principal differences between IFRS and U.S. GAAP as they relate to the Group, and reconciles net income and shareholders’ equity to U.S. GAAP as of and for the period ended September 30, 2005.

     

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FINANCIAL STATEMENTS

COMPAGNIE GÉNÉRALE DE GÉOPHYSIQUE, S.A.

CONSOLIDATED BALANCE SHEETS

						September 30,				December 31,
(amounts in millions of euros)						2005				2004
						(unaudited)				Restated
						(1)				(unaudited)
										(1)
ASSETS
		Notes
							138.1				130.6
Cash and cash equivalents
Trade accounts and notes receivable, net			3				290.1				204.8
Inventories and work-in-progress, net							107.2				81.4
Income tax assets							10.4				4.0
Other current assets, net							43.6				48.7
Assets held for sale							1.3				—
Total current assets							590.7				469.5
Deferred tax assets							39.5				31.5
Investments and other financial assets, net							15.3				12.5
Investments in companies under equity method							40.5				30.8
Property, plant and equipment, net			4				460.4				204.1
Goodwill and intangible assets, net			5				384.7				225.2
Total non-current assets							940.4				504.1
TOTAL ASSETS							1 531.1				973.6
LIABILITIES AND SHAREHOLDERS’ EQUITY
Bank overdrafts							15.7				2.8
Current portion of financial debt			6				357.5				73.1
Trade accounts and notes payable							152.0				98.3
Accrued payroll costs							50.6				47.6
Income taxes payable							26.8				24.0
Advance billings to customers							16.5				13.2
Provisions — current portion							11.3				14.2
Other current liabilities							51.3				22.8
Total current liabilities							681.7				296.0
Deferred tax liabilities							70.0				26.7
Provisions — non-current portion							18.3				16.0
Financial debt			6				265.4				176.5
Derivative on convertible bonds							71.9				33.9
Other non-current liabilities							21.9				19.8
Total non-current liabilities							447.5				272.9
Common stock, 28,617,848 shares authorized, 11,829,650 shares with a €2 nominal value issued and outstanding at September 30, 2005; 11,682,218 at December 31, 2004							23.7				23.4
Additional paid-in capital							126.8				173.4
Retained earnings							264.4				214.5
Treasury shares							1.9				1.8
Net income (loss) for the period — Attributable to the Group							(30.1	)			(4.0	)
Income and expense recognized directly in equity							(2.1	)			3.7
Cumulative translation adjustment							6.3				(17.2	)
Total shareholders’ equity							390.9				395.6
Minority interests							11.0				9.1
Total shareholders’ equity and minority interests							401.9				404.7
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY							1 531.1				973.6

     

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COMPAGNIE GÉNÉRALE DE GÉOPHYSIQUE, S.A.

CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)

						Nine months ended								Three months ended								Year
						September 30,								September 30,
						2005 (1)				2004 (1)				2005 (1)				2004 (1)				2004 (1)
																						restated
(in millions of euros, except per share data)
		Notes
Operating revenues			7				600.4				488.2				216.7				166.8				692.7
Other income from ordinary activities							1.2				0.1				0.4				0.1				0.4
Total income from ordinary activities							601.6				488.3				217.1				166.9				693.1
Cost of operations							(468.6	)			(392.1	)			(171.1	)			(128.6	)			(556.7	)
Gross profit							133.0				96.2				46.0				38.3				136.4
Research and development expenses — net							(23.6	)			(20.6	)			(8.8	)			(7.3	)			(28.8	)
Selling, general and administrative expenses							(64.2	)			(58.7	)			(22.3	)			(20.1	)			(78.6	)
Other revenues (expenses) — net							(2.7	)			9.3				(1.9	)			(0.5	)			19.3
Operating income (loss)			7				42.5				26.2				13.0				10.4				48.3
Expenses related to financial debt							(29.4	)			(18.1	)			(8.2	)			(6.0	)			(30.0	)
Income provided by cash and cash equivalents							2.7				1.3				1.1				0.5				2.2
Cost of financial debt, net							(26.7	)			(16.8	)			(7.1	)			(5.5	)			(27.8	)
Variance on derivative on convertible bonds			6				(38.0	)			—				(23.3	)			—				(23.5	)
Other financial income (loss)			8				1.3				(1.4	)			0.6				2.2				0.8
Income (loss) from consolidated companies before income taxes							(20.9	)			8.0				(16.8	)			7.1				(2.2	)
Income taxes							(18.2	)			(15.0	)			(3.6	)			(5.8	)			(11.1	)
Net income (loss) from consolidated companies							(39.1	)			(7.0	)			(20.4	)			1.3				(13.7	)
Equity in income (losses) of affiliates							9.6				7.7				2.9				2.9				10.3
Net income (loss)							(29.5	)			0.7				(17.5	)			4.2				(3.0	)
Attributable to:
Shareholders							(30.1	)			0.2				(18.1	)			4.0				(4.0	)
Minority interest							0.6				0.5				0.6				0.2				1.0
Weighted average number of shares outstanding							11,765,118				11,681,218				11,698,623				11,681,718				11,681,406
Dilutive potential shares from stock-options							289,317				159,751				289,317				159,751				137,197
Dilutive potential shares from convertible bonds							1,400,000				—				1,400,000				—				233,333
Dilutive weighted average number of shares outstanding							13,454,435				11,840,969				13,387,940				11,841,469				12,051,936
Net income (loss) per share
Basic							(2.51	)			0.06				(1.50	)			0.36				(0.26	)
Diluted (2)							(2.51	)			0.06				(1.50	)			0.36				(0.26	)

See notes to Consolidated Financial Statements

     

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COMPAGNIE GÉNÉRALE DE GÉOPHYSIQUE, S.A.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

						Nine months ended								Year ended
						September 30,								December 31,
						2005 (1)				2004 (1)				2004 (1)
														restated
(in millions of euros)
OPERATING
Net income (loss)							(29.5	)			0.7				(3.0	)
Depreciation and amortization							51.0				49.8				65.5
Multi-client surveys amortization							48.3				43.1				66.5
Variance on provisions							0.3				(6.6	)			(3.5	)
Expense and income calculated on stock-option							0.3				0.4				0.5
Net gain on disposal of fixed assets							0.1				(3.7	)			(11.5	)
Equity in income of affiliates, net of dividends							(5.4	)			(2.9	)			(5.5	)
Other non-cash items							36.8				(1.0	)			21.4
Net cash including net cost of financial debt and income taxes							101.9				79.8				130.4
Less net cost of financial debt							26.7				16.8				27.8
Less income taxes expenses							18.2				15.0				11.1
Net cash excluding net cost of financial debt and income taxes							146.8				111.6				169.3
Income taxes paid							(28.1	)			(18.1	)			(17.0	)
Net cash before changes in working capital							118.7				93.5				152.3
Change in trade accounts and notes receivable							(18.4	)			(26.0	)			(34.8	)
Change in inventories and work in progress							(21.6	)			(8.5	)			(11.0	)
Change in other current assets							(5.5	)			12.5				17.4
Change in trade accounts and notes payable							13.1				(2.9	)			9.0
Change in other current liabilities							9.9				1.8				(5.5	)
Impact of changes in exchange rate							13.1				6.6				(0.5	)
Net cash provided by operating activities							109.3				77.0				126.9
INVESTING
Total purchases of tangible and intangible assets (included variation of fixed assets suppliers)			6				(67.7	)			(33.0	)			(44.4	)
Investments in multi-client surveys			7				(19.2	)			(39.8	)			(51.1	)
Proceeds from disposals tangible and intangible							1.6				5.5				6.9
Total net proceeds from financial assets							—				—				17.2
Total net acquisition of investments							(262.2	)			(27.9	)			(27.9	)
Impact of change in consolidation scope							—				0.1
Variation in loans granted							0.2				0.1				0.1
Variation in subsidies							0.5				(1.1	)			(0.4	)
Variation in other financial assets							(0.4	)			(0.4	)			(1.2	)
Acquisitions and proceeds Group							—				—
Net cash from investing activities							(347.2	)			(96.5	)			(100.8	)
FINANCING
Decrease in long-term debt							(178.1	)			(14.7	)			(16.5	)
Total increase in long-term debt							442.6				7.2				73.7
Reimbursement on leases							(9.0	)			(11.1	)			(11.9	)
Change in short-term loans							2.0				1.3				(0.6	)
Financial interest paid							(32.2	)			(11.3	)			(29.1	)
Net proceeds from capital increase :
- from shareholders							7.6
- from minority interest of integrated companies
Dividends paid and share capital reimbursements							—
Purchases and sales of treasury shares							(0.2	)			(1.9	)			2.0
Net cash provided by financing activities							232.8				(30.5	)			17.6
Effects of exchange rate changes on cash							12.6				1.2				(9.5	)
Net increase (decrease) in cash and cash equivalents							7.5				(48.8	)			34.2
Cash and cash equivalents at beginning of year							130.6				96.4				96.4
Cash and cash equivalents at end of period							138.1				47.6				130.6

     

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COMPAGNIE GÉNÉRALE DE GÉOPHYSIQUE, S.A.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (1)
AT DECEMBER 31, 2004 (RESTATED) AND SEPTEMBER 30, 2005

																						Income																Total
																						and expense																shareholders’
		Number of								Additional												recognized				Cumulative				Total								equity and
		shares				Share				paid-in				Retained				Treasury				directly				translation				shareholders’				Minority				minority
(amounts in millions of euros)		issued				capital				capital				earnings				shares				in equity				adjustment				equity				interest				interest
Balance at January 1, 2004			11,680,718				23.4				292.7				94.7				(0.8	)			9.2				—				419.2				8.8				428.0
Capital increase			1 500				—				—
Net income															(4.0	)															(4.0	)			1.0				(3.0	)
Cost of share-based payment															0.5																0.5								0.5
Transactions on treasury shares																			2.6												2.6								2.6
Income and expenses recognized directly in equity																							(5.5	)			(17.2	)			(22.7	)			(0.7	)			(23.4	)
Others (2)											(119.3	)			119.3																—								—
Balance at December 31, 2004			11,682,218				23.4				173.4				210.5				1.8				3.7				(17.2	)			395.6				9.1				404.7
Capital increase			147 432				0.3				7.6																				7.9								7.9
Net income															(30.1	)															(30.1	)			0.6				(29.5	)
Cost of share-based payment															0.3																0.3								0.3
Transactions on treasury shares																			0.1												0.1								0.1
Income and expenses recognized directly in equity																							(6.4	)			23.5				17.1				1.4				18.5
Others (2)											(54.2	)			53.6								0.6								—				(0.1	)			(0.1	)
Balance at September 30, 2005			11 829 650				23.7				126.8				234.3				1.9				(2.1	)			6.3				390.9				11.0				401.9

See notes to Consolidated Financial Statements

     

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COMPAGNIE GÉNÉRALE DE GÉOPHYSIQUE, S.A.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (1)
AT SEPTEMBER 30, 2004

																						Income and																Total
																						expense																shareholders’
		Number of								Additional												recognized				Cumulative				Total								equity and
		shares				Share				paid-in				Retained				Treasury				directly				translation				shareholders’				Minority				minority
(amounts in millions of euros)		issued				capital				capital				earnings				shares				in equity				adjustment				equity				interest				interest
Balance at January 1, 2004			11,680,718				23.4				292.7				94.7				(0.8	)			9.2				—				419.2				8.8				428.0
Capital increase			1 000				—				—
Net income															0.2																0.2				0.5				0.7
Cost of share-based payment															0.4																0.4								0.4
Transactions on treasury shares																			(1.9	)											(1.9	)							(1.9	)
Income and expenses recognized directly in equity																							0.8				2.7				3.5				0.4				3.9
Others (2)											(119.3	)			119.3																—				(2.5	)			(2.5	)
Balance at September 30, 2004			11,681,718				23.4				173.4				214.6				(2.7	)			10.0				2.7				421.4				7.2				428.6

See notes to Consolidated Financial Statements

     

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COMPAGNIE GÉNÉRALE DE GÉOPHYSIQUE, S.A.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Note 1—Summary of significant accounting policies

Compagnie Générale de Géophysique, S.A. (“the Company”) and its subsidiaries (together, the “Group”) is a global participant in the geophysical services industry, providing a wide range of seismic data acquisition, processing and interpretation services as well as related processing and interpretation software to clients in the oil and gas exploration and production business. It is also a global manufacturer of geophysical equipment.

Pursuant to European regulation n°1606/2002 dated July 19, 2002, the accompanying consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) and its interpretations adopted by the International Accounting Standards Board (IASB) at September 30, 2005. They include comparative information for the comparable period of 2004 using the same standards.

According to general provisions of IFRS 1 — First-time adoption of International Financial Reporting Standards, the Group has opted to apply the following options and exemptions as follows:

	•		Business combinations (IFRS 3): the Group has opted not to restate business combinations that occurred before January 1, 2004,
	•		Measurement of certain items of property, plant and equipment at fair value (IAS 16) : the Group has opted not to reassess property, plant and equipment and intangible assets at fair value. Property, plant and equipment are maintained at historical cost,
	•		Actuarial gains and losses on pension and other post-employment benefit plans (IAS 19): cumulative unrecognized actuarial gains and losses on pension and other post-employment benefits plans at January 1, 2004 have been recognized in shareholders’ equity in the opening balance sheet,
	•		Cumulative translation adjustments: the accumulated total of translation adjustments at January 1, 2004 has been reversed against consolidated reserves,
	•		Financial instruments: IAS standards 32 and 39 on financial instruments have been applied as from January 1, 2004.

Note 10 “Reconciliation for the period ended September 30, 2004 French GAAP — IFRS” describes the reclassifications and the restatements between French GAAP and IFRS, and reconciles net income to IFRS.

International Financial Reporting Standards differ in certain significant respects from accounting principles generally accepted in the United States (“U.S. GAAP”). Note 11 “Reconciliation to US GAAP” describes the principal differences between IFRS and U.S. GAAP as they relate to the Group, and reconciles net income and shareholders’ equity to U.S. GAAP as of and for the period ended September 30, 2005.

Critical Accounting Policies

Our significant accounting policies, which we have applied consistently in all material respects, are more fully described in our reports on Form 6-K submitted May 12, 2005 and October 18, 2005 related to our transition to IFRS and IFRS accounting treatment of convertible bonds denominated in a foreign currency. However, certain of our accounting policies are particularly important to the portrayal of our financial position and results of operations. As we must exercise significant judgment when we apply these policies, their application is subject to an inherent degree of uncertainty. We believe the following critical accounting policies require our more significant judgments and affect estimates used in the preparation of our consolidated financial statements.

1.1 — Basis of consolidation

Our consolidated financial statements include the accounts of CGG and all majority-owned subsidiaries, notably Exploration Resources from September 1, 2005.

We account for investments in which our ownership interest ranges from 20% to 50% and we exercise significant influence over operating and financial policies using the equity method. We may account for certain investments where

 

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the Group’s ownership is below 20% using the equity method when we exercise significant influence (Board membership or equivalent) over the business.

All inter-company transactions and accounts are eliminated in consolidation.

Our consolidated financial statements are reported in euros.

1.2 — Foreign currency

The financial statements of all of our foreign subsidiaries are maintained in the local currency, which is the functional currency, with the exception of the financial statements of subsidiaries operating in Norway (including notably some subsidiaries of Exploration Resources), in Malaysia and Venezuela. In those subsidiaries, the functional currency is the U.S. dollar, the currency in which they primarily conduct their business.

Transactions denominated in currencies other than the functional currency of a given entity are recorded at the exchange rate prevailing on the date of the transaction. Monetary assets and liabilities denominated in foreign currencies other than the functional currency are re-evaluated at year-end exchange rates and any resulting unrealized exchange gains and losses are included in income.

When translating the foreign currency financial statements of foreign subsidiaries to euro, year-end exchange rates are applied to balance sheet items, while average annual exchange rates are applied to income statement items. Adjustments resulting from this process are recorded in a separate component of shareholders’ equity.

With respect to foreign affiliates accounted for using the equity method, the effects of exchange rates changes on the net assets of the affiliate are recorded in a separate component of shareholders’ equity.

1.3 — Business combinations

Business combinations after January 1, 2004 are accounted for in accordance with IFRS. Assets and liabilities acquired are recognized at their fair value at the date of acquisition. The remaining difference between the fair value of assets and liabilities acquired and the acquisition cost is recognized as a goodwill and allocated to the cash generating units.

1.4 — Operating revenues

We recognize revenues from the sales of goods, including hardware and software, in the income statement when the significant risks and rewards of ownership have been transferred to the buyer. We recognize revenue from services rendered in the income statement in proportion to the stage of completion of the transaction at the closing date.

  •  Multi-client surveys

Multi-client surveys consist of seismic surveys to be licensed to customers on a non-exclusive basis. All costs directly incurred in acquiring, processing and otherwise completing seismic surveys are capitalized into the multi-client surveys. The value of our multi-client library is stated on our balance sheet at the aggregate of those costs less accumulated amortization or at fair value if lower. We review the library for potential impairment of our independent surveys on an ongoing basis.

Revenues related to multi-client surveys result from (i) pre-commitments and (ii) licenses after completion of the surveys (“after-sales”).

     Pre-commitments — Generally, we obtain commitments from a limited number of customers before a seismic project is completed. These pre-commitments cover part or all of the survey area blocks. In return for the commitment, the customer typically gains the right to direct or influence the project specifications, advance access to data as it is being acquired, and favorable pricing. The Company recognizes payments that it receives during periods of mobilization as advance billing and these payments appear in the balance sheet in the item “Advance billings to customers”.

     The Company recognizes pre-commitments as revenue when production is begun based on the ratio of project cost incurred during that period to total estimated project cost. The Company believes this ratio to be generally consistent with the physical progress of the project.

     After sales — Generally, we grant a license entitling non-exclusive access to a complete and ready for use, specifically

 

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Compagnie générale de géophysique, S.A.

defined portion of our multi-client data library in exchange for a fixed and determinable payment. We recognize after sales revenue upon the client executing a valid license agreement and having been granted access to the data. Within thirty days of execution and access, the client may exercise our warranty that the medium on which the data is transmitted (a magnetic cartridge) is free from technical defects. If the warranty is exercised, the Company will provide the same data on a new magnetic cartridge. The cost of providing new magnetic cartridges is negligible.

     After sales volume agreements — We enter into a customer arrangement in which we agree to grant licenses to the customer for access to a specified number of blocks of the multi-client library. These arrangements typically enable the customer to select and access the specific blocks for a limited period of time. We recognize revenue when the blocks are selected and the client has been granted access to the data.

  •  Exclusive surveys

     In exclusive surveys, we perform seismic services for a specific customer. We recognize proprietary/contract revenues as the services are rendered. We evaluate the progress to date, in a manner generally consistent with the physical progress of the project, and recognize revenues based on the ratio of the project cost incurred during that period to the total estimated project cost. We believe this ratio to be generally consistent with the physical progress of the project.

     In some exclusive survey contracts and a limited number of multi-client survey contracts, the Company is required to meet certain milestones. The Company defers recognition of revenue on such contracts until all milestones that provide the customer a right of cancellation or refund of amounts paid have been met.

  •  Other geophysical services

     Revenues from our other geophysical services are recognized as the services are performed.

  •  Equipment sales

     We recognize revenues on equipment sales upon delivery to the customer. Any advance billings to customers are recorded in current liabilities.

  •  Software and hardware sales

     We recognize revenues from the sale of software and hardware products following acceptance of the product by the customer at which time we have no further significant vendor obligations remaining. Any advance billings to customers are recorded in current liabilities.

     If an arrangement to deliver software, either alone or together with other products or services, requires significant production, modification, or customization of software, the entire arrangement is accounted for as a production-type contract, I.E. using the percentage of completion method.

     We recognize revenue when all of the following criteria are met:

	•		the contract is signed;
	•		delivery has occurred;
	•		the fee is fixed or determinable; and
	•		collectibility is probable.

If the software arrangement provides for multiple deliverables (e.g. upgrades or enhancements, post-contract customer support such as maintenance, or services), the revenue is allocated to the various elements based on specific objective evidence of fair value, regardless of any separate allocations stated within the contract for each element. Each element is appropriately accounted for under the applicable accounting deliverable.

Maintenance revenues consist primarily of post contract customer support agreements and are recorded as advance billings to customers and recognized as revenue on a straight-line basis over the contract period.

1.5 — Cost of financial debt

Cost of financial debt includes expenses related to financial debt, composed of bonds, the debt component of convertible bonds, bank loans, capital-lease obligations and other financial borrowings, net of income provided by cash and cash equivalents.

 

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1.6 — Intangible and tangible assets

In accordance with IAS 16 “Property, Plant and equipment” and with IAS 38 “Intangible assets” only items whose cost can be reliably measured and whose the future economic benefits are likely to flow to us are liable for recognition in our consolidated financial statements.

In accordance with IAS 36 “Impairment of assets”, the carrying amounts of our assets, other than inventories and deferred tax assets, are reviewed at each balance sheet date to determine whether there is any indication of impairment. If any such indication exists, we estimate the asset’s recoverable amount. Factors we consider important by that could trigger an impairment review include the following:

	•		significant underperformance relative to expected operating results based upon historical and/or projected data,
	•		significant changes in the manner of our use of the acquired assets or the strategy for our overall business, and
	•		significant negative industry or economic trends.

For goodwill, assets that have an indefinite useful life and intangible assets that are not yet available for use, we estimate the recoverable amount at each balance sheet date.

We recognize an impairment loss whenever the carrying amount of an asset exceeds its recoverable amount. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs.

The recoverable amount of tangible and intangible assets is the greater of their net fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.

Impairment losses are recognized in the income statement. Impairment losses recognized in respect of a group of non independent assets allocated to a cash-generating unit are allocated first to reduce the carrying amount of any goodwill allocated to cash-generating units (group of units) and then, to reduce the carrying amount of the other assets in the unit (group of units) on a pro rata basis.

  •  Goodwill

Upon transition to IFRS, goodwill will no longer be amortized in accordance with IFRS 3 “Business combinations”. Before January 1, 2004, goodwill was amortized using the straight-line method over 5 years for software and technology activities and from 10 to 20 years depending on the other type of business acquired.

All goodwill is tested for impairment at least annually. The impairment test methodology is based on a comparison between the recoverable amount of each cash generating unit and its net asset carrying value (including goodwill). Such recoverable amounts are mainly determined using discounted cash flows.

  •  Multi-client surveys

Multi-client surveys consist of seismic surveys to be licensed to customers on a non-exclusive basis. All costs directly incurred in acquiring, processing and otherwise completing seismic surveys are capitalized into the multi-client surveys. The value of our multi-client library is stated on our balance sheet at the aggregate of those costs less accumulated amortization or at fair value if lower. We review the library for potential impairment of our independent surveys on an ongoing basis.

We amortize the multi-client surveys over the period during which the data is expected to be marketed using a pro-rata method based on recognized revenues as a percentage of total estimated sales (such estimation relies on the historical sales track record).

In this respect, we use three different sets of parameters depending on the area or type of surveys considered:

 

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	•		Gulf of Mexico surveys are amortized on the basis of 66.6% of revenues. Starting at time of data delivery, a minimum straight-line depreciation scheme is applied on a three-year period, should total accumulated depreciation from the 66.6% of revenues amortization method be below this minimum level;
	•		Rest of the world surveys: same as above except depreciation is 83.3% of revenues and straight-line depreciation is over a five-year period from data delivery; and
	•		Long term strategic 2D surveys are amortized on the basis of revenues according to the above area split and straight-line depreciation on a seven-year period from data delivery.

  •  Development costs

Expenditure on research activities undertaken with the prospect of gaining new scientific or technological knowledge and understanding is recognized in the income statement as an expense as incurred and is presented as “Research and development expenses — net”.

Expenditure on development activities, whereby research finding are applied to a plan or design for the production of new or substantially improved products and processes, is capitalized if:

	•		the project is clearly defined, and costs are separately identified and reliably measured,
	•		the product or process is technically and commercially feasible,
	•		we have sufficient resources to complete development,
	•		the intangible asset is likely to generate future economic benefits, either because it is useful to us or through an existing market for the intangible asset itself or for its products.

The expenditure capitalized includes the cost of materials, direct labor and an appropriate proportion of overhead. Other development expenditure is recognized in the income statement as an expense as incurred and is presented as “Research and development expenses — net”.

Capitalized development expenditure is stated at cost less accumulated amortization and impairment losses.

We amortize developments costs over 5 years.

Capitalized development expenses in our income statement represent the net cost of development costs that are not capitalized, of research costs and of government grants acquired for research and development.

  •  Property, plant and equipment

Property, plant and equipment are valued at historical cost less accumulated depreciation and impairment losses. Depreciation is generally calculated over the following useful lives:

– equipments and tools:		3 to 10 years
– vehicles:		3 to 5 years
– seismic vessels:		12 to 30 years
– buildings for industrial use:		20 years
– buildings for administrative and commercial use:		20 to 40 years

Starting from September 1, 2005, date at which we acquired Exploration Resources, we harmonized the useful life of our vessels to 30 years from the year it was built. The impact of this change in estimate on the month of September is a minor depreciation of €0.2 million.

Depreciation expense is determined using the straight-line method.

Fixed assets acquired through finance lease arrangements or long-term rental arrangements that transfer substantially all the risks and rewards associated with the ownership of the asset to us or tenant are capitalized.

We include residual value, if considered to be significant, when calculating the depreciable amount. We segregate tangible assets into their separate components if there is a significant difference in their expected useful lives, and depreciate them accordingly.

1.7 — Investments and other financial assets

In accordance with IAS 39 “Financial instruments”, we classify investments in non-consolidated companies as available-

 

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for-sale and therefore measure them at their fair value. The fair value for listed securities is their market price at the balance sheet date. If a reliable fair value cannot be established, securities are valued at historical cost. We account for fair value variations directly in shareholders’ equity.

Where there is objective evidence of impairment of a financial asset (for instance in case of significant and prolonged decline of the value of the asset) we record an irreversible impairment provision. This provision can only be released upon the sale of the relevant financial asset.

We examine non-consolidated securities and other financial assets at each balance sheet date to detect any objective evidence of impairment. Where this is the case, we record an impairment loss.

1.8 — Treasury shares

We value treasury shares at their cost, as a reduction of shareholders’ equity. Proceeds from the sale of treasury shares are included under shareholders’ equity and have no impact on the income statement.

1.9 — Inventories

We value inventories are at the lower of cost (including direct production costs where applicable) and net realizable value.

We calculate the cost of inventories on a weighted average price basis for our Products segment and calculated on the first-in first-out principle for our Services segment.

1.10 — Pension and other post-employment benefits

  •  Defined contribution plans

We record obligations for contributions to defined contribution pension plans as an expense in the income statement as incurred.

  •  Defined benefit plans

Our net obligation in respect of defined benefit pension plans is calculated separately for each plan by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods; that benefit is discounted to determine its present value, and the fair value of any plan assets is deducted. We perform the calculation by using the projected unit credit method.

When the benefits of a plan are increased, the portion of the increased benefit relating to past service by employees is recognized as an expense in the income statement on a straight-line basis over the average period until the benefits become vested. To the extent that the benefits vest immediately, the expense is recognized immediately in the income statement.

We record actuarial gains and losses that arise subsequent to January 1, 2004 directly in equity.

1.11 — Convertible bonds

As the $85 million 7.75% subordinated bonds due 2012 convertible into new ordinary shares or redeemable into new shares and/or existing shares and/or in cash issued in 2004 are denominated in U.S. dollars and convertible into new ordinary shares denominated in Euros, the embedded conversion option has been bifurcated and accounted separately within non-current liabilities. The conversion option and the debt component were initially recognized at fair value on issuance. Subsequent changes of the fair value of the embedded derivatives have been booked to the consolidated income statement. The fair value of the embedded derivative has been determined using a binomial model. As a result of bifurcating the embedded conversion option, the debt component of the convertible debt instrument was issued at a discount of €10.5 million.

The fair value of the debt has not changed significantly as of September 30, 2005 from the time it was issued in November 2004. The amount of the debt component to be recorded within the financial statements has been discounted at the rate of 10.75%, the rate borne by comparable indebtedness without a conversion option. This debt discount is

 

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amortized to interest expense until maturity of the convertible bonds.

1.12 — Financial instruments

We use derivative financial instruments to hedge our exposure to foreign exchange fluctuations (principally U.S. dollars) from operational, financing and investment activities. In accordance with our treasury policy, we do not hold or issue derivative financial instruments for trading purposes. However, derivatives that do not qualify for hedge accounting are accounted for as trading instruments in “Other financial income (loss)”.

Exchange gains or losses on foreign currency financial instruments that represent an economic hedge of a net investment in a foreign subsidiary are reported as translation adjustments in shareholder’s equity under the line item “Cumulative translation adjustments”.

Derivative financial instruments are stated at fair value. The gain or loss on reassessment to fair value is recognized immediately in the income statement. However, where derivatives qualify for hedge accounting, recognition of any resulting gain or loss is as follows (cash flow hedges), we account for changes in the fair value of the effective hedged amount in shareholder’s equity. The ineffective portion is recorded in “Other financial income (loss).

1.13 — Stock-options

We include stock-options granted to employees in the financial statements using the following principles : the stock option’s fair value is determined on the grant date and is recognized in personnel costs on a straight-line basis over the period between the grant date and the end of the vesting period. We calculate stock option fair value using the Black — Scholes model.

Note 2—Acquisitions and divestitures

On February 14, 2005, we ended our cooperation agreements with PT Alico, an Indonesian company. On that date, PT Alico, which was fully consolidated in our accounts until 2004 as a consequence of our contractual relationship with them, was excluded from our scope of consolidation. Under our agreements with PT Alico, we indemnified them against certain specific risks. This liability is limited and was accrued in the financial statements at December 31, 2004 and at September 30, 2005. The liability will expire on June 30, 2006, at which date we will have no further commitment to PT Alico or its shareholders.

On July 27, 2005, we funded a new company in Russia named CGG Vostok. This company will undertake seismic services activities and will be included in the consolidation scope.

On August 29, 2005, we acquired a controlling stake of approximately 60% of Exploration Resources ASA (“Exploration Resources”), a Norwegian provider of marine seismic acquisition services. We continued to acquire shares of Exploration Resources and, by September 15, we had acquired approximately 92% of issued shares and 94% of voting rights of Exploration Resources. All shares were acquired at a purchase price of approximately NOK 340 per share. On September 30, 2005, we acquired remaining shares in Exploration Resources in a combined mandatory offer, in accordance with the Norwegian Securities Trading Act, and squeeze-out, in accordance with the Norwegian Public Limited Companies Act, both at a price of NOK 340 per share for 529,113 shares. This price represented a premium of 8.3% to the closing price of NOK 314 for the shares of Exploration Resources on August 26, 2005, the latest date before our acquisition was announced. The mandatory offer period expired on October 14, and was accepted by holders of 314,426 shares. Holders of the remaining 214,687 shares have the right to object to or reject the offered redemption price of NOK 340 by November 16, 2005. If they do not do so by that date, they will receive the offered redemption price within the following two weeks in exchange for their shares. On October 19, 2005 we also purchased from the CEO and CFO of Exploration Resources stock options for a total of 93,202 shares, representing all of the stock options currently outstanding in Exploration Resources, for NOK 340 per share.

Prior to the acquisition, Multiwave Geophysical Company ASA (“Multiwave”), Exploration Resources’s subsidiary focusing on seabed acquisition, and Exploration Seismic AS, a fully owned subsidiary of Exploration Resources, had agreed to merge, with minority shareholders of Multiwave receiving newly issued shares of Exploration Resources in exchange for their shares. The merger became effective on October 19, 2005, and we purchased all of the new Exploration Resources shares issued to former Multiwave shareholders at a price of NOK 340 per share.

 

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The total cost to us of the acquisition was €41.1 million, including €8.0 million related to acquisition fees and including the price of the shares acquired in October 2005. The reassessment of Exploration Resources’ net assets, along with a seismic business economic perspective, led us primarily to increase the book value of the vessels (by €125 million at September 1, 2005) and to recognize the corresponding deferred tax liabilities. The vessels were valued using combined valuation methods of which, particularly, the present value of cash flows that will be generated by the vessels.

On the basis of these elements, the purchase accounting for Exploration Resources at historical rates is as follows:

(in million of euros)
Acquisition of Exploration Resources shares at September 30, 2005			280.3
Acquisition fees			8.0
Acquisition of Exploration Resources remaining shares on October 17, 2005			13.4
Total acquisition price			301.7
Preliminary fair value of net assets acquired			130.6
Preliminary goodwill			171.1

The reassessment of Exploration Resources’ assets resulted in a preliminary goodwill of €171.1 million. We might adjust the preliminary goodwill within a 12 month period starting September 1, 2005.

The results of Exploration Resources are included in our consolidated financial statements from September 1, 2005.

From the date of acquisition, Exploration Resources has contributed €0.6 million to the net loss for the Group. If the combination had taken place at the beginning of the year, the loss for the Group would have been €41.1 million, primarily due to the interest expenses for the financing of the acquisition, and the operating revenues would have been €669.7 million.

Note 3— Trade accounts and notes receivables

Analysis of trade accounts and notes receivables by maturity is as follows:

		September 30,				December 31,
(in millions of euros)		2005				2004
Trade accounts and notes receivable gross — current portion			230.5				159.5
Less : allowance for doubtful accounts			(4.8	)			(4.4	)
Trade accounts and notes receivables net — current portion			225.7				155.1
Trade accounts and notes receivable gross — long term portion			13.7				13.1
Less : allowance for doubtful accounts			—				—
Trade accounts and notes receivables net — long term portion			13.7				13.1
Recoverable costs and accrued profit not billed			50.7				36.6
Total accounts and notes receivables			290.1	(a)			204.8

Note 4— Property, plant and equipment

Analysis of Property, plant and equipment is as follows:

 

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Compagnie générale de géophysique, S.A.

		Balance at				Balance at
		September 30,				December 31,
(in millions of euros)		2005				2004
Land			4.6				4.4
Less : accumulated amortization			(0.2	)			(0.2	)
Land — net			4.4				4.2
Buildings			58.0				53.1
Less : accumulated amortization			(28.4	)			(25.4	)
Buildings — net			29.6				7.7
Machinery and equipment			432.7				339.7
Less : accumulated amortization			(300.9	)			(259.3	)
Machinery and equipment — net			131.8				80.4
Vehicles and vessels			384.3				159.2
Less : accumulated amortization			(108.7	)			(79.0	)
Vehicles and vessels — net			275.6				80.2
Other tangible assets			44.4				35.2
Less : accumulated amortization			(25.3	)			(23.6	)
Other tangible assets — net			19.1				11.6
Total property, plant and equipment — net			460.5				204.1

		September 30,				December 31,
Variations of the period (in millions of euros)		2005				2004
Balance at beginning of period			204.1				215.8
Acquisitions			61.8				41.1
Acquisitions through capital lease			13.6				8.7
Depreciation			(44.7	)			(58.0	)
Disposals			(2.2	)			(1,9	)
Changes in exchange rates			21.3				(8.9	)
Impact of change in consolidation scope			207.7	(a)			8.8
Other			(1.1	)			(1.5	)
Balance at end of period			460.5				204.1

Reconciliation of acquisitions with the cash-flow statement and capital expenditures in note 7 is as follows :

		September 30,
(in millions of euros)		2005
Acquisitions of tangible assets (excluding capital lease) — see above			61.8
Development costs capitalized — see note 5			5.5
Additions in other intangible assets (excluding non-exclusive surveys) — see note 7			1.5
Variance of fixed assets suppliers			(1.1	)
Total purchases of tangible and intangible assets according to cash-flow statement			67.7
Acquisitions through capital lease — see above			13.6
Increase in multi-clients surveys — see note 5			19.2
Less variance of fixed assets suppliers			1.1
Capital expenditures according to note 7			101.6

Note 5— Goodwill and Intangible assets

 

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Compagnie générale de géophysique, S.A.

Analysis of goodwill and intangible assets is as follows:

		Balance at				Balance at
		September 30,				December 31,
(in millions of euros)		2005				2004
Goodwill of consolidated subsidiaries			242.0				62.5
Multi-client surveys			551.3				510.9
Less: accumulated amortization			(450.0	)			(386.3	)
Multi-client surveys—net			101.3				124.6
Development costs capitalized			26.7				19.9
Less: accumulated amortization			(3.3	)			(1.6	)
Development costs capitalized — net (a)			23.4				18.3
Patents, trademarks, software and other intangible			45.0				42.4
Less: accumulated amortization			(27.0	)			(22.6	)
Other intangible assets—net			18.0				19.8
Total Goodwill and Intangible assets—net			384.7				225.2

		September 30,				December 31,
Variations of the period (in millions of euros)		2005				2004
Balance at beginning of period			225.2				217.3
Additions in goodwill			—				0.2
Increase in multi-clients surveys			19.2				51.1
Development costs capitalized			5.5				4.6
Other acquisitions			1.5				1.7
Depreciation			(54.6	)			(74.3	)
Disposals			—				(0.9	)
Changes in exchange rates			16.7				(8.4	)
Impact of change in consolidation scope			171.1	(a)			33.1
Other			0.1				0.8
Balance at end of period			384.7				225.2

Note 6— Financial debt

Analysis of financial debt by type is as follows:

		September 30, 2005												December 31, 2004
						Non-												Non-
(in millions of euros)		Current				current				Total				Current				current				Total
Outstanding bonds			—				189.0				189.0				55.1				154.9				210.0
Bank loans			320.7				28.5				349.2				5.3				6.6				11.9
Capital lease obligations			30.4				47.9				78.3				9.8				15.0				24.8
Sub-total			351.1				265.4				616.5				70.2				176.5				246.7
Accrued interest			6.4												2.9
Total			357.5												73.1

 

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Analysis of financial debt (including amounts due within one year) by currency is as follows:

		September 30,				December 31,
(in millions of euros)		2005				2004
Euro			13.8				18.7
U.S. dollar			584.0				226.0
Other currencies			18.7				2.0
Total			616.5				246.7

Analysis of financial debt (including amounts due within one year) by interest rate is as follows:

		September 30,				December 31,
(in millions of euros)		2005				2004
Variable rates (effective rate September 30, 2005: 7.28%; December 31, 2004: 2.76%)			378.6				15.4
Fixed rates (effective rate September 30, 2005: 8.12%; December 31, 2004: 11.07%)			237.9				231.3
Total			616.5				246.7

A component of our $85 million 7.75% convertible bonds due 2012 denominated in US dollars issued on November 4, 2004 had to be accounted for as an embedded derivative as the shares to be issued upon conversion are denominated in Euro. A portion of the issuance proceeds were deemed to relate to the fair value of the derivative on issuance and subsequent changes in fair value of the derivative are recorded through earnings. The allocation of a portion of the proceeds to the derivative created a discount on issuance which is being amortized to earnings over the life of the bonds.

The fair value of the embedded derivative has been determined using a binomial model. The fair value increased from €10.4 million at the initial recognition of the debt to €33.9 million at December 31, 2004, then to €48.6 million at June, 30, 2005 and to €71.9 million at September 30, 2005, principally as a result of the strengthening of the US dollar against the Euro and an increase in the CGG share price. This resulted in aggregate expense of €23.5 million in the year ended December 31, 2004, €14.7 million in the six months period ended June 30, 2005 and €38.0 million in the nine months period ended September 30, 2005, reflected in “Other financial expense”. The main assumptions used for the year-end valuation are an implicit volatility of 25%, a cost of share borrowing of 3% and a credit-risk premium of 4.5% at December 31, 2004 and an implicit volatility of 26.5%, a cost of share borrowing of 3% and a credit-risk premium of 3.75% at September 30, 2005.

On January 26, 2005, we redeemed U.S.$75 million principal amount of our outstanding 10⁵/8% senior notes due 2007. We paid an early redemption premium of 5.3125% of the aggregate principal amount of notes redeemed (U.S.$4.0 million) plus accrued and unpaid interest. The total cost to us of the redemption was therefore approximately U.S.$79 million plus the accrued interest.

On April 28, 2005, we issued U.S.$165 million aggregate principal amount of 7¹/2% senior notes due 2015. We used the net proceeds from the offering to redeem and pay accrued interest on all of the remaining outstanding U.S.$150 million aggregate principal amount of our 10⁵/8% senior notes due 2007 on May 31, 2005. The premium and the unamortized portion of the deferred expenditures linked to this redemption as well as the overlapped interests on the month of May 2005 amounted to €9.4 million and were recognized as Cost of financial debt.

On September 1, 2005, we entered into a single currency U.S.$375 million term credit facility, which was amended on September 30, 2005, with a maturity date at September 1^st, 2006 with the option (upon our request and upon approval of a majority of the lenders) to extend it for a further six months. The use of proceeds for this credit facility was to fund our initial purchase of approximately 60% of Exploration Resources shares, our continuing purchases of Exploration Resources shares, our mandatory offer for the purchase of the remaining Exploration Resources shares and the “squeeze out” of remaining shareholders. At September 30, 2005, we had drawn down a total of €293.1 million (U.S$353.0 million) under this facility. The credit facility bears interest at a graduated rate comprised of a base margin, depending on the credit rating assigned by either Moody’s or Standard & Poor’s to our outstanding U.S.$165 million 7¹/2% senior notes due 2015 (4.25% at BB-/Ba3 or higher, 5.25% at B+/B1,

 

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Compagnie générale de géophysique, S.A.

5.75% at B/B2 and 6.25% at B-/B3 or lower), and US$ LIBOR until March 1^t, 2006, plus 0.50% from March 1, 2006 until June 1, 2006, plus 1.00% from June 1, 2006 until September 1^t, 2006 plus 2.00% from September 1, 2006 until repayment. We agreed to maintain our “ORBDA” to total interests costs ratio (6.2, 5.0, 4.2, 3.7 and 3.9 for the periods ending December 31, 2005, March 31, 2006, June 30, 2006, September 30, 2006 and December 31, 2006, respectively), and our net debt to “ORBDA” ratio (2.60, 2.60, 2.65, 2.65 and 2.40 for the periods ending December 31, 2005, March 31, 2006, June 30, 2006, September 30, 2006 and December 31, 2006, respectively) and to limitations on our capital expenditures (€230 million, €280 million, €255 million, €225 million and €190 million for the periods ending December 31, 2005, March 31, 2006, June 30, 2006, September 30, 2006 and December 31, 2006, respectively). In order to comply with the conditions of the acquisitions of Exploration Resources shares noted above, we obtained waivers from the lenders under our U.S.$60 million syndicated credit facility dated March 12, 2004 of the negative pledge and any other relevant provisions thereunder, as well as amendments to the financial covenants thereunder including our gearing ratio (to 2.50:1 for the period ending December 31, 2005), leverage ratio (to 2.50:1 for the period ending December 31, 2005 and 2.00:1 for subsequent periods) and operational leverage (3.00:1 for the period ending December 31, 2006 and subsequent periods).

Note 7— Analysis by operating segment and geographic zone

The following tables present revenues, operating income and identifiable assets by operating segment, revenues by geographic zone (by origin) as well as net sales by geographic zone based on the location of the customer.
The Group principally services the oil and gas exploration and production industry and currently operates in two industry segments:

•		Geophysical services, which consist of (i) land seismic data acquisition, (ii) marine seismic data acquisition, (iii) other geophysical data acquisition, including activities not exclusively linked to oilfield services, and (iv) data processing, and data management;
•		Products, which consist of the manufacture and sale of equipment involved in seismic data acquisition, such as recording and transmission equipment and vibrators for use in land seismic acquisition.

Inter-company sales between such industry segments are made at prices approximating market prices and relate primarily to equipment sales made by the geophysical products segment to the geophysical services segment. These inter-segment sales, the related operating income recognized by the geophysical products segment, and the related effect on capital expenditures and depreciation expense of the geophysical services segment are eliminated in consolidation and presented in the column “Eliminations and Adjustments” in the tables which follow.

Operating income represents operating revenues and other operating income less expenses of the industry segment. It includes non-recurring and unusual items, which are disclosed in the operating segment if material. General corporate expenses, which include Group management, financing, and legal activities, have been included in the column “Eliminations and Adjustments” in the tables which follow. The Group does not disclose financial expenses or revenues by operating segment because these items are not followed by the operating management and financing and investing are mainly managed at the corporate level.

Identifiable assets are those used in the operations of each industry segment and geographic zone. Unallocated and corporate assets consist primarily of financial assets, including cash and cash equivalents, and the Group’s corporate headquarters in Massy.

Analysis by operating segment

 

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Compagnie générale de géophysique, S.A.

		Nine months period ended September 30, 2005																	Nine months period ended September 30, 2004
										Eliminations																	Eliminations
										and				Consolidated													and				Consolidated
(in millions of euros)		Services				Products				Adjustments				Total					Services				Products				Adjustments				Total
Revenues from unaffiliated customers			384.5				215.9				—				600.4					271.9				216.3				—				488.2
Inter-segment revenues			0.5				40.1				(40.6	)			—					1.2				12.6				(13.8	)			—
Operating revenues			385.0				256.0				(40.6	)			600.4					273.1				228.9				(13.8	)			488.2
Other income from ordinary activities			1.2				—				—				1.2					0.1				—				—				0.1
Total income from ordinary activities			386.2				256.0				(40.6	)			601.6					273.2				228.9				(13.8	)			488.3
Operating income (loss)			11.5				49.3				(18.3	)			42.5					(15.5	)			46.5				(4.8	)			26.2
Equity income (loss) of investees			9.8				(0.2	)			—				9.6					7.3				0.4				—				7.7
Capital expenditures (b)			100.0				14.0				(12.4	)			101.6					73.9				8.9				(0.7	)			82.1
Depreciation and amortization (c)			90.0				12.9				(3.6	)			99.3					85.2				11.5				(3.7	)			93.0
Investments in companies under equity method			—				—				—				—					—				—				—				—
Identifiable assets			1,072.1				358.2				(82.8	)			1,347.5					577.1				282.2				(36.9	)			822.4
Unallocated and corporate assets															183.6																	89.3
Total assets															1,531.1																	911.7