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ION Geophysical Corporation
2105 CityWest Blvd., Suite 400
Houston, TX 77042 USA
+1 281 933 3339
iongeo.com
ANNUAL REPORT
NOTICE OF 2015
ANNUAL MEETING
PROXY STATEMENT
VISION
CORE VALUES
CORPORATE INFORMATION
Our vision is to be the leading innovator
in geoscience and engineering, creating
value for our customers, shareholders and
employees.
STRATEGY
Our strategy is to develop and
leverage innovative technologies to
deliver solutions that address oil & gas
companies’ most challenging problems,
throughout the E&P lifecycle.
Underlying everything we do
PEOPLE Our people fuel our innovation. We strive to
attract and develop the best talent in the business and to
support and inspire them to achieve their personal best.
COLLABORATION Delivering leading technologies
requires collaboration and honest, open communication
among employees, customers and partners.
QHSE Quality, health, safety and environmental
stewardship are at the forefront of everything we do.
INNOVATION We continuously push the boundaries
of geoscience and engineering to solve the toughest
E&P challenges.
RESULTS We strive to deliver true value to our
stakeholders, including our shareholders, customers,
employees, partners and communities.
integrated solutions
one strategy
common goal
streamlined
alignment
one company
collaboration
working together
cohesive
one vision
Word picture based on ION employee survey responses about the company.
EXECUTIVE OFFICERS
R. Brian Hanson
President and Chief Executive Officer
Christopher T. Usher
Executive Vice President and Chief Innovation
Officer, Innovation Division
Kenneth G. Williamson
Executive Vice President and Chief Operating
Officer, Commercialization Division
Steven A. Bate
Executive Vice President
and Chief Financial Officer
Lawrence T. Burke
Executive Vice President,
Global Human Resources
Colin T. Hulme
Executive Vice President,
Ocean Bottom Services
Jacques P. Leveille
Executive Vice President,
Technology
Jamey S. Seely
Executive Vice President, General Counsel
and Corporate Secretary
Scott P. Schwausch
Vice President and Controller
BOARD OF DIRECTORS
James M. (Jay) Lapeyre, Jr.
Chairman of the Board
President, Laitram, L.L.C.
David H. Barr
Former President and Chief Executive Officer,
Logan International Inc.
R. Brian Hanson
President and Chief Executive Officer,
ION Geophysical Corporation
Hao Huimin
Chief Geophysicist, BGP Inc.,
China National Petroleum Corporation
Michael C. Jennings
President, Chief Executive Officer,
and Chairman of the Board
HollyFrontier Corporation
Franklin Myers
Senior Advisor, Quantum Energy Partners
S. James Nelson, Jr.
Former Vice Chairman,
Cal Dive International, Inc.
(now Helix Energy Solutions Group, Inc.)
John N. Seitz
Chairman and Chief Executive Officer,
GulfSlope Energy, Inc.
INVESTOR RELATIONS
Stockholders, securities analysts, portfolio
managers, or brokers seeking information
FORWARD-LOOKING STATEMENTS
The information included herein contains certain
forward-looking statements within the meaning of
about the Company are welcome to call Investor
Section 27A of the Securities Act of 1933 and Section
Relations at +1 281 933 3339. If you prefer, you
21E of the Securities Exchange Act of 1934. These
may send your requests to the Investor Relations
forward-looking statements include statements
e-mail address: ir@iongeo.com. Recent news
concerning expected future financial positions,
releases, financial information, and SEC filings can
sales, results of operations, cash flows, funds
be downloaded from the Company’s website at
from operations, financing plans, gross margins,
iongeo.com.
business strategy, budgets, projected costs and
expenses, capital expenditures, competitive position,
product offerings, technology developments, access
ANNUAL REPORT ON FORM 10-K
to capital and growth opportunities, results of
ION Geophysical Corporation’s Annual Report on
litigation, cash needs and sources of cash, including
Form 10-K for the fiscal year ended December
availability under the Company’s revolving line
31, 2014, which is furnished as part of this Annual
of credit facility, compliance with debt financial
Report to Shareholders, is also available upon
covenants, sales and market growth, benefits to
request without charge from: ION Geophysical
be obtained by the Company from the INOVA joint
Corporation, Attn: Investor Relations, 2105 CityWest
venture and OceanGeo, and other statements that
Blvd., Suite 400, Houston, Texas 77042-2839.
are not of historical fact. Actual results may vary
materially from those described in these forward-
looking statements. All forward-looking statements
reflect numerous assumptions and involve a
ANNUAL MEETING
The Annual Meeting of Stockholders of ION
number of risks and uncertainties. These risks and
Geophysical Corporation will be held at the offices
uncertainties include risks related to pending and
of the Company located at 2105 CityWest Blvd.,
future litigation, including the risk that the Company
Suite 400, Houston, Texas, on May 20, 2015, at
does not prevail in its appeal of the judgment in the
10:30 AM CDT.
STOCK TRANSFER AGENT
Computershare Investor Service
2 North LaSalle St.
Chicago, Illinois 60602
INDEPENDENT AUDITORS
Grant Thornton LLP
700 Milam St., Suite 300
Houston, TX 77002
832 476 3600
lawsuit with WesternGeco and that the ultimate
outcome of the lawsuit could have a materially
adverse effect on the Company’s financial results
and liquidity; risks of audit adjustments and other
modifications to the Company’s financial statements
not currently foreseen; risks of unanticipated delays
in the timing and development of the Company’s
products and services and market acceptance of
the Company’s new and revised product offerings;
risks associated with economic downturns and
volatile credit environments; risks associated with
the performance of INOVA and OceanGeo; risks
associated with the Company’s level of indebtedness,
including compliance with debt covenants; risks
associated with competitors’ product offerings
and pricing pressures resulting therefrom; risks
associated with the fact that a significant portion
CEO AND CFO CERTIFICATES
The Company has included as Exhibit 31 to its
of the Company’s revenues is derived from foreign
Annual Report on Form 10-K for the fiscal year
sales; risks regarding international, political, and
ended December 31, 2014, filed with the Securities
economic events and turmoil; risks that sources of
and Exchange Commission, certificates of the
capital may not prove adequate; risks regarding the
Chief Executive Officer and Chief Financial Officer
Company’s inability to produce products to preserve
of the Company certifying the quality of the
and increase market share; risks associated with
Company’s public disclosure and the Company
future oil and gas commodity prices; risks related to
has submitted to the New York Stock Exchange
future spending by customers and their ability to pay
a certificate of the Chief Executive Officer of the
Company invoices; the risk of industry consolidation;
Company certifying that he is not aware of any
risks related to collection of receivables; and risks
violation by the Company of the New York Stock
related to technological and marketplace changes
Exchange corporate governance listing standards.
affecting the Company’s product line. Additional
risk factors, which could affect actual results,
are disclosed by the Company from time to time
in its filings with the Securities and Exchange
Commission, including its Annual Report on Form
10-K for the year ended December 31, 2014.
CONTENTS
CEO Letter to Shareholders
About ION
Financial Highlights
Notice of 2015 Annual Meeting
Proxy Statement
Form 10-K Report
DID YOU KNOW?
Around the globe, ION pushes the
limits of geoscience to help oil &
gas companies locate and produce
hydrocarbons safely and effi ciently.
Harnessing the expertise and drive
of some of the brightest minds in
the industry, we solve imaging and
operational challenges throughout the
E&P lifecycle. The more challenging
the environment, the more complex
the geology, the more we excel.
Learn more at iongeo.com
47
8
Years of technology firsts: Full-
% of employees in technical roles;
wave imaging, under-ice acquisition,
cableless acquisition, Reverse Time
Migration…
25% of employees have
advanced degrees
% of 2014 revenue spent on R&D
Millions of lines of software code
500+
Number of patents and pending
Petabytes of storage in 12 global
applications
data centers
50
52
16
1
Letter to Shareholders
R. Brian Hanson
President and Chief Executive Officer
Dear Fellow Shareholders,
By all measures, 2014 began as a strong energy year, with oil
During the fourth quarter of the year, we took $170 million
prices north of $100 per barrel. U.S. oil production surged far
in restructuring and special items, only $2 million of which
beyond what even the most optimistic forecasts predicted. In
required use of cash. First, in an effort to better integrate
late June, West Texas Intermediate (WTI) reached a high for the
and align our entire workforce with our strategy of providing
year of $107. In the fourth quarter, however, oil prices began to
solutions directly to E&P companies, and in light of the
decline significantly, as signs emerged that non-U.S. demand
expected prolonged slowdown, we initiated a restructuring
was weakening. The plunge accelerated in late November
plan, reducing our workforce by about 10%. Second, we
when OPEC elected to maintain production despite the lower
wrote down data library investments associated with our
demand and prices. Between September and December 2014,
Arctic and North America land programs, as we expect these
WTI and Brent crude oil prices dropped by approximately half.
regions to be timed out for the next two to three years. Third,
Throughout 2014, oil companies began prioritizing shareholder
equipment business, we also wrote down our investment in
returns and cash flow generation over hydrocarbon resource
INOVA Geophysical, our land equipment services joint venture,
growth, minimizing discretionary spending and shifting their
and are evaluating our strategic options related to our ongoing
and consistent with our strategy of moving away from the
focus from exploration to production. This shift prompted
ownership in the joint venture.
a contraction in E&P spending on seismic for exploration
purposes, but had little impact on their spending on ocean
We reported a net loss for the year of $128 million, or $(0.78)
bottom seismic, which is typically used in the later, development
per share, compared to a net loss of $252 million, or $(1.59) per
and production, phases of the E&P lifecycle.
share, in 2013. Both periods included significant restructuring
During the year, ION generated revenues of $510 million,
2014, we reported a net loss of $34 million, or $(0.21) per
down 7% year over year. Three of our four segments were
share, compared to net income of $19 million, or $0.12 per
and other special items.* Excluding these special items, in
negatively impacted by the slowdown in exploration spending,
diluted share, in 2013.
the exception being our Ocean Bottom Services segment.
2
While we didn’t anticipate $50 oil, we saw the slowdown
Our software business proved to be remarkably resilient,
coming, and in the third quarter of 2013 we made the decision
generating slightly higher revenues in 2014 than in 2013,
to conservatively manage our business and to focus on cash
with adjusted gross margins of 72% and adjusted operating
generation. Whereas our cash balance at the end of 2013 was
margins of 51%. Throughout the year, we continued to
$113 million (excluding cash drawn on our revolving credit
penetrate tier 2 contractors with our core Orca® command
facility), by the end of 2014, our cash balance had grown to
and control software. In addition, consistent with our E&P
over $170 million. Typically, when oil and gas company
solutions strategy, we
introduced Marlin
for managing
spending on seismic for exploration purposes contracts, the
simultaneous operations. Now commercial, Marlin is an
seismic companies hardest hit are towed streamer seismic
integrated visualization and data management solution that
contractors, who find themselves with excess vessel capacity.
companies can use to manage simultaneous operations in
By contrast, given our “asset light” strategy, we were able to
both seismic and production environments. We believe Marlin
continue to build a strong balance sheet, avoiding debt and
has the potential to be exponentially larger than our traditional
generating the cash we needed to continue to selectively
command and control software business.
invest in the technologies and programs that made sense, at
the same time leveraging lower vessel day rates.
During the year, we
initiated 2D BasinSPAN programs
offshore Comoros, Namibia, Peru and Libya, and continued
Despite our mixed financial results, 2014 was an excellent
reprocessing efforts in the Gulf of Mexico basin, which, when
year for ION execution. Our strategy is to develop and leverage
complete, will add over 100,000 km to our BasinSPAN data
innovative technologies to deliver solutions that address oil &
library. Our library has grown to include nearly 500,000 km
gas companies’ most challenging problems, throughout the
of depth imaged 2D data covering virtually all major basins
E&P lifecycle. Whereas historically our portfolio of offerings
around the world. We are actively exploring new business
has been skewed to the earlier, frontier exploration and
models and ways to leverage and extend these programs.
exploration, phases with our flagship BasinSPAN™ programs,
two of our newest offerings, OceanGeo and Marlin™, are
In our data processing business, our focus throughout
focused on the production phases of the lifecycle.
2014 was on improving efficiency through aggressive cost
control while continuing to add new technologies to our
In 2014, we increased our ownership in OceanGeo, our ocean
data processing toolkit. During the year, we introduced
bottom seismic acquisition company, to 100%. During the
PrecisION™, an innovative compressed seismic inversion
year, OceanGeo generated significant cash and over $100
process for building Earth reconstructions with improved
million in revenues from three surveys, one offshore Trinidad
accuracy, to help geoscientists better understand exploration
and two offshore West Africa. The outlook for ocean bottom
risk and uncertainty. And we continued to advance and evolve
seismic has not been as negatively impacted as the outlook for
our full waveform inversion technology, designed to help our
the towed streamer market.
clients derive high-fidelity Earth models that can be used for
more accurate prospect evaluation and reservoir exploitation.
3
We completed several full waveform inversion projects during
E&P company customers. In 2009, our E&P offerings were
the year.
skewed to the early exploration phases of the E&P lifecycle.
Since then, we have diversified our portfolio to include E&P
Looking ahead, 2015 is predicted to be a tough year. We
offerings that span the entire E&P lifecycle.
estimate E&P capex spending will be down 25% - 35% from
2014. Oil and gas companies are delaying locking down their
We appreciate your continued confidence in ION.
2015 budgets, and even once they’re set, the companies may
delay committing those expenditures as we weather the
Regards,
current commodity price storm. Typically, the data processing
business fares well in down cycles, as E&P customers shoot
less data but utilize the latest processing algorithms on
existing data sets to get the most out of them with the lowest
Brian Hanson
capital outlay. It is too soon, however, to see if this cycle will
President and Chief Executive Officer
replicate the past.
We are well positioned for the eventual upturn, from both the
financial and portfolio perspectives. Our “asset light” strategy
enables us to avoid significant fixed costs and to remain
financially flexible. We have restructured to better align the
entire company with our vision and strategy. Our focus on cash
has paid off; we have a strong balance sheet and will continue
managing our business conservatively in 2015. Consistent
with 2014, we will continue to maximize cash and exercise
spending discipline across all of our businesses, funding new
programs once we have obtained adequate levels of industry
underwriting. And we will continue to invest in key strategic
technologies and market opportunities.
The energy business is cyclical, but we are a completely
different company than we were going into the last downturn
five years ago. In 2009, our business was largely centered
around our land and marine equipment businesses, which at
the time generated half of our revenues. By the end of 2014,
over three quarters of our revenues came directly from our
4
*A reconciliation of these special items can be found in the tables to our
2014 Year-end Results press release issued February 11, 2015.
About ION
ION is a leading provider of technology-driven solutions to the global oil & gas
industry. Our off erings are designed to help companies reduce risk and optimize
assets throughout the E&P lifecycle. Our business is comprised of four reporting
segments: Solutions, Soſt ware, Ocean Bottom Services and Systems.
SOLUTIONS
ION develops and manages full-scope 2D and 3D multi-client and proprietary geoscience programs, including survey design and
planning, data acquisition, project management, advanced processing services, reservoir characterization services, fi nal image
rendering and interpretation.
Our global BasinSPAN library consists of nearly 500,000 km of depth-imaged 2D seismic data covering virtually all major off shore
petroleum provinces. Oil and gas companies use this data to evaluate the potential of new frontiers and to identify new play
concepts.
Operating from processing service centers around the world, we have one of the most technologically advanced seismic imaging
teams in the industry. We undertake complex land and marine imaging projects, applying advanced imaging techniques, including
data conditioning, pre-stack depth migration (PreSDM), reverse time migration (RTM), tomographic and azimuthal velocity model
building, and reservoir fracture detection.
SOFTWARE
Through our command and control soſt ware systems and advisory services, we help our customers design and optimize their
seismic surveys. Our new Marlin integrated visualization and data management solution provides operators with a single view
of their complex seismic or production environments, to help them better manage simultaneous operations.
OCEAN BOTTOM SERVICES
ION provides a full suite of ocean bottom seismic (OBS) services, including survey design, planning and optimization, data
acquisition through our OBS acquisition company OceanGeo, and geophysical QC.
SYSTEMS
ION develops seismic imaging systems and soſt ware for both towed streamer and ocean bottom seismic acquisition. Our
off erings include streamer positioning and control systems, streamer acquisition systems, ocean bottom cable acquisition
systems, including industry-leading Calypso™ and VSO systems, marine acquisition soſt ware and data integration and quality-
assurance services.
5
ANNUAL REVENUES
Solutions
Systems
So(cid:31)ware
Legacy Land Systems
Ocean Bottom Services
2010
2011
2012
2013
2014
Consolidated
Revenues
444.3
454.6
526.3
549.2
509.6
0
50
100
150
200
250
300
350
400
450
500
550
600
$ Millions
SHAREHOLDER RETURNS
ION Geophysical Corporation
S&P 500
Dow Jones U.S. Oil Equipment & Services
This graph compares our cumulative total stockholder
return on our common stock for the fi ve years ending
December 31, 2014, assuming reinvestment of
dividends, with (i) the S&P 500 Index and (ii) the Dow
Jones U.S. Oil Equipment and Services Index, an index
of companies that we believe are comparable in terms
of industry and their lines of business.
The graph assumes that $100 was invested in our
common stock and the above indices on January 1,
2010. We have not paid any dividends on our common
stock during the applicable period. Historic stock price
performance is not necessarily indicative of future
stock price performance.
$450
$400
$350
$300
$250
$200
$150
$100
$50
$0
6
2009
2010
2011
2012
100
100
100
143 104
117
115
112
127
110
136
112
2013
56
180
144
2014
46
205
119
Financial Highlights
years ended December 31
2014
2013
2012
(in thousands, except per share data)
STATEMENT OF OPERATIONS DATA
Net revenues
Gross profi t
$ 509,558
$ 549,167
$ 526,317
62,223
159,313
215,801
Income (loss) from operations
(117,929)
16,396
74,527
Net income (loss) applicable to common shares
(128,252)
(251,874)
61,963
Net income (loss) per basic share
Net income (loss) per diluted share
$ (0.78)
$ (1.59)
$ 0.40
$ (0.78)
$ (1.59)
$ 0.39
Weighted average number of common shares outstanding
164,089
158,506
155,801
Weighted average number of diluted shares outstanding
164,089
158,506
162,765
Balance Sheet Data (end of year)
Working capital
Total assets
Long-term debt
Total equity
Other Data
$ 222,099
$ 248,857
$ 164,693
617,257
864,671
820,583
190,594
220,152
105,328
135,712
257,885
499,019
Investment in multi-client library
$ 67,785
$ 114,582
$ 145,627
Capital expenditures
8,264
16,914
16,650
Depreciation and amortization (other than multi-client library)
27,656
18,158
16,202
Amortization of multi-client library
64,374
86,716
89,080
The selected consolidated fi nancial data set forth above with respect to our consolidated statements of operations for 2014, 2013 and 2012 and with respect to our consolidated
balance sheets at December 31, 2014, 2013 and 2012 have been derived from our audited consolidated fi nancial statements. Our results of operations and fi nancial condition
have been aff ected by restructuring activities, legal contingencies and settlements, and impairments and write-downs of assets during the periods presented, which aff ect the
comparability of the fi nancial information shown. For a detailed discussion of these items impacting the comparability of the fi nancial information, please see Item 6, “Selected
Financial Data,” in our Annual Report on Form 10-K for the year ended December 31, 2014. Also, this information should not be considered as being indicative of future
operations, and should be read in conjunction with Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and the consolidated
fi nancial statements and the notes thereto included elsewhere in our Annual Report on Form 10-K for the year ended December 31, 2014.
7
29APR201300073885
ION GEOPHYSICAL CORPORATION
2105 CityWest Boulevard, Suite 400
Houston, Texas 77042-2839
(281) 933-3339
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held May 20, 2015
To ION’s Stockholders:
The 2015 Annual Meeting of Stockholders of ION Geophysical Corporation will be held in the
offices of the company located at 2105 CityWest Boulevard, Houston, Texas, on Wednesday, May 20,
2015, at 10:30 a.m., local time, for the following purposes:
1. Elect the three directors named in the attached proxy statement to our Board of Directors,
each to serve for a three-year term;
2. Advisory (non-binding) vote to approve the compensation of our named executive officers;
3. Ratify the appointment of Grant Thornton LLP as our independent registered public
accounting firm (independent auditors) for 2015; and
4. Consider any other business that may properly come before the annual meeting, or any
postponement or adjournment of the meeting.
ION’s Board of Directors has set March 31, 2015, as the record date for the meeting. This means
that owners of ION common stock at the close of business on that date are entitled to receive this
notice of meeting and vote at the meeting and any adjournments or postponements of the meeting.
Your vote is very important, and your prompt cooperation in voting your proxy is greatly
appreciated. Whether or not you plan to attend the meeting, please sign, date and return your enclosed
proxy card as soon as possible so that your shares can be voted at the meeting.
By Authorization of the Board of Directors,
18MAR201500045204
Jamey S. Seely
Executive Vice President,
General Counsel and
Corporate Secretary
April 14, 2015
Houston, Texas
Important Notice Regarding the Availability of Proxy Materials
For the Annual Stockholders’ Meeting to be held on May 20, 2015
The proxy statement and our 2014 annual report to stockholders
are available at www.iongeo.com under ‘‘Investor Relations—Investor Materials—
Annual Report & Proxy Statement.’’
The Annual Meeting of Stockholders of ION Geophysical Corporation will be held on May 20,
2015, at the offices of the company located at 2105 CityWest Boulevard, Houston, Texas, beginning at
10:30 a.m., local time.
The matters intended to be acted upon are:
1. Elect the three directors named in the attached proxy statement to our Board of Directors,
each to serve for a three-year term;
2. Advisory (non-binding) vote to approve the compensation of our named executive officers;
3. Ratify the appointment of Grant Thornton LLP as our independent registered public
accounting firm (independent auditors) for 2015; and
4. Consider any other business that may properly come before the annual meeting, or any
postponement or adjournment of the meeting.
The Board of Directors recommends voting in favor of the nominees listed in the proxy statement,
the compensation of our named executive officers and the ratification of the appointment of Grant
Thornton LLP.
The proxy statement for the 2015 Annual Meeting of Stockholders and the 2014 annual report to
stockholders are being made available at the website location specified above.
Directions to the annual meeting are also provided in the accompanying proxy statement under
‘‘About the Meeting—Where will the Annual Meeting be held?’’
29APR201300073885
ION GEOPHYSICAL CORPORATION
2105 CityWest Boulevard, Suite 400
Houston, Texas 77042-2839
(281) 933-3339
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
To Be Held May 20, 2015
April 14, 2015
Our Board of Directors is furnishing you this proxy statement to solicit proxies on its behalf to be
voted at the 2015 Annual Meeting of Stockholders of ION Geophysical Corporation (‘‘ION’’). The
meeting will be held at 2105 CityWest Boulevard, Houston, Texas, on May 20, 2015, at 10:30 a.m., local
time. The proxies also may be voted at any adjournments or postponements of the meeting.
The mailing address of our principal executive offices is 2105 CityWest Boulevard, Suite 400,
Houston, Texas 77042-2839. We are mailing the proxy materials to our stockholders beginning on or
about April 14, 2015. All properly completed and returned proxies for the annual meeting will be voted
at the meeting in accordance with the directions given in the proxy, unless the proxy is revoked before
the meeting.
Only owners of record of our outstanding shares of common stock on March 31, 2015 are entitled
to vote at the meeting, or at adjournments or postponements of the meeting. Each owner of common
stock on the record date is entitled to one vote for each share of common stock held. On March 31,
2015, there were 166,067,048 shares of common stock issued and outstanding.
When used in this proxy statement, ‘‘ION Geophysical,’’ ‘‘ION,’’ ‘‘Company,’’ ‘‘we,’’ ‘‘our,’’ ‘‘ours’’
and ‘‘us’’ refer to ION Geophysical Corporation and its consolidated subsidiaries, except where the
context otherwise requires or as otherwise indicated.
1
TABLE OF CONTENTS
2015 PROXY STATEMENT HIGHLIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ABOUT THE MEETING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 1—ELECTION OF DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
BOARD OF DIRECTORS AND CORPORATE GOVERNANCE . . . . . . . . . . . . . . . . . . . . . . .
OWNERSHIP OF EQUITY SECURITIES OF ION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
EXECUTIVE OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
COMPENSATION DISCUSSION AND ANALYSIS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
COMPENSATION COMMITTEE REPORT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SUMMARY COMPENSATION TABLE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014 GRANTS OF PLAN-BASED AWARDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
EMPLOYMENT AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END . . . . . . . . . . . . . . . . . . . . . . . .
2014 OPTION EXERCISES AND STOCK VESTED . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE OF CONTROL . . . . . . . . . .
2014 PENSION BENEFITS AND NONQUALIFIED DEFERRED COMPENSATION . . . . . . . .
EQUITY COMPENSATION PLAN INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 2—ADVISORY (NON-BINDING) VOTE TO APPROVE EXECUTIVE
COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 3—RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS . . . . . . . . . .
REPORT OF THE AUDIT COMMITTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CHANGE IN INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS . . . . . . . . . . . . . . . .
PRINCIPAL AUDITOR FEES AND SERVICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3
5
9
13
25
26
28
28
46
47
49
50
53
54
55
63
64
65
66
67
69
70
2
2015 PROXY STATEMENT HIGHLIGHTS
This summary highlights information contained elsewhere in our proxy statement. This summary does
not contain all of the information that you should consider. You should read the entire proxy statement
carefully before voting.
Board Nominees
Name
Director
Since
Age
Occupation
Independent Audit Comp Gov Fin
Committee
Memberships
R. Brian Hanson . . . . . . . . . 50
2012 President and Chief
Executive Officer of ION
Hao Huimin . . . . . . . . . . . . 51
2011 Chief Geophysicist of
(cid:2)
(cid:2)
BGP Inc., China National
Petroleum Corporation
James M. Lapeyre, Jr.
. . . . . 62
1998 Chairman of the Board of
(cid:2)
(cid:2) (cid:2) (cid:2)
ION and President of
Laitram L.L.C.
Executive Compensation Highlights
ION is committed to paying for performance. We provide the majority of compensation through
programs in which the amounts ultimately received vary to reflect our performance. Our executive
compensation programs evolve and are adjusted over time to support our business goals and to
promote both near-term and long-term profitable company growth.
The majority of cash compensation is paid through base salary and under our annual incentive
cash plan based on company performance relative to financial goals and on individual performance.
Under our incentive plan, cash compensation reflects near-term (annual) business performance.
Equity awards, consisting of stock options and restricted stock and restricted stock units, are used
to align compensation with the long-term interests of our stockholders by focusing our executive
officers on total stockholder return. Equity awards generally become fully vested in either three or four
years after the grant date, so that compensation realized under the awards reflects the long-term
performance of the company’s stock.
In setting executive officer compensation, the Compensation Committee evaluates individual
performance reviews of the executive officers and compensation of a ‘‘peer’’ group consisting of
companies participating in various relevant compensation surveys, including Frost’s 2014 Oilfield
Manufacturing and Services Industry Executive Compensation Survey.
Total compensation for each executive officer varies with ION’s performance in achieving financial
objectives and with individual performance. Each executive officer’s compensation is designed to reward
his or her contribution to ION’s results. Our executive officers’ 2014 compensation also reflects
adjustments arising from our normal annual process of assessing pay competitiveness. Year-over-year
changes in salaries and equity award levels also reflect promotions, individual performance and
competitive market adjustments.
3
The following table shows the total direct compensation granted by the Compensation Committee
to our 2014 named executive officers in 2014 and 2013 (except for Mr. Bate, who did not become a
named executive officer until 2014):
Name and Principal Position
R. Brian Hanson . . . . . . . . . . .
President, Chief Executive
Officer and Director
Kenneth G. Williamson . . . . . . .
Executive Vice President and
Chief Operating Officer,
Commercialization Division
Colin T. Hulme . . . . . . . . . . . .
Executive Vice President,
Ocean Bottom Services
Steven A. Bate . . . . . . . . . . . . .
Executive Vice President and
Chief Financial Officer
Christopher T. Usher
. . . . . . . .
Executive Vice President and
Chief Innovation Officer,
Innovation Division
Gregory J. Heinlein . . . . . . . . .
Former Senior Vice President
and Chief Financial Officer
Salary
($)
Bonus
($)
Stock
Awards
($)
Option
Awards
($)
Non-Equity
Incentive Plan
Compensation
($)
Total Direct
Compensation
($)
550,000 — 287,700
490,000 — 214,800
248,050
235,000
825,000
395,000
1,910,750
1,334,800
Year
2014
2013
2014
2013
372,320 —
358,000 —
82,200
71,600
148,830
141,000
390,000
215,000
993,350
785,600
2014
2013
330,000 —
312,000 —
61,650
53,700
124,025
117,500
330,000
187,200
845,675
670,400
2014
316,616 — 114,050
211,169
193,000
834,835
2014
2013
364,000 —
350,000 —
82,200
71,600
148,830
141,000
218,400
300,000
813,430
862,600
2014
2013
330,000 —
312,000 —
61,650
53,700
99,220
94,000
63,000
160,000
553,870
619,700
4
What is a proxy and proxy statement?
ABOUT THE MEETING
A proxy is your legal designation of another person to vote the stock you own on your behalf. That
other person is referred to as a ‘‘proxy.’’ Our Board of Directors has designated R. Brian Hanson and
James M. Lapeyre, Jr. as proxies for the 2015 Annual Meeting of Stockholders. By completing and
submitting the enclosed proxy card, you are giving Mr. Hanson and Mr. Lapeyre the authority to vote
your shares in the manner you indicate on your proxy card. A proxy statement is a document that the
regulations of the Securities and Exchange Commission (‘‘SEC’’) require us to give you when we ask
you to sign a proxy card designating individuals as proxies to vote on your behalf.
Who is soliciting my proxy?
Our Board of Directors is soliciting proxies on its behalf to be voted at the 2015 Annual Meeting.
All costs of soliciting the proxies will be paid by ION. Copies of solicitation materials will be furnished
to banks, brokers, nominees and other fiduciaries and custodians to forward to beneficial owners of
ION’s common stock held by such persons. ION will reimburse such persons for their reasonable
out-of-pocket expenses in forwarding solicitation materials. In addition to solicitations by mail, some of
ION’s directors, officers and other employees, without extra compensation, might supplement this
solicitation by telephone, personal interview or other communication. ION has also retained
Georgeson Inc. to assist with the solicitation of proxies from banks, brokers, nominees and other
holders, for a fee not to exceed $10,500 plus reimbursement for out-of-pocket expenses. We may also
ask our proxy solicitor to solicit proxies on our behalf by telephone for a fixed fee of $6 per phone call
and $3.50 per telephone vote, plus reimbursement for expenses.
What is the difference between a ‘‘stockholder of record’’ and a stockholder who holds stock in ‘‘street
name’’?
If your shares are registered directly in your name, you are a stockholder of record. If your shares
are registered in the name of your broker, bank or similar organization, then you are the beneficial
owner of shares held in street name.
Where will the Annual Meeting be held?
ION’s 2015 Annual Meeting of Stockholders will be held on the 4th Floor of 2105 CityWest
Boulevard in Houston, Texas.
Directions: The site for the meeting is located on CityWest Boulevard off of West Sam Houston
Parkway South (‘‘Beltway 8’’), near the intersection of Beltway 8 and Briar Forest Drive. Traveling
south on the Beltway 8 feeder road after Briar Forest Drive, turn right on Del Monte Drive. Enter
Garage Entrance 3 on your immediate left. Advise the guard that you are attending the ION Annual
Meeting. You may be required to show your driver’s license or other photo identification. The guard
will then direct you where to park in the visitors section of the parking garage. The guard can also
direct you to 2105 CityWest Boulevard, which is directly south of the garage. Once in the building,
check in with the security desk and then take the elevators to the 4th floor.
What is the effect of not voting?
It depends on how ownership of your shares is registered. If you are a stockholder of record, your
unvoted shares will not be represented at the meeting and will not count toward the quorum
requirement. Assuming a quorum is obtained, your unvoted shares will not be treated as a vote for or
against a proposal. Depending on the circumstances, if you own your shares in street name, your
broker or bank may represent your shares at the meeting for purposes of obtaining a quorum. As
5
described in the answer to the question immediately following, in the absence of your voting
instruction, your broker may or may not vote your shares.
If I don’t vote, will my broker vote for me?
If you own your shares in street name and you do not vote, your broker may vote your shares in
its discretion on proposals determined to be ‘‘routine matters’’ under the rules of the New York Stock
Exchange (‘‘NYSE’’). With respect to ‘‘non-routine matters,’’ however, your broker may not vote your
shares for you. Where a broker cannot vote your shares on non-routine matters because he has not
received any instructions from you regarding how to vote, the number of unvoted shares on those
matters is reported as ‘‘broker non-votes.’’ These ‘‘broker non-vote’’ shares are counted toward the
quorum requirement, but, generally speaking, they do not affect the determination of whether a matter
is approved. See ‘‘—How are abstentions and broker non-votes counted?’’ below. The election of
directors and the advisory vote on executive compensation are not considered to be routine matters
under current NYSE rules, so your broker will not have discretionary authority to vote your shares held
in street name on those matters. The proposal to ratify the appointment of Grant Thornton LLP
(‘‘Grant Thornton’’) as our independent registered public accounting firm is considered to be a routine
matter on which brokers will be permitted to vote your shares without instructions from you.
What is the record date and what does it mean?
The record date for the 2015 Annual Meeting of Stockholders is March 31, 2015. The record date
is established by the Board of Directors as required by Delaware law (the state in which we are
incorporated). Holders of common stock at the close of business on the record date are entitled to
receive notice of the meeting and vote at the meeting and any adjournments or postponements of the
meeting.
How can I revoke a proxy?
A stockholder can revoke a proxy prior to the vote at the Annual Meeting by (a) giving written
notice to the Corporate Secretary of ION, (b) delivering a later-dated proxy or (c) voting in person at
the meeting. If you hold shares through a bank or broker, you must contact that bank or broker in
order to revoke any prior voting instructions.
What constitutes a quorum?
The presence, in person or by proxy, of the holders of a majority of the outstanding shares of
common stock constitutes a quorum. We need a quorum of stockholders to hold a validly convened
Annual Meeting. If you have submitted your proxy, your shares will be counted toward the quorum. If
a quorum is not present, the chairman may adjourn the meeting, without prior notice other than by
announcement at the meeting, until the required quorum is present. As of the record date, 166,067,048
shares of common stock were outstanding. Thus, the presence of the holders of common stock
representing at least 83,033,525 shares will be required to establish a quorum.
What are my voting choices when voting for director nominees, and what vote is needed to elect
directors?
In voting on the election of three director nominees to serve until the 2018 Annual Meeting of
Stockholders, stockholders may vote in one of the following ways:
(a) in favor of all nominees,
(b) withhold votes as to all nominees or
(c) withhold votes as to a specific nominee.
6
Directors will be elected by a plurality of the votes of the shares of common stock present or
represented by proxy at the meeting. This means that director nominees receiving the highest number
of ‘‘for’’ votes will be elected as directors. Votes ‘‘for’’ and ‘‘withheld’’ are counted in determining
whether a plurality has been cast in favor of a director. Under ION’s Corporate Governance
Guidelines, any director nominee who receives a greater number of votes ‘‘withheld’’ from his election
than votes ‘‘for’’ such election shall promptly tender to the Board of Directors his resignation following
certification of the results of the stockholder vote. For a more complete explanation of this
requirement and process, please see ‘‘Item 1—Election of Directors—Board of Directors and Corporate
Governance—Majority Voting Procedure for Directors’’ below.
You may not abstain from voting for purposes of the election of directors. Stockholders are not
permitted to cumulate their votes in the election of directors.
The Board recommends a vote ‘‘FOR’’ all of the nominees.
What are my voting choices when casting an advisory vote to approve the compensation of our named
executive officers?
In casting an advisory vote to approve the compensation of our named executive officers,
stockholders may vote in one of the following ways:
(a) in favor of the advisory vote to approve our executive compensation,
(b) against the advisory vote to approve our executive compensation or
(c) abstain from voting.
The advisory vote to approve the compensation of our named executive officers will be approved if
the number of votes cast in favor of the proposal exceeds the number of votes cast against it.
The Board recommends a vote ‘‘FOR’’ this proposal.
What are my voting choices when voting on the ratification of the appointment of Grant Thornton as
our independent registered public accounting firm—or independent auditors—and what vote is needed
to ratify their appointment?
In voting to ratify the appointment of Grant Thornton as independent auditors for 2015,
stockholders may vote in one of the following ways:
(a) in favor of ratification,
(b) against ratification or
(c) abstain from voting on ratification.
The proposal to ratify the appointment of Grant Thornton will require the affirmative vote of a
majority of the votes cast on the proposal by holders of common stock in person or represented by
proxy at the meeting.
The Board recommends a vote ‘‘FOR’’ this proposal.
Will any other business be transacted at the meeting? If so, how will my proxy be voted?
We do not know of any business to be transacted at the Annual Meeting other than those matters
described in this proxy statement. We believe that the periods specified in ION’s Bylaws for submitting
proposals to be considered at the meeting have passed and no proposals were submitted. However,
should any other matters properly come before the meeting, and any adjournments or postponements
7
of the meeting, shares with respect to which voting authority has been granted to the proxies will be
voted by the proxies in accordance with their judgment.
What if a stockholder does not specify a choice for a matter when submitting their proxy?
Stockholders should specify their choice for each matter on their proxy. If no instructions are
given, proxies that are properly submitted will be voted ‘‘FOR’’ the election of all director nominees,
‘‘FOR’’ the non-binding advisory vote to approve our company’s executive compensation and ‘‘FOR’’
the proposal to ratify the appointment of Grant Thornton as independent auditors for 2015.
How are abstentions and broker non-votes counted?
Abstentions are counted for purposes of determining whether a quorum is present at the Annual
Meeting. A properly submitted proxy marked ‘‘withhold’’ with respect to the election of one or more
directors will not be voted with respect to the director or directors indicated, although it will be
counted for purposes of determining whether there is a quorum.
With respect to (i) the proposal regarding the advisory vote on executive compensation and (ii) the
proposal to ratify the appointment of the independent auditors, an abstention from voting on either
such proposal will be counted as present in determining whether a quorum is present but will not be
counted in determining the total votes cast on such proposal. Thus, abstentions will have no effect on
the outcome of the vote on these proposals.
Broker non-votes will have no effect on the outcome of the vote on any of the proposals.
What is the deadline for submitting proposals to be considered for inclusion in the 2016 proxy
statement and for submitting a nomination for director of ION for consideration at the Annual
Meeting of Stockholders in 2016?
Stockholder proposals requested to be included in ION’s 2016 proxy statement must be received by
ION not later than December 16, 2015. A proper director nomination may be considered at ION’s
2016 Annual Meeting of Stockholders only if the proposal for nomination is received by ION not later
than December 16, 2015. Proposals and nominations should be directed to Jamey S. Seely, Executive
Vice President, General Counsel and Corporate Secretary, ION Geophysical Corporation, 2105
CityWest Boulevard, Suite 400, Houston, Texas 77042-2839.
Will I have electronic access to the proxy materials and Annual Report?
The notice of Annual Meeting, proxy statement and 2014 Annual Report to Stockholders are
posted on ION’s Internet website at www.iongeo.com under ‘‘Investor Relations—Investor Materials—
Annual Report & Proxy Statement’’.
How can I obtain a copy of ION’s Annual Report on Form 10-K?
A copy of our 2014 Annual Report on Form 10-K (without schedules or exhibits) forms a part of
our 2014 Annual Report to Stockholders, which is enclosed with our proxy statement. You may obtain
an additional copy of our 2014 Form 10-K at no charge by sending a written request to Jamey S. Seely,
Executive Vice President, General Counsel and Corporate Secretary, ION Geophysical Corporation,
2105 CityWest Boulevard, Suite 400, Houston, Texas 77042-2839. Our Form 10-K is also available
(i) through the Investor Relations section of our website at www.iongeo.com and (ii) with exhibits on
the SEC’s website at http://www.sec.gov.
Please note that the contents of these and any other websites referenced in this proxy statement
are not incorporated by reference herein. Further, our references to the URLs for these and other
websites listed in this proxy statement are intended to be inactive textual references only.
8
ITEM 1—ELECTION OF DIRECTORS
Our Board of Directors consists of eight members. The Board is divided into three classes.
Members of each class are elected for three-year terms and until their respective successors are duly
elected and qualified, unless the director dies, resigns, retires, is disqualified or is removed. Our
stockholders elect the directors in a designated class annually. Directors in Class I, which is the class of
directors to be elected at this meeting, will serve on the Board until our Annual Meeting in 2018.
The current Class I directors are R. Brian Hanson, Hao Huimin, and James M. Lapeyre, Jr., and
their terms will expire when their successors are elected and qualified at the 2015 Annual Meeting. At
its meeting on February 10, 2015, the Board approved the recommendation of the Governance
Committee that Messrs. Hanson, Huimin and Lapeyre be nominated to stand for reelection at the
Annual Meeting to hold office until our 2018 Annual Meeting and until their successors are elected
and qualified.
We have no reason to believe that either of the nominees will be unable or unwilling to serve if
elected. However, if any nominee should become unable or unwilling to serve for any reason, proxies
may be voted for another person nominated as a substitute by the Board of Directors, or the Board of
Directors may reduce the number of directors.
The Board of Directors recommends a vote ‘‘FOR’’ the election of R. Brian Hanson, Hao Huimin, and
James M. Lapeyre, Jr.
The biographies of each of the nominees and continuing directors below contains information
regarding the person’s service as a director, business experience, education, director positions and the
experiences, qualifications, attributes or skills that caused the Governance Committee and the Board to
determine that the person should serve as a director for the Company:
Class I Director Nominees For Re-Election for Term Expiring In 2018
R. BRIAN HANSON
Director since 2012
Mr. Hanson, age 50, has been our President and Chief Executive Officer since January 1, 2012. He
joined ION in May 2006 as our Executive Vice President and Chief Financial Officer and was
appointed our President and Chief Operating Officer in August 2011. Prior to joining ION,
Mr. Hanson served as the Executive Vice President and Chief Financial Officer of Alliance
Imaging, Inc., a NYSE-listed provider of diagnostic imaging services to hospitals and other healthcare
providers, from July 2004 until November 2005. From 1998 to 2003, Mr. Hanson held a variety of
positions at Fisher Scientific International, Inc., a NYSE-listed manufacturer and supplier of scientific
and healthcare products and services, including Vice President Finance of the Healthcare group from
1998 to 2002 and Chief Operating Officer from 2002 to 2003. From 1986 until 1998, Mr. Hanson served
in various positions with Culligan Water Conditioning, an international manufacturer of water
treatment products and producer and retailer of bottled water products, most recently as Vice President
of Finance and Chief Financial Officer. Mr. Hanson received a Bachelor’s degree in engineering from
the University of New Brunswick and a Master of Business Administration degree from Concordia
University in Montreal.
Mr. Hanson’s day-to-day leadership and involvement with our company provides him with personal
knowledge regarding our operations. In addition, Mr. Hanson’s financial experience and skills and
technical background enable the Board to better understand and be informed with regard to our
company’s operations, prospects and financial condition.
9
HAO HUIMIN
Director since 2011
Mr. Hao, age 51, has been employed by China National Petroleum Corporation (‘‘CNPC’’),
China’s largest oil company, and its affiliates in various positions of increasing responsibility since 1984.
Since 2006, Mr. Hao has been Chief Geophysicist of BGP Inc., China National Petroleum Corporation
(‘‘BGP’’). BGP is a subsidiary of CNPC and is the world’s largest land seismic contractor. From 2004 to
2006, Mr. Hao was assistant President of BGP, and from 2002 to 2004, he managed the marine
department at BGP. From 2000-2002, Mr. Hao was manager of Dagang Geophysical Company, Dagang
Oilfield, CNPC. Between 1984 and 2000, Mr. Hao served in various management positions at Dagang
Geophysical Company, Dagang Oilfield and CNPC. Mr. Hao is a member of the Finance Committee of
our Board of Directors. He holds a Bachelor of Science degree in geophysical exploration from China
Petroleum University and Masters of Business Administration degrees from the University of Houston
and Nankai University in China.
Mr. Hao has over 25 years of experience in geophysical technology research and development,
particularly in seismic data processing and seismic data acquisition system research and development
management. Mr. Hao’s position with BGP and his extensive knowledge of the global seismic industry
enables our Board to receive current input and advice reflecting the perspectives of our seismic
contractor customers. In addition, our land equipment joint venture with BGP and the ever-increasing
importance of China in the global economy and the worldwide oil and gas industry has elevated our
commercial involvement with China and Chinese companies. Mr. Hao’s insights with regard to issues
relating to China provide our Board with a valuable resource.
Mr. Hao was appointed to our Board of Directors under the terms of an agreement with BGP in
connection with BGP’s purchase of 23,789,536 shares of our common stock in March 2010. Under the
agreement, BGP is entitled to designate one individual to serve as a member of our Board unless
BGP’s ownership of our common stock falls below 10%. In January 2011, Mr. Hao replaced Guo
Yueliang, BGP’s initial appointee to our Board.
JAMES M. LAPEYRE, JR.
Director since 1998
Mr. Lapeyre, age 62, served as Chairman of our Board of Directors from 1999 until January 1,
2012, and again from January 1, 2013 until present. During 2012, Mr. Robert P. Peebler held the role
of Executive Chairman and Mr. Lapeyre served as Lead Independent Director. Mr. Lapeyre has been
President of Laitram L.L.C., a privately-owned, New Orleans-based manufacturer of food processing
equipment and modular conveyor belts, and its predecessors since 1989. Mr. Lapeyre joined our Board
of Directors when we bought the DigiCOURSE marine positioning products business from Laitram in
1998. Mr. Lapeyre is Chairman of the Governance Committee and a member of the Audit and
Compensation Committees of our Board of Directors. He holds a Bachelor of Art degree in history
from the University of Texas and Master of Business Administration and Juris Doctorate degrees from
Tulane University.
Mr. Lapeyre’s status as a significant stockholder of our company enables our Board to have direct
access to the perspective of our stockholders and ensures that the Board will take into consideration
the interests of our stockholders in all Board decisions. In addition, Mr. Lapeyre has extensive
knowledge regarding the marine products and technology that we acquired from Laitram in 1998.
Class III Incumbent Directors—Term Expiring In 2017
MICHAEL C. JENNINGS
Director since 2010
Mr. Jennings, age 49, is the President, Chief Executive Officer and Chairman of the Board of
Directors of HollyFrontier Corporation, a NYSE-listed independent oil refining and marketing
company. Prior to joining HollyFrontier, Mr. Jennings was the President, Chief Executive Officer and
10
Chairman of the Board of Frontier Oil Corporation, an independent oil refining and marketing
company. Mr. Jennings joined HollyFrontier in July 2011 when Frontier Oil merged with Holly
Corporation to form HollyFrontier. Prior to his appointment to President and Chief Executive Officer
of Frontier in January 2009, Mr. Jennings served as Frontier’s Executive Vice President and Chief
Financial Officer. From 2000 until joining Frontier in 2005, Mr. Jennings was employed by Cameron
International Corporation as Vice President and Treasurer. From 1998 until 2000, he was Vice
President Finance & Corporate Development of Unimin Corporation, a producer of industrial
minerals. From 1995 to 1998, Mr. Jennings was employed by Cameron International Corporation as
Director, Acquisitions and Corporate Finance. Mr. Jennings also serves as Chief Executive Officer and
on the Board of Directors of Holly Energy Partners, a NYSE-listed master limited partnership partially
owned by HollyFrontier Corporation. Mr. Jennings is a member of the Audit and Finance Committees
of our Board of Directors. He holds a Bachelor of Arts degree in economics and government from
Dartmouth College and a Master of Business Administration degree in finance and accounting from
the University of Chicago.
Mr. Jennings’ experience in the global oil refining, marketing and oilfield services businesses
enables him to advise the Board on customer and industry issues and perspectives. Given his extensive
experience in executive, financial, treasury and corporate development matters, Mr. Jennings is able to
provide the Board with expertise in corporate leadership, financial management, corporate planning
and strategic development, thereby supporting the Board’s efforts in overseeing and advising on
strategic and financial matters.
JOHN N. SEITZ
Director since 2003
Mr. Seitz, age 63, is Chairman and Chief Executive Officer of GulfSlope Energy, Inc., an
OTC-listed independent E&P company exploring for oil and gas using advanced seismic imaging. From
2003 until 2006, Mr. Seitz served as co-CEO of Endeavour International Corporation, an exploration
and development company with activities in the North Sea and selected North American basins. From
1977 to 2003, Mr. Seitz held positions of increasing responsibility at Anadarko Petroleum Company,
serving most recently as a Director and as President and Chief Executive Officer. Mr. Seitz is a Trustee
of the American Geological Institute Foundation. Mr. Seitz is a member of the Compensation and
Governance Committees of our Board of Directors. Mr. Seitz holds a Bachelor of Science degree in
geology from the University of Pittsburgh, a Master of Science degree in geology from Rensselaer
Polytechnic Institute and is a Certified Professional Geoscientist in Texas. He also completed the
Advanced Management Program at the Wharton School of Business.
Mr. Seitz’ extensive experience as a leader of global exploration and production companies such as
Endeavour and Anadarko has proven to be an important resource for our Board when considering
industry and customer issues. In addition, Mr. Seitz’ geology background and expertise assists the
Board in better understanding industry trends and issues.
Class II Incumbent Directors—Term Expiring In 2016
DAVID H. BARR
Director since 2010
From May 2011 until December 2012, Mr. Barr, age 65, served as the President and Chief
Executive Officer of Logan International Inc., a Calgary-based Toronto Stock Exchange (TSX)-listed
manufacturer and provider of oilfield tools and services. In 2009, Mr. Barr retired from Baker Hughes
Incorporated, an oilfield services and equipment provider, after serving for 36 years in various
manufacturing, marketing, engineering and product management functions. At the time of his
retirement, Mr. Barr was Group President—Eastern Hemisphere, responsible for all Baker Hughes
products and services for Europe, Russia/Caspian, Middle East, Africa and Asia Pacific. From 2007 to
2009, he served as Group President—Completion & Production, and from 2005 to 2007, as Group
11
President—Drilling and Evaluation. Mr. Barr served as President of Baker Atlas, a division of Baker
Hughes Inc., from 2000 to 2005, and served as Vice President, Supply Chain Management for the
Cameron division of Cameron International Corporation from 1999 to 2000. Prior to 1999, he held
positions of increasing responsibility within Baker Hughes Inc. and its affiliates, including Vice
President—Business Process Development and various leadership positions with Hughes Tool Company
and Hughes Christensen. Mr. Barr initially joined Hughes Tool Company in 1972 after graduating from
Texas Tech University with a Bachelor of Science degree in mechanical engineering. Mr. Barr also
currently serves on the Board of Directors and Compensation Committee of Logan International Inc.;
as the Chairman of the Board and on the Compensation Committee of Probe Holdings, Inc. (a
designer and manufacturer of oilfield technology and tools); and on the Board of Directors, as well as,
Chairman of the Safety and Social Responsibility Committee of Enerplus Corporation (a NYSE- and
TSX-listed independent oil and gas exploration and production company). He formerly served on the
Board of Directors and Audit, Remuneration and Governance Committees of Hunting PLC, a London
Stock Exchange-listed provider of energy services. Mr. Barr is a member of the Compensation and
Governance Committees of our Board of Directors.
Mr. Barr’s more than 36 years of experience in the oilfield equipment and services industry
provides a uniquely valuable industry perspective for our Board. While at Baker Hughes, Mr. Barr
obtained experience within a wide range of company functions, from engineering to group President.
His breadth of experience enables him to better understand and inform the Board regarding a range of
issues and decisions involved in the operation of our business, including development of business
strategy.
FRANKLIN MYERS
Director since 2001
Mr. Myers, age 62, has served as a senior advisor of Quantum Energy Partners, a private equity
firm for the global energy industry, since February 2013. From 2009 to 2012, he was an Operating
Advisor with Paine & Partners, LLC, a private equity firm focused on leveraged buyout transactions.
Prior to joining Paine & Partners, Mr. Myers was employed by Cameron International Corporation, an
international manufacturer of oil and gas flow control equipment, as Senior Vice President, General
Counsel and Corporate Secretary (from 1995 to 1999), President of the Cooper Energy Services
Division (from 1998 until 2001), Senior Vice President (from 2001 to 2003), Senior Vice President and
Chief Financial Officer (from 2003 to 2008) and Senior Advisor (from 2008 to 2009). Prior to joining
Cameron, he was Senior Vice President and General Counsel of Baker Hughes Incorporated, an
oilfield services and equipment provider, and an attorney and partner with the law firm of Fulbright &
Jaworski L.L.P. in Houston, Texas. Mr. Myers also currently serves on the Boards of Directors of
Comfort Systems USA, Inc. (a NYSE-listed provider of heating, ventilation and air conditioning
services), HollyFrontier Corporation (a NYSE-listed independent oil refining and marketing company)
and Forum Energy Technology, Inc. (a NYSE-listed oilfield equipment manufacturing company).
Mr. Myers is Chairman of the Compensation Committee, co-Chairman of the Finance Committee and
a member of the Governance Committee of our Board of Directors. He holds a Bachelor of Science
degree in industrial engineering from Mississippi State University and a Juris Doctorate degree with
Honors from the University of Mississippi.
Mr. Myers’ extensive experience as both a financial and legal executive makes him uniquely
qualified as a valuable member of our Board and the Chairman of our Compensation Committee.
While at Cameron, Baker Hughes and Fulbright & Jaworski, Mr. Myers was responsible for numerous
successful finance and acquisition transactions, and his expertise gained through those experiences have
proved to be a significant resource for our Board. In addition, Mr. Myers’ service on Boards of
Directors of other NYSE-listed companies enables Mr. Myers to observe and advise on favorable
governance practices pursued by other public companies.
12
S. JAMES NELSON, JR.
Director since 2004
Mr. Nelson, age 73, joined our Board of Directors in 2004. In 2004, Mr. Nelson retired from Cal
Dive International, Inc. (now named Helix Energy Solutions Group, Inc.), a marine contractor and
operator of offshore oil and gas properties and production facilities, where he was a founding
shareholder, Chief Financial Officer (prior to 2000), Vice Chairman (from 2000 to 2004) and a
Director (from 1990 to 2004). From 1985 to 1988, Mr. Nelson was the Senior Vice President and Chief
Financial Officer of Diversified Energies, Inc., a NYSE-traded company with $1 billion in annual
revenues and the former parent company of Cal Dive. From 1980 to 1985, Mr. Nelson served as Chief
Financial Officer of Apache Corporation, an oil and gas exploration and production company. From
1966 to 1980, Mr. Nelson was employed with Arthur Andersen & Co. where, from 1976 to 1980, he
was a partner serving on the firm’s worldwide oil and gas industry team. Mr. Nelson also currently
serves on the Board of Directors and Audit Committees of Oil States International, Inc. (a
NYSE-listed diversified oilfield services company) and W&T Offshore, Inc. (a NYSE-listed oil and
natural gas exploration and production company). From 2010 until October 2012, Mr. Nelson also
served on the Board of Directors and Audit and Compensation Committees of the general partner of
Genesis Energy LP, an operator of oil and natural gas pipelines and provider of services to refineries
and industrial gas users. From 2005 until the company’s sale in 2008, he served as a member of the
Board of Directors, a member of the Compensation Committee and Chair of the Audit Committee of
Quintana Maritime, Ltd., a provider of dry bulk cargo shipping services based in Athens, Greece.
Mr. Nelson, who is also a Certified Public Accountant, is Chairman of the Audit Committee and
co-Chairman of the Finance Committee of our Board of Directors. He holds a Bachelor of Science
degree in accounting from Holy Cross College and a Master of Business Administration degree from
Harvard University.
Mr. Nelson is an experienced financial leader with the skills necessary to lead our Audit
Committee. His service as Chief Financial Officer of Cal Dive International, Inc., Diversified
Energies, Inc. and Apache Corporation, as well as his years with Arthur Andersen & Co., make him a
valuable asset to ION, both on our Board of Directors and as the Chairman of our Audit Committee,
particularly with regard to financial and accounting matters. In addition, Mr. Nelson’s service on audit
committees of other companies enables Mr. Nelson to remain current on audit committee best
practices and current financial reporting developments within the energy industry.
Board of Directors and Corporate Governance
Governance Initiatives.
ION is committed to excellence in corporate governance and maintains
clear practices and policies that promote good corporate governance. We review our governance
practices and update them, as appropriate, based upon Delaware law, rules and listing standards of the
NYSE, SEC regulations and practices recommended by our outside advisors.
Examples of our corporate governance initiatives include the following:
(cid:129) Seven of our eight Board members are independent of ION and its management. R. Brian
Hanson, our President and Chief Executive Officer, is not independent because he is an
employee of ION.
(cid:129) All members of the principal standing committees of our Board—the Audit Committee, the
Governance Committee and the Compensation Committee—are independent.
(cid:129) The independent members of our Board and each of the principal committees of our Board
meet regularly without the presence of management. The members of the Audit Committee
meet regularly with representatives of our independent registered public accounting firm without
the presence of management. The members of the Audit Committee also meet regularly with
our manager of internal audit without the presence of other members of management.
13
(cid:129) Our Audit Committee has at least one member who qualifies as a ‘‘financial expert’’ in
accordance with Section 407 of the Sarbanes-Oxley Act of 2002.
(cid:129) The Board has adopted written Corporate Governance Guidelines to assist its members in
fulfilling their responsibilities.
(cid:129) Under our Corporate Governance Guidelines, Board members are required to offer their
resignation from the Board if they retire or materially change the position they held when they
began serving as a director on the Board.
(cid:129) We comply with and operate in a manner consistent with regulations prohibiting loans to our
directors and executive officers.
(cid:129) Members of our Disclosure Committee, consisting of management employees and senior finance
and accounting employees, review all quarterly and annual reports before filing with the SEC.
(cid:129) We have a dedicated hotline and website available to all employees to report ethics and
compliance concerns, anonymously if preferred, including concerns related to accounting,
accounting controls, financial reporting and auditing matters. The hotline and website are
administered and monitored by an independent hotline monitoring company. The Board has
adopted a policy and procedures for the receipt, retention and treatment of complaints and
employee concerns received through the hotline or website. The policy is available on our
website at http://ir.iongeo.com/phoenix.zhtml?c=101545&p=irol-govhighlights.
(cid:129) On an annual basis, each director and each executive officer is obligated to complete a
questionnaire that requires disclosure of any transactions with ION in which the director or
executive officer, or any member of his or her immediate family, has a direct or indirect material
interest.
(cid:129) We have included as Exhibits 31.1 and 31.2 to our Annual Report on Form 10-K for the fiscal
year ended December 31, 2014, filed with the SEC, certificates of our Chief Executive Officer
and Chief Financial Officer, respectively, certifying as to the quality of our public disclosure. In
addition, in 2014, we submitted to the NYSE a certificate of our Chief Executive Officer
certifying that he is not aware of any violation by ION of the NYSE corporate governance listing
standards.
(cid:129) Our internal audit controls function maintains critical oversight over the key areas of our
business and financial processes and controls, and provides reports directly to the Audit
Committee.
(cid:129) We have a compensation recoupment (clawback) policy that applies to our current and former
executive officers. The policy is available on our website at
http://ir.iongeo.com/phoenix.zhtml?c=101545&p=irol-govhighlights.
(cid:129) We have stock ownership guidelines for our non-employee directors and senior management.
(cid:129) Our employment contracts with our Chief Executive Officer, Chief Financial Officer and other
employees do not contain a ‘‘single-trigger’’ change of control severance provision or entitle the
employee to tax gross-up benefits.
Majority Voting Procedure for Directors. Our Corporate Governance Guidelines require a
mandatory majority voting, director resignation procedure. Any director nominee in an uncontested
election who receives a greater number of votes ‘‘withheld’’ from his election than votes ‘‘for’’ such
election is required to promptly tender to the Board of Directors his resignation following certification
of the stockholder vote. Upon receipt of the resignation, the Governance Committee will consider the
resignation offer and recommend to the Board whether to accept it. The Board will act on the
Governance Committee’s recommendation within 120 days following certification of the stockholder
14
vote. The Governance Committee and the Board may consider any factors they deem relevant in
deciding whether to accept a director’s resignation. Thereafter, the Board will promptly disclose its
decision whether to accept the director’s resignation offer (and the reasons for rejecting the resignation
offer, if applicable) in a Current Report on Form 8-K furnished to the SEC.
Code of Ethics. We have adopted a Code of Ethics that applies to all members of our Board of
Directors and all of our employees, including our principal executive officer, principal financial officer,
principal accounting officer and all other senior members of our finance and accounting departments.
An updated version of our Code of Ethics was approved by the Board on November 4, 2014. We
require all employees to adhere to our Code of Ethics in addressing legal and ethical issues
encountered in conducting their work. The Code of Ethics requires that our employees avoid conflicts
of interest, comply with all laws and other legal requirements, conduct business in an honest and
ethical manner, promote full and accurate financial reporting and otherwise act with integrity and in
ION’s best interest. Every year our management employees and senior finance and accounting
employees affirm their compliance with our Code of Ethics and other principal compliance policies.
New employees sign a written certification of compliance with these policies upon commencing
employment.
We have made our Code of Ethics, Corporate Governance Guidelines, charters for the principal
standing committees of our Board and other information that may be of interest to investors available
on the Investor Relations section of our website at
http://ir.iongeo.com/phoenix.zhtml?c=101545&p=irol-govhighlights. Copies of this information may also be
obtained by writing to us at ION Geophysical Corporation, Attention: Executive Vice President,
General Counsel and Corporate Secretary, 2105 CityWest Boulevard, Suite 400, Houston,
Texas 77042-2839. Amendments to, or waivers from, our Code of Ethics will also be available on our
website and reported as may be required under SEC rules; however, any technical, administrative or
other non-substantive amendments to our Code of Ethics may not be posted.
Please note that the preceding Internet address and all other Internet addresses referenced in this
proxy statement are for information purposes only and are not intended to be a hyperlink. Accordingly,
no information found or provided at such Internet addresses or at our website in general is intended or
deemed to be incorporated by reference herein.
Lead Independent Director.
James M. Lapeyre, Jr. serves as our Chairman of the Board of
Directors. Under NYSE corporate governance listing standards, Mr. Lapeyre has also been designated
as our Lead Independent Director and presiding non-management director to lead non-management
directors meetings of the Board. Our non-management directors meet at regularly scheduled executive
sessions without management, over which Mr. Lapeyre presides. The powers and authority of the Lead
Independent Director also include the following:
(cid:129) Advise and consult with the Chief Executive Officer, senior management and the Chairperson of
each Committee of the Board, as to the appropriate information, agendas and schedules of
Board and Committee meetings;
(cid:129) Advise and consult with the Chief Executive Officer and senior management as to the quality,
quantity and timeliness of the information submitted by the Company’s management to the
independent directors;
(cid:129) Recommend to the Chief Executive Officer and the Board the retention of advisers and
consultants to report directly to the Board;
(cid:129) Call meetings of the Board or executive sessions of the independent directors;
(cid:129) Develop the agendas for and preside over executive sessions of the Board’s independent
directors;
15
(cid:129) Serve as principal liaison between the independent directors, and the Chief Executive Officer
and senior management, on sensitive issues, including the review and evaluation of the Chief
Executive Officer; and
(cid:129) Coordinate with the independent directors in respect of each of the foregoing.
Certain of the duties and powers described above are to be conducted in conjunction with our
Chairman of the Board if the Lead Independent Director is not also the Chairman of the Board.
Communications to Board and Lead Independent Director. Stockholders and other interested
parties may communicate with the Board and our Lead Independent Director or non-management
independent directors as a group by writing to ‘‘Chairman of the Board’’ or ‘‘Lead Independent
Director,’’ c/o Corporate Secretary, ION Geophysical Corporation, 2105 CityWest Boulevard, Suite 400,
Houston, Texas 77042-2839. Inquiries sent by mail will be reviewed by our Corporate Secretary and, if
they pertain to the functions of the Board or Board committees or if the Corporate Secretary otherwise
determines that they should be brought to the intended recipient’s attention, they will be forwarded to
the intended recipient. Concerns relating to accounting, internal controls, auditing or compliance
matters will be brought to the attention of our Audit Committee and handled in accordance with
procedures established by the Audit Committee.
Our Corporate Secretary’s review of these communications will be performed with a view that the
integrity of this process be preserved. For example, items that are unrelated to the duties and
responsibilities of the Board, such as personal employee complaints, product inquiries, new product
suggestions, resumes and other forms of job inquiries, surveys, service or product complaints, requests
for donations, business solicitations or advertisements, will not be forwarded to the directors. In
addition, material that is considered to be hostile, threatening, illegal or similarly unsuitable will not be
forwarded. Except for these types of items, the Corporate Secretary will promptly forward written
communications to the intended recipient. Within the above guidelines, the independent directors have
granted the Corporate Secretary discretion to decide what correspondence should be shared with ION
management and independent directors.
2014 Meetings of the Board and Stockholders. During 2014, the Board of Directors held six
meetings and the four standing committees of the Board of Directors held a total of 14 meetings.
Overall, the rate of attendance by our directors at such meetings was 98% and seven of our directors
attended all of the meetings. The table below provides for each member of the Board the percentage
of meetings of the Board and Board committees each director attended during 2014. No director
attended less than 86% of these meetings. We do not require our Board members to attend our
Annual Meeting of Stockholders; however, six of our directors were present at our Annual Meeting
held in May 2014.
Director
James M. Lapeyre, Jr.
. . . . . . . . . . . . . . . . . . . . . . . . .
David H. Barr . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
R. Brian Hanson . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Hao Huimin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Michael C. Jennings . . . . . . . . . . . . . . . . . . . . . . . . . . .
Franklin Myers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . .
S. James Nelson, Jr.
John N. Seitz . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Board and Committee Meetings
Attended During 2014
100%
100%
100%
86%
100%
100%
100%
100%
Independence.
In determining independence, each year the Board determines whether directors
have any ‘‘material relationship’’ with ION. When assessing the ‘‘materiality’’ of a director’s relationship
with ION, the Board considers all relevant facts and circumstances, not merely from the director’s
16
standpoint, but from that of the persons or organizations with which the director has an affiliation, and
the frequency or regularity of the services, whether the services are being carried out at arm’s length in
the ordinary course of business and whether the services are being provided substantially on the same
terms to ION as those prevailing at the time from unrelated parties for comparable transactions.
Material relationships can include commercial, banking, industrial, consulting, legal, accounting,
charitable and familial relationships. Factors that the Board may consider when determining
independence for purposes of this determination include (1) not being a current employee of ION or
having been employed by ION within the last three years; (2) not having an immediate family member
who is, or who has been within the last three years, an executive officer of ION; (3) not personally
receiving or having an immediate family member who has received, during any 12-month period within
the last three years, more than $120,000 per year in direct compensation from ION other than director
and committee fees; (4) not being employed or having an immediate family member employed within
the last three years as an executive officer of another company of which any current executive officer of
ION serves or has served, at the same time, on that company’s compensation committee; (5) not being
an employee of or a current partner of, or having an immediate family member who is a current
partner of, a firm that is ION’s internal or external auditor; (6) not having an immediate family
member who is a current employee of such an audit firm who personally works on ION’s audit; (7) not
being or having an immediate family member who was within the last three years a partner or
employee of such an audit firm and who personally worked on ION’s audit within that time; (8) not
being a current employee, or having an immediate family member who is a current executive officer, of
a company that has made payments to, or received payments from, ION for property or services in an
amount that, in any of the last three fiscal years, exceeds the greater of $1 million or 2% of the other
company’s consolidated gross revenues; or (9) not being an executive officer of a charitable
organization to which, within the preceding three years, ION has made charitable contributions in any
single fiscal year that has exceeded the greater of $1 million or 2% of such organization’s consolidated
gross revenues.
Our Board has affirmatively determined that, with the exception of R. Brian Hanson, who is our
President and Chief Executive Officer and an employee of ION, no director has a material relationship
with ION within the meaning of the NYSE’s listing standards, and that each of our directors (other
than Mr. Hanson) is independent from management and from our independent registered public
accounting firm, as required by NYSE listing standard rules regarding director independence. Our
Chairman and Lead Independent Director, Mr. Lapeyre, is an executive officer and significant
shareholder of Laitram, L.L.C., a company with which ION has ongoing contractual relationships, and
Mr. Lapeyre and Laitram together owned approximately 6.3% of our outstanding common stock as of
February 28, 2015. Our Board has determined that these contractual relationships have not interfered
with Mr. Lapeyre’s demonstrated independence from our management, and that the services performed
by Laitram for ION are being provided at arm’s length in the ordinary course of business and
substantially on the same terms to ION as those prevailing at the time from unrelated parties for
comparable transactions. In addition, the services provided by Laitram to ION resulted in payments by
ION to Laitram in an amount less than 1% of Laitram’s 2014 consolidated gross revenues. As a result
of these factors, our Board has determined that Mr. Lapeyre, along with each of our other
non-management directors, is independent within the meaning of the NYSE’s director independence
standards. For an explanation of the contractual relationship between Laitram and ION, please see
‘‘—Certain Transactions and Relationships’’ below.
Our director, Mr. Hao, is employed as Chief Geophysicist of BGP. For an explanation of the
relationships between BGP and ION, please see ‘‘—Certain Transactions and Relationships’’ below.
Risk Oversight. Our Board oversees an enterprise-wide approach to risk management, designed to
support the achievement of organizational objectives, including strategic objectives, to improve
long-term organizational performance and enhance stockholder value. A fundamental part of risk
17
management is not only understanding the risks a company faces and what steps management is taking
to manage those risks, but also understanding what level of risk is appropriate for the company. The
involvement of the full Board in setting ION’s business strategy is a key part of its assessment of the
company’s appetite for risk and also a determination of what constitutes an appropriate level of risk for
the company. The Board also regularly reviews information regarding the company’s credit, liquidity
and operations, as well as the risks associated with each. While the Board has the ultimate oversight
responsibility for the risk management process, various committees of the Board also have
responsibility for risk management. In particular, the Audit Committee focuses on financial risk,
including internal controls, and receives an annual risk assessment report from ION’s internal auditors.
In addition, in setting compensation, the Compensation Committee strives to create incentives that
encourage a level of risk-taking behavior consistent with ION’s business strategies. While each
committee is responsible for evaluating certain risks and overseeing the management of such risks, the
entire Board is regularly informed through committee reports about such risks.
Board Leadership. Our current Board leadership structure consists of a Chairman of the Board
(who is not our current CEO), a Lead Independent Director (who is also our Chairman of the Board)
and strong independent committee chairs. The Board believes this structure provides independent
Board leadership and engagement and strong independent oversight of management while providing
the benefit of having our Chairman and Lead Independent Director lead regular Board meetings as we
discuss key business and strategic issues. Mr. Lapeyre, a non-employee independent director, serves as
our Chairman of the Board and Lead Independent Director. Mr. Hanson has served as our CEO since
January 1, 2012. We separate the roles of CEO and Chairman of the Board in recognition of the
differences between the two roles. The CEO is responsible for setting the strategic direction for the
company and the day-to-day leadership and performance of the company, while the Chairman provides
guidance to the CEO and sets the agenda for Board meetings and presides over the meetings of the
full Board. Separating these positions allows our CEO to focus on our day-to-day business, while
allowing the Chairman to lead the Board in its fundamental role of providing advice to, and
independent oversight of, management. The Board recognizes the time, effort and energy that the CEO
is required to devote to his position, as well as the commitment required to serve as our Chairman.
The Board believes that having separate positions is the appropriate leadership structure for our
company at this time and demonstrates our commitment to good corporate governance.
Political Contributions and Lobbying. Our Code of Ethics prohibits company contributions to
political candidates or parties. In addition, we do not advertise in or purchase political publications,
allow company assets to be used by political parties or candidates, use corporate funds to purchase
seats at political fund raising events, or allow company trademarks to be used in political or campaign
literature. ION is a member of certain trade associations that may use a portion of their membership
dues for lobbying and/or political expenditures.
Committees of the Board
The Board of Directors has established four standing committees to facilitate and assist the Board
in the execution of its responsibilities. The four standing committees are the Audit Committee, the
Compensation Committee, the Governance Committee and the Finance Committee. Each standing
committee operates under a written charter, which sets forth the functions and responsibilities of the
committee. A copy of the charter for each of the Audit Committee, the Compensation Committee and
the Governance Committee can be viewed on our website at
http://ir.iongeo.com/phoenix.zhtml?c=101545&p=irol-govhighlights. A copy of each charter can also be
obtained by writing to us at ION Geophysical Corporation, Attention: Corporate Secretary, 2105
CityWest Boulevard, Suite 400, Houston, Texas 77042-2839. The Audit Committee, Compensation
Committee, Governance Committee and Finance Committee are composed entirely of non-employee
directors. In addition, the Board establishes temporary special committees from time to time on an
as-needed basis. During 2014, the Audit Committee met six times, the Compensation Committee met
four times, the Governance Committee met three times, and the Finance Committee met one time.
18
The current members of the four standing committees of the Board of Directors are identified
below.
Director
Compensation
Committee
Audit
Committee
Governance
Committee
Finance
Committee
James M. Lapeyre, Jr.
. . . . . . . . . . . . . . . . . . . . . . .
David H. Barr . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
R. Brian Hanson . . . . . . . . . . . . . . . . . . . . . . . . . . .
Hao Huimin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Michael C. Jennings . . . . . . . . . . . . . . . . . . . . . . . . .
Franklin Myers . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
S. James Nelson, Jr. . . . . . . . . . . . . . . . . . . . . . . . . .
John N. Seitz . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
*
*
Chair
*
*
*
Chair
Chair
*
*
*
*
*
Co-Chair
Co-Chair
* Member
Audit Committee
The Audit Committee is a separately-designated standing audit committee as defined in
Section 3(a)(58)(A) of the Securities Exchange Act of 1934, as amended (the ‘‘Exchange Act’’). The
Audit Committee oversees matters relating to financial reporting, internal controls, risk management
and compliance. These responsibilities include appointing, overseeing, evaluating and approving the
fees of our independent auditors, reviewing financial information that is provided to our stockholders
and others, reviewing with management our system of internal controls and financial reporting
processes, and monitoring our compliance program and system.
The Board of Directors has determined that each member of the Audit Committee is financially
literate and satisfies the definition of ‘‘independent’’ as established under the NYSE corporate
governance listing standards and Rule 10A-3 under the Exchange Act. In addition, the Board of
Directors has determined that Mr. Nelson, the Chairman of the Audit Committee, is qualified as an
audit committee financial expert within the meaning of SEC regulations, and that he has accounting
and related financial management expertise within the meaning of the listing standards of the NYSE
and Rule 10A-3.
Compensation Committee
General. The Compensation Committee has responsibility for the compensation of our executive
officers, including our Chief Executive Officer, and the administration of our executive compensation
and benefit plans. The Compensation Committee also has authority to retain or replace outside
counsel, compensation and benefits consultants or other experts to provide it with independent advice,
including the authority to approve the fees payable and any other terms of retention. All actions
regarding executive officer compensation require Compensation Committee approval. The
Compensation Committee completes a comprehensive review of all elements of compensation at least
annually. If it is determined that any changes to any executive officer’s total compensation are
necessary or appropriate, the Compensation Committee obtains such input from management as it
determines to be necessary or appropriate. All compensation decisions with respect to executives other
than our Chief Executive Officer are determined in discussion with, and frequently based in part upon
the recommendation of, our Chief Executive Officer. The Compensation Committee makes all
determinations with respect to the compensation of our Chief Executive Officer, including, but not
limited to, establishing performance objectives and criteria related to the payment of his compensation,
and determining the extent to which such objectives have been established, obtaining such input from
the committee’s independent compensation advisors as it deems necessary or appropriate.
19
As part of its responsibility to administer our executive compensation plans and programs, the
Compensation Committee, usually near the beginning of the calendar year, establishes the parameters
of the annual incentive plan awards, including the performance goals relative to our performance that
will be applicable to such awards and the similar awards for our other senior executives. It also reviews
our performance against the objectives established for awards payable in respect of the prior calendar
year, and confirms the extent, if any, to which such objectives have been obtained, and the amounts
payable to each of our executive officers in respect of such achievement.
The Compensation Committee also determines the appropriate level and type of awards, if any, to
be granted to each of our executive officers pursuant to our equity compensation plans, and approves
the total annual grants to other key employees, to be granted in accordance with a delegation of
authority to our corporate human resources officer.
The Compensation Committee reviews, and has the authority to recommend to the Board for
adoption, any new executive compensation or benefit plans that are determined to be appropriate for
adoption by ION, including those that are not otherwise subject to the approval of our stockholders. It
reviews any contracts or other transactions with current or former elected officers of the corporation.
In connection with the review of any such proposed plan or contract, the Compensation Committee
may seek from its independent advisors such advice, counsel and information as it determines to be
appropriate in the conduct of such review. The Compensation Committee will direct such outside
advisors as to the information it requires in connection with any such review, including data regarding
competitive practices among the companies with which ION generally compares itself for compensation
purposes.
Compensation Committee Interlocks and Insider Participation. The Board of Directors has
determined that each member of the Compensation Committee satisfies the definition of
‘‘independent’’ as established under the NYSE corporate governance listing standards. No member of
the committee is, or was during 2014, an officer or employee of ION. Mr. Lapeyre is President and
Chief Executive Officer and a significant equity owner of Laitram, L.L.C, which has had a business
relationship with ION since 1999. During 2014, we paid Laitram and its affiliates a total of
approximately $2.4 million, which consisted of approximately $2.2 million for manufacturing services,
and $0.2 million for reimbursement of costs related to providing administrative and other back-office
support services in connection with our Louisiana marine operations. See ‘‘—Certain Transactions and
Relationships’’ below. During 2014:
(cid:129) No executive officer of ION served as a member of the compensation committee of another
entity, one of whose executive officers served as a director or on the Compensation Committee
of ION; and
(cid:129) No executive officer of ION served as a director of another entity, one of whose executive
officers served on the Compensation Committee of ION.
Governance Committee
The Governance Committee functions as the Board’s nominating and corporate governance
committee and advises the Board of Directors with regard to matters relating to governance practices
and policies, management succession, and composition and operation of the Board and its committees,
including reviewing potential candidates for membership on the Board and recommending to the Board
nominees for election as directors of ION. In addition, the Governance Committee reviews annually
with the full Board and our Chief Executive Officer the succession plans for senior executive officers
and makes recommendations to the Board regarding the selection of individuals to occupy these
positions. The Board of Directors has determined that each member of the Governance Committee
satisfies the definition of ‘‘independent’’ as established under the NYSE corporate governance listing
standards.
20
In identifying and selecting new director candidates, the Governance Committee considers the
Board’s current and anticipated strengths and needs and a candidate’s experience, knowledge, skills,
expertise, integrity, diversity, ability to make independent analytical inquiries, understanding of the
company’s business environment, willingness to devote adequate time and effort to Board
responsibilities, and other relevant factors. The Governance Committee has not established specific
minimum age, education, years of business experience, or specific types of skills for potential director
candidates, but, in general, expects that qualified candidates will have ample experience and a proven
record of business success and leadership. The committee also seeks an appropriate balance of
experience and expertise in accounting and finance, technology, management, international business,
compensation, corporate governance, strategy, industry knowledge and general business matters. In
addition, the committee seeks a diversity of experience, professions, skills, geographic representation
and backgrounds. The committee may rely on various sources to identify potential director nominees,
including input from directors, management and others the committee feels are reliable, and
professional search firms.
Our Bylaws permit stockholders to nominate individuals for director for consideration at an annual
stockholders’ meeting. A proper director nomination may be considered at our 2016 Annual Meeting
only if the proposal for nomination is received by ION not later than December 16, 2015. All
nominations should be directed to Jamey S. Seely, Executive Vice President, General Counsel and
Corporate Secretary, ION Geophysical Corporation, 2105 CityWest Boulevard, Suite 400, Houston,
Texas 77042-2839.
The Governance Committee will consider properly submitted recommendations for director
nominations made by a stockholder or other sources (including self-nominees) on the same basis as
other candidates. For consideration by the Governance Committee, a recommendation of a candidate
must be submitted timely and in writing to the Governance Committee in care of our Corporate
Secretary at our principal executive offices. The submission must include sufficient details regarding the
qualifications of the potential candidate. In general, nominees for election should possess (1) the
highest level of integrity and ethical character, (2) strong personal and professional reputation,
(3) sound judgment, (4) financial literacy, (5) independence, (6) significant experience and proven
superior performance in professional endeavors, (7) an appreciation for board and team performance,
(8) the commitment to devote the time necessary, (9) skills in areas that will benefit the Board and
(10) the ability to make a long-term commitment to serve on the Board.
Finance Committee
The Finance Committee has responsibility for overseeing all areas of corporate finance for ION.
The Finance Committee is responsible for reviewing with ION management, and has the power and
authority to approve on behalf of the Board, ION’s strategies, plans, policies and actions related to
corporate finance, including, but not limited to, (a) capital structure plans and strategies and specific
equity or debt financings, (b) capital expenditure plans and strategies and specific capital projects,
(c) strategic and financial investment plans and strategies and specific investments, (d) cash
management plans and strategies and activities relating to cash flow, cash accounts, working capital,
cash investments and treasury activities, including the establishment and maintenance of bank,
investment and brokerage accounts, (e) financial aspects of insurance and risk management, (f) tax
planning and compliance, (g) dividend policy, (h) plans and strategies for managing foreign currency
exchange exposure and other exposures to economic risks, including plans and strategies with respect to
the use of derivatives, and (i) reviewing and making recommendations to the Board with respect to any
proposal by ION to divest any asset, investment, real or personal property, or business interest if such
divestiture is required to be approved by the Board. The Finance Committee does not have oversight
responsibility with respect to ION’s financial reporting, which is the responsibility of the Audit
Committee. The Board of Directors has determined that a majority of the members of the Finance
21
Committee (including its co-Chairmen) satisfies the definition of ‘‘independent’’ as established under
the NYSE corporate governance listing standards.
Stock Ownership Requirements
The Board has adopted stock ownership requirements for ION’s directors. The Board adopted
these requirements in order to align the economic interests of the directors with those of our
stockholders and further focus our emphasis on enhancing stockholder value. Under these
requirements, each non-employee director is expected to own at least 36,000 shares of ION common
stock, which, at the $2.75 closing price per share of our common stock on the NYSE on December 31,
2014, equates to more than 2.1 times the $46,000 annual retainer fee we pay to our non-employee
directors. New and current directors will have three years to acquire and increase the director’s
ownership of ION common stock to satisfy the requirements. The stock ownership requirements are
subject to modification by the Board in its discretion. The Board has also adopted stock ownership
requirements for senior management of ION. See ‘‘Executive Compensation—Compensation Discussion
and Analysis—Elements of Compensation—Stock Ownership Requirements; Hedging Policy’’ below.
The Governance Committee and the Board regularly review and evaluate ION’s directors’
compensation program on the basis of current and emerging compensation practices for directors,
emerging legal, regulatory and corporate compliance developments and comparisons with director
compensation programs of other similarly-situated public companies.
Certain Transactions and Relationships
The Board of Directors has adopted a written policy and procedures to be followed prior to any
transaction, arrangement or relationship, or series of similar transactions, arrangements or relationships,
including any indebtedness or guarantee of indebtedness, between ION and a ‘‘Related Party’’ where
the aggregate amount involved is expected to exceed $120,000 in any calendar year. Under the policy,
‘‘Related Party’’ includes (a) any person who is or was an executive officer, director or nominee for
election as a director (since the beginning of the last fiscal year); (b) any person or group who is a
greater-than-5% beneficial owner of ION voting securities; or (c) any immediate family member of any
of the foregoing, which means any child, stepchild, parent, stepparent, spouse, sibling, mother-in-law,
father-in-law, son-in-law, daughter-in-law, brother-in-law, sister-in-law, and anyone residing in the home
of an executive officer, director or nominee for election as a director (other than a tenant or
employee). Under the policy, the Governance Committee of the Board is responsible for reviewing the
material facts of any Related Party transaction and approving or ratifying the transaction. In making its
determination to approve or ratify, the Governance Committee is required to consider such factors as
(i) the extent of the Related Party’s interest in the transaction, (ii) if applicable, the availability of other
sources of comparable products or services, (iii) whether the terms of the Related Party transaction are
no less favorable than terms generally available in unaffiliated transactions under like circumstances,
(iv) the benefit to ION and (v) the aggregate value of the Related Party transaction.
Mr. Lapeyre is the President and Chief Executive Officer and a significant equity owner of
Laitram, L.L.C. and has served as President of Laitram and its predecessors since 1989. Laitram is a
privately-owned, New Orleans-based manufacturer of food processing equipment and modular conveyor
belts. Mr. Lapeyre and Laitram together owned approximately 6.3% of our outstanding common stock
as of February 28, 2015.
We acquired DigiCourse, Inc., our marine positioning products business, from Laitram in 1998. In
connection with that acquisition, we entered into a Continued Services Agreement with Laitram under
which Laitram agreed to provide us certain bookkeeping, software, manufacturing, and maintenance
services. Manufacturing services consist primarily of machining of parts for our marine positioning
systems. The term of this agreement expired in September 2001 but we continue to operate under its
22
terms. In addition, from time to time, when we have requested, the legal staff of Laitram has advised
us on certain intellectual property matters with regard to our marine positioning systems. The amended
lease of commercial property dated February 1, 2006, between Lapeyre Properties, L.L.C. (an affiliate
of Laitram) and ION was terminated in 2014. During 2014, we paid Laitram and its affiliates a total of
approximately $2.4 million, which consisted of approximately $2.2 million for manufacturing services,
and $0.2 million for reimbursement for costs related to providing administrative and other back-office
support services in connection with our Louisiana marine operations. In the opinion of our
management, the terms of these services are fair and reasonable and as favorable to us as those that
could have been obtained from unrelated third parties at the time of their performance.
Mr. Hao is Chief Geophysicist of BGP. BGP has been a customer of our products and services for
many years. For our fiscal years ended December 31, 2014 and 2013, BGP accounted for approximately
1.3% and 1.5% of our consolidated net sales, respectively. During 2014, we recorded revenues from
sales to BGP of approximately $6.5 million. Trade receivables due from BGP at December 31, 2014
were $1.1 million.
In March 2010, prior to Mr. Hao being appointed to the Board, we entered into certain
transactions with BGP that resulted in the commercial relationships between our company and BGP as
described below:
(cid:129) We issued and sold 23,789,536 shares of our common stock to BGP for an effective purchase
price of $2.80 per share pursuant to (i) a Stock Purchase Agreement we entered into with BGP
and (ii) the conversion of the principal balance of indebtedness outstanding under a Convertible
Promissory Note dated as of October 23, 2009. As of February 28, 2015, BGP held beneficial
ownership of approximately 14.4% of our outstanding shares of common stock. The shares of
our common stock acquired by BGP are subject to the terms and conditions of an Investor
Rights Agreement that we entered into with BGP in connection with its purchase of our shares.
Under the Investor Rights Agreement, for so long as BGP owns as least 10% of our outstanding
shares of common stock, BGP will have the right to nominate one director to serve on our
Board. The appointment of Mr. Hao to our Board was made pursuant to this agreement. The
Investor Rights Agreement also provides that whenever we may issue shares of our common
stock or other securities convertible into, exercisable or exchangeable for our common stock,
BGP will have certain pre-emptive rights to subscribe for a number of such shares or other
securities as may be necessary to retain its proportionate ownership of our common stock that
would exist before such issuance. These pre-emptive rights are subject to usual and customary
exceptions, such as issuances of securities as equity compensation to our directors, employees
and consultants and under employee stock purchase plans.
(cid:129) We formed a joint venture with BGP, owned 49% by us and 51% by BGP, to design, develop,
manufacture and sell land-based seismic data acquisition equipment for the petroleum industry.
The name of the joint venture company is INOVA Geophysical Equipment Limited. Under the
terms of the joint venture transaction, INOVA Geophysical was initially formed as a wholly-
owned direct subsidiary of ION, and BGP acquired its interest in the joint venture by paying us
aggregate consideration of (i) $108.5 million in cash and (ii) 49% of certain assets owned by
BGP relating to the business of the joint venture.
Director Compensation
ION employees who are also directors do not receive any fee or remuneration for services as
members of our Board of Directors. We currently have seven non-employee directors who qualify for
compensation as directors. In addition to being reimbursed for all reasonable out-of-pocket expenses
that the director incurs attending Board meetings and functions, our outside directors receive an annual
retainer fee of $46,000. In addition, our Chairman of the Board receives an annual retainer fee of
23
$25,000, our Chairman of the Audit Committee receives an annual retainer fee of $20,000, our
Chairman of the Compensation Committee receives an annual retainer fee of $15,000, our Chairman of
the Governance Committee receives an annual retainer fee of $10,000 and each co-Chairman of the
Finance Committee receives an annual retainer fee of $5,000. Our non-employee directors also receive,
in cash, $2,000 for each Board meeting attended and $2,000 for each committee meeting attended
(unless the committee meeting is held in conjunction with a Board meeting, in which case the fee for
committee meeting attendance is $1,000) and $1,000 for each Board or committee meeting attended via
teleconference.
Each non-employee director also receives an initial grant of 8,000 vested shares of our common
stock on the first quarterly grant date after joining the Board and follow-on grants each year of a
number of shares of our common stock equal in market value to $110,000, up to an annual grant of
25,000 shares per director.
The following table summarizes the compensation earned by ION’s non-employee directors in
2014:
Name(1)
David H. Barr . . . . . . . . . .
Hao Huimin . . . . . . . . . . . .
Michael C. Jennings . . . . . .
. . . .
James M. Lapeyre, Jr.
Franklin Myers . . . . . . . . . .
S. James Nelson, Jr.
. . . . . .
John N. Seitz . . . . . . . . . . .
Fees Earned
or Paid in
Cash ($)
Stock
Awards
($)(2)
65,000
55,000
63,000
106,000
86,000
90,000
65,000
102,750
102,750
102,750
102,750
102,750
102,750
102,750
Change in
Pension
Value and
Nonqualified
Deferred
Compensation
Earnings
($)
Non-Equity
Incentive
Plan
Compensation
($)
All Other
Compensation
($)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Total
($)
167,750
157,750
165,750
208,750
188,750
192,750
167,750
(1) R. Brian Hanson, our President and Chief Executive Officer, is not included in this table because
he was an employee of ION during 2014, and therefore received no compensation for his services
as director. The compensation received by Mr. Hanson as an employee of ION during 2014 is
shown in the Summary Compensation Table contained in ‘‘—Executive Compensation’’ below.
(2) All of the amounts shown represent the value of common stock granted under our 2004 Long-Term
Incentive Plan (‘‘2004 LTIP’’) or our 2013 Long-Term Incentive Plan (‘‘2013 LTIP’’). On March 1,
2014, each of our non-employee directors was granted an award of 25,000 shares of ION common
stock. The values contained in the table are based on the grant-date fair value of awards of stock
during the fiscal year.
As of December 31, 2014, our non-employee directors held the following unvested and unexercised
ION equity awards:
Name
Unvested Stock
Awards(#)
Unexercised Option
Awards(#)
David H. Barr . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Hao Huimin . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Michael C. Jennings . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . .
James M. Lapeyre, Jr.
Franklin Myers . . . . . . . . . . . . . . . . . . . . . . . . . . .
S. James Nelson, Jr.
. . . . . . . . . . . . . . . . . . . . . . .
John N. Seitz . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
—
—
—
—
—
—
—
—
37,500
25,000
37,500
37,500
24
OWNERSHIP OF EQUITY SECURITIES OF ION
Except as otherwise set forth below, the following table sets forth information as of February 28,
2015, with respect to the number of shares of common stock owned by (i) each person known by us to
be a beneficial owner of more than 5% of our common stock, (ii) each of our directors, (iii) each of
our executive officers named in the 2014 Summary Compensation Table included in this proxy
statement and (iv) all of our directors and executive officers as a group. Except where information was
otherwise known by us, we have relied solely upon filings of Schedules 13D and 13G to determine the
number of shares of our common stock owned by each person known to us to be the beneficial owner
of more than 5% of our common stock as of such date.
Name of Owner
Common
Stock(1)
Percent of
Rights to Restricted Common
Stock(4)
Stock(3)
Acquire(2)
—
—
—
37,500
—
—
—
Invesco Ltd.(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31,797,788
BGP Inc., China National Petroleum Corporation(6) . . . . . . . . 23,789,536
BlackRock, Inc.(7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,011,354
James M. Lapeyre, Jr.(8) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,480,995
8,491,811
Vanguard Group, The(9) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7,605,345
Laitram, L.L.C.(10) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
94,000
David H. Barr . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
98,326
R. Brian Hanson(11) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
65,100
Hao Huimin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
94,000
Michael C. Jennings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
122,000
Franklin Myers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
114,000
S. James Nelson, Jr.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
143,895
John N. Seitz . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
81,625
Kenneth G. Williamson . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
20,663
Colin T. Hulme . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
33,025
Steven A. Bate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
27,208
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Christopher T. Usher
Gregory J. Heinlein(12)
26,210
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
All directors and executive officers as a group (15 Persons) . . . 11,410,338 1,391,700 335,991
—
—
—
—
—
—
—
447,500 125,000
—
—
—
—
—
38,332
34,997
58,332
49,998
—
—
25,000
37,500
37,500
395,500
65,000
108,750
55,000
151,500
19.2%
14.4%
7.3%
6.4%
5.1%
4.6%
*
*
*
*
*
*
*
*
*
*
*
*
7.9%
*
Less than 1%
(1) Represents shares for which the named person (a) has sole voting and investment power or (b) has
shared voting and investment power. Excluded are shares that (i) are unvested restricted stock
holdings or (ii) may be acquired through stock option exercises.
(2) Represents shares of common stock that may be acquired upon the exercise of stock options held
by our officers and directors that are currently exercisable or will be exercisable on or before
April 16, 2015.
(3) Represents unvested shares subject to a vesting schedule, forfeiture risk and other restrictions.
Although these shares are subject to risk of forfeiture, the holder has the right to vote the
unvested shares unless and until they are forfeited.
(4) Assumes shares subject to outstanding stock options that such person has rights to acquire upon
exercise, presently and on or before April 29, 2015, are outstanding.
(5) The address for Invesco Ltd. is 1555 Peachtree Street NE, Atlanta, Georgia 30309.
(6) The address for BGP Inc., China National Petroleum Corporation is No. 189 Fanyang Middle
Road, ZhuoZhou City, HeBei Province 072750 P.R. China.
25
(7) The address for BlackRock, Inc. is 55 East 52nd Street, New York, New York 10022.
BlackRock, Inc. reported that ii has sole voting power with respect to 11,674,386 shares and sole
dispositive power with respect to 12,011,354 shares.
(8) The shares of common stock held by Mr. Lapeyre include 1,311,037 shares that Mr. Lapeyre holds
as a custodian or trustee for the benefit of his children, 7,605,345 shares owned by Laitram, and
10,500 shares that Mr. Lapeyre holds as a co-trustee with his wife for the benefit of his children, in
all of which Mr. Lapeyre disclaims any beneficial interest. Please read note 10 below. Mr. Lapeyre
has sole voting power over only 1,554,113 of these shares of common stock.
(9) The address for The Vanguard Group is 100 Vanguard Boulevard, Malvern, Pennsylvania 19355.
The Vanguard Group reported that it has sole voting power with respect to 195,987 shares, sole
dispositive power with respect to 8,311,424 shares and shared dispositive power with respect to
180,387 shares.
(10) The address for Laitram, L.L.C. is 220 Laitram Lane, Harahan, Louisiana 70123. Mr. Lapeyre is
the President and Chief Executive Officer of Laitram. Please read note 8 above. Mr. Lapeyre
disclaims beneficial ownership of any shares held by Laitram.
(11) The shares of common stock held by Mr. Hanson include 10,000 shares owned by Mr. Hanson’s
wife, in which Mr. Hanson disclaims any beneficial interest.
(12) Mr. Heinlein’s employment with ION ended on December 31, 2014. The shares of common stock
held by Mr. Heinlein include 1,000 shares owned by Mr. Heinlein’s wife, in which Mr. Heinlein
disclaims any beneficial interest.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires directors and certain officers of ION, and persons who
own more than 10% of ION’s common stock, to file with the SEC and the NYSE initial statements of
beneficial ownership on Form 3 and changes in such ownership on Forms 4 and 5. Based on our review
of the copies of such reports, we believe that during 2014 our directors, executive officers and
stockholders holding greater than 10% of our outstanding shares complied with all applicable filing
requirements under Section 16(a) of the Exchange Act, and that all of their filings were timely made.
Our executive officers are as follows:
EXECUTIVE OFFICERS
Name
Age
Position with ION
R. Brian Hanson . . . . . . . . . . .
Kenneth G. Williamson . . . . . .
President and Chief Executive Officer and Director
50
50 Executive Vice President and Chief Operating Officer,
Commercialization Division
Colin T. Hulme . . . . . . . . . . . .
Steven A. Bate . . . . . . . . . . . .
Christopher T. Usher . . . . . . . .
62 Executive Vice President, Ocean Bottom Services
52 Executive Vice President and Chief Financial Officer
54 Executive Vice President and Chief Innovation Officer,
Innovation Division
Jamey S. Seely . . . . . . . . . . . .
43 Executive Vice President, General Counsel and Corporate
Scott P. Schwausch . . . . . . . . .
40 Vice President and Corporate Controller
Secretary
For a description of the business background of Mr. Hanson, please see ‘‘Item 1—Election of
Directors—Class I Director Nominees for Re-Election for Term Expiring in 2018’’ above.
26
Mr. Williamson is our Executive Vice President and Chief Operating Officer, Commercialization
Division. Mr. Williamson originally joined ION as Vice President of our GeoVentures business unit in
September 2006, became a Senior Vice President in January 2007, and became Executive Vice
President and Chief Operating Officer, GeoVentures Division, in November 2012 and Executive Vice
President and Chief Operating Officer in February of 2015. Between 1987 and 2006, Mr. Williamson
was employed by Western Geophysical, which in 2000 became part of WesternGeco, a seismic solutions
and technology subsidiary of Schlumberger, Ltd., a global oilfield and information services company.
While at WesternGeco, Mr. Williamson served as Vice President, Marketing from 2001 to 2003, Vice
President, Russia and Caspian Region, from 2003 to 2005 and Vice President, Marketing, Sales &
Commercialization of WesternGeco’s electromagnetic services and technology division from 2005 to
2006. Mr. Williamson holds a Bachelor of Science degree in geophysics from Cardiff University in
Wales.
Mr. Hulme is currently our Executive Vice President, Ocean Bottom Services. Mr. Hulme joined
ION in April 2012 as Senior Vice President, Strategic Marketing and in November 2013 was promoted
to Senior Vice President, Ocean Bottom Services, and appointed to serve as the chief executive officer
of OceanGeo B.V., a joint venture controlled by ION and became our Executive Vice President, Ocean
Bottom Services in February 2015. Prior to joining ION, Mr. Hulme held a variety of senior
management positions at Schlumberger, Ltd., a global oilfield and information services company, from
1989 through 2011, including serving as Technical Director—Deep Reading for Schlumberger Wireline
from 2006 to 2011, Vice President and General Manager of Seismic Data Processing for WesternGeco,
a seismic solutions and technology subsidiary of Schlumberger, from 2002 to 2006, Vice President and
General Manager for Reservoir Products, Schlumberger Information Services, from 2000 to 2002, Vice
President and Business Manager for Asia Region, Schlumberger Information Services, from 1998 to
2000, and Corporate Marketing and Commercialization Manager for WesternGeco from 1994 to 1998.
Prior to joining Schlumberger, Mr. Hulme began his career at Digicon Geophysical.
Mr. Bate is currently our Executive Vice President and Chief Financial Officer. Mr. Bate rejoined
ION in May 2013 as Senior Vice President, Systems Division, became the Executive Vice President and
Chief Operating Officer, Systems Division in February 2015 and became the Executive Vice President
and Chief Financial Officer in November 2014. Mr. Bate originally joined ION in 2005 as Chief
Financial Officer of our GX Technology business unit. In 2007, he was appointed Senior Vice
President, Sensor business unit and in 2009 his area of responsibility broadened to our Land Imaging
Systems Division. Following our formation in March 2010 of INOVA Geophysical, a land seismic
equipment joint venture with BGP, Mr. Bate was appointed as INOVA Geophysical’s first President and
Chief Executive Officer, and served in that role until October 2012. Prior to joining ION in 2005,
Mr. Bate founded a consulting business and served as President of a residential construction company.
Mr. Bate holds a Bachelor of Business Administration degree from the University of Houston.
Mr. Usher is our Executive Vice President and Chief Innovation Officer, Innovation Division.
Mr. Usher joined ION in November 2012 as the Executive Vice President and Chief Operating Officer,
GeoScience Division. Prior to joining our company, Mr. Usher served as the Senior Vice President,
Data Processing, Analysis and Interpretation and Chief Technology Officer (including significant merger
and acquisitions responsibility) of Global Geophysical Services, Inc., a NYSE-listed seismic products
and services company, since January 2010. Prior to joining Global, Mr. Usher served from October
2005 to January 2010 as Senior Director at Landmark Software and Services (including significant
merger and acquisition responsibility), a division of Halliburton Company, an oilfield services company.
From 2004 to 2005, he was Senior Corporate Vice President, Integrated Services, at Paradigm
Geotechnology, an exploration and production software company. From 2000 to 2003, Mr. Usher
served as President of the global data processing division of Petroleum Geo-Services (PGS), a marine
geophysical contracting company. He began his career at Western Geophysical where he served in a
27
number of roles over his 17 year tenure before becoming the Worldwide VP Technology. Mr. Usher
holds a Bachelor of Science degree in geology and geophysics from Yale University.
Ms. Seely joined ION as Executive Vice President, General Counsel and Corporate Secretary in
October 2014. Prior to joining ION, Ms. Seely served as Senior Vice President of Alternative Energy
for NRG Energy, Inc., with management and legal oversight of multiple new business and startup
ventures related to enhanced oil recovery, solar power and nuclear project development. She also
recently served in executive and general counsel roles for Nuclear Innovation North America (NINA),
a joint venture of NRG Energy with Toshiba Corporation. Prior to NRG Energy, Ms. Seely served as
Vice President and General Counsel at Direct Energy and as a partner in the corporate and securities
law group of Thompson & Knight LLP. Ms. Seely holds a Juris Doctor from Southern Methodist
University’s Dedman School of Law, and earned a Bachelor of Arts degree magna cum laude at Baylor
University. She is licensed to practice in Texas and New York.
Mr. Schwausch joined ION in 2006 as Assistant Controller and held that position until June 2010
when he became Director of Financial Reporting. In May 2012, he became Controller, Solutions
Business Unit, and in May 2013 became Vice President and Corporate Controller. Mr. Schwausch held
a variety of positions at Deloitte & Touche, LLP, a public accounting firm, from 2000 until he joined
ION. Mr. Schwausch is a Certified Public Accountant and a Certified Management Accountant. He
received a Bachelor of Science degree in accounting from Brigham Young University.
EXECUTIVE COMPENSATION
Introductory note: The following discussion of executive compensation contains descriptions of various
employee benefit plans and employment-related agreements. These descriptions are qualified in their entirety
by reference to the full text or detailed descriptions of the plans and agreements, which are filed or
incorporated by reference as exhibits to our annual report on Form 10-K for the year ended December 31,
2014. In this discussion, the terms ‘‘ION,’’ ‘‘we,’’ ‘‘our’’ and ‘‘us’’ refer to ION Geophysical Corporation
and its consolidated subsidiaries, except where the context otherwise requires or as otherwise indicated.
Compensation Discussion and Analysis
This Compensation Discussion and Analysis provides an overview of the Compensation Committee
of our Board of Directors, a discussion of the background and objectives of our compensation
programs for our senior executives, and a discussion of all material elements of the compensation of
each of the executive officers identified in the following table, whom we refer to as our named
executive officers:
Name
Title
R. Brian Hanson . . . . . President and Chief Executive Officer (our principal executive officer)
Kenneth G. Williamson Executive Vice President and Chief Operating Officer, Commercialization
Division
Colin T. Hulme . . . . . . Executive Vice President, Ocean Bottom Services
Steven A. Bate . . . . . . Executive Vice President and Chief Financial Officer (our principal financial
officer)
Christopher T. Usher . . Executive Vice President and Chief Innovation Officer, Innovation Division
Gregory J. Heinlein . . Former Senior Vice President and Chief Financial Officer (our former
principal financial officer)
28
Executive Summary
General. The objectives and major components of our executive compensation program did not
materially change from 2014 to 2015. While we regularly review and fine-tune our compensation
programs, we believe consistency in our compensation program and philosophy is important to
effectively motivate and reward top-level management performance and for the creation of stockholder
value. We continue to provide our named executive officers with total annual compensation that
includes three principal elements: base salary, performance-based annual incentive cash compensation
and long-term equity-based incentive awards. Elements of our compensation program continue to be
performance-based, and a significant portion of each executive’s total annual compensation is at risk
and dependent upon our company’s achievement of specific, measurable performance goals. Our
performance-based pay is designed to align our executive officers’ interests with those of our
stockholders and to promote the creation of stockholder value, without encouraging excessive
risk-taking. In addition, our equity programs, combined with our executive share ownership
requirements, are designed to reward long-term stock performance.
Base salaries for several of our named executive officers were increased in January 2015, consistent
with our usual base salary review process and practice. Payments under our annual bonus incentive plan
for 2014 reflected our performance and the level of achievement of our 2014 plan performance goals.
In 2014, the Compensation Committee determined that the bonus available for awards paid to our
named executive officers under the 2014 plan should be based on our consolidated adjusted operating
income and cash flow generation during the fiscal year. In early 2015, the Compensation Committee
reviewed the company’s adjusted operating income and cash flow production and approved the bonus
for each named executive based on individual and company performance. In approving the individual
awards to our named executive officers in February 2015, the Compensation Committee noted that our
named executive officers’ efforts had enabled us to drive our financial performance during a
challenging economic period for the seismic industry while, at the same time, improving our liquidity
and positioning us to take advantage of the next upturn in the energy cycle. In addition, the
Compensation Committee determined that each named executive officer had individually performed at
or above the expected level and was a significant contributor to our overall financial performance for
the year.
The annual grants made to our named executive officers under our long-term stock incentive plan
on March 1, 2014 were generally consistent with grants made to named executive officers in previous
years.
Consideration of Say-On-Pay Result. At our 2014 Annual Meeting of Stockholders held on
May 21, 2014, our stockholders approved all of our director nominees and proposals, including a
non-binding advisory (‘‘say-on-pay’’) vote to approve the compensation of our executive officers. In the
advisory executive compensation vote, over 98% of the votes cast on the proposal voted in favor of our
executive compensation. Our general goal since our 2014 Annual Meeting has been to continue to act
consistently with the established practices that were overwhelmingly approved by our stockholders. We
believe that we have accomplished that goal. In addition, because our stockholders voted in a
non-binding advisory vote held at our 2011 Annual Meeting in favor of our holding an advisory
(‘‘say-on-frequency’’) vote on executive compensation every year, we will continue to hold an annual
advisory vote to approve the compensation of our named executive officers. When and if our Board
determines that it is in the best interest of our company to hold our say-on-pay vote with a different
frequency, we will propose such a change to our stockholders at the next annual meeting of
stockholders to be held following the Board’s determination. Presently, under SEC rules, we are not
required to hold another say-on-frequency vote again until our 2017 Annual Meeting of Stockholders.
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Compensation Committee
Corporate Governance
The Compensation Committee of our Board of Directors reviews and approves, or recommends to
the Board for approval, all salary and other remuneration for our executive officers and oversees
matters relating to our employee compensation and benefit programs. No member of the committee is
an employee of ION. The Board has determined that each member of the committee satisfies the
definition of ‘‘independent’’ as established in the NYSE corporate governance listing standards. In
determining the independence of each member of the committee, the Board considered all factors
specifically relevant to determining whether the director has a relationship to our company that is
material to the director’s ability to be independent from management in the execution of his duties as a
Compensation Committee member, including, but not limited to:
(cid:129) the source of compensation of the director, including any consulting, advisory or other
compensatory fee paid by us to the director; and
(cid:129) whether the director is affiliated with our company, a subsidiary or affiliate.
When considering the director’s affiliation with us for purposes of independence, the Board
considered whether the affiliate relationship places the director under the direct or indirect control of
our company or its senior management, or creates a direct relationship between the director and
members of senior management, in each case, of a nature that would impair the director’s ability to
make independent judgments about our executive compensation.
The committee operates pursuant to a written charter that sets forth its functions and
responsibilities. A copy of the charter can be viewed on our website at
http://ir.iongeo.com/phoenix.zhtml?c=101545&p=irol-govhighlights. For a description of the responsibilities
of the committee, see ‘‘Item 1.—Election of Directors—Committees of the Board—Compensation
Committee’’ above.
During 2014, the committee met in person or by conference call four times. In addition, the
committee took action by unanimous written consent, as permitted under Delaware law and our
Bylaws, two times during 2014, primarily to approve individual non-executive employee grants of
restricted stock and stock options. We believe that each of these individual grants made by unanimous
written consent of the committee complied with the applicable grant date requirements under Financial
Accounting Standards Board (FASB) Accounting Standards Codification Topic (ASC) 718,
‘‘Compensation—Stock Compensation’’ (‘‘ASC Topic 718’’).
Compensation Consultants
The Compensation Committee has the authority and necessary funding to engage, terminate and
pay compensation consultants, independent legal counsel and other advisors in its discretion. Prior to
retaining any such compensation consultant or other advisor, the committee evaluates the independence
of such advisor and also evaluates whether such advisor has a conflict of interest. During 2011, the
committee engaged Performensation Consulting, an equity compensation consulting firm, to provide
advisory services with regard to the preparation of our 2011 proxy statement and to provide the
committee with analysis on the number of shares to propose to stockholders to add to our stock plan at
our 2011 Annual Meeting for future grants to employees and directors. During 2011, the committee
also engaged Aon Hewitt as its consultant in connection with the promotion of Mr. Hanson to Chief
Executive Officer. From 2012-2014, at the recommendation of our management, the committee has
approved and engaged Performensation Consulting to provide advisory services with regard to the
preparation of our proxy statements.
30
From 2011 to date, neither of Performensation Consulting nor Aon Hewitt has received
compensation, or advised our company or our executive officers, on matters outside the scope of their
respective engagements by the Compensation Committee.
The Compensation Committee has considered the independence of Performensation Consulting in
light of SEC rules and NYSE listing standards. Among the factors considered by the committee were
the following:
(cid:129) other services provided to our company by Performensation Consulting;
(cid:129) the amount of fees paid by us as a percentage of Performensation Consulting’s total revenues;
(cid:129) policies or procedures maintained by Performensation Consulting that are designed to prevent a
conflict of interest;
(cid:129) any business or personal relationships between the individual consultants involved in the
engagement and any member of the committee;
(cid:129) any of our common stock owned by the individual consultants involved in the engagement; and
(cid:129) any business or personal relationships between our executive officers and Performensation
Consulting or the individual consultants involved in the engagement.
The committee discussed these considerations and concluded that the work of Performensation
Consulting did not raise any conflict of interest.
Role of Management in Establishing and Awarding Compensation
On an annual basis, our Chief Executive Officer, with the assistance of our Human Resources
department, recommends to the Compensation Committee any proposed increases in base salary, bonus
payments and equity awards for our executive officers other than himself. No executive officer is
involved in determining his own salary increase, bonus payment or equity award. When making officer
compensation recommendations, our Chief Executive Officer takes into consideration compensation
benchmarks, which include industry standards for similar sized organizations serving similar markets, as
well as comparable positions, the level of inherent importance and risk associated with the position and
function, and the executive’s job performance over the previous year. See ‘‘—Objectives of Our
Executive Compensation Programs—Benchmarking’’ and ‘‘—Elements of Compensation—Base Salary’’
below.
Our Chief Executive Officer, with the assistance of our Human Resources department and input
from our executive officers and other members of senior management, also formulates and proposes to
the Compensation Committee an employee bonus incentive plan for the ensuing year. For a description
of our process for formulating the employee bonus incentive plan and the factors that we consider, see
‘‘—Elements of Compensation—Bonus Incentive Plan’’ below.
The committee reviews and approves all compensation and awards to executive officers and all
bonus incentive plans. With respect to equity compensation awarded to employees other than executive
officers, the Compensation Committee reviews and approves all grants of restricted stock and stock
options above 5,000 shares, generally based upon the recommendation of the Chief Executive Officer,
and has delegated option and restricted stock granting authority to the Chief Executive Officer as
permitted under Delaware law for grants to non-executive officers of up to 5,000 shares.
On its own initiative, at least once a year, the Compensation Committee reviews the performance
and compensation of our Chief Executive Officer and, following discussions with the Chief Executive
Officer and other members of the Board of Directors, establishes his compensation level. Where it
deems appropriate, the Compensation Committee will also consider market compensation information
31
from independent sources. See ‘‘—Objectives of Our Executive Compensation Programs—Benchmarking’’
below.
Certain members of our senior management generally attend most meetings of the Compensation
Committee, including our Chief Executive Officer, our Senior Vice President—Global Human
Resources, and our General Counsel/Corporate Secretary. However, no member of management votes
on items being considered by the Compensation Committee. The Compensation Committee and Board
of Directors do solicit the views of our Chief Executive Officer on compensation matters, particularly
as they relate to the compensation of the other named executive officers and the other members of
senior management reporting to the Chief Executive Officer. The committee often conducts an
executive session during each meeting, during which members of management are not present.
General Compensation Philosophy and Policy
Objectives of Our Executive Compensation Programs
Through our compensation programs, we seek to achieve the following general goals:
(cid:129) attract and retain qualified and productive executive officers and key employees by providing
total compensation competitive with that of other executives and key employees employed by
companies of similar size, complexity and industry of business;
(cid:129) encourage our executives and key employees to achieve strong financial and operational
performance;
(cid:129) structure compensation to create meaningful links between corporate performance, individual
performance and financial rewards;
(cid:129) align the interests of our executives with those of our stockholders by providing a significant
portion of total pay in the form of stock-based incentives;
(cid:129) encourage long-term commitment to our company; and
(cid:129) limit corporate perquisites to seek to avoid perceptions both within and outside of our company
of ‘‘soft’’ compensation.
Our governing principles in establishing executive compensation have been:
Long-Term and At-Risk Focus. Compensation opportunities should be composed of long-term,
at-risk pay to focus our management on the long-term interests of our company. Base salary, annual
incentives and employee benefits should be close to competitive levels when compared to similarly-
situated companies.
Equity Orientation. Equity-based plans should comprise a major part of the at-risk portion of total
compensation to instill ownership thinking and to link compensation to corporate performance and
stockholder interests.
Competitive. We emphasize total compensation opportunities consistent on average with our peer
group of companies. Competitiveness of annual base pay and annual incentives is independent of stock
performance. However, overall competitiveness of total compensation is generally contingent on
long-term, stock-based compensation programs.
Focus on Total Compensation.
In making decisions with respect to any element of an executive
officer’s compensation, the Compensation Committee considers the total compensation that may be
awarded to the executive officer, including salary, annual bonus and long-term incentive compensation.
These total compensation reports are prepared by our Human Resources department and present the
dollar amount of each component of the named executive officers’ compensation, including current
32
cash compensation (base salary, past bonus and eligibility for future bonus), equity awards and other
compensation. The overall purpose of these total compensation reports is to bring together, in one
place, all of the elements of actual and potential compensation of our named executive officers so that
the Compensation Committee may analyze both the individual elements of compensation (including the
compensation mix) as well as the aggregate total amount of actual and projected compensation. In its
most recent review of total compensation reports, the committee determined that annual compensation
amounts for our Chief Executive Officer and our other named executive officers remained generally
consistent with the committee’s expectations. However, the committee reserves the right to make
changes that it believes are warranted.
Internal Pay Equity. Our core compensation philosophy is to pay our executive officers
competitive levels of compensation that best reflect their individual responsibilities and contributions to
our company, while providing incentives to achieve our business and financial objectives. While
comparisons to compensation levels at other companies (discussed below) are helpful in assessing the
overall competitiveness of our compensation program, we believe that our executive compensation
program also must be internally consistent and equitable in order for our company to achieve our
corporate objectives. Each year our Human Resources department reports to the Compensation
Committee the total compensation paid to our Chief Executive Officer and all other senior executives,
which includes a comparison for internal pay equity purposes. Over time, there have been variations in
the comparative levels of compensation of executive officers and changes in the overall composition of
the management team and the overall accountabilities of the individual executive officers; however, we
and the committee are satisfied that total compensation received by executive officers reflects an
appropriate differential for executive compensation.
These principles apply to compensation policies for all of our executive officers and key employees.
We do not follow the principles in a mechanistic fashion; rather, we apply experience and judgment in
determining the appropriate mix of compensation for each individual. This judgment also involves
periodic review of discernible measures to determine the progress each individual is making toward
agreed-upon goals and objectives.
Benchmarking
When making compensation decisions, we also look at the compensation of our Chief Executive
Officer and other executive officers relative to the compensation paid to similarly-situated executives at
companies that we consider to be our industry and market peers—a practice often referred to as
‘‘benchmarking.’’ We believe, however, that a benchmark should be just that—a point of reference for
measurement—but not the determinative factor for our executives’ compensation. The purpose of the
comparison is not to supplant the analyses of internal pay equity, total wealth accumulation and the
individual performance of the executive officers that we consider when making compensation decisions.
Because the comparative compensation information is just one of the several analytic tools that are
used in setting executive compensation, the Compensation Committee has discretion in determining the
nature and extent of its use. Further, given the limitations associated with comparative pay information
for setting individual executive compensation, including the difficulty of assessing and comparing wealth
accumulation through equity gains, the committee may elect to not use the comparative compensation
information at all in the course of making compensation decisions.
In most years, at least once each year, our Human Resources department, under the oversight of
the Compensation Committee, reviews data from market surveys, independent consultants and other
sources to assess our competitive position with respect to base salary, annual incentives and long-term
incentive compensation. When reviewing compensation data in November 2014, we utilized data
primarily from Radford salary surveys, the Mercer U.S. Compensation Planning Survey, TowersWatson
executive salary survey and Frost’s 2014 Oilfield Manufacturing and Services Industry Executive
Compensation Survey (‘‘OFMS Survey’’). The survey information from most of these resources covered
33
a broad range of industries and companies. However, the 2014 OFMS Survey compiled proxy
compensation data from 53 oilfield services companies and survey results from the following 19 oilfield
services companies:
Aker Solutions ASA
Baker Hughes, Inc.
Bristow Group, Inc.
C&J Energy Services, Inc.
Core Laboratories NV
Ensco PLC
Saipem S.p.A.
Exterran Holdings, Inc.
Helmerich & Payne, Inc.
Hercules Offshore Services, Inc.
ION Geophysical Corporation
National Oilwell Varco, Inc.
Newpark Resources, Inc.
Oil States International, Inc.
Shelf Drilling Offshore Holdings Ltd.
Superior Energy Services, Inc.
T.D. Williamson Inc.
TETRA Technologies, Inc.
Vantage Drilling Company
Each year, the administrators of the OFMS Survey in their discretion make adjustments to the list
of companies included in the survey. As a result, the above list of companies included in the 2014
OFMS Survey is slightly different from the list of companies included in the OFMS Survey for 2013
and previous years and will likely be different from the list of companies to be included in future
OFMS Surveys.
The overall results of the compensation surveys provide the starting point for our compensation
analysis. We believe that the surveys contain relevant compensation information from companies that
are representative of the sector in which we operate, have relative size as measured by market
capitalization and experience relative complexity in the business and the executives’ roles and
responsibilities. Beyond the survey numbers, we look extensively at a number of other factors, including
our estimates of the compensation at our most comparable competitors and other companies that were
closest to our company in size, profitability and complexity. We also consider an individual’s current
performance, the level of corporate responsibility, and the employee’s skills and experience, collectively,
in making compensation decisions.
In the case of our Chief Executive Officer and some of our other executive officers, we also
consider our company’s performance during the person’s tenure and the anticipated level of
compensation that would be required to replace the person with someone of comparable experience
and skill.
In addition to our periodic review of compensation, we also regularly monitor market conditions
and will adjust compensation levels from time to time as necessary to remain competitive and retain
our most valuable employees. When we experience a significant level of competition for retaining
current employees or hiring new employees, we will typically reevaluate our compensation levels within
that employee group in order to ensure our competitiveness.
34
The primary components of our executive compensation program are as follows:
Elements of Compensation
ION Geophysical
Executive Compensation
Short-Term
Compensation
Benefits
Long-Term
Compensation
Base Salary
Bonus
Incentive Plan
Stock Options
Restricted Stock/
Units
18MAR201500035410
Below is a summary of each component:
Base Salary
General. The general purpose of base salary for our executive officers is to create a base of cash
compensation for the officer that is consistent on average with the range of base salaries for executives
in similar positions and with similar responsibilities at comparable companies. In addition to salary
norms for persons in comparable positions at comparable companies, base salary amounts may also
reflect the nature and scope of responsibility of the position, the expertise of the individual employee
and the competitiveness of the market for the employee’s services. Base salaries of executives other
than our Chief Executive Officer may also reflect our Chief Executive Officer’s evaluation of the
individual executive officer’s job performance. As a result, the base salary level for each individual may
be above or below the target market value for the position. The Compensation Committee also
recognizes that the Chief Executive Officer’s compensation should reflect the greater policy- and
decision-making authority that he holds and the higher level of responsibility he has with respect to our
strategic direction and our financial and operating results. At December 31, 2014, our Chief Executive
Officer’s annual base salary was 48% higher than the annual base salary for the next highest-paid
named executive officer and 60% higher than the average annual base salary for all of our other named
executive officers. The committee does not intend for base salaries to be the vehicle for long-term
capital and value accumulation for our executives.
2014 Actions.
In typical years, base salaries are reviewed at least annually and may also be
adjusted from time to time to realign salaries with market levels after taking into account individual
responsibilities and changes in responsibilities, performance and contribution to ION, experience,
impact on total compensation, relationship of compensation to other ION officers and employees, and
changes in external market levels. Salary increases for executive officers do not follow a preset schedule
or formula but do take into account changes in the market and individual circumstances.
35
All of our named executive officers received an increase in base salary in January 2015, as
described below:
Named Executive Officer
R. Brian Hanson . . . . . . . . . . . .
Kenneth G. Williamson . . . . . . .
Colin T. Hulme . . . . . . . . . . . . .
Steven A. Bate . . . . . . . . . . . . .
Christopher T. Usher . . . . . . . . .
Action
In recognition of Mr. Hanson’s performance during 2014, the
Compensation Committee increased Mr. Hanson’s base salary from
$550,000 to $600,000, effective in January 2015. The 2014 OFMS
Survey indicated that the median for CEO base salary for surveyed
companies having annual revenues of less than $1 billion was
$650,000.
In recognition of Mr. Williamson’s performance during 2014, the
Compensation Committee increased Mr. Williamson’s annual base
salary from $372,320 to $387,213, effective in January 2015. The
2014 OFMS Survey indicates that the average base salary of a
Corporate Executive Vice President for surveyed companies having
annual business unit revenues of less than $1 billion is $354,296.
In recognition of Mr. Hulme’s performance in 2014, the
Compensation Committee increased Mr. Hulme’s annual base
salary from $330,000 to $350,000, effective in January 2015. The
2014 OFMS Survey indicates that the average base salary of a
Corporate Executive Vice President for surveyed companies having
annual business unit revenues of less than $1 billion is $354,296.
In recognition of Mr. Bate’s job performance and his promotion to
Chief Financial Officer during 2014, the Compensation Committee
increased Mr. Bate’s annual base salary from $309,000 to $375,000,
effective in November 2014. The 2014 OFMS Survey indicates that
the median of Chief Financial Officer base salary for surveyed
companies having annual revenues of less than $1 billion is
$400,000.
In recognition of Mr. Usher’s performance during 2014, the
Compensation Committee increased Mr. Usher’s annual base
salary from $364,000 to $378,560, effective in January 2015. The
2014 OFMS Survey indicates that the average base salary of a
Corporate Executive Vice President for surveyed companies having
annual business unit revenues of less than $1 billion is $354,296.
Bonus Incentive Plan
Our employee annual bonus incentive plan is intended to promote the achievement each year of
the company’s performance objectives, the employee’s particular business unit’s performance objectives
and to recognize those employees who contributed to the company’s achievements. The plan provides
cash compensation that is at-risk on an annual basis by establishing bonus pools for each business unit
contingent on achievement of annual business and operating objectives. The plan also provides for
individual awards designed to reward company and individual performance. This provides all
participating employees the opportunity to share in the company’s performance through the
achievement of established financial and individual objectives. The financial and individual objectives
within the plan are intended to measure an increase in the value of our company.
In recent years, we have adopted a bonus incentive plan with regard to each year. Performance
under the annual bonus incentive plan is measured with respect to the designated plan fiscal year.
36
Payments under the plan are paid in cash in an amount reviewed and approved by the Compensation
Committee and are ordinarily made in the first quarter following the completion of a fiscal year, after
the financial results for that year have been determined.
Our annual bonus incentive plan is usually consistent with our operating plan for the same year. In
late 2013, we prepared a consolidated company operating budget for 2014 and individual operating
budgets for each operating unit. The budgets took into consideration our views on market
opportunities, customer and sale opportunities, technology enhancements for new products, product
manufacturing and delivery schedules and other operating factors known or foreseeable at the time.
The Board of Directors analyzed the proposed budgets with management extensively and, after analysis
and consideration, the Board approved the consolidated 2014 operating plan. During late 2013, our
Chief Executive Officer worked with our Human Resources department and members of senior
management to formulate our 2014 bonus incentive plan, consistent with the 2014 operating plans
approved by the Board.
At the beginning of 2014, the Compensation Committee approved our 2014 bonus incentive plan
for executives and certain designated non-executive employees. The computation of awards generated
under the plan is required to be approved by the committee. In February 2015, the committee reviewed
the company’s actual performance against each of the plan performance goals established at the
beginning of 2014 and evaluated the individual performance during the year of each participating
named executive officer. The results of operations of the company for 2014 and individual performance
evaluations determined the appropriate payouts under the annual bonus incentive plan.
The Compensation Committee has discretion in circumstances it determines are appropriate to
authorize discretionary bonus awards that might exceed amounts that would otherwise be payable
under the terms of the bonus incentive plan. These discretionary awards can be payable in cash, stock
options, restricted stock, restricted stock units or a combination thereof. Any stock options, restricted
stock or restricted stock units awarded would be granted under one of our existing long-term equity
compensation plans. The committee also has the discretion, in appropriate circumstances, to grant a
lesser bonus award, or no bonus award at all, under the bonus incentive plan.
As described above, our bonus incentive plans are designed for payouts that generally track the
financial performance of our company. The general intent of the plans is to reward key employees
when the company and the employee perform well and not reward them when the company and the
employee do not perform well. In most years when company financial performance is strong, cash
bonus payments are generally higher. Likewise, when our financial performance is low as compared to
our internal targets and plans, cash bonus payments are generally lower. There are occasionally
exceptions to this general trend. For example, in 2008 and 2011, we achieved improved financial
performance over the previous year, but average cash bonus awards under our annual bonus incentive
plans were relatively lower because we did not achieve our internal financial and growth objectives for
the relevant years. In 2012, we achieved improved financial performance over the previous year, but
our average bonus award paid to our named executive officers remained at approximately the same
level as 2011 because our internal financial objectives for 2012 were higher than in 2011. This history
demonstrates a clear and consistent link between our executive officer bonus incentive compensation
and our performance.
Below are general descriptions of our 2014 bonus incentive plan and our company performance
criteria applicable to the plan.
2014 Bonus Incentive Plan. The purpose of the 2014 bonus incentive plan was to provide an
incentive for our participating employees to achieve their highest level of individual and business unit
performance and to align the employees to accomplish and share in the achievement of our company’s
2014 strategic and financial goals.
37
The bonus program includes a three step process:
1. The total bonus pool is established in our annual operating plan based on approximate
percentages of base salary and our expected headcount. As discussed below, the total bonus
pool consists of a fixed portion available for awards to eligible employees regardless of the
company’s financial performance, and a variable portion available for distribution to eligible
employees only to the extent the company satisfies the designated financial performance
criteria (i.e. consolidated adjusted operating income and cash flow).
2. The total bonus pool is allocated among our business units based on satisfaction of the
designated financial performance criteria.
3. Once the bonus pool for each business unit is funded, individual bonuses are determined by
business unit managers by evaluating each eligible employee’s individual and team
performance, and the computation of individual awards is approved by the Compensation
Committee.
Although achievement of our cash flow and consolidated adjusted operating income targets
establish a guideline funding level of the bonus pool available to our named executive officers, actual
amounts paid to our named executive officers are at the discretion of the Compensation Committee
based on its overall assessment of other qualitative and quantitative corporate and individual criteria,
generally in accordance with the compensation philosophy and policy described above.
Designated employees, including our named executive officers, were eligible to participate in our
2014 bonus incentive plan. Under the 2014 plan, approximately 25% of the funds allocated for
distribution were available for awards to eligible employees regardless of the company’s 2014 financial
performance, and approximately 75% of the funds allocated for distribution were available for
distribution to eligible employees only to the extent the company satisfied the designated 2014 financial
performance criteria. In addition, the 2014 plan was structured so that the total amount of funds
available for distribution increased as the company’s financial performance and cash flow increased, up
to a maximum funding level of 200%. As a result, the amount of total dollars available for distribution
under the bonus incentive plan was largely dependent on the company’s achievement of financial
objectives.
Our 2014 bonus incentive plan established a dual emphasis on 2014 target consolidated adjusted
operating income and cash flow generation as the performance goals.
Consolidated adjusted operating income is equal to revenues minus expense related to
manufacturing or costs of performing services, sales, marketing, research and development and general
and administrative costs.
Cash flow generation is the cash ION records in its bank accounts globally, based on the collection
of customer payments, offset by the payment of vendors, employee payroll, taxes, utilities, and similar
matters, excluding cash from external funding arrangements and interest payments.
Cash flow generation and consolidated adjusted operating income were selected as the most
appropriate performance goals for our 2014 plan because the committee believed that cash flow
generation and consolidated adjusted operating income were the best indicators of our company’s
overall business trends and performance at that time and evidenced a direct correlation with the
interests of our stockholders and our company performance. When determining whether financial
targets have been achieved under the 2014 plan, the committee has the discretion to modify or revise
the targets as necessary to reflect any significant beneficial or adverse change that results in a
substantial positive or negative effect on our performance as a whole, such as sales of assets, mergers,
acquisitions, divestitures, spin-offs or unanticipated matters such as economic conditions, indicators of
38
growth or recession in our business segments, nature of our operations or changes in or effect of
applicable laws, regulations or accounting practices.
Under the plan, every participating named executive officer other than our Chief Executive Officer
had the opportunity to earn up to 200% of his target depending on performance of our company
against the designated performance goals and performance of the executive against personal criteria
determined at the beginning of 2014 by our Chief Executive Officer. The Compensation Committee has
the discretion to determine the amounts of individual bonus awards. Under separate terms approved by
the Compensation Committee and contained in his employment agreement, Mr. Hanson, who served as
our Chief Executive Officer during 2014, participated in the plan with potential to earn a target
incentive payment of 75% of his base salary, depending on achievement of the company’s target
consolidated performance goals and pre-designated personal critical success factors, and a maximum of
150% of his base salary upon achievement of the maximum consolidated performance goal and his
personal goals. Our Chief Executive Officer typically carries a higher target and maximum bonus
incentive plan percentage as compared to our other named executive officers as a result of his
leadership role in setting company policy and strategic planning.
Performance Criteria.
In 2014, the Compensation Committee approved a plan that placed equal
importance on operating income and cash flow generation as the criteria for consideration of bonus
awards to the named executive officers and other covered employees under our 2014 bonus incentive
plan:
Threshold
Operating Income
$31.0 million
Threshold
Cash Flow Generation
$25.0 million
Target
Operating Income
$44.3 million
Target
Cash Flow Generation
$50.0 million
Maximum
Operating Income
$53.2 million
Maximum
Cash Flow Generation
$75.0 million
Where an employee is primarily involved in a particular business unit, the financial performance
criteria under the bonus incentive plan are weighted toward the operational performance of the
employee’s business unit rather than consolidated company performance. The ‘‘Non-Equity Incentive
Plan Compensation’’ column of the 2014 Summary Compensation Table below reflects the payments
that our named executive officers earned and received under our 2014 bonus incentive plan, and the
‘‘Bonus’’ column of the same table reflects any discretionary cash bonus payments received by our
named executive officers during 2014. Our 2014 cash flow generation exceeded the target performance
criteria under our 2014 bonus incentive plan but our operating income did not meet the target criteria
under the plan.
In addition to overall company performance, when considering the 2014 bonus incentive plan
awards paid to our named executive officers, the Compensation Committee also considered the
individual performances and accomplishments of each officer. For example, when considering the bonus
award paid to Mr. Hanson, among the factors the committee took into consideration was Mr. Hanson’s
effective leadership in our achievement of several important strategic objectives during the year, such as
our further re-focusing the strategies and organization of the company to prepare for the challenges
associated with low oil prices, our development of our seabed strategy and management of the
OceanGeo ocean-bottom joint venture. When considering the bonus award paid to Mr. Williamson,
among the factors the committee took into consideration were the 2014 financial performance of his
GeoVentures Division and his efforts to reduce the amount of risk associated with the business
portfolio. When considering the bonus award paid to Mr. Hulme, among the factors the committee
took into consideration were his management of the business and the positive financial results achieved
in light of the new and start-up nature of OceanGeo. When considering the bonus award paid to
39
Mr. Bate, among the factors the committee took into consideration were the positive 2014 financial
results of his efforts for the company prior to becoming Chief Financial Officer and his promotion to
Chief Financial Officer. When considering the bonus award paid to Mr. Usher, among the factors the
committee took into consideration were the 2014 financial results of his GeoScience Division and his
role in reorganizing the Division into a broader group within the Company. When considering the
bonus award paid to Mr. Heinlein, among the factors the committee took into consideration was his
progress towards goals prior to his departure. The total compensation paid to each named executive
officer is set forth in the graph titled ‘‘Summary Compensation Table’’.
The Compensation Committee reviews the annual bonus incentive plan each year to ensure that
the key elements of the plan continue to meet the objectives described above.
Long-Term Stock-Based Incentive Compensation
We have structured our long-term incentive compensation to provide for an appropriate balance
between rewarding performance and encouraging employee retention and stock ownership. There is no
pre-established policy or target for the allocation between either cash or non-cash or short-term and
long-term incentive compensation; however, at executive management levels, the Compensation
Committee strives for compensation to increasingly focus on longer-term incentives. In conjunction with
the Board, executive management is responsible for setting and achieving long-term strategic goals. In
support of this responsibility, compensation for executive management, and most particularly our Chief
Executive Officer, tends to be weighted towards rewarding long-term value creation for stockholders.
The below table illustrates the mix of total compensation received by Mr. Hanson, our CEO, and our
other current named executive officers during 2014:
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Long-Term Equity
Annual Incentive
Base Salary
CEO
Other NEOs (average)
18MAR201500035231
For 2014, there were three forms of long-term equity incentives utilized for executive officers and
key employees: stock options, restricted stock and restricted stock units. Our long-term incentive plans
have provided the principal method for our executive officers to acquire equity or equity-linked
interests in our company. Of the total stock option or restricted stock employee awards made by ION
during 2014, 70% were in the form of stock options and 30% were in the form of restricted stock or
restricted stock units. Our 2013 LTIP limits the number of awards we can grant under the plan in the
40
form of full-value awards, such as restricted stock and restricted stock units, to 1,300,000 shares, or less
than 35% of the total shares authorized for grant under the plan.
Stock Options. Under our equity plans, stock options may be granted having exercise prices equal
to the closing price of our stock on the date before the date of grant. In any event, all awards of stock
options are made at or above the market price at the time of the award. The Compensation Committee
will not grant stock options having exercise prices below the market price of our stock on the date of
grant, and will not reduce the exercise price of stock options (except in connection with adjustments to
reflect recapitalizations, stock or extraordinary dividends, stock splits, mergers, spin-offs and similar
events, as required by the relevant plan) without the consent of our stockholders. Our stock options
generally vest ratably over four years, based on continued employment, and the terms of our 2013 LTIP
require stock options granted under that plan to follow that vesting schedule unless the Compensation
Committee approves a different schedule when approving the grant. Prior to the exercise of an option,
the holder has no rights as a stockholder with respect to the shares subject to such option, including
voting rights and the right to receive dividends or dividend equivalents. New option grants normally
have a term of ten years.
The purpose of stock options is to provide equity compensation with value that has been
traditionally treated as entirely at-risk, based on the increase in our stock price and the creation of
stockholder value. Stock options also allow our executive officers and key employees to have equity
ownership and to share in the appreciation of the value of our stock, thereby aligning their
compensation directly with increases in stockholder value. Stock options only have value to their holder
if the stock price appreciates in value from the date options are granted.
Stock option award decisions are generally based on past business and individual performance. In
determining the number of options to be awarded, we also consider the grant recipient’s qualitative and
quantitative performance, the size of stock option and other stock based awards in the past, and
expectations of the grant recipient’s future performance. In 2014, a total of 147 employees received
option awards, covering 1,736,400 shares of common stock. In 2014, the named executive officers
received option awards for a total of 420,000 shares, or approximately 24% of the total options
awarded in 2014.
Restricted Stock and Restricted Stock Units. We use restricted stock and restricted stock units to
focus executives on our long-term performance and to help align their compensation more directly with
stockholder value. Vesting of restricted stock and restricted stock units typically occurs ratably over
three years, based solely on continued employment of the recipient-employee, and the terms of our
2013 LTIP require restricted stock and restricted stock units granted under that plan to follow that
vesting schedule unless the Compensation Committee approves a different schedule when approving
the grant. In 2014, 147 employees received restricted stock or restricted stock unit awards, covering an
aggregate of 727,550 shares of restricted stock and shares underlying restricted stock units. The named
executive officers received awards totaling 175,000 shares of restricted stock in 2014, or approximately
24% of the total shares of restricted stock awarded to employees in 2014.
Awards of restricted stock units have been made to certain of our foreign employees in lieu of
awards of restricted stock. Restricted stock units provide certain tax benefits to our foreign employees
as the result of foreign law considerations, so we expect to continue to award restricted stock units to
designated foreign employees for the foreseeable future.
The Compensation Committee reviews the long-term incentive program each year to ensure that
the key elements of this program continue to meet the objectives described above.
Approval and Granting Process. As described above, the Compensation Committee reviews and
approves all stock option, restricted stock and restricted stock unit awards made to executive officers,
regardless of amount. With respect to equity compensation awarded to employees other than executive
41
officers, the committee reviews and approves all grants of restricted stock, stock options and restricted
stock units above 5,000 shares, generally based upon the recommendation of our Chief Executive
Officer. Committee approval is required for any grant to be made to an executive officer in any
amount. The committee has granted to our Chief Executive Officer the authority to approve grants to
any employee other than an executive officer of (i) up to 5,000 shares of restricted stock and (ii) stock
options for not more than 5,000 shares. Our Chief Executive Officer is also required to provide a
report to the committee of all awards of options and restricted stock made by him under this authority.
We believe that this policy is beneficial because it enables smaller grants to be made more efficiently.
This flexibility is particularly important with respect to attracting and hiring new employees, given the
increasingly competitive market for talented and experienced technical and other personnel in locales in
which our employees work.
All grants of restricted stock, restricted stock units and stock options to employees or directors are
granted on one of four designated quarterly grant dates during the year: March 1, June 1, September 1
or December 1. The Compensation Committee approved these four dates because they are not close to
any dates on which earnings announcements or other announcements of material events would
normally be made by us. For an award to a current employee, the grant date for the award is the first
designated quarterly grant date that occurs after approval of the award. For an award to a newly hired
employee who is not yet employed by us at the time the award is approved, the grant date for the
award is the first designated quarterly grant date that occurs after the new employee commences work.
We believe that this process of fixed quarterly grant dates is beneficial because it serves to remove any
perception that the grant date for an award could be capable of manipulation or change for the benefit
of the recipient. In addition, having all grants occur on a maximum of four days during the year
simplifies certain fair value accounting calculations related to the grants, thereby minimizing the
administrative burden associated with tracking and calculating the fair values, vesting schedules and
tax-related events upon vesting of restricted stock and also lessening the opportunity for inadvertent
calculation errors.
Beginning March 1, 2015, the Compensation Committee decided that all awards of restricted stock,
stock options and share appreciation rights will be made in annual grants occurring on March 1 of each
year. In 2014, the Company also awarded annual equity grants on March 1. Prior to 2014, annual
equity awards were made on December 1 of year. After review and careful consideration by the
Compensation Committee, the Company decided to continue the practice that began in 2014 of making
annual awards on March 1 of each year. This date was selected because (i) it enables the Board of
Directors and Compensation Committee to consider individual performance after the full year has been
completed, (ii) it simplifies the annual budgeting process by having the expense resulting from the
equity award incurred at the same time as incentive compensation and (iii) the date aligns with the
time the Company normally pays annual incentive bonuses. Awards made in connection with significant
promotions, new hires, new directors joining the Board or unusual circumstances, including but not
limited to its employees and directors, will be granted on one of four designated dates during the year:
March 1, June 1, September 1 or December 1.
Beginning in 2015, and due in part to the steep decline in energy company equity prices, the
Committee authorized grants under the 2008 Stock Appreciation Rights Plan to key employees with
vesting based on a set of performance metrics. The grants were authorized after consulting with the
Committee’s compensation expert and upon the evaluation of market-based metrics of compensation.
In addition to the performance metrics, employees participating in the plan would also be required to
have minimum tenure requirements to create an environment of employment stability.
Clawback Policy
We have a Compensation Recoupment Policy (commonly referred to as a ‘‘clawback’’ policy),
which provides that, in the event of a restatement of our financial results due to material
42
noncompliance with applicable financial reporting requirements, the Board will, if it determines
appropriate and subject to applicable laws and the terms and conditions of our applicable stock plans,
programs or arrangements, seek reimbursement of the incremental portion of performance-based
compensation, including performance-based bonuses and long-term incentive awards, paid to current or
former executive officers within three years of the restatement date, in excess of the compensation that
would have been paid had the compensation amount been based on the restated financial results.
Personal Benefits, Perquisites and Employee Benefits
Our Board of Directors and executives have concluded that we will not offer most perquisites
traditionally offered to executives of similarly-sized companies. As a result, perquisites and any other
similar personal benefits offered to our executive officers are substantially the same as those offered to
our general salaried employee population. These offered benefits include medical and dental insurance,
life insurance, disability insurance, a vision plan, charitable gift matching (up to designated limits), a
401(k) plan with a company match of certain levels of contributions, flexible spending accounts for
healthcare and dependent care and other customary employee benefits. Business-related relocation
benefits may be reimbursed on a case-by-case basis. We intend to continue applying our general policy
of not providing specific personal benefits and perquisites to our executives; however, we may, in our
discretion, revise or add to any executive’s personal benefits and perquisites if we deem it advisable.
Risk Management Considerations
The Compensation Committee believes that our company’s bonus and equity programs create
incentives for employees to create long-term stockholder value. The committee has considered the
concept of risk as it relates to the company’s compensation programs and has concluded that the
company’s compensation programs do not encourage excessive or inappropriate risk-taking. Several
elements of the compensation programs are designed to promote the creation of long-term value and
thereby discourage behavior that leads to excessive risk:
(cid:129) The compensation programs consist of both fixed and variable compensation. The fixed (or
salary) portion is designed to provide a steady income regardless of the company’s stock price
performance so that executives do not focus exclusively on stock price performance to the
detriment of other important business metrics. The variable (cash bonus and equity) portions of
compensation are designed to reward both short- and long-term corporate performance. The
Compensation Committee believes that the variable elements of compensation are a sufficient
percentage of overall compensation to motivate executives to produce positive short- and
long-term corporate results, while the fixed element is also sufficiently high such that the
executives are not encouraged to take unnecessary or excessive risks in doing so.
(cid:129) The financial metrics used to determine the amount of an executive’s bonus are measures the
committee believes contribute to long-term stockholder value and ensure the continued viability
of the company. Moreover, the committee attempts to set ranges for these measures that
encourage success without encouraging excessive risk taking to achieve short-term results. In
addition, the overall maximum bonus for each participating named executive officer other than
our Chief Executive Officer is not expected to exceed 100% of the executive’s base salary under
the bonus plan, and the overall bonus for our Chief Executive Officer under his employment
agreement will not exceed 150% of his base salary under the bonus plan, in each case no matter
how much the company’s financial performance exceeds the ranges established at the beginning
of the year.
43
(cid:129) We have strict internal controls over the measurement and calculation of the financial metrics
that determine the amount of an executive’s bonus, designed to keep it from being susceptible to
manipulation by an employee, including our executives.
(cid:129) Stock options become exercisable over a four-year period and remain exercisable for up to ten
years from the date of grant, encouraging executives to look to long-term appreciation in equity
values.
(cid:129) Restricted stock becomes exercisable over a three-year period, again encouraging executives to
look to long-term appreciation in equity values.
(cid:129) Senior executives, including our named executive officers, are required to acquire over time and
hold shares of our company’s stock having a value of between one and four times the executive’s
annual base salary, depending on the level of the executive. The Compensation Committee
believes that the stock ownership guidelines provide a considerable incentive for management to
consider the company’s long-term interests, since a portion of their personal investment portfolio
consists of company stock.
(cid:129) In addition, we do not permit any of our executive officers or directors to enter into any
derivative or hedging transactions involving our stock, including short sales, market options,
equity swaps and similar instruments, thereby preventing executives from insulating themselves
from the effects of poor company stock price performance. Please refer to ‘‘—Stock Ownership
Requirements; Hedging Policy’’ below.
(cid:129) We have a compensation recoupment (clawback) policy that provides, in the event of a
restatement of our financial results due to material noncompliance with financial reporting
requirements, for reimbursement of the incremental portion of performance-based
compensation, including performance-based bonuses and long-term incentive awards, paid to
current or former executive officers within three years of the restatement date, in excess of the
compensation that would have been paid had such compensation amount been based on the
restated financial results. Please refer to ‘‘—Clawback Policy’’ above.
Indemnification of Directors and Executive Officers
Our Bylaws provide certain rights of indemnification to our directors and employees (including our
executive officers) in connection with any legal action brought against them by reason of the fact that
they are or were a director, officer, employee or agent of our company, to the full extent permitted by
law. Our Bylaws also provide, however, that no such obligation to indemnify exists as to proceedings
initiated by an employee or director against us or our directors unless (a) it is a proceeding (or part
thereof) initiated to enforce a right to indemnification or (b) was authorized or consented to by our
Board of Directors.
As discussed below, we have also entered into employment agreements with certain of our
executive officers that provide for us to indemnify the executive to the fullest extent permitted by our
Certificate of Incorporation and Bylaws. The agreements also provide that we will provide the executive
with coverage under our directors’ and officers’ liability insurance policies to the same extent as
provided to our other executives.
Stock Ownership Requirements; Hedging Policy
We believe that broad-based stock ownership by our employees (including our executive officers)
enhances our ability to deliver superior stockholder returns by increasing the alignment between the
interests of our employees and our stockholders. Accordingly, the Board has adopted stock ownership
requirements applicable to each of our senior executives, including our named executive officers. The
policy requires each executive to retain direct ownership of at least 50% of all shares of our company’s
44
stock received upon exercise of stock options and vesting of awards of restricted stock or restricted
stock units until the executive owns shares having an aggregate value equal to the following multiples
of the executive’s annual base salary:
President and Chief Executive Officer—4x
Executive Vice President—2x
Senior Vice President—1x
As of the date of this proxy statement, all of our senior executives were in compliance with the
stock ownership requirements. In addition, we do not permit any of our executive officers or directors
to enter into any derivative or hedging transactions with respect to our stock, including short sales,
market options, equity swaps and similar instruments.
Impact of Regulatory Requirements and Accounting Principles on Compensation
The financial reporting and income tax consequences to our company of individual compensation
elements are important considerations for the Compensation Committee when it is analyzing the
overall level of compensation and the mix of compensation among individual elements. Under
Section 162(m) of the Internal Revenue Code and the related federal treasury regulations, we may not
deduct annual compensation in excess of $1 million paid to certain employees—generally our Chief
Executive Officer and our four other most highly compensated executive officers—unless that
compensation qualifies as ‘‘performance-based’’ compensation. Overall, the committee seeks to balance
its objective of ensuring an effective compensation package for the executive officers with the need to
maximize the immediate deductibility of compensation—while ensuring an appropriate (and
transparent) impact on reported earnings and other closely followed financial measures.
In making its compensation decisions, the Compensation Committee has considered the limitations
on deductibility within the requirements of Internal Revenue Code Section 162(m) and its related
Treasury regulations. As a result, the committee has designed much of the total compensation packages
for the executive officers to qualify for the exemption of ‘‘performance-based’’ compensation from the
deductibility limit. However, the committee does have the discretion to design and use compensation
elements that may not be deductible within the limitations under Section 162(m), if the committee
considers the tax consequences and determines that those elements are in our best interests. To
maintain flexibility in compensating executive officers in a manner designed to promote varying
corporate goals, we have not adopted a policy that all compensation must be deductible.
Certain payments to our named executive officers under our 2014 annual incentive plan may not
qualify as performance-based compensation under Section 162(m) because the awards were calculated
and paid in a manner that may not meet the requirements under Section 162(m) and the related
Treasury regulations. Given the rapid changes in our business and industry that have occurred during
recent years and those that may occur in 2015 and subsequent years, we believe that we are better
served in implementing a plan that provides for adjustments and discretionary elements for our senior
executives’ incentive compensation, rather than ensuring that we implement all of the requirements and
limitations under Section 162(m) into these incentive plans.
Likewise, the impact of Section 409A of the Internal Revenue Code is taken into account, and our
executive compensation plans and programs are, in general, designed to comply with the requirements
of that section so as to avoid possible adverse tax consequences that may result from non-compliance.
For accounting purposes, we apply the guidance in ASC Topic 718 to record compensation expense
for our equity-based compensation grants. ASC Topic 718 is used to develop the assumptions necessary
and the model appropriate to value the awards as well as the timing of the expense recognition over
the requisite service period, generally the vesting period, of the award.
45
Executive officers will generally recognize ordinary taxable income from stock option awards when
a vested option is exercised. We generally receive a corresponding tax deduction for compensation
expense in the year of exercise. The amount included in the executive officer’s wages and the amount
we may deduct is equal to the common stock price when the stock options are exercised less the
exercise price, multiplied by the number of shares under the stock options exercised. We do not pay or
reimburse any executive officer for any taxes due upon exercise of a stock option. We have not
historically issued any tax-qualified incentive stock options under Section 422 of the Internal Revenue
Code.
Executives will generally recognize taxable ordinary income with respect to their shares of
restricted stock at the time the restrictions lapse (unless the recipient elects to accelerate recognition as
of the date of grant). Restricted stock unit awards are generally subject to ordinary income tax at the
time of payment or issuance of unrestricted shares of stock. We are generally entitled to a
corresponding federal income tax deduction at the same time the executive recognizes ordinary income.
COMPENSATION COMMITTEE REPORT
The Compensation Committee has reviewed and discussed the Compensation Discussion and
Analysis included in this proxy statement and required by Item 402(b) of Regulation S-K with the
management of ION. Based on such review and discussions, the Compensation Committee has
recommended to the Board of Directors that the Compensation Discussion and Analysis be included in
this proxy statement and incorporated into ION’s Annual Report on Form 10-K for the year ended
December 31, 2014.
Franklin Myers, Chairman
David H. Barr
James M. Lapeyre, Jr.
John N. Seitz
46
SUMMARY COMPENSATION TABLE
The following table summarizes the compensation paid to or earned by our named executive
officers at December 31, 2014.
Name and Principal
Position
Year
Salary
($)
Bonus
($)
Stock
Awards
($)
Non-Equity
Incentive Plan
Option
Awards Compensation Compensation
All Other
($)
($)
R. Brian Hanson . . . . . . . . . 2014 550,000
2013 490,000
2012 450,000
President, Chief Executive
Officer and Director
Kenneth G. Williamson . . . . . 2014 372,320
2013 358,000
2012 340,000
Executive Vice President,
Chief Operating Officer,
Commercialization Division
Colin T. Hulme . . . . . . . . . . . 2014 330,000
2013 312,000
Executive Vice President,
Ocean Bottom Services
— 287,700 248,050
— 214,800 235,000
— 279,900 260,100
— 81,400 148,830
— 71,600 141,000
— 93,300 173,408
825,000
395,000
450,000
390,000
215,000
300,000
— 61,650 124,028
— 53,700 117,500
330,000
187,200
($)
6,326
5,813
4,284
7,800
7,650
7,454
6,817
6,390
Total
($)
1,917,076
1,340,613
1,444,284
1,000,350
793,250
914,162
852,495
676,790
Steven A. Bate . . . . . . . . . . . 2014 316,616
— 114,050 211,169
193,000
7,800
842,635
Executive Vice President
and Chief Financial Officer
Christopher T. Usher . . . . . . . 2014 364,000
2013 350,000
2012
Executive Vice President,
Chief Innovation Officer,
Innovation Division
— 82,200 148,830
— 71,600 141,000
21,538 125,000 311,000 173,400
218,400
300,000
—
6,850
6,202
326
Gregory J. Heinlein . . . . . . . 2014 330,000
2013 312,000
2012 300,000
Former Senior Vice
President and Chief
Financial Officer
— 61,650
— 53,700
— 31,100
99,220
94,000
86,700
63,000
160,000
150,000
72,685
109,892
5,192
820,280
868,802
631,264
626,555
729,592
572,992
Discussion of Summary Compensation Table
Stock Awards Column. All of the amounts in the ‘‘Stock Awards’’ column reflect the grant-date
fair value of awards of restricted stock made during the applicable fiscal year (excluding any impact of
assumed forfeiture rates) under either our 2004 LTIP or 2013 LTIP. While unvested, a holder of
restricted stock is entitled to the same voting rights as all other holders of common stock. In each case,
unless stated otherwise below, the awards of shares of restricted stock vest in one-third increments each
year, over a three-year period. The values contained in the Summary Compensation Table under the
Stock Awards column are based on the grant date fair value of all stock awards (excluding any impact
of assumed forfeiture rates). In addition to the grants and awards in 2014 described in the ‘‘2014
Grants of Plan-Based Awards’’ table below:
(cid:129) On December 1, 2012, Mr. Hanson received an award of 45,000 shares of restricted stock.
(cid:129) On December 1, 2013, Mr. Hanson received an award of 60,000 shares of restricted stock.
(cid:129) On December 1, 2012, Mr. Williamson received an award of 15,000 shares of restricted stock.
(cid:129) On December 1, 2013, Mr. Williamson received an award of 20,000 shares of restricted stock.
(cid:129) In connection with his hire on November 30, 2012, as Executive Vice President & Chief
Operating Officer, GeoScience Division, on December 1, 2012, Mr. Usher received an award of
50,000 shares of restricted stock.
(cid:129) On December 1, 2013, Mr. Usher received an award of 20,000 shares of restricted stock.
47
(cid:129) On December 1, 2013, Mr. Hulme received an award of 15,000 shares of restricted stock.
(cid:129) Mr. Heinlein received an award of 5,000 shares of restricted stock on December 1, 2012 and
15,000 shares of restricted stock on December 1, 2013. Mr. Heinlein’s employment with ION
ended on December 31, 2014. As a result of the termination of his employment, 26,666 shares of
restricted stock held by Mr. Heinlein were forfeited on December 31, 2014.
Option Awards Column. All of the amounts shown in the ‘‘Option Awards’’ column reflect stock
options granted under either our 2004 LTIP or 2013 LTIP. In each case, unless stated otherwise below,
the options vest 25% each year over a four-year period. The values contained in the Summary
Compensation Table under the Stock Options column are based on the grant date fair value of all
option awards (excluding any impact of assumed forfeiture rates). For a discussion of the valuation
assumptions for the awards, see Note 9, Stockholders’ Equity and Stock-Based Compensation—Valuation
Assumptions, in our Notes to Consolidated Financial Statements included in our Annual Report on
Form 10-K for the year ended December 31, 2014. All of the exercise prices for the options equal or
exceed the fair market value per share of ION common stock on the date of grant. In addition to the
grants and awards in 2014 described in the ‘‘2014 Grants of Plan-Based Awards’’ table below:
(cid:129) On December 1, 2012, Mr. Hanson received an award of options to purchase 75,000 shares of
our common stock for an exercise price of $5.96 per share.
(cid:129) On December 1, 2013, Mr. Hanson received an award of options to purchase 100,000 shares of
our common stock for an exercise price of $3.86 per share.
(cid:129) On December 1, 2012, Mr. Williamson received an award of options to purchase 50,000 shares
of our common stock for an exercise price of $5.96 per share.
(cid:129) On December 1, 2013, Mr. Williamson received an award of options to purchase 60,000 shares
of our common stock for an exercise price of $3.86 per share.
(cid:129) On December 1, 2013, Mr. Hulme received an award of options to purchase 50,000 shares of
our common stock for an exercise price of $3.86 per shares.
(cid:129) In connection with his hire on November 30, 2012, as Executive Vice President & Chief
Operating Officer, GeoScience Division, on December 1, 2012, Mr. Usher received an award of
options to purchase 50,000 shares of our common stock for an exercise price of $5.96 per share.
(cid:129) On December 1, 2013, Mr. Usher received an award of options to purchase 60,000 shares of our
common stock for an exercise price of $3.86 per share.
(cid:129) On December 1, 2012, Mr. Heinlein received an award of options to purchase 25,000 shares of
our common stock for an exercise price of $5.96 per share; and on December 1, 2013,
Mr. Heinlein received an award of options to purchase 40,000 shares at $3.86 per share.
Mr. Heinlein’s employment with ION ended on December 31, 2014. As a result of the
termination of his employment, unvested options to purchase 125,500 shares of our common
stock held by Mr. Heinlein were forfeited on December 31, 2014.
Other Columns. Mr. Usher was hired as Executive Vice President and Chief Operating Officer,
GeoScience Division, on November 30, 2012. In connection with his hire, Mr. Usher received a sign-on
bonus of $125,000.
All payments of non-equity incentive plan compensation reported for 2014 were made in February
2015 with regard to the 2014 fiscal year and were earned and paid pursuant to our 2014 incentive plan.
We do not sponsor for our employees (i) any defined benefit or actuarial pension plans (including
supplemental plans), (ii) any non-tax-qualified deferred compensation plans or arrangements or
(iii) any nonqualified defined contribution plans.
48
Our general policy is that our executive officers do not receive any executive ‘‘perquisites,’’ or any
other similar personal benefits that are different from what our salaried employees are entitled to
receive. We provide the named executive officers with certain group life, health, medical and other
non-cash benefits generally available to all salaried employees, which are not included in the ‘‘All Other
Compensation’’ column in the Summary Compensation Table pursuant to SEC rules. With the
exception of reimbursements of moving expenses received by Mr. Heinlein, the amounts shown in the
‘‘All Other Compensation’’ column solely consist of employer matching contributions to ION’s 401(k)
plan. Mr. Heinlein was hired in November 2011 as our Senior Vice President and Chief Financial
Officer and was reimbursed $103,302 for moving expenses incurred in 2013 and $65,805 for moving
expenses incurred in 2014.
2014 GRANTS OF PLAN-BASED AWARDS
Estimated Future Payouts
Under Non-Equity
Incentive Plan Awards(1)(2)
All Other
Stock Awards:
Number of
Shares of
Threshold Target Maximum Stock or Units
($)
($)
($)
Name
R. Brian Hanson . . . . .
Kenneth G. Williamson .
Colin T. Hulme . . . . . .
Steven A. Bate . . . . . .
Grant
Date
—
3/1/2014
— 412,500
—
—
— 93,080
—
3/1/2014
— 82,500
—
3/1/2014
— 77,250
—
—
3/1/2014
12/1/2014
223,392
—
165,000
—
154,500
—
—
825,000
—
372,320
—
330,000
—
309,000
—
—
Christopher T. Usher . . .
— 91,000
—
3/1/2014
182,000
—
364,000
—
Gregory J. Heinlein(6) . .
— 82,500
—
3/1/2014
165,000
—
330,000
—
(#)(3)
—
70,000
—
20,000
—
15,000
—
15,000
20,000
—
20,000
—
15,000
All Other
Option Awards:
Number of
Securities
Underlying
Options
(#)(4)
Grant Date
Exercise or Fair Value of
Base Price
of Option
Awards
($/Sh)
Stock and
Option
Awards
($)(5)
—
100,000
—
60,000
—
50,000
—
50,000
60,000
—
60,000
—
40,000
—
4.07
—
4.07
—
4.07
—
4.07
2.47
—
4.07
—
4.07
—
532,950
—
230,230
—
185,075
—
185,075
136,544
—
230,230
—
160,270
(1) Reflects the estimated threshold, target and maximum award amounts for payouts under our 2014 incentive plan to our
named executive officers. Under the plan, every participating executive other than Mr. Hanson, who served as our President
and Chief Executive Officer during 2014, had the opportunity to earn a maximum of 200% of his target depending on
performance of the company against the designated performance goal, and performance of the executive against personal
performance criteria. Under separate terms approved by the Compensation Committee and contained in his employment
agreement, Mr. Hanson participated in the plan with the potential to earn a target incentive payment of 75% of his base
salary, depending on achievement of the company’s target consolidated performance goal and pre-designated personal
critical success factors, and a maximum of 200% of his target upon achievement of the maximum consolidated performance
goal and the personal critical success factors. Mr. Hanson’s employment agreement does not specify that he will earn a
bonus upon achievement of a threshold consolidated performance goal. Because award determinations under the plan were
based in part on outcomes of personal evaluations of employee performance by our Chief Executive Officer and the
Compensation Committee, the computation of actual awards generated under the plan upon achievement of threshold and
target company performance criteria differed from the above estimates. See ‘‘—Compensation Discussion and Analysis—
Elements of Compensation—Bonus Incentive Plan’’ above. For actual payout amounts to our named executive officers under
our 2014 bonus incentive plan, see the ‘‘Non-Equity Incentive Plan Compensation’’ column in the ‘‘Summary Compensation
Table’’ above.
(2) Our company does not offer or sponsor any ‘‘equity incentive plans’’ (as that term is defined in Item 402(a) of
Regulation S-K) for employees.
(3) All stock awards granted on March 1, 2014 reflect the number of shares of restricted stock granted under our 2004 LTIP
and stock awards granted on December 1, 2014 reflect the number of shares of restricted stock granted under our 2013
LTIP. While unvested, a holder of restricted stock is entitled to the same voting rights as all other holders of common stock.
In each case, the awards of shares of restricted stock vest in one-third increments each year, over a three-year period.
(4) All stock option awards granted on March 1, 2014 reflect the number of shares issuable under options granted under our
2004 LTIP and stock option awards granted on December 1, 2014 reflect the number of shares issuable under options
granted under our 2013 LTIP. In each case, the options vest 25% each year over a four-year period. All of the exercise
49
prices for the options reflected in the above chart equal or exceed the fair market value per share of ION common stock
on the date of grant (on February 28, 2014, the last completed trading day prior to the March 1, 2014 grant date and on
November 28, 2014, the last completed trading day prior to the December 1, 2014 grant date, the closing price per share on
the NYSE was $4.07 and $2.47, respectively).
(5) The values contained in the table are based on the grant date fair value of the award computed in accordance with ASC
Topic 718 for financial statement reporting purposes, but exclude any impact of assumed forfeiture rates. For a discussion
of valuation assumptions, see Note 9, ‘‘Stockholders’ Equity and Stock-Based Compensation—Valuation Assumptions’’, in our
Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended
December 31, 2014.
(6) Mr. Heinlein ceased employment with ION on December 31, 2014, and all unvested stock options held by Mr. Heinlein
were forfeited effective as of such date. On December 31, 2014, Mr. Heinlein held unvested options to purchase a total
125,500 shares that were forfeited.
Employment Agreements
In recent years, we have not entered into employment agreements with employees other than our
Chief Executive Officer and Chief Financial Officer. We have generally entered into employment
agreements with employees only when the employee holds an executive officer position and we believe
that an employment agreement is desirable for us to obtain a measure of assurance as to the
executive’s continued employment in light of prevailing market competition for the particular position
held by the executive officer, or where we determine that an employment agreement is necessary and
appropriate to attract an executive in light of market conditions, the prior experience of the executive
or practices at ION with respect to other similarly situated employees.
The following discussion describes the material terms of our existing executive employment
agreements with our named executive officers:
R. Brian Hanson
In connection with his appointment as our President and Chief Executive Officer on January 1,
2012, Mr. Hanson entered into a new employment agreement. The agreement provides for Mr. Hanson
to serve as our President and Chief Executive Officer for an initial term of three years, with automatic
two-year renewals thereafter. Any change of control of our company after January 1, 2013 will cause
the remaining term of Mr. Hanson’s employment agreement to automatically adjust to a term of three
years, which will commence on the effective date of the change of control.
The agreement provides for Mr. Hanson to receive an initial base salary of $450,000 per year and
be eligible to receive an annual performance bonus under our incentive compensation plan, with a
target incentive plan bonus amount equal to 75% of his base salary and with a maximum incentive plan
bonus amount equal to 150% of his base salary.
Under the agreement, and as approved by the Compensation Committee, Mr. Hanson will be
entitled to receive grants of (i) options to purchase shares of our common stock and (ii) shares of our
restricted stock. Mr. Hanson will also be eligible to participate in other equity compensation plans that
are established for our key executives, as approved by the Compensation Committee. In the agreement,
we also agreed to indemnify Mr. Hanson to the fullest extent permitted by our Certificate of
Incorporation and Bylaws, and to provide him coverage under our directors’ and officers’ liability
insurance policies to the same extent as other company executives.
We may at any time terminate our employment agreement with Mr. Hanson for ‘‘Cause’’ if
Mr. Hanson (i) willfully and continuously fails to substantially perform his obligations, (ii) willfully
engages in conduct materially and demonstrably injurious to our property or business (including fraud,
misappropriation of funds or other property, other willful misconduct, gross negligence or conviction of
a felony or any crime involving moral turpitude) or (iii) commits a material breach of the agreement.
In addition, we may at any time terminate the agreement if Mr. Hanson suffers permanent and total
disability for a period of at least 180 consecutive days, or if Mr. Hanson dies. Mr. Hanson may
50
terminate his employment agreement for ‘‘Good Reason’’ if we breach any material provision of the
agreement, we assign to Mr. Hanson any duties materially inconsistent with his position, we materially
reduce his duties, functions, responsibilities, budgetary or other authority, or take other action that
results in a diminution in his office, position, duties, functions, responsibilities or authority, we relocate
his workplace by more than 50 miles, or we elect not to extend the term of his agreement.
In his agreement, Mr. Hanson agrees not to compete against us, assist any competitor, attempt to
solicit any of our suppliers or customers, or solicit any of our employees, in any case during his
employment and for a period of two years after his employment ends. The employment agreement also
contains provisions relating to protection of our confidential information and intellectual property. The
agreement does not contain any tax gross-up benefits.
For a discussion of the provisions of Mr. Hanson’s employment agreement regarding compensation
to Mr. Hanson in the event of a change of control affecting our company or his termination by us
without cause or by him for good reason, see ‘‘—Potential Payments Upon Termination or Change of
Control—R. Brian Hanson’’ below.
Steven A. Bate
In connection with his appointment as our Executive Vice President and Chief Financial Officer on
November 13, 2014, Mr. Bate entered into an employment agreement. The agreement provides for
Mr. Bate to serve as our Executive Vice President and Chief Financial Officer for an initial term of
three years, with automatic one-year renewals thereafter. Any change of control of our company after
November 13, 2015 will cause the remaining term of Mr. Bate’s employment agreement to
automatically adjust to a term of two years, which will commence on the effective date of the change of
control.
The agreement provides for Mr. Bate to receive an initial base salary of $375,000 per year and be
eligible to receive an annual performance bonus under our incentive compensation plan, with a target
incentive plan bonus amount equal to 50% of his base salary beginning in 2015.
Under the agreement, Mr. Bate will be entitled to receive grants of (i) options to purchase shares
of our common stock and (ii) shares of our restricted stock. Mr. Bate will also be eligible to participate
in other equity compensation plans that are established for our key executives, as approved by the
Compensation Committee. In the agreement, we also agreed to indemnify Mr. Bate to the fullest
extent permitted by our Certificate of Incorporation and Bylaws, and to provide him coverage under
our directors’ and officers’ liability insurance policies to the same extent as other company executives.
We may at any time terminate our employment agreement with Mr. Bate for ‘‘Cause’’ if Mr. Bate
(i) willfully and continuously fails to substantially perform his obligations, (ii) willfully engages in
conduct materially and demonstrably injurious to our property or business (including fraud,
misappropriation of funds or other property, other willful misconduct, gross negligence or conviction of
a felony or any crime involving moral turpitude) or (iii) commits a material breach of the agreement.
In addition, we may at any time terminate the agreement if Mr. Bate suffers permanent and total
disability for a period of at least 180 consecutive days, or if Mr. Bate dies. Mr. Bate may terminate his
employment agreement for ‘‘Good Reason’’ if we breach any material provision of the agreement, we
assign to Mr. Bate any duties materially inconsistent with his position, we materially reduce his duties,
functions, responsibilities, budgetary or other authority, or take other action that results in a diminution
in his office, position, duties, functions, responsibilities or authority, or we relocate his workplace by
more than 50 miles.
In his agreement, Mr. Bate agrees not to compete against us, assist any competitor, attempt to
solicit any of our suppliers or customers, or solicit any of our employees, in any case during his
51
employment and for a period of twelve months after his employment ends. The employment agreement
also contains provisions relating to protection of our confidential information and intellectual property.
For a discussion of the provisions of Mr. Bate’s employment agreement regarding compensation to
Mr. Bate in the event of a change of control affecting our company or his termination by us without
cause or by him for good reason, see ‘‘—Potential Payments Upon Termination or Change of Control—
Steven A. Bate’’ below.
52
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
The following table sets forth information concerning unexercised stock options (including
outstanding stock appreciation rights, or SARs) and shares of restricted stock held by our named
executive officers at December 31, 2014:
Option Awards(1)
Stock Awards(2)
Name
R. Brian Hanson . . . . . . . . . . . . . . .
Kenneth G. Williamson . . . . . . . . . . .
Colin T. Hulme . . . . . . . . . . . . . . . .
Steven A. Bate . . . . . . . . . . . . . . . . .
Christopher T. Usher . . . . . . . . . . . . .
Gregory J. Heinlein(5)
. . . . . . . . . . .
Number of
Securities
Underlying
Unexercised
Options
(#)
Exercisable
Number of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable
Option
Exercise
Price
($)
75,000
20,000
60,000
17,500
140,000(4)
187,500
37,500
25,000
—
—
—
—
—
—
62,500
37,500
75,000
100,000
70,000
16,000
35,000
50,000
22,000
75,000
35,000
37,500
25,000
15,000
—
25,000
15,000
12,500
—
12,500
75,000
8,750
—
—
25,000
15,000
—
129,000
12,500
10,000
—
—
—
—
—
—
—
—
12,500
25,000
45,000
60,000
25,000
15,000
37,500
50,000
37,500
—
26,250
50,000
60,000
25,000
45,000
60,000
43,000
12,500
30,000
40,000
8.73
9.97
15.43
3.00
3.00
7.07
5.96
3.86
4.07
10.85
15.43
3.00
2.83
5.44
4.58
7.19
5.81
5.96
3.86
4.07
6.06
5.96
3.86
4.07
6.39
6.39
3.86
4.07
2.47
5.96
3.86
4.07
5.81
5.96
3.86
4.07
Option
Expiration
Date
5/22/2016
9/1/2016
12/1/2017
12/1/2018
12/1/2018
9/1/2021
12/1/2022
12/1/2023
3/1/2024
12/1/2016
12/1/2017
12/1/2018
6/1/2019
12/1/2019
3/1/2020
12/1/2020
12/1/2021
12/1/2022
12/1/2023
3/1/2024
6/1/2022
12/1/2022
12/1/2023
3/1/2024
6/1/2023
6/1/2023
12/1/2023
3/1/2024
12/1/2024
12/1/2022
12/1/2023
3/1/2024
12/1/2021
12/1/2022
12/1/2023
3/1/2024
Number
of Shares
or Units
of Stock
That
Have Not
Vested
(#)
Market
Value of
Shares or
Units of
Stock That
Have Not
Vested
($)(3)
125,000
343,750
38,332
105,413
34,999
96,247
58,332
160,413
49,998
137,495
26,666
73,332
(1) All stock option information in this table relates to nonqualified stock options granted under either our 2004
LTIP or 2013 LTIP. All of the unvested options in this table vest 25% each year over a four-year period.
53
(2) The amounts shown represent shares of restricted stock granted under either our 2004 LTIP or 2013 LTIP.
While unvested, the holder is entitled to the same voting rights as all other holders of common stock. All of
the restricted stock awards vest in one-third increments each year, over a three-year period.
(3) Pursuant to SEC rules, the market value of each executive’s shares of unvested restricted stock was calculated
by multiplying the number of shares by $2.75 (the closing price per share of our common stock on the NYSE
on December 31, 2014).
(4) The amounts shown reflect awards of cash-settled SARs granted to Mr. Hanson on December 1, 2008 under
our Stock Appreciation Rights Plan. Mr. Hanson’s SARs vested in full on December 1, 2011. See
‘‘—Summary Compensation Table—Discussion of Summary Compensation Table’’ above.
(5) Mr. Heinlein’s employment with ION ended on December 31, 2014. As a result of the termination of his
employment, Mr. Heinlein forfeited 26,666 shares of restricted stock and unvested options to purchase
125,500 shares of common stock.
(6) We do not have outstanding any Equity Incentive Plan Awards as defined by the SEC rules. As a result, the
above table omits the following columns:
(cid:129) Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options
(cid:129) Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested
(cid:129) Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That
Have Not Vested
2014 OPTION EXERCISES AND STOCK VESTED
The following table sets forth certain information with respect to option and stock exercises by the
named executive officers during the year ended December 31, 2014:
Name
Option Awards
Stock Awards
Number of
Shares
Acquired on
Exercise (#)
Value
Realized on
Exercise ($)
Number of
Shares
Acquired on
Vesting (#)
Value
Realized on
Vesting ($)(1)
R. Brian Hanson(2) . . . . . . . . . . . . . . . . . . . . . . . .
Kenneth G. Williamson(3) . . . . . . . . . . . . . . . . . . .
Colin T. Hulme(4) . . . . . . . . . . . . . . . . . . . . . . . . .
Steven A. Bate(5) . . . . . . . . . . . . . . . . . . . . . . . . .
Christopher T. Usher(6) . . . . . . . . . . . . . . . . . . . . .
Gregory J. Heinlein(7) . . . . . . . . . . . . . . . . . . . . . .
—
—
—
—
—
—
—
—
—
—
—
—
87,561
16,668
14,999
11,668
23,334
16,232
295,126
43,670
48,696
42,321
61,135
42,528
(1) The values realized upon vesting of stock awards contained in the table are based on the market
value of our common stock on the date of vesting.
(2) The value realized by Mr. Hanson on the vesting of his restricted stock awards was calculated by
multiplying (a) 38,561 shares by $4.11 (the closing price per share of our common stock on the
NYSE on March 3, 2014, the first NYSE trading date after his March 1, 2014 vesting date);
(b) 14,000 shares by $3.21 (the closing price per share of our common stock on the NYSE on
September 2, 2014, the first NYSE trading date after his September 1, 2014 vesting date and
(c) 35,000 shares by $2.62 (the closing price per share of our common stock on the NYSE on the
December 1, 2014 vesting date).
(3) The value realized by Mr. Williamson on the vesting of his restricted stock awards was calculated
by multiplying 16,668 shares by $2.62 (the closing price per share of our common stock on the
NYSE on the December 1, 2014 vesting date).
54
(4) The value realized by Mr. Hulme on the vesting of his restricted stock awards was calculated by
multiplying (a) 6,666 shares by $4.03 (the closing price per share of our common stock on the
NYSE on June 2, 2014, the first NYSE trading date after his June 1, 2014 vesting date) and
(b) 8,333 shares by $2.62 (the closing price per share of our common stock on the NYSE on the
December 1, 2014 vesting date).
(5) The value realized by Mr. Bate on the vesting of his restricted stock awards was calculated by
multiplying (a) 8,334 shares by $4.03 (the closing price per share of our common stock on the
NYSE on June 2, 2014, the first NYSE trading date after his June 1, 2014 vesting date) and
(b) 3,334 shares by $2.62 (the closing price per share of our common stock on the NYSE on the
December 1, 2014 vesting date).
(6) The value realized by Mr. Usher on the vesting of his restricted stock awards was calculated by
multiplying 23,334 shares by $2.62 (the closing price per share of our common stock on the NYSE
on the December 1, 2014 vesting date).
(7) The value realized by Mr. Heinlein on the vesting of his restricted stock awards was calculated by
multiplying 16,232 shares by $2.62 (the closing price per share of our common stock on the NYSE
on the December 1, 2014 vesting date).
Potential Payments Upon Termination or Change of Control
Under the terms of our equity-based compensation plans and our employment agreements, our
Chief Executive Officer and certain of our other named executive officers are entitled to payments and
benefits upon the occurrence of specified events including termination of employment (with and
without cause) and upon a change in control of our company. The specific terms of these
arrangements, as well as an estimate of the compensation that would have been payable had they been
triggered as of December 31, 2014, are described in detail below. In the case of each employment
agreement, the terms of these arrangements were established through the course of arms-length
negotiations with each executive officer, both at the time of hire and at the times of any later
amendment. As part of these negotiations, the Compensation Committee analyzed the terms of the
same or similar arrangements for comparable executives employed by companies in our industry group.
This approach was used by the committee in setting the amounts payable and the triggering events
under the arrangements. The termination of employment provisions of the employment agreements
were entered into in order to address competitive concerns by providing those individuals with a fixed
amount of compensation that would offset the potential risk of leaving their prior employer or
foregoing other opportunities in order to join our company. At the time of entering into these
arrangements, the committee considered the aggregate potential obligations of our company in the
context of the desirability of hiring the individual and the expected compensation upon joining us.
However, these contractual severance and post-termination arrangements have not affected the
decisions the committee has made regarding other compensation elements and the rationale for
compensation decisions made in connection with these arrangements.
The following summaries set forth estimated potential payments payable to each of our named
executive officers upon termination of employment or a change of control of our company under their
current employment agreements and our stock plans and other compensation programs as if his
employment had so terminated for these reasons, or the change of control had so occurred, on
December 31, 2014. The Compensation Committee may, in its discretion, agree to revise, amend or add
to the benefits if it deems advisable. For purposes of the following summaries, dollar amounts are
estimates based on annual base salary as of December 31, 2014, benefits paid to the named executive
officer in fiscal 2014 and stock and option holdings of the named executive officer as of December 31,
2014. The summaries assume a price per share of ION common stock of $2.75 per share, which was the
closing price per share on December 31, 2014, as reported on the NYSE. The actual amounts to be
55
paid to the named executive officers can only be determined at the time of each executive’s separation
from the company.
The amounts of potential future payments and benefits as set forth in the tables below, and the
descriptions of the assumptions upon which such future payments and benefits are based and derived,
may constitute ‘‘forward-looking statements’’ within the meaning of the Private Securities Litigation
Reform Act of 1995. These statements are estimates of payments and benefits to certain of our
executives upon their termination of employment or a change in control, and actual payments and
benefits may vary materially from these estimates. Actual amounts can only be determined at the time
of such executive’s actual separation from our company or the time of such change in control event.
Factors that could affect these amounts and assumptions include the timing during the year of any such
event, the company’s stock price, unforeseen future changes in our company’s benefits and
compensation methodology and the age of the executive.
R. Brian Hanson
Termination and Change of Control. Mr. Hanson is entitled to certain benefits under his
employment agreement upon the occurrence of any of the following events:
(cid:129) we terminate his employment other than for cause, death or disability;
(cid:129) Mr. Hanson resigns for ‘‘good reason’’; or
(cid:129) a ‘‘change in control’’ involving our company occurs and, within 12 months following the change
in control, (a) we or our successor terminate Mr. Hanson’s employment or (b) Mr. Hanson
terminates his employment after we or our successor (i) elect not to extend the term of his
employment agreement, (ii) assign to Mr. Hanson duties inconsistent with his CEO position,
duties, functions, responsibilities, authority or reporting relationship to the Board under his
employment agreement, (iii) become a privately-owned company as a result of a transaction in
which Mr. Hanson does not participate within the acquiring group, (iv) are rendered a subsidiary
or division or other unit of another company; or (v) take any action that would constitute ‘‘good
reason’’ under his employment agreement.
Under Mr. Hanson’s employment agreement, a ‘‘change in control’’ occurs upon any of the
following (which we refer to in this section as an ‘‘Employment Agreement Change of Control’’):
(1) the acquisition by a person or group of beneficial ownership of 40% or more of our
outstanding shares of common stock other than any acquisitions directly from ION,
acquisitions by ION or an employee benefit plan maintained by ION, or certain permitted
acquisitions in connection with a ‘‘Merger’’ (as defined in sub-paragraph (3) below);
(2) changes in directors on our board of directors such that the individuals that constitute the
entire board cease to constitute at least a majority of directors of the board, other than new
directors whose appointment or nomination for election was approved by a vote of at least a
majority of the directors then constituting the entire board of directors (except in the case of
election contests);
(3) consummation of a ‘‘Merger’’—that is, a reorganization, merger, consolidation or similar
business combination involving ION—unless (i) owners of ION common stock immediately
following such business combination together own more than 50% of the total outstanding
stock or voting power of the entity resulting from the business combination in substantially the
same proportion as their ownership of ION voting securities immediately prior to such Merger
and (ii) at least a majority of the members of the board of directors of the corporation
resulting from such Merger (or its parent corporation) were members of our board at the time
of the execution of the initial agreement providing for the Merger; or
(4) the sale or other disposition of all or substantially all of our assets.
56
Upon the occurrence of any of the above events and conditions, Mr. Hanson would be entitled to
receive the following (less applicable withholding taxes and subject to compliance with non-compete,
non-solicit and no-hire obligations):
(cid:129) over a two-year period, a cash amount equal to two times his annual base salary and two times
his target bonus amount in effect for the year of termination;
(cid:129) a prorated portion of any unpaid target incentive plan bonus for the year of termination; and
(cid:129) continuation of insurance coverage for Mr. Hanson as of the date of his termination for a period
of two years at the same cost to him as prior to the termination.
In addition, upon the occurrence of any of the above events or conditions, the vesting period for
all of Mr. Hanson’s unvested equity awards granted on or after January 1, 2012 having a remaining
vesting period of two years or less as of the date of termination will immediately accelerate to vest in
full. In such event, all restrictions on the awards will thereupon be immediately lifted and the exercise
period of all outstanding vested stock options (including the option awards that have been so
accelerated) granted on or after January 1, 2012 will continue in effect until the earlier of (a) two years
after the date of termination or (b) the expiration of the full original term, as specified in each
applicable stock option agreement.
Change of Control Under Equity Compensation Plans. Mr. Hanson and our other named executive
officers currently hold outstanding awards under one or more of the following three equity
compensation plans: our 2004 LTIP, 2013 LTIP and our Stock Appreciation Rights Plan. Under these
plans, a ‘‘change of control’’ will be deemed to have occurred upon any of the following (which we
refer to in this section as a ‘‘Plan Change of Control’’):
(1) the acquisition by a person or group of beneficial ownership of 40% or more of the
outstanding shares of common stock other than acquisitions directly from ION, acquisitions by
ION or an employee benefit plan maintained by ION, or certain permitted acquisitions in
connection with a business combination described in sub-paragraph (3) below;
(2) changes in directors such that the individuals that constitute the entire board of directors
cease to constitute at least a majority of directors of the board, other than new directors
whose appointment or nomination for election was approved by a vote of at least a majority
of the directors then constituting the entire board of directors (except in the case of election
contests);
(3) consummation of a reorganization, merger, consolidation or similar business combination
involving ION, unless (i) owners of our common stock immediately following such transaction
together own more than 50% of the total outstanding stock or voting power of the entity
resulting from the transaction and (ii) at least a majority of the members of the board of
directors of the entity resulting from the transaction were members of our board of directors
at the time the agreement for the transaction is signed; or
(4) the sale of all or substantially all of our assets.
Upon any such ‘‘Plan Change of Control,’’ all of Mr. Hanson’s stock options granted to him under
the 2004 LTIP or the 2013 LTIP will become fully exercisable, and all restricted stock awards granted
to him under the 2004 LTIP or the 2013 LTIP will automatically accelerate and become fully vested. In
addition, any change of control of our company will cause the remaining term of Mr. Hanson’s
employment agreement to automatically adjust to two years, commencing on the effective date of the
change of control.
57
We believe the double-trigger change-of-control benefit referenced above maximizes stockholder
value because it motivates Mr. Hanson to remain in his position for a sufficient period of time
following a change of control to ensure a smoother integration and transition for the new owners.
Given his experience with our company and within the seismic industry as our CFO and CEO, we
believe Mr. Hanson’s severance structure is in our best interest because it ensures that for a two-year
period after leaving our employment, Mr. Hanson will not be in a position to compete against us or
otherwise adversely affect our business.
Death, Disability or Retirement. Upon his death or disability, all options and restricted stock that
Mr. Hanson holds would automatically accelerate and become fully vested. Upon his retirement, all
options that Mr. Hanson holds would automatically accelerate and become fully vested. No shares of
restricted stock held by Mr. Hanson would automatically accelerate and become fully vested upon his
retirement.
Termination by Us for Cause or by Mr. Hanson Other Than for Good Reason. Upon any
termination by us for cause or any resignation by Mr. Hanson for any reason other than for ‘‘good
reason’’ (as defined in his employment agreement), Mr. Hanson is not entitled to any payment or
benefit other than the payment of unpaid salary and possibly accrued and unused vacation pay.
Mr. Hanson’s currently-held vested stock options and SARs will remain exercisable after his
termination of employment, death, disability or retirement for periods of between three months and
one year following such event, depending on the event and the terms of the applicable plan and grant
agreement. If Mr. Hanson is terminated for cause, all of his vested and unvested stock options and
unvested restricted stock will be immediately forfeited. We have not agreed to provide Mr. Hanson any
additional payments in the event any payment or benefit under his employment agreement is
determined to be subject to the excise tax for ‘‘excess parachute payments’’ under U.S. federal income
tax rules, or any other ‘‘tax gross-ups’’ under this employment agreement.
Assuming Mr. Hanson’s employment was terminated under each of these circumstances or a
change of control occurred on December 31, 2014, his payments and benefits would have an estimated
value as follows (less applicable withholding taxes):
Scenario
Without Cause or For Good Reason . .
Termination after change in control
. . .
Change of Control (if not terminated),
Death or Disability . . . . . . . . . . . . .
Retirement . . . . . . . . . . . . . . . . . . . . .
Voluntary Termination . . . . . . . . . . . . .
Cash
Severance
($)(1)
Bonus
($)(2)
1,100,000
1,100,000
825,000
825,000
—
—
—
—
—
—
Insurance
Tax
Continuation Gross-Ups
($)(3)
35,840
35,840
—
—
—
($)
—
—
—
—
—
Value of
Accelerated Equity
Awards ($)(4)
—
343,750
343,750
—
—
(1) Payable over a two-year period. In addition to the listed amounts, if Mr. Hanson resigns or his
employment is terminated for any reason, he may be paid for his unused vacation days.
Mr. Hanson is currently entitled to 20 vacation days per year. The above table assumes that there
is no earned but unpaid base salary as of the time of termination.
(2) Represents two times the estimate of the target bonus payment Mr. Hanson would be entitled to
receive pursuant to our 2014 bonus incentive plan. The actual bonus payment he would be entitled
to receive upon his termination may be different from the estimated amount, depending on the
achievement of payment criteria under the bonus plan.
(3) The value of insurance continuation contained in the above table is the total cost of COBRA
continuation coverage for Mr. Hanson, maintaining his same levels of medical, dental and other
58
insurance as in effect on December 31, 2014, less the amount of premiums to be paid by
Mr. Hanson for such coverage.
(4) As of December 31, 2014, Mr. Hanson held 125,000 unvested shares of restricted stock and
unvested stock options to purchase 275,000 shares of common stock. The options held by
Mr. Hanson had an exercise price greater than $2.75, therefore, these options were calculated as
having a zero value. The value of the restricted stock that would accelerate and fully vest in the
event of a Change in Control, death or disability was calculated by multiplying 125,000 shares by
$2.75.
Kenneth G. Williamson
Mr. Williamson is not entitled to receive any contractual severance pay if we terminate his
employment without cause. Upon a ‘‘Plan Change of Control’’ (see ‘‘—R. Brian Hanson—Change of
Control Under Equity Compensation Plans’’ above), all of his unvested stock options granted to him
under the 2004 LTIP or the 2013 LTIP will become fully exercisable and all restricted stock awards
granted to him under the 2004 LTIP or the 2013 LTIP will automatically accelerate and become fully
vested. Upon his death or disability, all options and restricted stock that Mr. Williamson holds would
automatically accelerate and become fully vested. Upon his retirement, all options that Mr. Williamson
holds would automatically accelerate and become fully vested. No shares of restricted stock held by
Mr. Williamson would automatically accelerate and become fully vested upon his retirement.
The vested stock options held by Mr. Williamson will remain exercisable after his termination of
employment, death, disability or retirement for periods of between three months and one year
following such event, depending on the event and the terms of the applicable stock plan and grant
agreement. If Mr. Williamson is terminated for cause, all of his vested and unvested stock options and
unvested restricted stock will be immediately forfeited.
Assuming his employment was terminated under each of these circumstances or a change of
control occurred on December 31, 2014, his payments and benefits would have an estimated value as
follows (less applicable withholding taxes):
Scenario
Cash
Severance ($)(1)
Value of Accelerated
Equity Awards ($)(2)
Without Cause . . . . . . . . . . . . . . . . . . . . . . . . . .
Change of Control (regardless of termination),
Death or Disability . . . . . . . . . . . . . . . . . . . . .
Retirement
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Voluntary Termination . . . . . . . . . . . . . . . . . . . .
—
—
—
—
—
105,413
—
—
(1) If Mr. Williamson resigns or his employment is terminated for any reason, he may be
paid for his unused vacation days. Mr. Williamson is currently entitled to 20 vacation days
per year. The above table assumes that there is no earned but unpaid base salary as of
the time of termination.
(2) As of December 31, 2014, Mr. Williamson held 38,332 unvested shares of restricted stock
and unvested stock options to purchase 142,500 shares of common stock. The options
held by Mr. Williamson had an exercise price greater than $2.75, therefore, these options
were calculated as having a zero value. The value of the restricted stock that would
accelerate and fully vest in the event of a Change in Control, death or disability was
calculated by multiplying 38,332 shares by $2.75.
59
Colin T. Hulme
Mr. Hulme is not entitled to receive any contractual severance pay if we terminate his employment
without cause. Upon a ‘‘Plan Change of Control’’ (see ‘‘—R. Brian Hanson—Change of Control Under
Equity Compensation Plans’’ above), all of his unvested stock options granted to him under the 2004
LTIP or the 2013 LTIP will become fully exercisable and all restricted stock awards granted to him
under the 2004 LTIP or the 2013 LTIP will automatically accelerate and become fully vested. Upon his
death or disability, all options and restricted stock that Mr. Hulme holds would automatically accelerate
and become fully vested.
Upon his retirement, all options that Mr. Hulme holds would automatically accelerate and become
fully vested. No shares of restricted stock held by Mr. Hulme would automatically accelerate and
become fully vested upon his retirement. The vested stock options held by Mr. Hulme will remain
exercisable after his termination of employment, death, disability or retirement for periods of between
three months days and one year following such event, depending on the event and the terms of the
applicable stock plan and grant agreement. If Mr. Hulme is terminated for cause, all of his vested and
unvested stock options and unvested restricted stock will be immediately forfeited.
Assuming his employment was terminated under each of these circumstances or a change of
control occurred on December 31, 2014, his payments and benefits would have an estimated value as
follows (less applicable withholding taxes):
Scenario
Cash
Severance ($)(1)
Value of Accelerated
Equity Awards ($)(2)
Without Cause . . . . . . . . . . . . . . . . . . . . . . . . . .
Change of Control (regardless of termination),
Death or Disability . . . . . . . . . . . . . . . . . . . . .
Retirement
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Voluntary Termination . . . . . . . . . . . . . . . . . . . .
—
—
—
—
—
96,247
—
—
(1) If Mr. Hulme resigns or his employment is terminated for any reason, he may be paid for
his unused vacation days. Mr. Hulme is currently entitled to 20 vacation days per year.
The above table assumes that there is no earned but unpaid base salary as of the time of
termination.
(2) As of December 31, 2014, Mr. Hulme held 34,999 unvested shares of restricted stock and
unvested stock options to purchase 127,500 shares of common stock. The options held by
Mr. Hulme had an exercise price greater than $2.75, therefore, these options were
calculated as having a zero value. The value of the restricted stock that would accelerate
and fully vest in the event of a Change in Control, death or disability was calculated by
multiplying 34,999 shares by $2.75.
Steven A. Bate
Termination and Change of Control. Mr. Bate is entitled to certain benefits under his employment
agreement upon the occurrence of any of the following events:
(cid:129) we terminate his employment other than for cause, death or disability;
(cid:129) Mr. Bate resigns for ‘‘good reason’’; or
(cid:129) an ‘‘Employment Agreement Change of Control’’ (see ‘‘—R. Brian Hanson—Termination and
Change of Control’’ above) involving our company occurs and, within 12 months following the
change in control, (a) we or our successor terminate Mr. Bate’s employment or (b) Mr. Bate
terminates his employment after we or our successor (i) elect not to extend the term of his
60
employment agreement, (ii) assign to Mr. Bate duties inconsistent with his CFO position, duties,
functions, responsibilities, authority or reporting relationship to the Board under his employment
agreement, (iii) become a privately-owned company as a result of a transaction in which
Mr. Bate does not participate within the acquiring group, (iv) are rendered a subsidiary or
division or other unit of another company; or (v) take any action that would constitute ‘‘good
reason’’ under his employment agreement.
Upon the occurrence of any of the above events and conditions, Mr. Bate would be entitled to
receive the following (less applicable withholding taxes and subject to compliance with non-compete,
non-solicit and no-hire obligations):
(cid:129) over a two-year period, a cash amount equal to two times his annual base salary in effect for the
year of termination;
(cid:129) a prorated portion of any unpaid target incentive plan bonus for the year of termination; and
(cid:129) continuation of insurance coverage for Mr. Bate as of the date of his termination for a period of
eighteen months at the same cost to him as prior to the termination.
Change of Control Under Equity Compensation Plans.
Upon a ‘‘Plan Change of Control’’, (see ‘‘—R. Brian Hanson—Change of Control Under Equity
Compensation Plans’’ above), all of Mr. Bate’s stock options granted to him under the 2004 LTIP or the
2013 LTIP will become fully exercisable, and all restricted stock awards granted to him under the 2004
LTIP or the 2013 LTIP will automatically accelerate and become fully vested. In addition, any change
of control of our company will cause the remaining term of Mr. Bate’s employment agreement to
automatically adjust to two years, commencing on the effective date of the change of control.
Upon his death or disability, all options and restricted stock that Mr. Bate holds would
automatically accelerate and become fully vested. Upon his retirement, all options that Mr. Bate holds
would automatically accelerate and become fully vested. No shares of restricted stock held by Mr. Bate
would automatically accelerate and become fully vested upon his retirement.
Upon any termination by us for cause or any resignation by Mr. Bate for any reason other than for
‘‘good reason’’ (as defined in his employment agreement), Mr. Bate is not entitled to any payment or
benefit other than the payment of unpaid salary and possibly accrued and unused vacation pay.
Mr. Bate’s currently-held vested stock options will remain exercisable after his termination of
employment, death, disability or retirement for periods of between three months and one year
following such event, depending on the event and the terms of the applicable plan and grant
agreement. If Mr. Bate is terminated for cause, all of his vested and unvested stock options and
unvested restricted stock will be immediately forfeited.
61
Assuming Mr. Bate employment was terminated under each of these circumstances or a change of
control occurred on December 31, 2014, his payments and benefits would have an estimated value as
follows (less applicable withholding taxes):
Scenario
Cash
Severance
($)(1)
Bonus
($)(2)
Insurance
Continuation
($)(3)
Value of
Accelerated Equity
Awards ($)(4)
Without Cause or For Good Reason . . . . . . . . . . . . .
Termination after change in control . . . . . . . . . . . . . .
Change of Control (if not terminated), Death or
Disability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retirement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Voluntary Termination . . . . . . . . . . . . . . . . . . . . . . . .
750,000 —
750,000 —
18,755
18,755
— —
— —
— —
—
—
—
—
177,213
177,213
16,800
—
(1) Payable over a two-year period. In addition to the listed amounts, if Mr. Bate resigns or his
employment is terminated for any reason, he may be paid for his unused vacation days. Mr. Bate
is currently entitled to 20 vacation days per year. The above table assumes that there is no earned
but unpaid base salary as of the time of termination.
(2) The actual bonus payment he would be entitled to receive upon his termination may be different
from the estimated amount, depending on the achievement of payment criteria under the bonus
plan.
(3) The value of insurance continuation contained in the above table is the total cost of COBRA
continuation coverage for Mr. Bate, maintaining his same levels of medical, dental and other
insurance as in effect on December 31, 2014, less the amount of premiums to be paid by Mr. Bate
for such coverage.
(4) As of December 31, 2014, Mr. Bate held 58,332 unvested shares of restricted stock and unvested
stock options to purchase 173,750 shares of common stock. The value of the accelerated unvested
options was calculated by multiplying the 60,000 shares underlying Mr. Bate’s unvested options by
$2.75 (the closing price on December 31, 2014) and then deducting the exercise price for these
shares of $2.47 per share. Other unvested options held by him had an exercise price greater than
$2.75; thus, these options were calculated as having a zero value. The value of the restricted stock
that would accelerate and fully vest in the event of a Change in Control, death or disability was
calculated by multiplying 58,332 shares by $2.75.
Christopher T. Usher
Mr. Usher is not entitled to receive any contractual severance pay if we terminate his employment
without cause. Upon a ‘‘Plan Change of Control’’ (see ‘‘—R. Brian Hanson—Change of Control Under
Equity Compensation Plans’’ above), all of his unvested stock options granted to him under the 2004
LTIP or the 2013 LTIP will become fully exercisable and all restricted stock awards granted to him
under the 2004 LTIP or the 2013 LTIP will automatically accelerate and become fully vested. Upon his
death or disability, all options and restricted stock that Mr. Usher holds would automatically accelerate
and become fully vested. Upon his retirement, all options that Mr. Usher holds would automatically
accelerate and become fully vested. No shares of restricted stock held by Mr. Usher would
automatically accelerate and become fully vested upon his retirement.
The vested stock options held by Mr. Usher will remain exercisable after his termination of
employment, death, disability or retirement for periods of between three months and one year
following such event, depending on the event and the terms of the applicable stock plan and grant
agreement. If Mr. Usher is terminated for cause, all of his vested and unvested stock options and
unvested restricted stock will be immediately forfeited.
62
Assuming his employment was terminated under each of these circumstances or a change of
control occurred on December 31, 2014, his payments and benefits would have an estimated value as
follows (less applicable withholding taxes):
Scenario
Cash
Severance ($)(1)
Value of Accelerated
Equity Awards ($)(2)
Without Cause . . . . . . . . . . . . . . . . . . . . . . . . . .
Change of Control (regardless of termination),
Death or Disability . . . . . . . . . . . . . . . . . . . . .
Retirement
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Voluntary Termination . . . . . . . . . . . . . . . . . . . .
—
—
—
—
—
137,495
—
—
(1) If Mr. Usher resigns or his employment is terminated for any reason, he may be paid for
his unused vacation days. Mr. Usher is currently entitled to 20 vacation days per year.
The above table assumes that there is no earned but unpaid base salary as of the time of
termination.
(2) As of December 31, 2014, Mr. Usher held 49,998 unvested shares of restricted stock and
unvested stock options to purchase 130,000 shares of common stock. The options held by
Mr. Usher had an exercise price greater than $2.75, therefore, these options were
calculated as having a zero value. The value of the restricted stock that would accelerate
and fully vest in the event of a Change in Control, death or disability was calculated by
multiplying 49,998 shares by $2.75.
2014 Pension Benefits And Nonqualified Deferred Compensation
None of our named executive officers participates or has account balances in (i) any qualified or
non-qualified defined benefit plans or (ii) any non-qualified defined contribution plans or other
deferred compensation plans maintained by us.
63
Equity Compensation Plan Information
(as of December 31, 2014)
The following table provides certain information regarding our equity compensation plans under
which equity securities are authorized for issuance, categorized by (i) the equity compensation plans
previously approved by our stockholders and (ii) the equity compensation plans not previously
approved by our stockholders:
Number of Securities
to be Issued
Upon Exercise
Weighted-Average
Exercise Price of
Outstanding
of Outstanding Options, Options, Warrants
Warrants and Rights
(a)
and Rights
(b)
Number of Securities
Remaining Available for
Future Issuance Under
Equity Compensation
Plans (Excluding
Securities Reflected
in Column (a))
(c)
Plan Category
Equity Compensation Plans Approved by
Stockholders
Amended and Restated 1996
Non-Employee Director Stock
Option Plan . . . . . . . . . . . . . . . . . .
2003 Stock Option Plan . . . . . . . . . . . .
2004 Long-Term Incentive Plan (‘‘2004
37,500
40,000
LTIP’’) . . . . . . . . . . . . . . . . . . . . . .
7,874,075
2013 Long-Term Incentive Plan (‘‘2013
LTIP’’) . . . . . . . . . . . . . . . . . . . . . .
2010 Employee Stock Purchase Plan . .
921,450
—
Subtotal . . . . . . . . . . . . . . . . . . . . . . .
8,873,025
Equity Compensation Plans Not
Approved by Stockholders
ARAM Systems Employee Inducement
Stock Option Program . . . . . . . . . . .
Subtotal . . . . . . . . . . . . . . . . . . . . . . .
113,000
113,000
Total . . . . . . . . . . . . . . . . . . . . . . . . . . .
8,986,025
$ 7.76
$13.00
$ 6.44
$ 3.86
—
$14.10
—
—
—
2,752,050
928,924
3,680,974
—
—
3,680,974
Following is a brief description of the material terms of the equity compensation plan that was not
approved by our stockholders:
ION Geophysical Corporation—ARAM Systems Employee Inducement Stock Option Program.
In
connection with our acquisition of all of the capital stock of ARAM Systems, Ltd and its affiliates in
September 2008, we entered into employment inducement stock option agreements with 48 key
employees of ARAM as material inducements to their joining ION. The terms of these stock options
are for 10 years, and the options become exercisable in four equal installments each year with respect
to 25% of the shares each on the first, second, third and fourth consecutive anniversary dates of the
date of grant. The options may be sooner exercised upon the occurrence of a ‘‘change of control’’ of
ION. The number of shares of common stock covered by each option is subject to adjustment to
prevent dilution resulting from stock dividends, stock splits, recapitalizations or similar transactions.
A description of our Stock Appreciation Rights Plan has not been provided in this sub-section
because awards of SARs made under that plan may be settled only in cash.
64
ITEM 2—ADVISORY (NON-BINDING) VOTE TO APPROVE EXECUTIVE COMPENSATION
As required by Section 14A of the Exchange Act, we are asking our stockholders to approve, on
an advisory basis, the compensation of our named executive officers as we have described it in the
‘‘Executive Compensation’’ section of this proxy statement. This advisory vote is sometimes referred to
as ‘‘Say on Pay.’’ While this vote is not binding on our company, management and the Compensation
Committee will review the voting results for purposes of obtaining information regarding investor
sentiment about our executive compensation philosophy, policies and practices. If there are a significant
number of negative votes, we will seek to understand the concerns that influenced the negative votes,
and consider them in making decisions about our executive compensation programs in the future. At
our 2014 Annual Meeting, our stockholders approved our non-binding advisory vote to approve the
compensation of our named executive officers, with more than 98% of the votes cast on the proposal
voting in favor of its approval.
We believe that the information we have provided within the Executive Compensation section of
this proxy statement demonstrates that our executive compensation program is designed appropriately
and is working to ensure management’s interests are aligned with our stockholders’ interests to support
long-term value creation. As described above in detail under ‘‘Compensation Discussion and Analysis,’’
our compensation program reflects a balance of short-term incentives (including performance-based
cash bonus awards), long-term incentives (including equity awards that vest over up to four years), and
protective measures, such as clawback and anti-hedging policies and stock ownership guidelines, that
are designed to support our long-term business strategies and drive creation of stockholder value. We
believe that our program is (i) aligned with the competitive market for talent, (ii) sensitive to our
financial performance and (iii) oriented to long-term incentives, in order to maintain and improve our
long-term profitability. We believe our program delivers reasonable pay that is strongly linked to our
performance over time relative to peer companies and rewards sustained performance that is aligned
with long-term stockholder interests. Our executive compensation program is also designed to attract
and to retain highly-talented executive officers who are critical to the successful implementation of our
company’s strategic business plan.
We routinely evaluate the individual elements of our compensation program in light of market
conditions and governance requirements and make changes as appropriate for our business. For
example, in 2009 we reduced base salaries for most company employees, with the largest percentage
reductions borne by our executives, including our named executive officers. In addition, our
employment contract with our Chief Executive Officer does not contain tax gross-ups or single trigger
change of control provisions. We are continuously seeking to improve our executive compensation
programs and align our programs with stockholder interests. We believe that our executive
compensation program continues to drive and promote superior financial performance for our company
and our stockholders over the long term through a variety of business conditions.
We have regularly sought approval from our stockholders regarding portions of our compensation
program that we have used to motivate, retain and reward our executives. Since 2000, our stockholders
have voted on and approved our equity compensation plans (and amendments to those plans) twelve
times, in addition to approving our overall executive compensation program for each of the last five
years. Those incentive plans make up a significant portion of the overall compensation that we provide
to our executives. Over the years, we have made numerous changes to our executive compensation
program in response to stockholder input. Because the vote is advisory, however, it will not be binding
upon our Board of Directors or the Compensation Committee, and neither our Board nor the
Compensation Committee will be required to take any action as a result of the outcome of the vote on
this proposal. The Compensation Committee will carefully evaluate the outcome of the vote when
considering future executive compensation arrangements. After our Annual Meeting in May 2015, our
next say-on-pay vote will occur at our next Annual Meeting scheduled to be held in May 2016.
65
Accordingly, the Board of Directors strongly endorses the Company’s executive compensation
program and recommends that stockholders vote in favor of the following advisory resolution:
RESOLVED, that the stockholders approve the compensation paid to the named executive officers
of the Company, pursuant to the compensation disclosure rules of the Securities and Exchange
Commission, including the compensation discussion and analysis, the compensation tables and any
related material disclosed in the Company’s Proxy Statement for the 2015 Annual Meeting of
Stockholders.
We encourage our stockholders to closely review the Compensation Discussion and Analysis, the
accompanying compensation tables and the related narrative disclosure before voting on this proposal.
The Compensation Discussion and Analysis describes and explains our executive compensation policies
and practices and the process that was used by the Compensation Committee of our Board of Directors
to reach its decisions on the compensation of our named executive officers for 2014. It also contains a
discussion and analysis of each of the primary components of our executive compensation program—
base salary, annual cash incentive awards and long-term incentive awards—and the various
post-employment arrangements that we have entered into with certain of our named executive officers.
The Board of Directors recommends that stockholders vote ‘‘FOR’’ the advisory (non-binding)
vote to approve the compensation of our named executive officers, as described in this proxy
statement.
ITEM 3—RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
We have appointed Grant Thornton LLP (‘‘Grant Thornton’’) as our independent registered public
accounting firm (independent auditors) for the fiscal year ending December 31, 2015. Grant Thornton
served as our independent auditors for 2014. Prior to 2014, Ernst & Young LLP (‘‘E&Y’’) served as
our independent auditor from 2005 through completion of the audit of our consolidated financial
statements for 2013. Services provided by Grant Thornton to our company in 2014 included the audit
of our consolidated financial statements, review of our quarterly financial statements and internal
control over financial reporting, statutory audits of certain foreign subsidiaries, review of our
registration statements filed under the Securities Act of 1933, as amended (the ‘‘Securities Act’’),
during 2014 and consultations on various tax, accounting and due diligence matters. E&Y provided
limited transition related services to the Company in 2014 to conclude work currently in progress on
certain foreign subsidiaries.
The Board of Directors recommends that stockholders vote ‘‘FOR’’ ratification of the appointment
of Grant Thornton as our independent auditors for 2015.
In the event stockholders do not ratify the appointment, the appointment will be reconsidered by
the Audit Committee. Regardless of the outcome of the vote, however, the Audit Committee at all
times has the authority within its discretion to recommend and approve any appointment, retention or
dismissal of our independent auditors.
See ‘‘Change in Independent Registered Public Accountants’’ below.
66
REPORT OF THE AUDIT COMMITTEE
The following Report of the Audit Committee does not constitute soliciting material and shall not be
deemed filed or incorporated by reference into any other filings under the Securities Act or the Exchange
Act, except to the extent ION specifically incorporates this Report by reference therein.
ION’s management is responsible for ION’s internal controls, financial reporting process,
compliance with laws, regulations and ethical business standards and the preparation of consolidated
financial statements in accordance with accounting principles generally accepted in the United States.
ION’s independent registered public accounting firm is responsible for performing an independent
audit of ION’s financial statements in accordance with generally accepted auditing standards and the
effectiveness of ION’s internal control over financial reporting, and issuing an opinion thereon. The
Board of Directors of ION appointed the undersigned directors as members of the Audit Committee
and adopted a written charter setting forth the procedures and responsibilities of the Audit Committee.
Each year the Audit Committee reviews its Charter and reports to the Board on its adequacy in light of
applicable rules of the NYSE. In addition, each year ION furnishes a written affirmation to the NYSE
relating to Audit Committee membership, the independence and financial management expertise of the
Audit Committee and the adequacy of the Charter of the Audit Committee.
The Charter of the Audit Committee specifies that the primary purpose of the Audit Committee is
to assist the Board in its oversight of: (1) the integrity of the financial statements of ION;
(2) compliance by ION with legal and regulatory requirements; (3) the independence, qualifications and
performance of ION’s independent registered public accountants; and (4) the performance of ION’s
internal auditors and internal audit function. In carrying out these responsibilities during 2014, and
early in 2015 in preparation for the filing with the SEC of ION’s Annual Report on Form 10-K for the
year ended December 31, 2014, the Audit Committee, among other things:
(cid:129) reviewed and discussed the audited financial statements with management and ION’s
independent registered public accounting firm;
(cid:129) reviewed the overall scope and plans for the audit and the results of the examinations of ION’s
independent registered public accounting firm;
(cid:129) met with ION management periodically to consider the adequacy of ION’s internal control over
financial reporting and the quality of its financial reporting and discussed these matters with its
independent registered public accounting firm and with appropriate ION financial personnel and
internal auditors;
(cid:129) discussed with ION’s senior management, independent registered public accounting firm and
internal auditors the process used for ION’s Chief Executive Officer and Chief Financial Officer
to make the certifications required by the SEC and the Sarbanes-Oxley Act of 2002 in
connection with the Form 10-K and other periodic filings with the SEC;
(cid:129) reviewed and discussed with ION’s independent registered public accounting firm (1) their
judgments as to the quality (and not just the acceptability) of ION’s accounting policies, (2) the
written disclosures and the letter from the independent registered public accounting firm
required by applicable requirements of the Public Company Accounting Oversight Board
regarding such firm’s communication with the Audit Committee concerning independence, and
the independence of the independent registered public accounting firm, and (3) the matters
required to be discussed with the Audit Committee under auditing standards generally accepted
in the United States, including the matters required by Statement of Public Company
Accounting Oversight Board (‘‘PCAOB’’) No. 16, ‘‘Communications with Audit Committees’’;
(cid:129) based on these reviews and discussions, as well as private discussions with ION’s independent
registered public accounting firm and internal auditors, recommended to the Board of Directors
67
the inclusion of the audited financial statements of ION and its subsidiaries in the 2014
Form 10-K for filing with the SEC;
(cid:129) recommended the selection of Grant Thornton LLP as ION’s independent registered public
accounting firm for the fiscal year ending December 31, 2015; and
(cid:129) determined that the non-audit services provided to ION by its independent registered public
accounting firm (discussed below under ‘‘Principal Auditor Fees and Services’’) are compatible
with maintaining the independence of the independent auditors.
The Audit Committee met six times during 2014. The committee schedules its meetings with a
view to ensuring that it devotes appropriate attention to all of its tasks. The committee’s meetings
include, whenever appropriate, executive sessions with ION’s independent registered public accountants
and with ION’s internal auditors, in each case without the presence of ION’s management. The Audit
Committee has also established procedures for (a) the receipt, retention and treatment of complaints
received by ION regarding accounting, internal accounting controls or auditing matters and (b) the
confidential, anonymous submission by ION’s employees of concerns regarding questionable accounting
or auditing matters. However, this oversight does not provide the Audit Committee with an
independent basis to determine that management has maintained appropriate accounting and financial
reporting principles or policies, or appropriate internal controls and procedures designed to assure
compliance with accounting standards and applicable laws and regulations. Furthermore, the
committee’s consideration and discussions with management and the independent registered public
accounting firm do not assure that ION’s financial statements are presented in accordance with
generally accepted accounting principles or that the audit of ION’s financial statements has been
carried out in accordance with generally accepted auditing standards.
S. James Nelson, Jr., Chairman
Michael C. Jennings
James M. Lapeyre, Jr.
68
CHANGE IN INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS
On March 19, 2014, we engaged Grant Thornton to serve as our independent registered public
accounting firm to audit our consolidated financial statements for the year ending December 31, 2014.
The decision to retain Grant Thornton as our independent registered public accounting firm was
recommended and approved by our Audit Committee effective on March 19, 2014.
E&Y served as our independent auditor from 2005 through completion of the audit of our
consolidated financial statements for 2013. The reports of E&Y on our financial statements for the
years ended December 31, 2012 and 2013 did not contain an adverse opinion or disclaimer of opinion
and were not qualified or modified as to uncertainty, audit scope or accounting principles. The report
of E&Y on the effectiveness of our internal control over financial reporting for the year ended
December 31, 2013, which was included in our Annual Report on Form 10-K for the year ended
December 31, 2013, was not qualified and did not contain an adverse opinion thereon.
During the years ended December 31, 2012 and 2013 and through March 20, 2014, the date of our
dismissal of E&Y as our independent auditor, there were no disagreements as that term is defined in
Item 304(a)(1)(iv) of Regulation S-K and the related instructions to Item 304 of Regulation S-K with
E&Y on any matter of accounting principles or practices, financial statement disclosure, or auditing
scope or procedure, which disagreements, if not resolved to the satisfaction of E&Y, would have
caused E&Y to make reference thereto in its reports on our financial statements for such years.
During the years ended December 31, 2012 and 2013 and through March 20, 2014, there were no
‘‘reportable events’’ as that term is defined in Item 304(a)(1)(v) of Regulation S-K, except we reported
a material weakness in our internal control over financial reporting as of March 31, 2013, June 30, 2013
and September 30, 2013, in Item 4 of our Quarterly Reports on Form 10-Q/A for the three months
ended March 31, 2013 and the six months ended June 30, 2013, and in our Quarterly Report on
Form 10-Q for the nine months ended September 30, 2013. The material weakness related to the
incorrect presentation of the investments in our SPANs in our condensed consolidated statements of
cash flows for the three months ended March 31, 2013 and the six months ended June 30, 2013. The
material weakness was reported as remediated as of December 31, 2013, in our Annual Report on
Form 10-K for the year ended December 31, 2013.
E&Y furnished a letter addressed to the SEC stating that it agreed with the above statements
concerning E&Y, and a copy of that letter dated March 20, 2014 was filed as an exhibit to our Current
Report on Form 8-K that we filed with the SEC on March 20, 2014.
During the years ended December 31, 2012 and 2013 and through March 19, 2014, we have not
consulted with Grant Thornton regarding either (i) the application of accounting principles to a
specified transaction, either completed or proposed, or the type of audit opinion that might be
rendered on our financial statements, and neither a written report nor oral advice was provided to us
that Grant Thornton concluded was an important factor considered by us in reaching a decision as to
the accounting, auditing or financial reporting issue; or (ii) any matter that was either the subject of a
disagreement (as defined in Item 304(a)(1)(iv) of Regulation S-K and the related instructions to that
Item) or a reportable event (as described in Item 304(a)(1)(v) of Regulation S-K).
In deciding to engage Grant Thornton, our Audit Committee reviewed auditor independence
issues and existing commercial relationships with Grant Thornton and concluded that Grant Thornton
has no commercial relationship with our company that would impair its independence.
69
PRINCIPAL AUDITOR FEES AND SERVICES
In connection with the audit of the 2014 financial statements, we entered into an engagement
agreement with Grant Thornton that sets forth the terms by which Grant Thornton would perform
audit services for our company. The following table shows the fees billed to us or accrued by us for the
audit and other services provided by Grant Thornton for 2014 and E&Y for 2013:
Fees
Grant Thornton—2014
Ernst & Young—2013
Audit Fees(a) . . . . . . . . . . . . . . . . . . . . . .
Audit-Related Fees(b) . . . . . . . . . . . . . . . .
Tax Fees(c) . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . .
All Other Fees
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,299,709
—
15,900
—
$
$1,315,609
$2,558,000
86,000
46,000
—
$2,690,000
(a) Audit fees consist primarily of the audit and quarterly reviews of the consolidated
financial statements, the audit of the effectiveness of internal control over financial
reporting, audits of subsidiaries, statutory audits of subsidiaries required by governmental
or regulatory bodies, attestation services required by statute or regulation, comfort letters,
consents, assistance with and review of documents filed with the SEC, work performed by
tax professionals in connection with the audit and quarterly reviews, and accounting and
financial reporting consultations and research work necessary to comply with generally
accepted auditing standards.
(b) Audit-related fees relate primarily to due diligence services. Also included are licensing
fees related to accounting research software.
(c) Tax fees relate to research and development on a tax credit project in Texas.
Our Audit Committee Charter provides that all audit services and non-audit services must be
approved by the committee or a member of the committee. The Audit Committee has delegated to the
Chairman of the committee the authority to pre-approve audit, audit-related and non-audit services not
prohibited by law to be performed by our independent auditors and associated fees, so long as (i) the
estimate of such fees does not exceed $50,000, (ii) the Chairman reports any decisions to pre-approve
those services and fees to the full Audit Committee at a future meeting and (iii) the term of any
specific pre-approval given by the Chairman does not exceed 12 months from the date of pre-approval.
All non-audit services were reviewed with the Audit Committee or the Chairman, which concluded
that the provision of such services by Grant Thornton or E&Y, as applicable, was compatible with the
maintenance of such firm’s independence in the conduct of its auditing functions.
Other Matters
A representative of Grant Thornton will be available at the annual meeting, will be afforded an
opportunity to make a statement if he/she desires to do so and will be available to respond to
appropriate questions.
70
This proxy statement has been approved by the Board of Directors and is being made available to
stockholders by its authority.
18MAR201500045204
Jamey S. Seely
Executive Vice President, General Counsel
and Corporate Secretary
Houston, Texas
April 14, 2015
The 2014 Annual Report to Stockholders includes our financial statements for the fiscal year
ended December 31, 2014. We have mailed a notice of the 2014 Annual Report to Stockholders and
this proxy statement to all of our stockholders of record. The 2014 Annual Report to Stockholders does
not form any part of the material for the solicitation of proxies.
71
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
(Mark One)
Form 10-K
(cid:2) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2014
or
(cid:3) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-12691
ION Geophysical Corporation
(Exact Name of Registrant as Specified in Its Charter)
Delaware
(State or Other Jurisdiction of
Incorporation or Organization)
22-2286646
(I.R.S. Employer
Identification No.)
2105 CityWest Blvd
Suite 400
Houston, Texas 77042-2839
(Address of Principal Executive Offices, Including Zip Code)
(281) 933-3339
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Name of Each Exchange on Which Registered
Common Stock, $0.01 par value
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes (cid:3) No (cid:2)
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Exchange Act Yes (cid:3) No (cid:2)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes (cid:2) No (cid:3)
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit and post such files). Yes (cid:2) No (cid:3)
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K. (cid:2)
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a
smaller reporting company. See the definitions of ‘‘large accelerated filer,’’ ‘‘accelerated filer’’ and ‘‘smaller reporting company’’
in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer (cid:2)
Smaller reporting company (cid:3)
Accelerated filer (cid:3)
Non-accelerated filer (cid:3)
(Do not check if a
smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes (cid:3) No (cid:2)
As of June 30, 2014 (the last business day of the registrant’s second quarter of fiscal 2014), the aggregate market value of
the registrant’s common stock held by non-affiliates of the registrant was $649.8 million based on the closing sale price per
share ($4.22) on such date as reported on the New York Stock Exchange.
As of January 30, 2015, the number of shares of common stock, $0.01 par value, outstanding was 164,484,095 shares.
Document
Parts Into Which Incorporated
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive Proxy Statement for its Annual Meeting of Stockholders
scheduled to be held on May 20, 2015, to be filed pursuant to Regulation 14A . . . . . . . . . .
Part III
TABLE OF CONTENTS
PART I
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1.
Item 1A. Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1B. Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 2.
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 3.
Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 4.
PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Item 6.
Item 7.
Purchases of Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Management’s Discussion and Analysis of Financial Condition and Results of
Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 7A. Quantitative and Qualitative Disclosures about Market Risk . . . . . . . . . . . . . . . . . . .
Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 8.
Changes in and Disagreements with Accountants on Accounting and Financial
Item 9.
Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 9A. Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 9B. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART III
Item 10. Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . .
Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 11.
Security Ownership of Certain Beneficial Owners and Management and Related
Item 12.
Item 13.
Item 14.
Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Certain Relationships and Related Transactions, and Director Independence . . . . . . .
Principal Accounting Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Page
3
17
39
39
39
41
42
43
45
68
68
69
69
73
73
73
73
73
73
Item 15.
Exhibits and Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Index to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
74
80
F-1
PART IV
2
PART I
Preliminary Note: This Annual Report on Form 10-K contains ‘‘forward-looking statements’’ as
that term is defined in the Private Securities Litigation Reform Act of 1995. Forward-looking
statements should be read in conjunction with the cautionary statements and other important factors
included in this Form 10-K. See Item 1A. ‘‘Risk Factors’’ for a description of important factors which
could cause actual results to differ materially from those contained in the forward-looking statements.
In this Form 10-K, ‘‘ION Geophysical,’’ ‘‘ION,’’ ‘‘the company’’ (or, ‘‘the Company’’), ‘‘we,’’ ‘‘our,’’
‘‘ours’’ and ‘‘us’’ refer to ION Geophysical Corporation and its consolidated subsidiaries, except where
the context otherwise requires or as otherwise indicated. Certain trademarks, service marks and
registered marks of ION referred to in this Form 10-K are defined in Item 1. ‘‘Business—Intellectual
Property.’’
Item 1. Business
ION is a Delaware corporation. Our predecessor entity was incorporated in 1979. We are a global,
technology-focused company that provides geoscience technology, services and solutions to the global
oil and gas industry. Our offerings are designed to allow oil and gas exploration and production
(‘‘E&P’’) companies to obtain higher resolution images of the Earth’s subsurface during exploration,
exploitation and production operations to reduce their risk in exploration and reservoir development.
We acquire and process seismic data from seismic surveys in regional data programs, which then
become part of our multi-client data library. The seismic surveys for our data library business are
pre-funded, or underwritten, in part by our customers, and, with the exception of our ocean bottom
seismic (‘‘OBS’’) data acquisition company, OceanGeo B.V. (‘‘OceanGeo’’), we contract with third party
seismic data acquisition companies to shoot and acquire the seismic data, all of which is intended to
minimize our risk exposure. We serve customers in all major energy producing regions of the world
from strategically located offices in 21 cities on six continents.
Seismic imaging plays a fundamental role in hydrocarbon exploration and reservoir development by
delineating structures, rock types and fluid locations in the subsurface. Our technologies, services and
solutions are used by E&P companies to generate high-resolution images of the Earth’s subsurface to
identify sources of hydrocarbons and pinpoint drilling locations for wells, which can be costly and
involve high risk.
We provide our services and products through four business segments—Solutions, Systems,
Software and Ocean Bottom Services. Our Ocean Bottom Services segment is comprised of OceanGeo,
in which we increased our ownership from 30% to 100% in 2014. In addition, we have a 49%
ownership interest in our INOVA Geophysical Equipment Limited joint venture (‘‘INOVA
Geophysical,’’ or ‘‘INOVA’’).
For decades we have been engaged in providing innovative seismic data acquisition technology,
such as full-wave imaging capability with VectorSeis(cid:4) products, the ability to record seismic data from
basins that underlie ice fields in polar regions, and cableless seismic techniques. The advanced
technologies we currently offer include our Orca(cid:4) and Gator(cid:5) command and control software systems,
WiBand(cid:4) broadband data processing technology, Calypso(cid:4) OBS acquisition system, Narwhal(cid:5) (software
system) for ice management, and other technologies, each of which is designed to deliver improvements
in both image quality and productivity. In late 2014, we began field testing our new Marlin(cid:5) solution
for optimizing simultaneous operations during marine seismic data acquisition. We have over 500
patents and pending patent applications in various countries around the world. Approximately 50% of
our employees are involved in technical roles and over 25% of our employees have advanced degrees.
Solutions. Our Solutions business provides two distinct service activities that often work together.
3
Our GeoVentures(cid:4) services are designed to manage the entire seismic process, from survey
planning and design to data acquisition and management, to final subsurface imaging and reservoir
characterization. Our GeoVentures group focuses on the technologically intensive components of the
image development process, such as survey planning and design, and data processing and interpretation,
outsourcing the logistics components (such as field acquisition) to experienced seismic and other
geophysical contractors.
Our GX Technology (‘‘GXT’’) group offers data processing and imaging services designed to help
our E&P customers reduce exploration and production risk, evaluate and develop reservoirs, and
increase production. GXT develops a series of subsurface images by applying its processing technology
to data owned or licensed by its customers. We maintain more than 16 petabytes of seismic data digital
information storage in 12 global data centers, including our largest data center in Houston.
Our Solutions business focuses on providing services and products for challenging environments,
such as the Arctic frontier; complex and hard-to-image geologies, such as deepwater subsurface salt
formations in the Gulf of Mexico and offshore West Africa and Brazil; unconventional reservoirs, such
as those found in shale, tight gas and oil sands formations; and offshore basin-wide seismic data and
imaging programs. Since 2002, our basin exploration seismic data programs have resulted in a
substantial data library that covers significant portions of many of the frontier basins in the world,
including offshore East and West Africa, India, South America, the Arctic, the deepwater Gulf of
Mexico and Australia.
Software. Our Software business provides command and control software systems, related software
and services for towed marine streamer and seabed operations, as well as survey design. Our Orca
software is installed on towed streamer marine vessels worldwide, and our Gator software is a
component of many re-deployable and permanent seabed monitoring systems.
In 2013, we introduced our Narwhal for ice management system, and in late 2014, we began field
testing our new Marlin solution for optimizing simultaneous operations during marine seismic data
acquisition. Both of these systems are part of our E&P software solutions for operations management.
Systems. Our Systems business is engaged in the manufacture of (i) re-deployable ocean bottom
cable seismic data acquisition systems and shipboard recorders (for OceanGeo’s use in OBS data
acquisition); (ii) marine towed streamer positioning and control systems; and (iii) analog geophone
sensors.
Ocean Bottom Services.
In 2014, we increased our ownership interest in OceanGeo from 30% to
100%. Through the addition of OceanGeo, ION offers a fully integrated OBS solution that includes
expert survey design, planning and optimization, to maximize seismic image quality, operational
efficiency and safety; safe, efficient data acquisition by the experienced team at OceanGeo; superior
imaging via OceanGeo’s exclusive use of our VSO systems; and data processing, interpretation and
reservoir services, by our GXT experts. For information regarding our acquisition of OceanGeo, see
Footnote 3 ‘‘Acquisition of OceanGeo’’ of Footnotes to Consolidated Financial Statements contained
elsewhere in this Annual Report on Form 10-K.
INOVA Geophysical. We conduct our land seismic equipment business through INOVA
Geophysical, a joint venture with BGP Inc., which is a subsidiary of China National Petroleum
Corporation (‘‘CNPC’’). BGP is generally regarded as the world’s largest land geophysical service
contractor. BGP owns a 51% equity interest in INOVA Geophysical, and we own the remaining 49%
interest. INOVA manufactures cable-based and cableless seismic data acquisition systems, digital
sensors, vibroseis vehicles (i.e., vibrator trucks), and source controllers for detonator and energy source
business lines. In connection with the preparation of the financial statements included in this Annual
Report on Form 10-K, we wrote our investment in INOVA down to zero as of December 31, 2014. For
a discussion of the impairment of our equity method investment in INOVA, see Footnote 5 ‘‘Equity
4
Method Investments’’ of Footnotes to Consolidated Financial Statements contained elsewhere in this
Annual Report on Form 10-K.
Seismic Industry Overview
1930s - 1970s. Since the 1930s, oil and gas companies have sought to reduce exploration risk by
using seismic data to create an image of the Earth’s subsurface. Seismic data is recorded when listening
devices placed on the Earth’s surface or seabed floor, or carried within the streamer cable of a towed
streamer vessel, measure how long it takes for sound vibrations to echo off rock layers underground.
For seismic data acquisition onshore, the acoustic energy producing the sound vibrations is generated
by the detonation of small explosive charges or by large vibroseis (vibrator) vehicles. In marine
acquisition, the energy is provided by a series of air guns that deliver compressed air into the water
column.
The acoustic energy propagates through the subsurface as a spherical wave front, or seismic wave.
Interfaces between different types of rocks will both reflect and transmit this wave front. Onshore, the
reflected signals return to the surface where they are measured by sensitive receivers that are analog
coil-spring geophones. Offshore, the reflected signals are recorded by either hydrophones towed in an
array behind a streamer acquisition vessel or by multicomponent geophones or MEMS sensors that are
placed directly on the seabed. Once the recorded seismic energy is processed using advanced algorithms
and workflows, images of the subsurface can be created to depict the structure, lithology (rock type),
fracture patterns, and fluid content of subsurface horizons, highlighting the most promising places to
drill for oil and natural gas. This processing also aids in engineering decisions, such as drilling and
completion methods, as well as decisions affecting overall reservoir production as well as guiding
economic decisions relating to drilling risk and reserves in place.
Typically, an E&P company engages the services of a geophysical acquisition company to prepare
site locations, coordinate logistics, and acquire seismic data in a selected area. The E&P company
generally relies upon third parties, such as ION, to provide the contractor with equipment, navigation
and data management software, and field support services necessary for data acquisition. After the data
is collected, the same geophysical contractor, a third-party data processing company, our data
processing services or the E&P company itself will process the data using proprietary algorithms and
workflows to create a series of seismic images. Geoscientists then interpret the data by reviewing the
images and integrating the geophysical data with other geological and production information such as
well logs or core information.
During the 1960s, digital seismic data acquisition systems (which converted the analog output from
the geophones into digital data for recording) and computers for seismic data processing were
introduced. Using the new systems and computers, the signals could be recorded on magnetic tape and
sent to data processors where they could be adjusted and corrected for known distortions. The final
processed data was displayed in a form known as ‘‘stacked’’ data. Computer filing, storage, database
management, and algorithms used to process the raw data quickly grew more sophisticated,
dramatically increasing the amount of subsurface seismic information.
1980s. Until the early 1980s, the primary commercial seismic imaging technology was
two-dimensional (‘‘2-D’’) technology. 2-D seismic data is recorded using lines of receivers crossing the
surface of the Earth. Once processed, 2-D seismic data allows geoscientists to see only a thin vertical
slice of the Earth, and that image may be corrupted by reflections originating out of the place of the
receiver line. A geoscientist using 2-D seismic technology must speculate on the characteristics of the
Earth between the slices and attempt to visualize the true three-dimensional (‘‘3-D’’) structure of the
subsurface.
The commercial development of 3-D imaging technology in the early 1980s was an important
technological milestone for the seismic industry. Previously, the high cost of 3-D seismic data
5
acquisition techniques and the lack of computing power necessary to process, display, and interpret 3-D
data on a commercial basis had slowed its widespread adoption. Today’s 3-D seismic techniques record
the reflected energy across a series of closely-spaced seismic lines that collectively provide a more
holistic, spatially-sampled depiction of geological horizons and, in some cases, rock and fluid properties,
within the Earth.
3-D seismic data and the associated computer-based interpretation platforms are designed to allow
geoscientists to generate more accurate subsurface maps than could be constructed on the basis of the
more widely spaced 2-D seismic lines. In particular, 3-D seismic data provided more detailed
information about and higher-quality images of subsurface structures, including the geometry of
bedding layers, salt structures, and fault planes. The improved 3-D seismic images allowed the oil and
gas industry to discover new reservoirs, reduce finding and development costs, and lower overall
hydrocarbon exploration risk. Driven by faster computers and more sophisticated mathematical
equations to process the data, the technology advanced quickly.
1990s. As commodity prices decreased in the late 1990s and the pace of innovation in 3-D
seismic imaging technology slowed, E&P companies slowed the commissioning of new seismic surveys.
Also, business practices employed by geophysical contractors impacted demand for seismic data. In an
effort to sustain higher utilization of existing capital assets, geophysical contractors increasingly began
to collect speculative seismic data for their own account in the hopes of selling it later to E&P
companies. These generic, speculative, multi-client surveys were not tailored to meet the unique
imaging objectives of individual clients and caused an oversupply of seismic data in many regions.
Additionally, since contractors incurred most of the costs of this speculative seismic data at the time of
acquisition, contractors lowered prices to recover as much of their fixed investment as possible, which
drove operating margins down. During the 1990’s, the accuracy of 3D seismic surveys improved to the
point that a survey acquired after significant oil production could be compared to a pre-production
survey, and maps of the drainage pattern of the reservoir could be produced. This technique became
known as time lapse, or 4D seismic.
2000s. The conditions from the 1990s continued to prevail until 2004-2005, when commodity
prices began increasing and E&P companies increased their capital spending programs, driving higher
demand for our services and products. During this time, the use of horizontal drilling and hydraulic
fracturing increased, as onshore North American production became economically viable with higher oil
prices. These techniques, used to tap unconventional reservoirs, made once ‘‘hard to produce’’ oil and
gas accessible and caused an upsurge in North American onshore oil and gas activity.
The financial crisis that occurred in 2008 and the resulting economic downturn drove hydrocarbon
prices down sharply; this had the effect of sharply reducing exploration activities in North America and
in many parts of the world. Crude oil prices rebounded in 2013, however, with West Texas Intermediate
(‘‘WTI’’) crude oil prices finishing the year near $110 per barrel, and U.S. oil production surged far
beyond what even the most optimistic forecasts predicted. For the first three quarters of 2014, the oil
market looked similar to 2013, with oil prices exceeding $100 per barrel. In late June 2014, WTI
reached a high for the year of $107. In the fourth quarter of 2014, however, oil prices began to decline
significantly, as signs emerged that non-U.S. demand was weakening. The plunge accelerated in late
November when OPEC decided to maintain production despite the lower demand and prices. Between
September and December 2014, WTI and Brent crude oil prices dropped by approximately half.
Throughout 2014, oil companies began prioritizing shareholder returns and cash flow generation
over hydrocarbon resource growth, minimizing discretionary spending and shifting their focus from
exploration to production. This shift is causing a contraction in E&P spending on seismic for
exploration purposes, but to date has had little impact on their spending on ocean bottom seismic,
which is typically used in the later, development and production phases of the lifecycle, to maximize
production of more mature reservoirs. When spending on seismic for exploration purposes contracts,
6
typically the seismic companies hardest hit are towed streamer contractors, who find themselves with
excess vessel capacity. In addition, oil and gas companies tend to shift to reprocessing existing seismic
data as a more cost-effective alternative to acquiring new data.
Our Strategy
The key elements of our business strategy are to:
(cid:129) Leverage our key technologies to provide integrated solutions to oil and gas companies, across the
entire E&P lifecycle. More of our customers are seeking fully integrated offerings from seismic
companies, from survey planning and design, to leading technology differentiation in acquisition
and processing. We have transformed ourself from an equipment provider to an integrated
service provider, where leading equipment and software technologies underpin our solution
offerings. The growth in our Solutions business over the past decade is a testament to our
steadfast execution of this strategy. Whereas our solutions, including our BasinSPANTM 2-D
seismic programs, were originally focused on the earlier, frontier exploration, phase of the E&P
lifecycle, our newest offering, OBS services through OceanGeo, is geared to the later, less
volatile, production phase of the E&P lifecycle leveraging our Calypso OBS data acquisition
system.
(cid:129) Expand and globalize our Solutions business. We seek to expand and grow our Solutions business
to new regions, with new customers and new offerings, including proprietary services for E&P
companies through our GXT data processing and GeoVentures multi-client businesses. For the
foreseeable future, we expect the majority of our future investments to be in research and
development and computing infrastructure for our data processing business and to support our
GeoVentures multi-client projects. We believe this focus better positions our company as a
full-service technology company with an increasing proportion of revenues derived from E&P
customers.
(cid:129) Continue investing in advanced software and equipment technology to provide next generation services
and products. We intend to continue investing in the development of new technologies for use by
E&P companies. In particular, we intend to focus on the development of the next generation of
our OBS data imaging technology and on our Narwhal ice management system and derivative
products, with the goal of obtaining technical and market leadership in what we continue to
believe are important and expanding markets. In 2014, our investment in research and
development was equal to approximately 8% of our total net revenue for the year.
(cid:129) Collaborate with our customers to provide products and solutions designed to meet their needs. A key
element of our business strategy has been to understand the challenges faced by E&P companies
in seismic survey planning, seismic data acquisition, processing, and interpretation. We will
continue to develop and offer technology and services that enable us to work with E&P
companies to solve their unique challenges, especially in the harshest and most extreme
environments around the world. We have found that a collaborative relationship with E&P
companies, with a goal of better understanding their imaging challenges and then working with
them to assure them that the right technologies are properly applied, is the most effective
method for meeting their needs. Our goal of being a full solutions provider to solve the most
difficult challenges for our customers is an important element of our long-term business strategy,
and we are implementing this partnership approach globally through local personnel in our
regional organizations who understand the unique challenges in their areas.
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Our Strengths
We believe that we are solidly positioned to successfully execute the key elements of our business
strategy based on the following competitive strengths:
(cid:129) We are leveraging our key technologies to provide integrated solutions to oil and gas companies. More
of our customers are seeking fully integrated offerings from seismic companies, from survey
planning and design, to leading technology differentiation in acquisition and processing. ION has
become an integrated service provider, through service offerings by our Solutions segment.
(cid:129) We are a broad-based seismic solutions provider, with offerings spanning the entire geophysical
workflow. We are a technology-focused full-value-chain service provider, with offerings that span
the entire seismic workflow, from survey planning and data acquisition to processing and
interpretation. Our offerings include seismic data acquisition hardware, data acquisition services,
command and control software, value-added services associated with seismic survey design,
seismic data processing and interpretation, and seismic data libraries.
(cid:129) Our ‘‘asset light’’ strategy enables us to avoid significant fixed costs and to remain financially flexible.
We do not own a fleet of marine vessels and, with the exception of OceanGeo, we do not
provide our own seismic crews to acquire seismic data. We outsource a majority of our seismic
data acquisition activity to third parties that operate their own fleets of seismic acquisition
vessels and equipment. Doing so enables us to avoid the fixed costs associated with these assets
and personnel and to manage our business in a manner designed to afford us the flexibility to
quickly decrease our costs or capital investments in the event of a downturn. We actively manage
the costs of developing our multi-client data library business by requiring our customers to
partially pre-fund, or underwrite, the investment for any new project. Our target goal is to have
customer underwritten investment equal to approximately 75% of the total cost of each new
project’s data acquisition. We believe this conservative approach to data library investment is the
most prudent way to avoid risks of any sudden reduction in the demand for seismic data giving
us the flexibility to aggressively reduce cash outflows in the event of an industry downturn.
(cid:129) Our global footprint and ability to work in harsh conditions allow us to offset regional downturns. Our
focus on conducting business around the world, even in the harshest and most extreme
environments, has been and will continue to be a key component of our strategy. This global
focus has been helpful in minimizing the impact of any one regional slowdown for short or
extended periods of time. We believe that our customers prefer to work with companies that are
capable of delivering high quality, safe, and environmentally sensitive service in those
environments. For example, our operational expertise and equipment and software technologies
enable us to operate in the harsh Arctic environment and to acquire seismic data in areas for
which no modern seismic data previously existed. This expertise and these technologies permit
us to extend the time window for data acquisition, facilitate our customers’ drilling decisions,
reducing exploration and production risk.
(cid:129) We have a diversified and blue chip customer base. We provide services and products to a diverse,
global customer base that includes many of the largest oil and gas and geophysical companies in
the world, including national oil companies (NOCs) and international oil companies (IOCs).
Over the past decade, we have made significant progress in expanding our customer list and
revenue sources. Whereas almost all of our revenues in 2003 were derived principally from
seismic contracting companies, in 2014 E&P companies accounted for approximately 76% of our
total revenues. Even though we provide services and products to some of the largest companies
in the world, no single customer accounted for more than 10% of our total revenue in 2012,
2013 or 2014. We focus our sales and marketing efforts on high-quality, historically creditworthy
customers.
8
Services and Products
Solutions Segment
Our Solutions segment includes the following:
GeoVentures—Our GeoVentures group provides complete seismic data services, from survey
planning and design through data acquisition to final subsurface imaging and reservoir characterization.
We work backwards through the seismic workflow, with the final image in mind, to select the optimal
survey design, acquisition technology, and processing techniques.
We offer our services to customers on both a proprietary and multi-client (non-exclusive) basis. In
both cases, the customers generally pre-fund a majority of the data acquisition costs. For proprietary
services, the customer also pays for the imaging and processing but has exclusive ownership of the data
after it has been processed. For multi-client surveys, we may assume some of the processing costs, but
we retain ownership of the data and receive ongoing revenue from subsequent data license sales.
Since 2002, GeoVentures has acquired and processed a growing multi-client data library consisting
of non-exclusive marine and ocean bottom data from around the world. The majority of the data
licensed by GeoVentures consists of ultra-deep 2-D seismic data that E&P companies use to evaluate
petroleum systems at the basin level, including insights into the character of source rocks and
sediments, migration pathways, and reservoir trapping mechanisms. In many cases, we extend beyond
seismic data to include magnetic, gravity, well log, and electromagnetic information, to provide a more
comprehensive picture of the subsurface. Known as ‘‘BasinSPAN’’ programs, these geophysical surveys
cover most major offshore basins worldwide and we’re continuing to build on them. In addition to our
2-D multi-client programs, in 2013 we acquired our first 3-D marine proprietary program and signed a
strategic agreement with Polarcus Limited, a marine geophysical company, to jointly plan and execute
3-D marine multi-client surveys worldwide.
For land applications, we also have a library of 3-D onshore reservoir imaging and characterization
programs that provide E&P companies with the ability to better understand unconventional reservoirs
to maximize production. Known as ‘‘ResSCAN(cid:5)’’ programs, these 3-D multicomponent seismic data
programs were designed, acquired and depth-imaged using advanced geophysical technology and
proprietary processing techniques, resulting in high-definition images of the subsurface.
In connection with the preparation of the financial statements included in this Annual Report on
Form 10-K, we wrote down the value of our multi-client data library, primarily associated with Arctic
and onshore North American programs, by $100.1 million due to current market conditions. The recent
decline in crude oil prices to five-year lows has negatively impacted the economic outlook of our E&P
customers. In response to the decline in crude oil prices, E&P companies have turned their focus to
spending reductions, with exploration spending receiving the largest reductions and seismic spending
being one of the most discretionary parts of their exploration budgets. These reductions in exploration
spending have had an impact on our results of operations for 2014, especially those of our Solutions
segment. Sales of Arctic programs have been specifically impacted by recent events in Russia and could
be further impacted if adverse action is taken by the U.S. government to limit exploration and
production activities in Alaska. The decline in crude oil prices, as well as U.S. and European Union
sanctions against Russia related to Russia’s actions in Ukraine, have both contributed to the
devaluation of the Russian ruble putting significant pressure on our Russian-based customers and
negatively impacting the appeal of seismic data located in Russia to potential non-Russian buyers. In
North America, the land seismic market continues to experience softness. E&P customer spending in
the natural gas shale plays has been limited due to associated gas being produced from unconventional
oil wells in North America increasing natural gas supplies and putting downward pressure on natural
gas prices. The number of rigs working in North America has decreased by approximately 25% since
late November 2014.
9
Seismic Data Processing Services—Our GXT group is a strong market participant in advanced land,
and marine seismic data processing, imaging, and reservoir services. In addition to applying processing
and imaging technologies to data owned or licensed by its customers, we also provide our customers
with seismic data acquisition support services, such as data pre-conditioning for imaging and quality
control of seismic data acquisition.
We utilize a globally distributed network of Linux-cluster processing centers in combination with
our major hubs in Houston and London to process seismic data using advanced, proprietary algorithms
and workflows.
Our GXT group has pioneered several differentiated processing and imaging solutions for both
offshore and onshore environments including: Reverse Time Migration, Surface Related Multiple
Elimination, and WiBand broadband deghosting. In 2013, we commercially released our new Full
Waveform Inversion and non-parametric picking tomography techniques to improve subsurface image
resolution in areas with complex geologies. The advantages of these techniques are that they allow for
the resolution of complex, small-scale velocity variations. In 2014, we introduced PrecisION(cid:5), an
innovative compressed seismic inversion technique that is designed to build Earth reconstructions with
improved accuracy and aid geoscientists in better quantifying exploration and development risk and
uncertainty.
Quantitative Interpretation—The GXT group also offers solutions ‘‘downstream’’ of seismic data
processing workflows that enable E&P companies to develop their reservoirs and increase production.
This is accomplished by integrating geophysical, geological, petrophysical and rock physics information
to identify lithology, fluid or fracture within hydrocarbon reservoirs. Once understood, this information
may be used for better well placement and more effective well completions.
At December 31, 2014, our Solutions segment backlog, which consists of commitments for (i) data
processing work and (ii) both multi-client new venture and proprietary projects by our GeoVentures
group that have been underwritten, was $46.7 million compared with $84.4 million at December 31,
2013. Our Solutions segment’s fiscal-year-end backlog includes signed contracts that we can usually
fulfill within approximately 6 months.
Software Segment
Through this segment, we supply command and control software systems and related services for
towed marine streamer and OBS operations. Software developed by our Concept Systems group is
installed on towed streamer marine vessels worldwide and is a component of many re-deployable and
permanent ocean bottom monitoring systems. An advantage of our underlying software platform is that
it provides common components from which to build other applications. This enables the acceleration
of development and commercialization of new products as market opportunities are identified. Our
Narwhal for ice management system, which we released in 2013, is such an example, as is Marlin, our
new software solution for optimizing simultaneous operations during marine seismic data acquisition.
Products and services for our Software segment include the following:
Towed Streamer Navigation System—Our command and control software for towed streamer
acquisition, Orca, integrates acquisition, planning, positioning, source and quality control systems into a
seamless operation.
Seabed Navigation System—Gator II is our integrated navigation and data management system for
multi-vessel OBS and transition zone operations.
Survey Planning and Optimization—We offer consulting services for planning and supervising
complex surveys, including for 4-D (time lapse) and Wide Azimuth Towed Streamer survey operations.
Our acquisition expertise and in-field software platforms are designed to allow clients, including both
10
oil companies and seismic data acquisition contractors, to optimize these complex surveys, improving
efficiencies, data quality and reducing costs. Our Orca and Gator systems are designed to integrate with
our post-survey tools for processing, analysis and data quality control, including the use of our Reflex(cid:4)
software for seismic coverage and attribute analysis. Our proprietary technology known as Optimiser(cid:5)
is designed to enable improved, safer acquisition through analysis and prediction of sea currents and
integration of the information into the acquisition plan.
Operations Management—In 2013, we introduced the first fully integrated ice management system
designed to reduce risk and improve efficiency in seismic data acquisition and drilling operations in or
near ice, such as in the Arctic. The patented Narwhal system enables operators to gather, monitor and
analyze data from various sources, including satellite imagery, ice charts, radar, manual observations,
wind and ocean currents, to forecast and predict ice movements in these harsh environments. With this
ability to track, forecast and monitor potential ice threats, operators can make informed, proactive
decisions to ensure the safety of individuals, assets and the environment, while minimizing operational
downtime. More importantly, we applied this technology to develop our new Marlin solution for
managing simultaneous operations during marine seismic data acquisition.
Systems Segment
Our Systems segment products include the following:
Marine Acquisition Systems—We believe that the market for seabed seismic imaging is growing.
E&P companies have shown increased interest in seabed seismic activities, consistent with their desire
for higher-quality seismic imaging for complex geological formations and more detailed reservoir
characteristics. Since introducing our first seabed acquisition system, VSO, in 2004, we have continued
to develop advanced seabed systems, which we are putting to use through OceanGeo.
We also manufacture marine acquisition systems, consisting of towed marine streamers and
shipboard electronics that collect seismic data in water depths of greater than 30 meters. Marine
streamers, which contain hydrophones, electronic modules and cabling, may measure up to 12,000
meters in length and are towed (up to 20 at a time) behind a seismic acquisition vessel. The
hydrophones detect acoustical energy transmitted through water from the Earth’s subsurface structures.
Our DigiSTREAMER(cid:5) system uses solid streamer and integrated continuous acquisition technology
for towed streamer operations.
Marine Positioning Systems—Our manufactured DigiCOURSE(cid:4) marine streamer positioning system
includes streamer cable depth control devices, lateral control devices, compasses, acoustic positioning
systems and other auxiliary sensors. This equipment is designed to control the vertical and horizontal
positioning of the streamer cables and provides acoustic, compass and depth measurements to allow
processors to tie navigation and location data to geophysical data to determine the location of potential
hydrocarbon reserves. DigiFIN(cid:4) is an advanced lateral streamer control system that we commercialized
in 2008. DigiFIN is designed to maintain tighter, more uniform marine streamer separation along the
entire length of the streamer cable, which allows for better sampling of seismic data and improved
subsurface images. We believe that DigiFIN also enables faster line changes and minimizes the
requirements for in-fill seismic work.
Geophones—Geophones are land analog sensor devices that measure acoustic energy reflected
from rock layers in the Earth’s subsurface using a mechanical, coil-spring element. We manufacture and
market a full suite of geophones and geophone test equipment that operate in most environments,
including land surface, transition zone and downhole. Our analog geophones are used in other
industries as well.
11
Ocean Bottom Services Segment
Through the addition of OceanGeo, ION offers a fully-integrated OBS solution that includes
expert survey design, planning and optimization, to maximize seismic image quality, operational
efficiency and safety; safe, efficient data acquisition by the experienced team at OceanGeo; superior
imaging via OceanGeo’s exclusive use of our VSO systems; and data processing, interpretation and
reservoir services by our GXT group.
INOVA Geophysical Products
INOVA manufactures cable-based (G3i(cid:4) and ARIES(cid:4)) and cableless (Hawk(cid:4)) seismic data
acquisition systems, digital sensors (AccuSeis(cid:5) and VectorSeis), vibroseis vehicles (i.e., vibrator trucks,
known as AHV-IV(cid:5) and UNIVIB(cid:4)), and source controllers for detonator and energy source (Vib
Pro(cid:5) and Shot Pro(cid:5) II) business lines. In connection with the preparation of the financial statements
included in this Annual Report on Form 10-K, we wrote our investment in INOVA down to zero as of
December 31, 2014. For a discussion of the impairment of our equity method investment in INOVA,
see Footnote 5 ‘‘Equity Method Investments’’ of Footnotes to Consolidated Financial Statements
contained elsewhere in this Annual Report on Form 10-K.
Product Research and Development
Our ability to compete effectively in the seismic imaging market depends principally upon
continued technological innovation in our underlying technologies. As such, the overall focus of our
research and development efforts has remained on improving both the quality of the subsurface images
we generate and the economics of the seismic data acquisition that lies behind the imaging. In
particular, we have concentrated on enhancing the nature and quality of the information that can be
extracted from the subsurface images.
During 2014, our R&D efforts were aimed at developing strategic key technologies across all
business lines. A large part of this effort was focused on the final phases of development of our
Calypso re-deployable ocean bottom acquisition system, which we plan to put into service through our
Ocean Bottom Services segment. Within the seismic data processing business, we continued to invest in
productivity enhancements and in technologies aimed at handling increasingly complex data acquisition
environments and at areas with difficult-to-image subsurface geology. We invested in the further
development of our processing-based broadband marine seismic solution, WiBand, and in Marlin, a
new software system for managing simultaneous marine seismic operations. We also continued research
and development into maximizing the value of full-wave seismic data, particularly the extraction of new
and more accurate subsurface information with a special emphasis on shale plays and marine seabed
imaging.
As many of these new services and products are under development and, as the development
cycles from initial conception through to commercial introduction can extend over a number of years,
their commercial feasibility or degree of commercial acceptance may not yet be established. No
assurance can be given concerning the successful development of any new service or product, any
enhancements to them, the specific timing of their release or their level of acceptance in the
marketplace.
Markets and Customers
Our primary customers are E&P companies to whom we market and offer services, primarily
imaging-related processing services from our GXT data processing group, multi-client seismic data
programs from our GeoVentures group, and OBS data acquisition services through OceanGeo, as well
as consulting services from our Concept Systems software group. Secondarily, seismic contractors
purchase our towed marine data acquisition systems and related equipment and software to collect data
in accordance with their E&P company customers’ specifications or for their own seismic data libraries.
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A significant part of our marketing effort is focused on areas outside of the United States. Foreign
sales are subject to special risks inherent in doing business outside of the United States, including the
risk of political instability, armed conflict, civil disturbances, currency fluctuations, embargo and
governmental activities, customer credit risks and risk of non-compliance with U.S. and foreign laws,
including tariff regulations and import/export restrictions.
We sell our services and products through a direct sales force consisting of employees and
international third-party sales representatives responsible for key geographic areas. The majority of our
foreign sales are denominated in U.S. dollars. During 2014, 2013 and 2012, sales to destinations outside
of North America accounted for approximately 74%, 73% and 69% of our consolidated net revenues,
respectively. Further, systems and equipment sold to domestic customers are frequently deployed
internationally and, from time to time, certain foreign sales require export licenses.
Traditionally, our business has been seasonal, with strongest demand typically in the fourth quarter
of our fiscal year.
For information concerning the geographic breakdown of our net revenues, see Footnote 4
‘‘Segment and Geographic Information’’ of Footnotes to Consolidated Financial Statements contained
elsewhere in this Annual Report on Form 10-K for additional information.
Competition
Our GXT group within our Solutions segment competes with more than a dozen companies that
provide data processing services to E&P companies. See ‘‘—Services and Products—Solutions Segment.’’
While the barriers to enter this market are relatively low, we believe the barriers to compete at the
higher end of the market—the advanced pre-stack depth migration market where our efforts are
focused—are significantly higher. At the higher end of this market, CGG (an integrated geophysical
company) and Schlumberger, (a large integrated oilfield services company) are our Solutions segment’s
two primary competitors for advanced imaging services. Both of these companies are significantly larger
than ION in terms of revenue, processing locations, and sales, marketing and financial resources. In
addition, both CGG and Schlumberger possess an advantage in the data processing arena, as part of
more vertically integrated seismic contractor companies; for example, when these companies acquire
large 3-D multi-client surveys, the internal data processing organization will usually be awarded the
data processing without any requirement to compete with external vendors. CGG and Schlumberger,
along with other competitors, TGS-NOPEC Geophysical Company ASA and Spectrum ASA, also
develop and sell data libraries that compete with our BasinSPAN data library.
In the OBS market, OceanGeo competes with a number of companies, including WesternGeco,
Fairfield Nodal, Seabed GeoSolutions (a joint venture of Fugro and CGG) and Magseis. The OBS
market primarily addresses the production end of the E&P business, and is less susceptible to the
volatile short-term business cycles experienced in the exploration business. Consequently, the OBS
market has been a more stable segment than our other segments of the seismic industry. This market is
primarily vertically integrated with a variety of proprietary technologies, comprising both cable and
nodal systems. Most companies operate 1-3 crews, and there have been 3 new entrants in the last few
years.
In the land seismic equipment market, where INOVA competes, the principal competitors are
Sercel (a manufacturing subsidiary of CGG) and Geospace Technologies. INOVA is a joint venture with
BGP as a majority stake owner. BGP purchases land seismic equipment from both INOVA and its
competitors, including a large recent purchase from Sercel.
The market for seismic services and products is highly competitive and characterized by frequent
changes in technology. Our principal competitor for marine seismic equipment is Sercel. Sercel has the
advantage of being able to sell its products and services to its parent company that operates both land
13
and marine crews, providing it with a significant and stable internal market and a greater ability to test
new technology in the field. The recent downturn in the industry has disrupted traditional buying
patterns. We have seen a generally increasing trend of companies such as Petroleum GeoServices ASA
(‘‘PGS’’) developing their own instrumentation to create competitive advantage through products such
as Geostreamer. However, in apparent opposition to the trend, the recent announcement that Dolphin
would purchase seismic streamers from Schlumberger suggests that Schlumberger is now willing to
monetize technology previously considered to be for internal use only. We also compete with other
seismic equipment companies on a product-by-product basis. Our ability to compete effectively in the
manufacture and sale of seismic instruments and data acquisition systems depends principally upon
continued technological innovation, as well as pricing, system reliability, reputation for quality and
ability to deliver on schedule.
Some seismic contractors design, engineer and manufacture seismic acquisition technology in-house
(or through a network of third-party vendors) to differentiate themselves. Although this technology
competes directly with our marine streamer, ocean bottom and land acquisition equipment, it is not
usually made available to other seismic acquisition contractors. However, the risk exists that other
seismic contractors may decide to develop their own seismic technology, which would put additional
pressure on the demand for our acquisition equipment.
In addition, we expect some reduction in the market for spare parts and service of existing
equipment as a result of the fleet reductions currently occurring in the marine seismic market. By 2017,
we expect the number of 2-D and 3-D marine streamer vessels, including those in operation, under
construction, or announced additions to capacity, to increase by three, to approximately 118 vessels
total. However, this 2017 projection has decreased by 35 vessels from the projection one year ago due
to fleet reductions and conversions to source vessels. In addition, there has been an increase in recent
years of consolidation within the sector, with the major vessel operators—CGG, WesternGeco and
PGS—all acquiring new market entrants in the last several years. In 2013, CGG acquired the
geoscience division of Fugro, an international energy infrastructure company. This acquisition resulted
in more than 75% of the high-end 3-D seismic capacity being concentrated among the largest three
companies—CGG, WesternGeco and PGS. Those three companies are vertically integrated with
technology that uniquely differentiates them from the rest of the players. This consolidation reduces the
number of potential customers and vessel outfitting opportunities for us. During the downturn in the
price of crude oil and the resulting reduction in capital expenditures by E&P companies, we anticipate
that older, smaller and less efficient vessels will drop out of the fleet to be replaced by newer vessels.
Intellectual Property
We rely on a combination of patents, copyrights, trademark, trade secrets, confidentiality
procedures and contractual provisions to protect our proprietary technologies. We have more than 500
patents and pending patent applications, including filings in international jurisdictions with respect to
the same kinds of technologies. Although our portfolio of patents is considered important to our
operations, and particular patents may be material to specific business lines, no one patent is
considered essential to our consolidated business operations.
Our patents, copyrights and trademarks offer us only limited protection. Our competitors may
attempt to copy aspects of our products despite our efforts to protect our proprietary rights, or may
design around the proprietary features of our products. Policing unauthorized use of our proprietary
rights is difficult, and we may be unable to determine the extent to which such use occurs. Our
difficulties are compounded in certain foreign countries where the laws do not offer as much protection
for proprietary rights as the laws of the United States. From time to time, third parties inquire and
claim that we have infringed upon their intellectual property rights and we make similar inquiries and
claims to third parties. Material intellectual property litigation is discussed in detail in Item 3. ‘‘Legal
Proceedings.’’
14
The information contained in this Annual Report on Form 10-K contains references to trademarks,
service marks and registered marks of ION and our subsidiaries, as indicated. Except where stated
otherwise or unless the context otherwise requires, the terms ‘‘GeoVentures,’’ ‘‘VectorSeis,’’
‘‘ARIES II,’’ ‘‘DigiFIN,’’ ‘‘DigiCOURSE,’’ ‘‘Hawk,’’ ‘‘Orca,’’ ‘‘Reflex,’’ ‘‘G3i,’’ ‘‘Calypso,’’ ‘‘WiBand,’’
and ‘‘UNIVIB’’ refer to the GEOVENTURES(cid:4), VECTORSEIS(cid:4), ARIES(cid:4) II, DIGIFIN(cid:4),
DIGICOURSE(cid:4), Hawk(cid:4), ORCA(cid:4), REFLEX(cid:4), G3i(cid:4), Calypso(cid:4), WiBand(cid:4), and UNIVIB(cid:4) registered
marks owned by ION or INOVA Geophysical, and the terms ‘‘BasinSPAN,’’ ‘‘DigiSTREAMER,’’
‘‘Gator,’’ ‘‘AHV-IV,’’ ‘‘Vib Pro,’’ ‘‘Shot Pro,’’ ‘‘Optimiser,’’ ‘‘ResSCAN,’’ ‘‘Connex,’’ ‘‘Narwhal,’’
‘‘AccuSeis,’’ ‘‘PrecisION’’ and ‘‘Marlin’’ refer to the BasinSPAN(cid:5), DigiSTREAMER(cid:5), GATOR(cid:5),
AHV-IV(cid:5), Vib Pro(cid:5), Shot Pro(cid:5), Optimiser(cid:5), ResSCAN(cid:5), Connex(cid:5), Narwhal(cid:5), AccuSeis(cid:5),
PrecisION(cid:5) and Marlin(cid:5) trademarks and service marks owned by ION or INOVA Geophysical.
Regulatory Matters
Our operations are subject to various international conventions, laws and regulations in the
countries in which we operate, including laws and regulations relating to the importation of and
operation of seismic equipment, currency conversions and repatriation, oil and gas exploration and
development, taxation of offshore earnings and earnings of expatriate personnel, environmental
protection, the use of local employees and suppliers by foreign contractors and duties on the
importation and exportation of equipment. Our operations are subject to government policies and
product certification requirements worldwide. Governments in some foreign countries have become
increasingly active in regulating the companies holding concessions, the exploration for oil and gas and
other aspects of the oil and gas industries in their countries. In some areas of the world, this
governmental activity has adversely affected the amount of exploration and development work done by
major oil and gas companies and may continue to do so. Operations in less developed countries can be
subject to legal systems that are not as mature or predictable as those in more developed countries,
which can lead to greater uncertainty in legal matters and proceedings.
Changes in these conventions, regulations, policies or requirements could affect the demand for
our services and products or result in the need to modify them, which may involve substantial costs or
delays in sales and could have an adverse effect on our future operating results. Our export activities
are subject to extensive and evolving trade regulations. Certain countries are subject to trade
restrictions, embargoes and sanctions imposed by the U.S. government. These restrictions and sanctions
prohibit or limit us from participating in certain business activities in those countries.
Our operations are also subject to numerous local, state and federal laws and regulations in the
United States and in foreign jurisdictions concerning the containment and disposal of hazardous
materials, the remediation of contaminated properties and the protection of the environment. While
the industry has experienced an increase in general environmental regulation worldwide and laws and
regulations protecting the environment have generally become more stringent, we do not believe
compliance with these regulations has resulted in a material adverse effect on our business or results of
operations, and we do not currently foresee the need for significant expenditures in order to be able to
remain compliant in all material respects with current environmental protection laws. Regulations in
this area are subject to change, and there can be no assurance that future laws or regulations will not
have a material adverse effect on us.
The Deepwater Horizon incident in the U.S. Gulf of Mexico in April 2010 resulted in a
moratorium on certain offshore drilling activities by the Bureau of Ocean Energy Management,
Regulation and Enforcement (formerly known as the Minerals Management Service and which was
replaced effective October 1, 2011 by two new, independent bureaus—the Bureau of Safety and
Environmental Enforcement (‘‘BSEE’’) and the Bureau of Ocean Energy Management (‘‘BOEM’’). The
BSEE and BOEM issued safety and environmental guidelines and regulations for drilling in the Gulf of
Mexico and other offshore regions, and may take other steps that could increase the costs of
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exploration and production, reduce the area of operations and result in additional permitting delays in
the Gulf of Mexico.
We do not engage in hydraulic fracturing services, a commonly used process in the completion of
oil and natural gas wells in low permeability formations such as shales, which involves the injection of
water, proppants and chemicals under pressure into the target reservoir to stimulate hydrocarbon
production. Our business, however, is dependent on the level of activity by our E&P customers, and
hydrocarbons cannot be economically produced from certain reservoirs without extensive fracturing.
Due to public concerns about any environmental impact that hydraulic fracturing may have, including
potential impairment of groundwater quality, certain legislative and regulatory efforts at the federal,
state and local levels have been initiated to impose more stringent permitting and compliance
obligations on these operations. Any legislative and regulatory initiatives imposing significant additional
restrictions on, or otherwise limiting, the hydraulic fracturing process could make it more difficult or
costly to complete natural gas and oil wells. In the event such requirements are enacted, demand for
our ResSCAN shale data libraries and seismic data acquisition services may be adversely affected.
Our customers’ operations are also significantly impacted in other respects by laws and regulations
concerning the protection of the environment and endangered species. For instance, many of our
marine contractors have been affected by regulations protecting marine mammals in the Gulf of
Mexico. To the extent that our customers’ operations are disrupted by future laws and regulations, our
business and results of operations may be materially adversely affected.
Employees
As of December 31, 2014, we had 879 regular, full-time employees, 569 of whom were located in
the U.S. From time to time and on an as-needed basis, we supplement our regular workforce with
individuals that we hire temporarily or retain as independent contractors in order to meet certain
internal manufacturing or other business needs. Our U.S. employees are not represented by any
collective bargaining agreement, and we have never experienced a labor-related work stoppage. We
believe that our employee relations are satisfactory.
Financial Information by Segment and Geographic Area
For a discussion of financial information by business segment and geographic area, see Footnote 4
‘‘Segment and Geographic Information’’ of Footnotes to Consolidated Financial Statements.
Available Information
Our executive headquarters are located at 2105 CityWest Boulevard, Suite 400, Houston, Texas
77042-2839. Our international sales headquarters are located at LOB 16, office 504, Jebel Ali Free
Zone, P.O. Box 18627, Dubai, United Arab Emirates. Our telephone number is (281) 933-3339. Our
home page on the internet is www.iongeo.com. We make our website content available for information
purposes only. Unless specifically incorporated by reference in this Annual Report on Form 10-K,
information that you may find on our website is not part of this report.
In portions of this Annual Report on Form 10-K, we incorporate by reference information from
parts of other documents filed with the Securities and Exchange Commission (‘‘SEC’’). The SEC allows
us to disclose important information by referring to it in this manner, and you should review this
information. We make our annual reports on Form 10-K, quarterly reports on Form 10-Q, current
reports on Form 8-K, annual reports to stockholders, and proxy statements for our stockholders’
meetings, as well as any amendments, available free of charge through our website as soon as
reasonably practicable after we electronically file those materials with, or furnish them to, the SEC.
16
You can learn more about us by reviewing our SEC filings on our website. Our SEC reports can
be accessed through the Investor Relations section on our website. The SEC also maintains a website
at www.sec.gov that contains reports, proxy statements, and other information regarding SEC
registrants, including our company.
Item 1A. Risk Factors
This report contains or incorporates by reference statements concerning our future results and
performance and other matters that are ‘‘forward-looking’’ statements within the meaning of
Section 27A of the Securities Act of 1933, as amended (‘‘Securities Act’’), and Section 21E of the
Securities Exchange Act of 1934, as amended (‘‘Exchange Act’’). These statements involve known and
unknown risks, uncertainties and other factors that may cause our or our industry’s results, levels of
activity, performance, or achievements to be materially different from any future results, levels of
activity, performance, or achievements expressed or implied by such forward-looking statements. In
some cases, you can identify forward-looking statements by terminology such as ‘‘may,’’ ‘‘will,’’ ‘‘would,’’
‘‘should,’’ ‘‘intend,’’ ‘‘expect,’’ ‘‘plan,’’ ‘‘anticipate,’’ ‘‘believe,’’ ‘‘estimate,’’ ‘‘predict,’’ ‘‘potential,’’ or
‘‘continue’’ or the negative of such terms or other comparable terminology. Examples of other forward-
looking statements contained or incorporated by reference in this report include statements regarding:
(cid:129) the expected outcome of the WesternGeco litigation and future potential adverse effects on our
liquidity in the event that we must collateralize our appeal bond for the full amount of the bond
or are unsuccessful in our appeal of the judgment;
(cid:129) future oil and gas commodity prices;
(cid:129) future levels of capital expenditures of our customers for seismic activities;
(cid:129) the effects of current and future worldwide economic conditions (particularly in developing
countries) and demand for oil and natural gas and seismic equipment and services;
(cid:129) the effects of current and future unrest in the Middle East, North Africa and other regions,
including Ukraine;
(cid:129) the timing of anticipated revenues and the recognition of those revenues for financial accounting
purposes;
(cid:129) the effects of ongoing and future industry consolidation, including, in particular, the effects of
consolidation and vertical integration in the towed marine seismic streamers market;
(cid:129) the timing of future revenue realization of anticipated orders for multi-client survey projects and
data processing work in our Solutions segment;
(cid:129) future levels of our capital expenditures;
(cid:129) future government regulations, particularly in the Gulf of Mexico;
(cid:129) expected net revenues, income from operations and net income;
(cid:129) expected gross margins for our services and products;
(cid:129) future benefits to be derived from our INOVA Geophysical joint venture;
(cid:129) future benefits to be derived from our OceanGeo subsidiary;
(cid:129) future seismic industry fundamentals, including future demand for seismic services and
equipment;
(cid:129) future benefits to our customers to be derived from new services and products;
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(cid:129) future benefits to be derived from our investments in technologies, joint ventures and acquired
companies;
(cid:129) future growth rates for our services and products;
(cid:129) the degree and rate of future market acceptance of our new services and products;
(cid:129) expectations regarding E&P companies and seismic contractor end-users purchasing our more
technologically-advanced services and products;
(cid:129) anticipated timing and success of commercialization and capabilities of services and products
under development and start-up costs associated with their development;
(cid:129) future cash needs and future availability of cash to fund our operations and pay our obligations;
(cid:129) potential future acquisitions;
(cid:129) future opportunities for new products and projected research and development expenses;
(cid:129) expected continued compliance with our debt financial covenants;
(cid:129) expectations regarding realization of deferred tax assets; and
(cid:129) anticipated results with respect to certain estimates we make for financial accounting purposes.
These forward-looking statements reflect our best judgment about future events and trends based
on the information currently available to us. Our results of operations can be affected by inaccurate
assumptions we make or by risks and uncertainties known or unknown to us. Therefore, we cannot
guarantee the accuracy of the forward-looking statements. Actual events and results of operations may
vary materially from our current expectations and assumptions. While we cannot identify all of the
factors that may cause actual results to vary from our expectations, we believe the following factors
should be considered carefully:
An unfavorable outcome in our pending litigation matter with WesternGeco could have a materially adverse
effect on our financial results and liquidity.
In August 2012, a jury in the WesternGeco L.L.C. v. ION Geophysical Corporation litigation
returned a verdict of approximately $105.9 million in damages against us (for additional information,
see Item 3. ‘‘Legal Proceedings’’ below). In June 2013, the presiding judge entered a Memorandum and
Order denying our post-verdict motions that challenged the jury’s infringement findings and the
damages amount. In the Memorandum and Order, the judge also stated that WesternGeco is entitled
to be awarded supplemental damages for the additional DigiFIN units that were supplied from the
United States before and after trial that were not included in the jury verdict due to the timing of the
trial. In October 2013, the judge entered another Memorandum and Order, ruling on the number of
DigiFIN units that are subject to supplemental damages and also ruling that the supplemental damages
applicable to the additional units should be calculated by adding together the jury’s previous reasonable
royalty and lost profits damages awards per unit, resulting in supplemental damages of $73.1 million.
In April 2014, the judge entered another Order, ruling that lost profits should not have been
included in the calculation of supplemental damages in the October 2013 Memorandum and Order and
reducing the supplemental damages award in the case from $73.1 million to $9.4 million. In the Order,
the judge also further reduced the damages award in the case by $3.0 million to reflect a settlement
and license that WesternGeco entered into with a customer of ours that had purchased and used
DigiFIN units that were also included in the damage amounts awarded against us.
In May 2014, the judge signed and entered a Final Judgment in the amount of $123.8 million.
Also, the Final Judgment included an injunction that enjoins us, our agents and anyone acting in
concert with us, from supplying in or from the United States the DigiFIN product or any parts unique
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to the DigiFIN product, or any instrumentality no more than colorably different from any of these
products or parts, for combination outside of the United States. We have conducted our business in
compliance with the Court’s orders in the case, and we have reorganized our operations such that we
no longer supply the DigiFIN product or any parts unique to the DigiFIN product in or from the
United States.
As previously disclosed, we have taken a loss contingency accrual of $123.8 million related to this
case. Post-judgment interest will continue to accrue until this legal matter is fully resolved.
We and WesternGeco have each appealed the Final Judgment to the United States Court of
Appeals for the Federal Circuit. We filed our appeal brief on September 4, 2014. WesternGeco’s appeal
brief was filed on October 21, 2014. Oral arguments have been scheduled for March 5, 2015. If the
adverse ruling is affirmed, we intend to pursue all available opportunities to make further appeals.
In order to stay the judgment during the appeal, we arranged with sureties to post an appeal bond
with the trial court on our behalf in the amount of $120.0 million. The terms of the appeal bond
arrangements provide the sureties the contractual right for as long as the bond is outstanding to
require us to post cash collateral for up to the full amount of the bond. If the sureties exercise their
right to require collateral while the appeal bond is outstanding, we would intend to utilize a
combination of cash on hand and undrawn balances available under our New Credit Facility (as defined
below). If we are required to collateralize the full amount of the bond, we might also seek additional
debt and/or equity financing. The collateralization of the full amount of the bond could have a material
adverse effect on our liquidity. Any requirement that we collateralize the appeal bond will reduce our
liquidity and may reduce the borrowings otherwise available under our New Credit Facility. No
assurances can be made whether our efforts to raise additional cash would be successful and, if so, on
what terms and conditions, and at what cost we might be able to secure any such financing. For
additional discussion about our liquidity related to posting an appeal bond, see Item 7. ‘‘Management’s
Discussion and Analysis of Financial Condition and Results of Operations—Meeting our Liquidity
Requirements—Loss Contingency—WesternGeco Lawsuit’’ in Part II of this Form 10-K.
If our efforts on appeal to reverse or reduce the verdict substantially are unsuccessful, it would
likely have the effect of reducing our capital resources available to fund our operations and take
advantage of certain business opportunities, which could have a material adverse effect on our business,
results of operations and financial condition.
We may not ultimately prevail in the appeals process and we could be required to pay damages up
to the amount of the loss contingency accrual plus any additional amount ordered by the court. Our
assessment of our potential loss contingency may change in the future due to developments at the
appellate court and other events, such as changes in applicable law, and such reassessment could lead
to the determination that no loss contingency is probable or that a greater loss contingency is probable,
which could have a material effect on our business, financial condition and results of operations.
Amounts of estimated loss contingency accruals as disclosed in this Annual Report on Form 10-K or
elsewhere are based on currently available information and involve elements of judgment and
significant uncertainties. Actual losses may exceed or be considerably less than these accrual amounts.
Our business depends on the level of exploration and production activities by the oil and natural gas
industry. If crude oil and natural gas prices or the level of capital expenditures by E&P companies were to
further decline, demand for our services and products would decline and our results of operations would be
materially adversely affected.
Demand for our services and products depends upon the level of spending by E&P companies and
seismic contractors for exploration and production activities, and those activities depend in large part
on oil and gas prices. Spending by our customers on services and products that we provide is highly
discretionary in nature, and subject to rapid and material change. Any further significant decline in oil
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and gas related spending on behalf of our customers could cause alterations in our capital spending
plans, project modifications, delays or cancellations, general business disruptions or delays in payment,
or non-payment of amounts that are owed to us, any one of which could have a material adverse effect
on our financial condition and results of operations and on our ability to continue to satisfy all of the
covenants in our debt agreements. Additionally, increases in oil and gas prices may not increase
demand for our services and products or otherwise have a positive effect on our financial condition or
results of operations. E&P companies’ willingness to explore, develop and produce depends largely
upon prevailing industry conditions that are influenced by numerous factors over which our
management has no control, such as:
(cid:129) the supply of and demand for oil and gas;
(cid:129) the level of prices, and expectations about future prices, of oil and gas;
(cid:129) the cost of exploring for, developing, producing and delivering oil and gas;
(cid:129) the expected rates of decline for current production;
(cid:129) the discovery rates of new oil and gas reserves;
(cid:129) weather conditions, including hurricanes, that can affect oil and gas operations over a wide area,
as well as less severe inclement weather that can preclude or delay seismic data acquisition;
(cid:129) domestic and worldwide economic conditions;
(cid:129) political instability in oil and gas producing countries;
(cid:129) technical advances affecting energy consumption;
(cid:129) government policies regarding the exploration, production and development of oil and gas
reserves;
(cid:129) the ability of oil and gas producers to raise equity capital and debt financing; and
(cid:129) merger and divestiture activity among oil and gas companies and seismic contractors.
In recent months, crude oil prices have dropped by approximately 45%-50% as the non-U.S.
economic outlook continues to weaken, North American production continues to expand, and more
recently, Saudi Arabia has publicly stated its intention to support its global market share at the expense
of lower prices.
The weakening economic outlook for non-U.S. oil demand, especially in Europe, has put more
downward pressure on prices. Thus, the bottom-end of the price range for crude oil has decreased
significantly beginning in the fourth quarter of 2014 compared to 2013.
In 2013, we started seeing decreased spending on exploration by E&P companies. As a result of
recent decreases in crude oil prices, many E&P companies have announced that they are reducing their
capital expenditures, which has resulted in diminished demand for our services and products and has
caused downward pressure on the prices we charge or the level of work we do for our customers.
The level of oil and gas exploration and production activity has been volatile in recent years.
Previously forecasted upward trends in oil and gas exploration and development activities have not
continued and, in fact as discussed above, have declined, together with demand for our services and
products. Any prolonged substantial reduction in oil and gas prices would likely further affect oil and
gas production levels and therefore adversely affect demand for the services we provide and products
we sell.
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Our operating results often fluctuate from period to period, and we are subject to cyclicality and seasonality
factors.
Our industry and the oil and gas industry in general are subject to cyclical fluctuations. Demand
for our services and products depends upon spending levels by E&P companies for exploration,
production, development and field management of oil and natural gas reserves and, in the case of new
seismic data creation, the willingness of those companies to forgo ownership in the seismic data.
Capital expenditures by E&P companies for these activities depend upon several factors, including
actual and forecasted prices of oil and natural gas and those companies’ short-term and strategic plans.
After a period of exploration-focused activities by E&P companies in recent years, recent studies
have indicated that many E&P companies in 2015 will focus more on production activities and less on
exploration of prospects. The major national and independent oil companies may have determined to
pause in their efforts to acquire exploration seismic data and focus more on the exploitation of their
discoveries. The smaller independents may, in turn, focus on asset sales during 2015. As of
December 31, 2014, our Solutions segment backlog, consisting of commitments for data processing
work and for underwritten multi-client new venture and proprietary projects by our GeoVentures
group, was 45% less than our backlog existing as of December 31, 2013.
Our operating results are subject to fluctuations from period to period as a result of new service or
product introductions, the timing of significant expenses in connection with customer orders, unrealized
sales, levels of research and development activities in different periods, the product and service mix of
our revenues and the seasonality of our business. Because some of our products feature a high sales
price and are technologically complex, we generally experience long sales cycles for these types of
products and historically incur significant expense at the beginning of these cycles for component parts
and other inventory necessary to manufacture a product in anticipation of a future sale, which may not
ultimately occur. In addition, the revenues can vary widely from period to period due to changes in
customer requirements and demand. These factors can create fluctuations in our net revenues and
results of operations from period to period. Variability in our overall gross margins for any period,
which depend on the percentages of higher-margin and lower-margin services and products sold in that
period, compounds these uncertainties. As a result, if net revenues or gross margins fall below
expectations, our results of operations and financial condition will likely be materially adversely
affected.
Additionally, our business can be seasonal in nature, with strongest demand typically in the fourth
calendar quarter of each year. Customer budgeting cycles at times result in higher spending activity
levels by our customers at different points of the year.
Due to the relatively high sales price of many of our products and seismic data libraries, our
quarterly operating results have historically fluctuated from period to period due to the timing of
orders and shipments and the mix of services and products sold. This uneven pattern makes financial
predictions for any given period difficult, increases the risk of unanticipated variations in our quarterly
results and financial condition, and places challenges on our inventory management. Delays caused by
factors beyond our control, such as the granting of permits for seismic surveys by third parties, the
effect from disasters such as the Deepwater Horizon incident in the Gulf of Mexico and the availability
and equipping of marine vessels, can affect our Solutions segment’s revenues from its processing and
GeoVentures services from period to period. Also, delays in ordering products or in shipping or
delivering products in a given period could significantly affect our results of operations for that period.
While we experienced an all-time record for data library sales in the fourth quarter of 2013, sales in
2014 have been negatively impacted by a softening of exploration spending by our E&P customers.
Fluctuations in our quarterly operating results may cause greater volatility in the market price of our
common stock.
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We are subject to intense competition, which could limit our ability to maintain or increase our market
share or to maintain our prices at profitable levels.
Many of our sales are obtained through a competitive bidding process, which is standard for our
industry. Competitive factors in recent years have included price, technological expertise, and a
reputation for quality, safety and dependability. While no single company competes with us in all of our
segments, we are subject to intense competition in each of our segments. New entrants in many of the
markets in which certain of our services and products are currently strong should be expected. See
Item 1. ‘‘Business—Competition.’’ We compete with companies that are larger than we are in terms of
revenues, technical personnel, number of processing locations and sales and marketing resources. A few
of our competitors have a competitive advantage in being part of a large affiliated seismic contractor
company. In addition, we compete with major service providers and government-sponsored enterprises
and affiliates. Some of our competitors conduct seismic data acquisition operations as part of their
regular business, which we have traditionally not conducted, and have greater financial and other
resources than we do. These and other competitors may be better positioned to withstand and adjust
more quickly to volatile market conditions, such as fluctuations in oil and natural gas prices, as well as
changes in government regulations. In addition, any excess supply of services and products in the
seismic services market could apply downward pressure on prices for our services and products. The
negative effects of the competitive environment in which we operate could have a material adverse
effect on our results of operations. In particular, the consolidation in recent years of many of our
competitors in the seismic services and products markets has negatively impacted our results of
operations.
There are a number of geophysical companies that create, market and license seismic data and
maintain seismic libraries. Competition for acquisition of new seismic data among geophysical service
providers historically has been intense and we expect this competition will continue to be intense.
Larger and better-financed operators could enjoy an advantage over us in a competitive environment
for new data.
Our new OceanGeo subsidiary involves numerous risks.
Our new OceanGeo subsidiary is focused on operating as a seismic acquisition contractor
concentrating on marine seabed OBS data acquisition. There can be no assurance that we will achieve
the expected benefits from this new company. OceanGeo (and any future acquisitions that we may
undertake) may result in unexpected costs, expenses and liabilities, which may have a material adverse
effect on our business, financial condition or results of operations. OceanGeo may encounter
difficulties in developing and expanding its business. We may experience difficulties in funding future
capital contributions to OceanGeo.
OceanGeo’s business exposes us to the operating risks of being a seismic contractor with seismic
crews:
(cid:129) Seismic data acquisition activities in marine ocean bottom areas are subject to the risk of
downtime or reduced productivity, as well as to the risks of loss to property and injury to
personnel, mechanical failures and natural disasters. In addition to losses caused by human
errors and accidents, we may also become subject to losses resulting from, among other things,
political instability, business interruption, strikes and weather events; and
(cid:129) OceanGeo’s equipment and services may expose us to litigation and legal proceedings, including
those related to product liability, personal injury and contract liability.
We will have in place insurance coverage against operating hazards, including product liability
claims and personal injury claims, damage, destruction or business interruption related to OceanGeo’s
equipment and services, and whenever possible, OceanGeo will obtain agreements from customers that
22
limit our liability. We also carry war, strikes, terrorism and related perils coverage for OceanGeo.
However, we cannot assure you that the nature and amount of insurance will be sufficient to fully
indemnify OceanGeo and us against liabilities arising from pending and future claims or that its
insurance coverage will be adequate in all circumstances or against all hazards, and that we will be able
to maintain adequate insurance coverage in the future at commercially reasonable rates or on
acceptable terms.
OceanGeo is also subject to, and exposes OceanGeo and us to, various additional risks that could
adversely affect our results of operations and financial condition. These risks include the following:
(cid:129) increased costs associated with the operation of the business and the management of
geographically dispersed operations;
(cid:129) OceanGeo’s cash flows may be inadequate to fund its capital requirements, thereby requiring
additional contributions to OceanGeo by us;
(cid:129) risks associated with our new Calypso ocean bottom product that is intended to be utilized by
OceanGeo in its operations, including risks that the new technology may not perform as well as
we anticipate;
(cid:129) difficulties in retaining and integrating key technical, sales and marketing personnel and the
possible loss of such employees and costs associated with their loss;
(cid:129) the diversion of management’s attention and other resources from other business operations and
related concerns;
(cid:129) the requirement to maintain uniform standards, controls and procedures;
(cid:129) we may not be able to realize operating efficiencies, cost savings or other benefits that we expect
from OceanGeo’s operations; and
(cid:129) OceanGeo may experience difficulties and delays in securing new business and customer
projects.
Our INOVA Geophysical joint venture with BGP involves numerous risks.
Our INOVA Geophysical joint venture with BGP is focused on designing, engineering,
manufacturing, research and development, sales and marketing and field support of land-based
equipment used in seismic data acquisition for the oil and gas industry. Excluded from the scope of the
joint venture’s business are the analog sensor businesses of our respective companies, and the
businesses of certain companies in which BGP or we are currently a minority owner.
The INOVA Geophysical joint venture involves the integration of multiple product lines and
business models contributed by us and BGP that previously operated independently. This has proved to
be a complex and time-consuming process.
Effective December 31, 2014, we have written our investment in INOVA Geophysical down to
zero. In light of the write-down, we do not anticipate additional adverse financial impacts from the
investment in INOVA Geophysical on our financial condition or results of operation. While we have
written down our investment in INOVA Geophysical, we remain an owner of 49% of the equity in
INOVA Geophysical. As an owner, we could be subject to capital calls in the future which, if not
funded, could cause a dilution of our percentage interest in INOVA. We currently do not intend to
participate in any future capital calls or provide future funding to INOVA. We may also experience
difficulties exercising influence over the management and activities of the joint venture, quality control
over joint venture products and services and potential conflicts of interest with the joint venture and
with BGP, our joint venture partner. Also, we could be disadvantaged in the event of disputes and
controversies with our joint venture partner, since our joint venture partner is a relatively significant
23
customer of our services and products and future services and products of the joint venture as well as a
holder of approximately 14% of our outstanding common stock.
The joint venture is also subject to, and exposes us to various risks including the following:
(cid:129) increased costs associated with the integration and operation of the new business and the
management of geographically dispersed operations;
(cid:129) risks associated with the assimilation of new technologies, operations, sites and personnel;
(cid:129) difficulties in retaining and integrating key technical, sales and marketing personnel and the
possible loss of such employees and costs associated with their loss;
(cid:129) difficulties associated with preserving relationships with our customers, partners and vendors;
(cid:129) risks that any technology developed by the joint venture may not perform as well as we had
anticipated;
(cid:129) the strength of future seismic contractor demand for land seismic equipment and the highly
competitive nature of the land seismic equipment manufacturing industry;
(cid:129) the diversion of management’s attention and other resources from other business operations and
related concerns;
(cid:129) the potential inability to replicate operating efficiencies in the joint venture’s operations;
(cid:129) the requirement to maintain uniform standards, controls and procedures;
(cid:129) the impairment of relationships with employees and customers as a result of the integration of
management personnel from different companies;
(cid:129) the divergence of our interests from BGP’s interests in the future, disagreements with BGP on
ongoing manufacturing, research and development and operational activities, or the amount,
timing or nature of further investments in the joint venture;
(cid:129) the terms of our joint venture arrangements may turn out to be unfavorable to us;
(cid:129) because we currently own only 49% of the total equity interests in INOVA Geophysical, there
are certain decisions affecting the business of the joint venture that we cannot control or
influence;
(cid:129) we may not be able to realize the operating efficiencies, cost savings or other benefits that we
expect from the joint venture;
(cid:129) joint venture profits and cash flows may prove inadequate to fund cash dividends or other
distributions from the joint venture to the joint venture partners; and
(cid:129) the joint venture may experience difficulties and delays in production of the joint venture’s
products.
In addition, the terms of the joint venture’s governing instruments and the agreements regarding
BGP’s investment in our company contain a number of restrictive provisions that directly affect us. For
example, an investors’ rights agreement grants pre-emptive rights to BGP with respect to certain future
issuances of our stock. These restrictions may adversely affect our ability to quickly raise funds through
a future issuance of our securities, and could have the effect of discouraging, delaying or preventing a
merger or acquisition of our company that our stockholders may otherwise consider to be favorable.
See ‘‘—Our certificate of incorporation and bylaws, Delaware law and certain contractual obligations under
our agreement with BGP contain provisions that could discourage another company from acquiring us’’
below.
24
Our indebtedness could adversely affect our liquidity, financial condition and our ability to fulfill our
obligations and operate our business.
As of December 31, 2014, we had approximately $190.6 million of total outstanding indebtedness,
including $15.1 million of capital leases. As of December 31, 2014, there was no outstanding
indebtedness under our New Credit Facility. Under our New Credit Facility, the lenders have currently
committed $80.0 million of revolving credit, subject to a borrowing base. As of December 31, 2014, we
have approximately $68.2 million available under the New Credit Facility. The amount available will
increase or decrease monthly as our borrowing base changes. We may also incur additional
indebtedness in the future. If we are required to post collateral for an appeal bond with a surety during
the appeal process, depending on the size of the bond and the level of required collateral, in order to
collateralize the bond we might need to utilize a combination of cash on hand an undrawn sums
available for borrowing under our New Credit Facility, and possibly incur additional debt financing. See
‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operations’’ appearing
below in this Form 10-K.
In November 2014, Standard and Poor’s (‘‘S&P’’) downgraded our company’s corporate and debt
ratings. According to S&P, this downgrade reflects S&P’s expectation that our company will face
unclear market conditions as a result of the decrease in crude oil and U.S. natural gas prices. Both
S&P and Moody’s Investor Services continue to hold a negative outlook on our company due to the
weak seismic sector fundamentals and concerns around maintaining sufficient liquidity to fund
contingent liabilities.
Higher levels of indebtedness could have negative consequences to us, including:
(cid:129) we may have difficulty satisfying our obligations with respect to our outstanding debt;
(cid:129) we may have difficulty obtaining financing in the future for working capital, capital expenditures,
acquisitions or other purposes;
(cid:129) we may need to use all, or a substantial portion, of our available cash flow to pay interest and
principal on our debt, which will reduce the amount of money available to finance our
operations and other business activities;
(cid:129) our vulnerability to general economic downturns and adverse industry conditions could increase;
(cid:129) our flexibility in planning for, or reacting to, changes in our business and in our industry in
general could be limited;
(cid:129) our amount of debt and the amount we must pay to service our debt obligations could place us
at a competitive disadvantage compared to our competitors that have less debt;
(cid:129) our customers may react adversely to our significant debt level and seek or develop alternative
licensors or suppliers;
(cid:129) we may have insufficient funds, and our debt level may also restrict us from raising the funds
necessary to repurchase all of the Notes (defined below) tendered to us upon the occurrence of
a change of control, which would constitute an event of default under the Notes; and
(cid:129) our failure to comply with the restrictive covenants in our debt instruments which, among other
things, limit our ability to incur debt and sell assets, could result in an event of default that, if
not cured or waived, could have a material adverse effect on our business or prospects.
Our level of indebtedness will require that we use a substantial portion of our cash flow from
operations to pay principal of, and interest on, our indebtedness, which will reduce the availability of
cash to fund working capital requirements, capital expenditures, research and development and other
general corporate or business activities.
25
The indenture governing the 8.125% Senior Secured Second-Priority Notes due 2018 (the ‘‘Notes’’) contains
a number of restrictive covenants that limit our ability to finance future operations or capital needs or
engage in other business activities that may be in our interest.
The indenture governing the Notes imposes, and the terms of any future indebtedness may impose,
operating and other restrictions on us and our subsidiaries. Such restrictions affect or will affect, and in
many respects limit or prohibit, among other things, our ability and the ability of certain of our
subsidiaries to:
(cid:129) incur additional indebtedness;
(cid:129) create liens;
(cid:129) pay dividends and make other distributions in respect of our capital stock;
(cid:129) redeem our capital stock;
(cid:129) make investments or certain other restricted payments;
(cid:129) sell certain kinds of assets;
(cid:129) enter into transactions with affiliates; and
(cid:129) effect mergers or consolidations.
The restrictions contained in the indenture governing the Notes could:
(cid:129) limit our ability to plan for or react to market or economic conditions or meet capital needs or
otherwise restrict our activities or business plans; and
(cid:129) adversely affect our ability to finance our operations, acquisitions, investments or strategic
alliances or other capital needs or to engage in other business activities that would be in our
interest.
A breach of any of these covenants could result in a default under the indenture governing the
Notes. If an event of default occurs, the trustee and holders of the Notes could elect to declare all
borrowings outstanding, together with accrued and unpaid interest, to be immediately due and payable.
An event of default under the indenture governing the Notes would also constitute an event of default
under our New Credit Facility. See Footnote 6 ‘‘Long-term Debt and Lease Obligations’’ of the
Footnotes to Consolidated Financial Statements appearing below in this Form 10-K.
As a technology-focused company, we are continually exposed to risks related to complex, highly technical
services and products.
We have made, and we will continue to make, strategic decisions from time to time as to the
technologies in which we invest. If we choose the wrong technology, our financial results could be
adversely impacted. Our operating results are dependent upon our ability to improve and refine our
seismic imaging and data processing services and to successfully develop, manufacture and market our
products and other services and products. New technologies generally require a substantial investment
before any assurance is available as to their commercial viability. If we choose the wrong technology, or
if our competitors develop or select a superior technology, we could lose our existing customers and be
unable to attract new customers, which would harm our business and operations.
New data acquisition or processing technologies may be developed. New and enhanced services
and products introduced by one of our competitors may gain market acceptance and, if not available to
us, may adversely affect us.
The markets for our services and products are characterized by changing technology and new
product introductions. We must invest substantial capital to develop and maintain a leading edge in
26
technology, with no assurance that we will receive an adequate rate of return on those investments. If
we are unable to develop and produce successfully and timely new or enhanced services and products,
we will be unable to compete in the future and our business, our results of operations and our financial
condition will be materially and adversely affected. Our business could suffer from unexpected
developments in technology, or from our failure to adapt to these changes. In addition, the preferences
and requirements of customers can change rapidly.
The businesses of our Solutions and Software segments, being more concentrated in software,
processing services and proprietary technologies, have also exposed us to various risks that these
technologies typically encounter, including the following:
(cid:129) future competition from more established companies entering the market;
(cid:129) technology obsolescence;
(cid:129) dependence upon continued growth of the market for seismic data processing;
(cid:129) the rate of change in the markets for these segments’ technology and services;
(cid:129) research and development efforts not proving sufficient to keep up with changing market
demands;
(cid:129) dependence on third-party software for inclusion in these segments’ services and products;
(cid:129) misappropriation of these segments’ technology by other companies;
(cid:129) alleged or actual infringement of intellectual property rights that could result in substantial
additional costs;
(cid:129) difficulties inherent in forecasting sales for newly developed technologies or advancements in
technologies;
(cid:129) recruiting, training and retaining technically skilled, experienced personnel that could increase
the costs for these segments, or limit their growth; and
(cid:129) the ability to maintain traditional margins for certain of their technology or services.
Seismic data acquisition and data processing technologies historically have progressed rather
rapidly, and we expect this progression to continue. In order to remain competitive, we must continue
to invest additional capital to maintain, upgrade and expand our seismic data acquisition and processing
capabilities. However, due to potential advances in technology and the related costs associated with
such technological advances, we may not be able to fulfill this strategy, thus possibly affecting our
ability to compete.
Our customers often require demanding specifications for performance and reliability of our
services and products. Because many of our products are complex and often use unique advanced
components, processes, technologies and techniques, undetected errors and design and manufacturing
flaws may occur. Even though we attempt to assure that our systems are always reliable in the field, the
many technical variables related to their operations can cause a combination of factors that can, and
have from time to time, caused performance and service issues with certain of our products. Product
defects result in higher product service, warranty and replacement costs and may affect our customer
relationships and industry reputation, all of which may adversely impact our results of operations.
Despite our testing and quality assurance programs, undetected errors may not be discovered until the
product is purchased and used by a customer in a variety of field conditions. If our customers deploy
our new products and they do not work correctly, our relationship with our customers may be
materially and adversely affected.
27
As a result of our systems’ advanced and complex nature, we expect to experience occasional
operational issues from time to time. Generally, until our products have been tested in the field under
a wide variety of operational conditions, we cannot be certain that performance and service problems
will not arise. In that case, market acceptance of our new products could be delayed and our results of
operations and financial condition could be adversely affected.
We have invested, and expect to continue to invest, significant sums of money in acquiring and processing
seismic data for our Solutions’ multi-client data library, without knowing precisely how much of this
seismic data we will be able to license or when and at what price we will be able to license the data sets.
Our business could be adversely affected by the failure of our customers to fulfill their obligations to
reimburse us for the underwritten portion of our seismic data acquisition costs for our multi-client library.
We invest significant amounts in acquiring and processing new seismic data to add to our
Solutions’ multi-client data library. The costs of most of these investments are funded by our customers,
with the remainder generally being recovered through future data licensing fees. In 2014, we invested
approximately $67.8 million in our multi-client data library. Our customers generally commit to
licensing the data prior to our initiating a new data library acquisition program. However, the aggregate
amounts of future licensing fees for this data are uncertain and depend on a variety of factors,
including the market prices of oil and gas, customer demand for seismic data in the library, and the
availability of similar data from competitors.
By making these investments in acquiring and processing new seismic data for our Solutions’ multi-
client library, we are exposed to the following risks:
(cid:129) We may not fully recover our costs of acquiring and processing seismic data through future sales.
The ultimate amounts involved in these data sales are uncertain and depend on a variety of
factors, many of which are beyond our control.
(cid:129) The timing of these sales is unpredictable and can vary greatly from period to period. The costs
of each survey are capitalized and then amortized as a percentage of sales and/or over the
expected useful life of the data. This amortization will affect our earnings and, when combined
with the sporadic nature of sales, will result in increased earnings volatility.
(cid:129) Regulatory changes that affect companies’ ability to drill, either generally or in a specific
location where we have acquired seismic data, could materially adversely affect the value of the
seismic data contained in our library. Technology changes could also make existing data sets
obsolete. Additionally, each of our individual surveys has a limited book life based on its
location and oil and gas companies’ interest in prospecting for reserves in such location, so a
particular survey may be subject to a significant decline in value beyond our initial estimates.
(cid:129) The value of our multi-client data could be significantly adversely affected if any material
adverse change occurs in the general prospects for oil and gas exploration, development and
production activities.
(cid:129) The cost estimates upon which we base our pre-commitments of funding could be wrong. The
result could be losses that have a material adverse effect on our financial condition and results
of operations. These pre-commitments of funding are subject to the creditworthiness of our
clients. In the event that a client refuses or is unable to pay its commitment, we could incur a
substantial loss on that project.
(cid:129) As part of our asset-light strategy, we routinely charter vessels from third-party vendors to
acquire seismic data for our multi-client business. As a result, our cost to acquire our multi-
client data could significantly increase if vessel charter prices rise materially.
28
Reductions in demand for our seismic data, or lower revenues of or cash flows from our seismic
data, may result in a requirement to increase amortization rates or record impairment charges in order
to reduce the carrying value of our data library. These increases or charges, if required, could be
material to our operating results for the periods in which they are recorded.
A substantial portion (approximately 73% in 2014) of our seismic acquisition project costs
(including third-party project costs) are underwritten by our customers. In the event that underwriters
for such projects fail to fulfill their obligations with respect to such underwriting commitments, we
would continue to be obligated to satisfy our payment obligations to third-party contractors.
We derive a substantial amount of our revenues from foreign operations and sales, which pose additional
risks.
The majority of our foreign sales are denominated in U.S. dollars. Sales to customer destinations
outside of North America represented 74%, 73% and 69% of our consolidated net revenues for 2014,
2013 and 2012, respectively, of our consolidated net revenues. We believe that export sales will remain
a significant percentage of our revenue. U.S. export restrictions affect the types and specifications of
products we can export. Additionally, in order to complete certain sales, U.S. laws may require us to
obtain export licenses, and we cannot assure you that we will not experience difficulty in obtaining
these licenses.
Like many energy services companies, we have operations in and sales into certain international
areas, including parts of the Middle East, West Africa, Latin America, Asia Pacific and the former
Soviet Union, that are subject to risks of war, political disruption, civil disturbance, political corruption,
possible economic and legal sanctions (such as possible restrictions against countries that the U.S.
government may consider to be state sponsors of terrorism) and changes in global trade policies. Our
sales or operations may become restricted or prohibited in any country in which the foregoing risks
occur. In particular, the occurrence of any of these risks could result in the following events, which in
turn, could materially and adversely impact our results of operations:
(cid:129) disruption of E&P activities;
(cid:129) restriction on the movement and exchange of funds;
(cid:129) inhibition of our ability to collect advances and receivables;
(cid:129) enactment of additional or stricter U.S. government or international sanctions;
(cid:129) limitation of our access to markets for periods of time;
(cid:129) expropriation and nationalization of assets of our company or those of our customers;
(cid:129) political and economic instability, which may include armed conflict and civil disturbance;
(cid:129) currency fluctuations, devaluations and conversion restrictions;
(cid:129) confiscatory taxation or other adverse tax policies; and
(cid:129) governmental actions that may result in the deprivation of our contractual rights.
Our international operations and sales increase our exposure to other countries’ restrictive tariff
regulations, other import/export restrictions and customer credit risk.
In addition, we are subject to taxation in many jurisdictions and the final determination of our tax
liabilities involves the interpretation of the statutes and requirements of taxing authorities worldwide.
Our tax returns are subject to routine examination by taxing authorities, and these examinations may
result in assessments of additional taxes, penalties and/or interest.
29
We may be unable to obtain broad intellectual property protection for our current and future products and
we may become involved in intellectual property disputes; we rely on developing and acquiring proprietary
data which we keep confidential.
We rely on a combination of patent, copyright and trademark laws, trade secrets, confidentiality
procedures and contractual provisions to protect our proprietary technologies. We believe that the
technological and creative skill of our employees, new product developments, frequent product
enhancements, name recognition and reliable product maintenance are the foundations of our
competitive advantage. Although we have a considerable portfolio of patents, copyrights and
trademarks, these property rights offer us only limited protection. Our competitors may attempt to copy
aspects of our products despite our efforts to protect our proprietary rights, or may design around the
proprietary features of our products. Policing unauthorized use of our proprietary rights is difficult, and
we are unable to determine the extent to which such use occurs. Our difficulties are compounded in
certain foreign countries where the laws do not offer as much protection for proprietary rights as the
laws of the United States.
Third parties inquire and claim from time to time that we have infringed upon their intellectual
property rights. Many of our competitors own their own extensive global portfolio of patents,
copyrights, trademarks, trade secrets and other intellectual property to protect their proprietary
technologies. We believe that we have in place appropriate procedures and safeguards to help ensure
that we do not violate a third party’s intellectual property rights. However, no set of procedures and
safeguards is infallible. We may unknowingly and inadvertently take action that is inconsistent with a
third party’s intellectual property rights, despite our efforts to do otherwise. Any such claims from third
parties, with or without merit, could be time consuming, result in costly litigation, result in injunctions,
require product modifications, cause product shipment delays or require us to enter into royalty or
licensing arrangements. Such claims could have a material adverse effect on our results of operations
and financial condition.
Much of our litigation in recent years have involved disputes over our and others’ rights to
technology. See Item 3. ‘‘Legal Proceedings.’’
To protect the confidentiality of our proprietary and trade secret information, we require
employees, consultants, contractors, advisors and collaborators to enter into confidentiality agreements.
Our customer data license and acquisition agreements also identify our proprietary, confidential
information and require that such proprietary information be kept confidential. While these steps are
taken to strictly maintain the confidentiality of our proprietary and trade secret information, it is
difficult to ensure that unauthorized use, misappropriation or disclosure will not occur. If we are unable
to maintain the secrecy of our proprietary, confidential information, we could be materially adversely
affected.
If we do not effectively manage our transition into new services and products, our revenues may suffer.
Services and products for the geophysical industry are characterized by rapid technological
advances in hardware performance, software functionality and features, frequent introduction of new
services and products, and improvement in price characteristics relative to product and service
performance. Among the risks associated with the introduction of new services and products are delays
in development or manufacturing, variations in costs, delays in customer purchases or reductions in
price of existing products in anticipation of new introductions, write-offs or write-downs of the carrying
costs of inventory and raw materials associated with prior generation products, difficulty in predicting
customer demand for new product and service offerings and effectively managing inventory levels so
that they are in line with anticipated demand, risks associated with customer qualification, evaluation of
new products, and the risk that new products may have quality or other defects or may not be
supported adequately by application software. The introduction of new services and products by our
30
competitors also may result in delays in customer purchases and difficulty in predicting customer
demand. If we do not make an effective transition from existing services and products to future
offerings, our revenues and margins may decline.
Furthermore, sales of our new services and products may replace sales, or result in discounting of
some of our current product or service offerings, offsetting the benefits of a successful introduction. In
addition, it may be difficult to ensure performance of new services and products in accordance with our
revenue, margin and cost estimations and to achieve operational efficiencies embedded in our
estimates. Given the competitive nature of the seismic industry, if any of these risks materializes, future
demand for our services and products, and our future results of operations, may suffer.
Global economic conditions and credit market uncertainties could have an adverse effect on customer
demand for certain of our services and products, which in turn would adversely affect our results of
operations, our cash flows, our financial condition and our stock price.
Historically, demand for our services and products has been sensitive to the level of exploration
spending by E&P companies and geophysical contractors. The demand for our services and products
will be lessened if exploration expenditures by E&P companies are reduced. During periods of reduced
levels of exploration for oil and natural gas, there have been oversupplies of seismic data and
downward pricing pressures on our seismic services and products, which, in turn, have limited our
ability to meet sales objectives and maintain profit margins for our services and products. In the past,
these then-prevailing industry conditions have had the effect of reducing our revenues and operating
margins. The markets for oil and gas historically have been volatile and may continue to be so in the
future.
Turmoil or uncertainty in the credit markets and its potential impact on the liquidity of major
financial institutions may have an adverse effect on our ability to fund our business strategy through
borrowings under either existing or new debt facilities in the public or private markets and on terms we
believe to be reasonable. Likewise, there can be no assurance that our customers will be able to borrow
money for their working capital or capital expenditures on a timely basis or on reasonable terms, which
could have a negative impact on their demand for our services and products and impair their ability to
pay us for our services and products on a timely basis, or at all.
Our sales have historically been affected by interest rate fluctuations and the availability of
liquidity, and we and our customers would be adversely affected by increases in interest rates or
liquidity constraints. Rising interest rates may also make certain alternative services and products
provided by our competitors more attractive to customers, which could lead to a decline in demand for
our services and products. This could have a material adverse effect on our business, results of
operations, financial condition and cash flows.
The loss of any significant customer could materially and adversely affect our results of operations and
financial condition.
Our business is exposed to risks related to customer concentration. While no single customer
represented 10% or more of our consolidated net revenues for 2014, 2013 and 2012, our top five
customers together accounted for approximately 35%, 29% and 28%, respectively, of our consolidated
net revenues during those years. The loss of any of our significant customers or deterioration in our
relations with any of them could materially and adversely affect our results of operations and financial
condition.
During the last ten years, our traditional seismic contractor customers have been rapidly
consolidating, thereby consolidating the demand for our services and products. In 2013, CGG acquired
Fugro’s geoscience division. This acquisition evidences the further consolidation ongoing in this market,
and could have the effect of reducing the number of our potential customers and vessel outfitting
31
opportunities. The loss of any of our significant customers to further consolidation could materially and
adversely affect our results of operations and financial condition.
Our stock price has been volatile from time to time, declining precipitously from time to time during the
period from 2008 through the present, and it could decline again.
The securities markets in general and our common stock in particular have experienced significant
price and volume volatility in recent years. The market price and trading volume of our common stock
may continue to experience significant fluctuations due not only to general stock market conditions but
also to a change in sentiment in the market regarding our operations or business prospects or those of
companies in our industry. In addition to the other risk factors discussed in this section, the price and
volume volatility of our common stock may be affected by:
(cid:129) operating results that vary from the expectations of securities analysts and investors;
(cid:129) factors influencing the levels of global oil and natural gas exploration and exploitation activities,
such as depressed prices for natural gas in North America or disasters such as the Deepwater
Horizon incident in the Gulf of Mexico in 2010;
(cid:129) the operating and securities price performance of companies that investors or analysts consider
comparable to us;
(cid:129) actions by rating agencies related to the Notes;
(cid:129) announcements of strategic developments, acquisitions and other material events by us or our
competitors; and
(cid:129) changes in global financial markets and global economies and general market conditions, such as
interest rates, commodity and equity prices and the value of financial assets.
To the extent that the price of our common stock remains at lower levels or it declines further, our
ability to raise funds through the issuance of equity or otherwise use our common stock as
consideration will be reduced. In addition, further borrowings by us may make it more difficult for us
to access additional capital. These factors may limit our ability to implement our operating and growth
plans.
Goodwill and intangible assets that we have recorded are subject to impairment evaluations and, as a
result, we could be required to write-off additional goodwill and intangible assets. In addition, portions of
our products inventory may become obsolete or excessive due to future changes in technology, changes in
market demand, or changes in market expectations. Write-downs of these assets may adversely affect our
financial condition and results of operations.
In accordance with Accounting Standard Codification (‘‘ASC’’) 350, ‘‘Intangibles—Goodwill and
Other’’ (‘‘ASC 350’’), we are required to compare the fair value of our goodwill and intangible assets
(when certain impairment indicators under ASC 350 are present) to their carrying amount. If the fair
value of such goodwill or intangible assets is less than its carrying value, an impairment loss is recorded
to the extent that the fair value of these assets within the reporting units is less than their carrying
value.
For goodwill testing purposes, the $123.8 million litigation contingency accrual is assigned to the
Marine Systems reporting unit. Based on this accrual and the recording of a valuation allowance on
substantially all of our net deferred tax assets, this reporting unit’s carrying value was negative as of
December 31, 2014. The negative carrying value required us to perform step 2 of the impairment test
on Marine Systems; the test determined that the goodwill associated with the Marine Systems reporting
unit was impaired. In connection with the preparation of the financial statements included in this
Annual Report on Form 10-K, we recorded a charge of $21.9 million to impair that goodwill. We also
32
recorded a $1.4 million impairment of certain intangible assets related to customer relationship within
our Solutions segment at December 31, 2014.
Further reductions in or an impairment of the value of our goodwill or other intangible assets will
result in additional charges against our earnings, which could have a material adverse effect on our
reported results of operations and financial position in future periods. At December 31, 2014, our
remaining goodwill and other intangible asset balances were $27.4 million and $6.8 million, respectively.
Our services and products’ technologies often change relatively quickly. Phasing out of old
products involves estimating the amounts of inventories we need to hold to satisfy demand for those
products and satisfy future repair part needs. Based on changing technologies and customer demand,
we may find that we have either obsolete or excess inventory on hand. Because of unforeseen future
changes in technology, market demand or competition, we might have to write off unusable inventory,
which would adversely affect our results of operations. In connection with the preparation of the
financial statements included in this Annual Report on Form 10-K, for the year ended December 31,
2014, we increased our reserve for excess and obsolete inventories by $7.0 million related to write-
downs of inventory.
Due to the international scope of our business activities, our results of operations may be significantly
affected by currency fluctuations.
We derive approximately 74% of our consolidated net revenues from international sales, subjecting
us to risks relating to fluctuations in currency exchange rates. Currency variations can adversely affect
margins on sales of our products in countries outside of the United States and margins on sales of
products that include components obtained from suppliers located outside of the United States.
Through our subsidiaries, we operate in a wide variety of jurisdictions, including the United Kingdom,
Australia, the Netherlands, Brazil, China, Canada, Russia, the United Arab Emirates, Egypt and other
countries. Certain of these countries have experienced geopolitical instability, economic problems and
other uncertainties from time to time. To the extent that world events or economic conditions
negatively affect our future sales to customers in these and other regions of the world, or the
collectability of receivables, our future results of operations, liquidity and financial condition may be
adversely affected. In the fourth quarter of 2014, the decline in crude oil prices, as well as U.S. and
European Union sanctions against Russia related to Russia’s actions in Ukraine, have both contributed
to the devaluation of the Russian ruble putting significant pressure on our Russian-based customers
and negatively impacting the appeal of seismic data located in Russia to potential non-Russian buyers.
Our results of operations, liquidity and financial condition related to our operations in Russia are
primarily denominated in U.S. dollars.
We currently require customers in certain higher risk countries to provide their own financing. We
do not currently extend long-term credit through notes to companies in countries where we perceive
excessive credit risk.
A majority of our foreign net working capital is within the United Kingdom. Our consolidated
balance sheet at December 31, 2014 reflected approximately $15.3 million of net working capital related
to our foreign subsidiaries, a majority of which is within the United Kingdom. Our subsidiaries in the
U.K. and in other countries receive their income and pay their expenses primarily in their local
currencies. To the extent that transactions of these subsidiaries are settled in their local currencies, a
devaluation of those currencies versus the U.S. dollar could reduce the contribution from these
subsidiaries to our consolidated results of operations as reported in U.S. dollars. For financial reporting
purposes, such depreciation will negatively affect our reported results of operations since earnings
denominated in foreign currencies would be converted to U.S. dollars at a decreased value. In addition,
since we participate in competitive bids for sales of certain of our services and products that are
denominated in U.S. dollars, a depreciation of the U.S. dollar against other currencies could harm our
33
competitive position relative to other companies. While we periodically employ economic cash flow and
fair value hedges to minimize the risks associated with these exchange rate fluctuations, the hedging
activities may be ineffective or may not offset more than a portion of the adverse financial impact
resulting from currency variations. Accordingly, we cannot assure you that fluctuations in the values of
the currencies of countries in which we operate will not materially adversely affect our future results of
operations.
We rely on highly skilled personnel in our businesses, and if we are unable to retain or motivate key
personnel or hire qualified personnel, we may not be able to grow effectively.
Our performance is largely dependent on the talents and efforts of highly skilled individuals. Our
future success depends on our continuing ability to identify, hire, develop, motivate and retain skilled
personnel for all areas of our organization. We require highly skilled personnel to operate and provide
technical services and support for our businesses. Competition for qualified personnel required for our
data processing operations and our other segments’ businesses has intensified in recent years. Our
growth has presented challenges to us to recruit, train and retain our employees while managing the
impact of potential wage inflation and the lack of available qualified labor in some markets where we
operate. A well-trained, motivated and adequately-staffed work force has a positive impact on our
ability to attract and retain business. Our continued ability to compete effectively depends on our
ability to attract new employees and to retain and motivate our existing employees.
However, from time to time, we have to rightsize our work force due to economic and market
conditions. In the fourth quarter we initiated restructurings across all our segments, except for our
Ocean Bottom Services segment, reducing our overall workforce by approximately 10%. See Part II.
Item 7. ‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operations—
Executive Summary—Restructuring and Other Charges’’ for a discussion of the restructuring in the fourth
quarter of 2014.
If we, our option holders or stockholders holding registration rights sell additional shares of our common
stock in the future, the market price of our common stock could decline. The exercise of our stock options
could result in substantial dilution to our existing stockholders. Sales in the open market of the shares of
common stock acquired upon such exercises may have the effect of reducing the then current market price
for our common stock.
The market price of our common stock could decline as a result of sales of a large number of
shares of our common stock in the market in the future, or the perception that such sales could occur.
These sales, or the possibility that these sales may occur, could make it more difficult for us to sell
equity securities in the future at a time and at a price that we deem appropriate. As of January 30,
2015, we had 164,484,095 shares of common stock issued and outstanding. Substantially all of these
shares are available for sale in the public market, subject in some cases to volume and other limitations
or delivery of a prospectus. At January 30, 2015, we had outstanding stock options to purchase up to
8,980,525 shares of our common stock at a weighted average exercise price of $6.30 per share. We also
had, as of that date, 995,777 shares of common stock reserved for issuance under outstanding restricted
stock and restricted stock unit awards.
During 2009, we issued in a privately-negotiated transaction 18.5 million shares of our common
stock to certain institutional investors. In March 2010, we issued 23.8 million shares to BGP in a
privately-negotiated transaction in connection with the formation of our INOVA Geophysical joint
venture. These shares may be resold into the public markets in sale transactions pursuant to currently-
effective registration statements filed with the SEC or pursuant to another exemption from registration.
Sales in the public market of a large number of shares of common stock (or the perception that such
sales could occur) could apply downward pressure on the prevailing market price of our common stock.
34
Shares of our common stock are also subject to certain demand and piggyback registration rights
held by Laitram, L.L.C., an affiliate of one of our directors. We also may enter into additional
registration rights agreements in the future in connection with any subsequent acquisitions or securities
transactions we may undertake. Any sales of our common stock under these registration rights
arrangements with Laitram or other stockholders could be negatively perceived in the trading markets
and negatively affect the price of our common stock. Sales of a substantial number of our shares of
common stock in the public market under these arrangements, or the expectation of such sales, could
cause the market price of our common stock to decline.
Certain of our facilities could be damaged by hurricanes and other natural disasters, which could have an
adverse effect on our results of operations and financial condition.
Certain of our facilities are located in regions of the United States that are susceptible to damage
from hurricanes and other weather events, and, during 2005, were impacted by hurricanes or other
weather events. Our Systems segment leases 150,000 square feet of facilities located in Harahan,
Louisiana, in the greater New Orleans metropolitan area. In late August 2005, we suspended
operations at these facilities and evacuated and locked down the facilities in preparation for Hurricane
Katrina. These facilities did not experience flooding or significant damage during or after the hurricane.
However, because of employee evacuations, power failures and lack of related support services, utilities
and infrastructure in the New Orleans area, we were unable to resume full operations at the facilities
until late September 2005. In September 2008, we lost power and related services for several days at
our offices located in the Houston metropolitan area, which includes a substantial portion of our data
processing infrastructure, and in Harahan, Louisiana as a result of Hurricane Ike and Hurricane
Gustav.
Future hurricanes or similar natural disasters that impact our facilities may negatively affect our
financial position and operating results for those periods. These negative effects may include reduced
production, product sales and data processing revenues; costs associated with resuming production;
reduced orders for our services and products from customers that were similarly affected by these
events; lost market share; late deliveries; additional costs to purchase materials and supplies from
outside suppliers; uninsured property losses; inadequate business interruption insurance and an inability
to retain necessary staff. To the extent that climate change increases the severity of hurricanes and
other weather events, as some have suggested, it could worsen the severity of these negative effects on
our financial position and operating results.
Our operations, and the operations of our customers, are subject to numerous government regulations,
which could adversely limit our operating flexibility. Regulatory initiatives undertaken from time to time,
such as restrictions, sanctions and embargoes, can adversely affect, and have has adversely affected, our
customers and our business.
In addition to the specific regulatory risks discussed elsewhere in this Item 1A. ‘‘Risk Factors’’
section, our operations are subject to other laws, regulations, government policies and product
certification requirements worldwide. Changes in such laws, regulations, policies or requirements could
affect the demand for our products or services or result in the need to modify our services and
products, which may involve substantial costs or delays in sales and could have an adverse effect on our
future operating results. Our export activities are also subject to extensive and evolving trade
regulations. Certain countries are subject to restrictions, sanctions and embargoes imposed by the
United States government; most recently Russia. These restrictions, sanctions and embargoes also
prohibit or limit us from participating in certain business activities in those countries. Our operations
are subject to numerous local, state and federal laws and regulations in the United States and in
foreign jurisdictions concerning the containment and disposal of hazardous materials, the remediation
of contaminated properties, and the protection of the environment. These laws have been changed
35
frequently in the past, and there can be no assurance that future changes will not have a material
adverse effect on us. In addition, our customers’ operations are also significantly impacted by laws and
regulations concerning the protection of the environment and endangered species. Consequently,
changes in governmental regulations applicable to our customers may reduce demand for our services
and products. To the extent that our customers’ operations are disrupted by future laws and regulations,
our business and results of operations may be materially and adversely affected.
Future changes in laws or regulations regarding offshore oil and gas exploration and development
activities and decisions by customers, governmental agencies, or other industry participants in response
to these changes, could reduce demand for our services and products, which could have a negative
impact on our financial position, results of operations or cash flows. We cannot reasonably or reliably
estimate that such changes will occur, when they will occur, or whether they will impact us. Such
changes can occur quickly within a region, which may impact both the affected region and global
exploration and production, and we may not be able to respond quickly, or at all, to mitigate these
changes. In addition, these future laws and regulations could result in increased compliance costs or
additional operating restrictions that may adversely affect the financial health of our customers and
decrease the demand for our services and products.
Climate change regulations or legislation could result in increased operating costs and reduced demand for
the oil and gas our clients intend to produce.
In response to concerns suggesting that emissions of and greenhouse gases (including carbon
dioxide and methane) (‘‘GHGs’’) may be contributing to global climate change, legislative and
regulatory measures to address the concerns are in various phases of discussion or implementation. We
are aware of the increasing focus of local, state, national and international regulatory bodies on GHG
emissions and climate change issues. The United States Congress may consider legislation to reduce
GHG emissions. Although it is not possible at this time to predict whether proposed legislation or
regulations will be adopted, any such future laws and regulations could result in increased compliance
costs or additional operating restrictions. Any additional costs or operating restrictions associated with
legislation or regulations regarding GHG emissions could have a material adverse impact on our
business, financial condition and results of operations.
At least one-third of the states, either individually or through multi-state regional initiatives, have
already taken legal measures intended to reduce GHG emissions, primarily through the planned
development of GHG emission inventories and/or GHG cap and trade programs. More stringent
regulations and laws relating to GHGs and climate change may be adopted in the future and could
reduce the demand for our services and products. Reductions in our revenues or increases in our
expenses as a result of climate control initiatives could have adverse effects on our business, financial
position, results of operations and prospects. Additionally, any new emissions or other environmental
regulations imposed on off-shore vessels could cause the prices of vessels to increase, cause unexpected
downtime or affect availability.
Increased regulation of hydraulic fracturing could result in reductions or delays in drilling and completing
new oil and natural gas wells, which could adversely impact our revenues by decreasing the demand for our
data libraries and seismic acquisition services.
Hydraulic fracturing is a process used by oil and gas E&P operators in the completion of certain
oil and gas wells, particularly in low permeability formations such as shales. The process involves the
injection of water, sand, other proppants and chemicals under pressure into the target reservoir to
stimulate hydrocarbon production. Our business is highly dependent on the level of activity by our oil
and gas E&P customers, and hydrocarbons cannot be economically produced from certain reservoirs
without extensive hydraulic fracturing.
36
Due to public concerns about environmental impact that hydraulic fracturing may have, including
potential impairment of groundwater quality, legislative and regulatory efforts at the federal, state and
local levels have been initiated to impose more stringent permitting and compliance obligations on
these operations. Several states have implemented, or are considering implementing, new regulations
pertaining to hydraulic fracturing, including the disclosure of chemicals used in fracturing operations. A
number of state and local governments have also adopted or are considering adopting additional
requirements relating to hydraulic fracturing. In certain areas of the country, new drilling permits for
hydraulic fracturing have been put on hold pending the completion of studies and development of
additional standards.
Further governmental reviews are underway or being proposed that focus on environmental aspects
of hydraulic fracturing practices. The White House Council on Environmental Quality is coordinating
an administration-wide review of hydraulic fracturing practices, and a committee of the U.S. House of
Representatives has conducted an investigation of hydraulic fracturing practices. The EPA has
commenced a study of the potential environmental effects of hydraulic fracturing on drinking water and
groundwater, with final results expected to be released in early 2015.
The adoption of legislation or regulations placing significant restrictions on hydraulic fracturing
activities could impose operational delays and increased operating costs on our customers, making it
more difficult and costly for them to complete natural gas and oil wells. In the event such requirements
are enacted, demand for our shale data libraries and seismic data acquisition services and products may
be adversely affected.
We have outsourcing arrangements with third parties to manufacture some of our products. If these third
party suppliers fail to deliver quality products or components at reasonable prices on a timely basis, we may
alienate some of our customers and our revenues, profitability and cash flow may decline. Additionally,
current global economic conditions could have a negative impact on our suppliers, causing a disruption in
our vendor supplies. A disruption in vendor supplies may adversely affect our results of operations.
Our manufacturing processes require a high volume of quality components. We have increased our
use of contract manufacturers as an alternative to our own manufacturing of products. We have
outsourced the manufacturing of our towed marine streamers and MEMS components. Certain
components used by us are currently provided by only one supplier. If, in implementing any outsource
initiative, we are unable to identify contract manufacturers willing to contract with us on competitive
terms and to devote adequate resources to fulfill their obligations to us or if we do not properly
manage these relationships, our existing customer relationships may suffer. In addition, by undertaking
these activities, we run the risk that the reputation and competitiveness of our services and products
may deteriorate as a result of the reduction of our control over quality and delivery schedules. We also
may experience supply interruptions, cost escalations and competitive disadvantages if our contract
manufacturers fail to develop, implement, or maintain manufacturing methods appropriate for our
products and customers.
Reliance on certain suppliers, as well as industry supply conditions, generally involves several risks,
including the possibility of a shortage or a lack of availability of key components, increases in
component costs and reduced control over delivery schedules. If any of these risks are realized, our
revenues, profitability and cash flows may decline. In addition, as we come to rely more heavily on
contract manufacturers, we may have fewer personnel resources with expertise to manage problems that
may arise from these third-party arrangements.
Additionally, our suppliers could be negatively impacted by current global economic conditions. If
certain of our suppliers were to experience significant cash flow issues or become insolvent as a result
of such conditions, it could result in a reduction or interruption in supplies to us or a significant
increase in the price of such supplies and adversely impact our results of operations and cash flows.
37
Under some of our outsourcing arrangements, our manufacturing outsourcers purchase
agreed-upon inventory levels to meet our forecasted demand. Our manufacturing plans and inventory
levels are generally based on sales forecasts. If demand proves to be less than we originally forecasted
and we cancel our committed purchase orders, our outsourcers generally will have the right to require
us to purchase inventory which they had purchased on our behalf. Should we be required to purchase
inventory under these terms, we may be required to hold inventory that we may never utilize.
Our business is subject to cybersecurity risks and threats.
Threats to our information technology systems associated with cybersecurity risk and cyber
incidents or attacks continue to grow. It is also possible that breaches to our systems could go
unnoticed for some period of time. Risks associated with these threats include, among other things, loss
of intellectual property, impairment of our ability to conduct our operations, disruption of our
customers’ operations, loss or damage to our customer data delivery systems, and increased costs to
prevent, respond to or mitigate cybersecurity events.
Our certificate of incorporation and bylaws, Delaware law and certain contractual obligations under our
agreement with BGP contain provisions that could discourage another company from acquiring us.
Provisions of our certificate of incorporation and bylaws, Delaware law and the terms of our
investor rights agreement with BGP may have the effect of discouraging, delaying or preventing a
merger or acquisition that our stockholders may consider favorable, including transactions in which you
might otherwise receive a premium for shares of our common stock. These provisions include:
(cid:129) authorizing the issuance of ‘‘blank check’’ preferred stock without any need for action by
stockholders;
(cid:129) providing for a classified board of directors with staggered terms;
(cid:129) requiring supermajority stockholder voting to effect certain amendments to our certificate of
incorporation and bylaws;
(cid:129) eliminating the ability of stockholders to call special meetings of stockholders;
(cid:129) prohibiting stockholder action by written consent; and
(cid:129) establishing advance notice requirements for nominations for election to the board of directors
or for proposing matters that can be acted on by stockholders at stockholder meetings.
In addition, the terms of our INOVA Geophysical joint venture with BGP and BGP’s investment
in our company contain a number of provisions, such as certain pre-emptive rights granted to BGP with
respect to certain future issuances of our stock, that could have the effect of discouraging, delaying or
preventing a merger or acquisition of our company that our stockholders may otherwise consider to be
favorable.
Failure to maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act
could have a material adverse effect on our stock price.
If, in the future, we fail to maintain the adequacy of our internal controls, as such standards are
modified, supplemented or amended from time to time, we may not be able to ensure that we can
conclude on an ongoing basis that we have effective internal controls over financial reporting in
accordance with Section 404 of the Sarbanes-Oxley Act. Failure to achieve and maintain an effective
internal control environment could have a material adverse effect on the price of our common stock.
Note: The foregoing factors pursuant to the Private Securities Litigation Reform Act of 1995
should not be construed as exhaustive. In addition to the foregoing, we wish to refer readers to other
38
factors discussed elsewhere in this report as well as other filings and reports with the SEC for a
further discussion of risks and uncertainties that could cause actual results to differ materially from
those contained in forward-looking statements. We undertake no obligation to publicly release the
result of any revisions to any such forward-looking statements, which may be made to reflect the
events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
Our principal operating facilities at December 31, 2014 were as follows:
Operating Facilities
Square
Footage
Segment
Houston, Texas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Harahan, Louisiana . . . . . . . . . . . . . . . . . . . . . . . . . .
Denver, Colorado . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Edinburgh, Scotland . . . . . . . . . . . . . . . . . . . . . . . . . .
Jebel Ali, Dubai, United Arab Emirates . . . . . . . . . . .
208,000 Global Headquarters and Solutions
150,000
29,000
23,000
2,000
Systems
Solutions
Software
International Sales Headquarters
412,000
Each of these operating facilities is leased by us under long-term lease agreements. These lease
agreements have terms that expire ranging from 2015 to 2025. See Footnote 14 ‘‘Operating Leases’’ of
Footnotes to Consolidated Financial Statements.
In addition, we lease offices in Cranleigh, England; Beijing, China; Rio de Janiero, Brazil; and
Moscow, Russia to support our global sales force. We lease offices for our seismic data processing
centers in Egham, England; Port Harcourt, Nigeria; Luanda, Angola; Moscow, Russia; Cairo, Egypt;
Villahermosa, Mexico; Rio de Janeiro, Brazil; Port of Spain, Trinidad; West Perth, Australia; and
Oklahoma City, Oklahoma. We also lease other facilities in Stafford, Texas; St. Rose, Louisiana; and
Calgary, Canada. Our executive headquarters is located at 2105 CityWest Boulevard, Suite 400,
Houston, Texas. The machinery, equipment, buildings and other facilities owned and leased by us are
considered by our management to be sufficiently maintained and adequate for our current operations.
Item 3. Legal Proceedings
WesternGeco
In June 2009, WesternGeco L.L.C. (‘‘WesternGeco’’) filed a lawsuit against us in the United States
District Court for the Southern District of Texas, Houston Division. In the lawsuit, styled WesternGeco
L.L.C. v. ION Geophysical Corporation, WesternGeco alleged that we had infringed several method and
apparatus claims contained in four of its United States patents regarding marine seismic streamer
steering devices.
The trial began in July 2012. A verdict was returned by the jury in August 2012, finding that we
infringed the claims contained in the four patents by supplying our DigiFIN lateral streamer control
units and the related software from the United States and awarded WesternGeco the sum of
$105.9 million in damages, consisting of $12.5 million in reasonable royalty and $93.4 million in lost
profits.
In June 2013, the presiding judge entered a Memorandum and Order, ruling that WesternGeco is
entitled to be awarded supplemental damages for the additional DigiFIN units that were supplied from
39
the United States before and after trial that were not included in the jury verdict due to the timing of
the trial. In October 2013, the judge entered another Memorandum and Order, ruling on the number
of DigiFIN units that are subject to supplemental damages and also ruling that the supplemental
damages applicable to the additional units should be calculated by adding together the jury’s previous
reasonable royalty and lost profits damages awards per unit, resulting in supplemental damages of
$73.1 million.
In April 2014, the judge entered another Order, ruling that lost profits should not have been
included in the calculation of supplemental damages in the October 2013 Memorandum and Order and
reducing the supplemental damages award in the case from $73.1 million to $9.4 million. In the Order,
the judge also further reduced the damages award in the case by $3.0 million to reflect a settlement
and license that WesternGeco entered into with a customer of ours that had purchased and used
DigiFIN units that were also included in the damage amounts awarded against us.
In May 2014, the judge signed and entered a Final Judgment in the amount of $123.8 million.
Also, the Final Judgment included an injunction that enjoins us, our agents and anyone acting in
concert with us, from supplying in or from the United States the DigiFIN product or any parts unique
to the DigiFIN product, or any instrumentality no more than colorably different from any of these
products or parts, for combination outside of the United States. We have conducted our business in
compliance with the Court’s orders in the case, and we have reorganized our operations such that we
no longer supply the DigiFIN product or any parts unique to the DigiFIN product in or from the
United States.
As previously disclosed, we have taken a loss contingency accrual of $123.8 million related to this
case. Post-judgment interest will continue to accrue until this legal matter is fully resolved. Our
assessment of our potential loss contingency may change in the future due to developments in the case
and other events, such as changes in applicable law, and such reassessment could lead to the
determination that no loss contingency is probable or that a greater or lesser loss contingency is
probable. Any such reassessment could have a material effect on our financial condition or results of
operations.
We and WesternGeco have each appealed the Final Judgment to the United States Court of
Appeals for the Federal Circuit. We filed our appeal brief on September 4, 2014. WesternGeco’s appeal
brief was filed on October 21, 2014. Oral arguments have been scheduled for March 5, 2015. If the
adverse ruling is affirmed, we intend to pursue all available opportunities to make further appeals.
In order to stay the judgment during the appeal, we arranged with sureties to post an appeal bond
with the trial court on our behalf in the amount of $120.0 million. The terms of the appeal bond
arrangements provide the sureties the contractual right for as long as the bond is outstanding to
require us to post cash collateral for up to the full amount of the bond. If the sureties exercise their
right to require collateral while the appeal bond is outstanding, we would intend to utilize a
combination of cash on hand and undrawn balances available under our New Credit Facility. If we are
required to collateralize the full amount of the bond, we might also seek additional debt and/or equity
financing. The collateralization of the full amount of the bond could have a material adverse effect on
our liquidity. Any requirement that we collateralize the appeal bond will reduce our liquidity and may
reduce the amount otherwise available to be borrowed under our New Credit Facility. No assurances
can be made whether our efforts to raise additional cash would be successful and, if so, on what terms
and conditions, and at what cost we might be able to secure any such financing. For additional
discussion about the effect of posting an appeal bond on our liquidity, financial condition and results of
operations, see Item 7. ‘‘Management’s Discussion and Analysis—Meeting our Liquidity Requirements—
Loss Contingency—WesternGeco Lawsuit’’ in Part II of this Form 10-K.
40
Other Litigation
We have been named in various other lawsuits or threatened actions that are incidental to our
ordinary business. Litigation is inherently unpredictable. Any claims against us, whether meritorious or
not, could be time-consuming, cause us to incur costs and expenses, require significant amounts of
management time and result in the diversion of significant operational resources. The results of these
lawsuits and actions cannot be predicted with certainty. We currently believe that the ultimate
resolution of these matters will not have a material adverse effect on our financial condition or results
of operations.
Item 4. Mine Safety Disclosures
Not applicable.
41
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Our common stock trades on the New York Stock Exchange (‘‘NYSE’’) under the symbol ‘‘IO.’’
The following table sets forth the high and low sales prices of the common stock for the periods
indicated, as reported in NYSE composite tape transactions.
Period
Year ended December 31, 2014:
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
First Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year ended December 31, 2013:
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
First Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Price Range
High
Low
$3.02
4.36
4.73
4.54
$5.36
6.58
6.90
7.70
$2.29
2.79
3.85
2.82
$2.81
4.59
5.55
6.23
We have not historically paid, and do not intend to pay in the foreseeable future, cash dividends
on our common stock. We presently intend to retain cash from operations for use in our business, with
any future decision to pay cash dividends on our common stock dependent upon our growth,
profitability, financial condition and other factors our board of directors consider relevant. In addition,
the terms of our New Credit Facility and the indenture governing the Notes prohibit us from paying
dividends on or repurchasing shares of our common stock without the prior consent of the lenders.
The terms of our New Credit Facility contain covenants that restrict us from paying cash dividends
on our common stock, or repurchasing or acquiring shares of our common stock, unless (i) there is no
event of default under the New Credit Facility, (ii) there is excess availability under the New Credit
Facility greater than $40.0 million (or, at the time that the borrowing base formula amount is less than
$40.0 million, the borrowers’ level of liquidity (as defined in the revolving credit and security
agreement) is greater than $40.0 million) and (iii) the agent receives satisfactory projections showing
that excess availability under the New Credit Facility for the immediately following period of ninety
(90) consecutive days will not be less than $40.0 million (or, at the time that the borrowing base
formula amount is less than $40.0 million, the borrowers’ level of liquidity is greater than
$40.0 million). The aggregate amount of permitted cash dividends and stock repurchases may not
exceed $10.0 million in any fiscal year or $40.0 million in the aggregate from and after the closing date
of the New Credit Facility.
The indenture governing the Notes contains certain covenants that, among other things, limit our
ability to pay certain dividends or distributions on our common stock or purchase, redeem or retire
shares of our common stock, unless (i) no default under the indenture has occurred or would occur as
a result of that payment, (ii) we would have, after giving pro forma effect to the payment, been
permitted to incur at least $1.00 of additional indebtedness under a fixed charge coverage ratio test
under the indenture, and (iii) the total cumulative amount of all such payments would not exceed a
sum calculated by reference to, among other items, our consolidated net income, proceeds from certain
sales of equity or assets, certain conversions or exchanges of debt for equity and certain other
reductions in our indebtedness.
On December 31, 2014, there were 765 holders of record of our common stock.
42
During the three months ended December 31, 2014, we withheld and subsequently canceled shares
of our common stock to satisfy minimum statutory income tax withholding obligations on the vesting of
restricted stock for employees. The date of cancellation, number of shares and average effective
acquisition price per share, were as follows:
Period
(a)
Total Number of
Shares Acquired
(b)
Average Price
Paid Per Share
(c)
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Program
(d)
Maximum Number
(or Approximate
Dollar Value) of
Shares That May
Yet Be Purchased
Under the Plans or
Program
October 1, 2014 to October 31, 2014
November 1, 2014 to November 30,
2014 . . . . . . . . . . . . . . . . . . . . . .
December 1, 2014 to December 31,
2014 . . . . . . . . . . . . . . . . . . . . . .
Total
. . . . . . . . . . . . . . . . . . . . . . .
—
—
77,070
77,070
$ —
Not applicable
Not applicable
$ —
Not applicable
Not applicable
$2.47
$2.47
Not applicable
Not applicable
Item 6. Selected Financial Data
Special Items Affecting Comparability
The selected consolidated financial data set forth below under ‘‘Historical Selected Financial Data’’
with respect to our consolidated statements of operations for 2014, 2013, 2012, 2011 and 2010, and with
respect to our consolidated balance sheets at December 31, 2014, 2013, 2012, 2011 and 2010, have been
derived from our audited consolidated financial statements.
Our results of operations and financial condition have been affected by restructuring activities,
legal contingencies and settlements, dispositions, debt refinancings and impairments and write-downs of
assets during the periods presented, which affect the comparability of the financial information shown.
43
—
—
—
—
—
In particular, our results of operations for the years in the 2010 - 2014 time period were impacted by
the following items (before tax):
Cost of sales:
Write-down of multi-client data library . . .
Write-down of excess and obsolete
Years Ended December 31,
2014
2013
2012
2011
2010
(In thousands)
$(100,100)
$
(5,461) $
— $
— $
inventory . . . . . . . . . . . . . . . . . . . . . . .
$
(6,952)
$ (21,197) $ (1,326) $
— $
Operating expenses:
Impairment of goodwill and intangible
assets . . . . . . . . . . . . . . . . . . . . . . . . .
Write-down of receivables . . . . . . . . . . . .
Write-down of marine equipment . . . . . . .
Interest expense:
Write-down of deferred financing charges,
including amortization of non-cash debt
discounts . . . . . . . . . . . . . . . . . . . . . . .
Other income (expense):
Reversal of (accrual for) loss contingency
related to legal proceedings . . . . . . . . .
Gain on sale of Source product line . . . . .
Gain on sale of cost method investments .
Gain on legal settlements . . . . . . . . . . . . .
Equity in earnings (losses) of investments . . .
Loss on disposition of land equipment
$ (23,284)
$
(8,214)
$
— $
— $
— $
$
$ (9,157) $ (5,640) $
— $ (5,928) $
— $
— $
— $
$
— $
— $
— $
— $(18,777)
$ 69,557
6,522
$
$
5,463
$
$ (49,485)(a) $ (42,320) $
—
— $
$(183,327) $(10,000) $
—
— $
— $
$
— $
—
— $
$
$
— $ 24,500
— $
$(22,862) $(23,724)
— $
$
— $ 30,895
297
3,591
division . . . . . . . . . . . . . . . . . . . . . . . . . .
$
— $
— $
— $
— $(38,115)
Fair value adjustments of a warrant
associated with certain bridge financing
arrangements . . . . . . . . . . . . . . . . . . . . .
Conversion payment of preferred stock . . . .
$
$
— $
— $
— $
(5,000) $
— $
— $
— $ 12,788
—
— $
(a)
Includes the full write-down of our investment in INOVA Geophysical of $30.7 million.
The historical selected financial data shown below should not be considered as being indicative of
future operations, and should be read in conjunction with Item 7. ‘‘Management’s Discussion and
Analysis of Financial Condition and Results of Operations’’ and the consolidated financial statements and
the notes thereto included elsewhere in this Form 10-K.
44
Historical Selected Financial Data
Statement of Operations Data:
Net revenues . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) from operations . . . . . . . . . . .
Net income (loss) applicable to common
shares . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income (loss) per basic share . . . . . . . . .
Net income (loss) per diluted share . . . . . . .
Weighted average number of common shares
outstanding . . . . . . . . . . . . . . . . . . . . . . .
Weighted average number of diluted shares
Years Ended December 31,
2014
2013
2012
2011
2010
(In thousands, except for per share data)
$ 509,558
62,223
(117,929)
$ 549,167
159,313
16,396
$526,317
215,801
74,527
$454,621
173,445
66,795
$444,322
165,733
52,847
(128,252)
(251,874)
$
$
(0.78) $
(0.78) $
(1.59) $
(1.59) $
61,963
0.40
0.39
23,422
0.15
0.15
$
$
(38,774)
(0.27)
(0.27)
$
$
164,089
158,506
155,801
154,811
144,278
outstanding . . . . . . . . . . . . . . . . . . . . . . .
164,089
158,506
162,765
156,090
144,278
Balance Sheet Data (end of year):
Working capital . . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt . . . . . . . . . . . . . . . . . . . . . .
Total equity . . . . . . . . . . . . . . . . . . . . . . . . .
Other Data:
Investment in multi-client library . . . . . . . . .
Capital expenditures . . . . . . . . . . . . . . . . . .
Depreciation and amortization (other than
multi-client library) . . . . . . . . . . . . . . . . . .
Amortization of multi-client library . . . . . . . .
$ 222,099
617,257
190,594
135,712
$ 248,857
864,671
220,152
257,885
$164,693
820,583
105,328
499,019
$163,677
674,058
105,112
425,812
$171,851
631,857
108,660
380,447
$ 67,785
8,264
$ 114,582
16,914
$145,627
16,650
$143,782
11,060
$ 64,426
7,372
27,656
64,374
18,158
86,716
16,202
89,080
13,917
77,317
24,795
85,940
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Note: The following should be read in conjunction with our Consolidated Financial Statements and
related Footnotes to Consolidated Financial Statements that appear elsewhere in this Annual Report on
Form 10-K. References to ‘‘Footnotes’’ in the discussion below refer to the numbered Footnotes to
Consolidated Financial Statements.
Executive Summary
Our Business
The terms ‘‘we,’’ ‘‘us’’ and similar or derivative terms refer to ION Geophysical Corporation and
its consolidated subsidiaries, except where the context otherwise requires or as otherwise indicated.
We are a global, technology-focused company that provides geophysical technology, services and
solutions to the global oil and gas industry. We provide our services and products through four business
segments—Solutions, Software, Systems and Ocean Bottom Services (the segment name for
OceanGeo)—as well as through our INOVA Geophysical joint venture.
For a full discussion of our business, see Part I, Item 1. ‘‘Business.’’
45
Macroeconomic Conditions
Demand for our services and products is cyclical and dependent upon activity levels in the oil and
gas industry, particularly our customers’ willingness to invest capital in the exploration for oil and
natural gas. Our customers’ capital spending programs are generally based on their outlook for
near-term and long-term commodity prices, economic growth, commodity demand and estimates of
resource production.
In 2013, we started seeing decreased spending on exploration by E&P companies, which are
reportedly focusing more of their current spending towards production optimization of existing assets.
We believe this was due to several factors, but primarily because operational cash flows of E&P
companies were no longer sufficient to cover capital expenditures and cash was increasingly being
returned to shareholders in the form of dividends. E&P companies have been relying on asset sales and
debt financings to fund capital requirements amid demands for greater returns to shareholders.
E&P companies use their cash flow from operations to reinvest in productive assets through
capital expenditures, build surplus cash for eventual downturns, or return cash to stakeholders. Due to
relatively stable oil prices and increasing exploration and production costs, free cash flow at E&P
companies as a whole had generally decreased over the last several years. By 2013, the combination of
these factors led many E&P companies to a position where they have been unable to cover both their
capital expenditure budgets and targeted cash returns to shareholders. As a result, E&P companies
have turned their focus to spending reductions, with exploration spending receiving the largest
reductions and seismic spending being one of the most discretionary parts of their exploration budgets.
Similar to ION, many seismic industry participants have been reporting lower year-over-year
revenue, and decreased funding levels for contract and multi-client exploration activities.
The following is a summary of recent oil and gas pricing trends:
Quarter ended
Brent Crude
(per bbl)
West Texas
Intermediate Crude
(per bbl)
Henry Hub
Natural Gas
(per mcf)
High
Low
High
Low
High
Low
12/31/2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9/30/2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6/30/2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3/31/2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12/31/2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9/30/2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6/30/2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3/31/2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 94.57
$110.84
$115.19
$111.26
$113.27
$117.15
$109.66
$118.90
$ 55.27
$ 94.53
$103.37
$105.73
$103.08
$103.19
$ 96.84
$106.41
$ 91.01
$105.34
$107.26
$104.92
$104.10
$110.53
$ 98.44
$ 97.94
$53.27
$91.16
$99.42
$91.66
$92.30
$97.99
$86.68
$90.12
$4.49
$4.46
$4.83
$6.15
$4.46
$3.81
$4.41
$4.07
$2.89
$3.75
$4.28
$4.01
$3.45
$3.23
$3.57
$3.11
Source: U.S. Energy Information Administration (EIA).
In the past few years, crude oil prices in North America had traded in a fairly limited band
between $85 - $110 per barrel, maintained by competing forces of global geopolitical uncertainties
offset by increasing North American production growth. In recent months, however, crude oil prices
have dropped to prices as low as $45 and $46 for WTI and Brent, respectively, since December 2014 as
the world economic outlook continues to weaken, North American production continues to expand, and
more recently, Saudi Arabia has publicly stated its intention to support its global market share by
maintaining, production levels at the expense of lower prices.
The weakening economic outlook for non-U.S. oil demand, especially in Europe, has put more
downward pressure on prices. Thus, the bottom-end of the price range for crude oil has decreased
46
significantly beginning in the fourth quarter of 2014 compared to 2013. Meanwhile the Brent—WTI
spread has narrowed significantly.
The price for Brent crude will influence our customers’ spending in international markets, while
the prices for WTI and U.S. natural gas will influence our customers’ spending in the North American
market. Given the historical volatility of crude prices, there remains a risk that prices could deteriorate
further going forward due to increased domestic crude oil production, slowing growth rates in emerging
countries like China, stagnant economies in Europe, and the potential for significant supply/demand
imbalances. However, if the global supply of oil were to decrease due to government instability in a
major oil-producing nation and energy demand starts to increase in emerging countries such as China
and India, the world could see prices increase for Brent and WTI as in prior years.
The price range for natural gas in the U.S. was higher in 2014 compared to 2013. Natural gas
prices improved during 2014 largely due to above average storage withdrawals in response to extremely
cold winter weather in many parts of the U.S., lower net imports from Canada and higher residential,
commercial and industrial demand. The improvement in demand for natural gas has resulted in
significant declines in natural gas inventories in the U.S. during the first half of 2014. Natural gas
inventories have recovered to approximately 1% below the five-year average as of the end of 2014,
from 8% below the five-year average as of the end of 2013 due to a lack of extremely cold weather in
the early part of the winter months of 2014-2015 as was experienced in the previous year’s winter
months. However, in spite of reduced inventories during the first half of 2014 and increases in natural
gas prices, customer spending in the natural gas shale plays has been limited due to associated gas
being produced from unconventional oil wells in North America. As a result of natural gas production
growth outpacing demand in the U.S., natural gas prices continue to be weak relative to prices
experienced in 2006 through 2008 and are expected to remain below levels considered economical for
new investments in numerous natural gas fields. If natural gas production growth continues to surpass
demand in the U.S., whether the supply comes from conventional or unconventional production or
associated natural gas production from oil wells, prices for natural gas could be constrained for an
extended period.
Impact to Our Business
The recent reduction in exploration spending has had an impact on our results of operations for
2014, especially those of our Solutions segment. We have seen a softening of customer underwriting of
our new venture programs. We continue to maintain high standards for underwriting of any new
projects, and have delayed certain new venture programs that were originally planned to occur during
2014. We invested approximately $47 million less in our multi-client data library during 2014, compared
to 2013.
We saw a slowdown in our data processing business during 2014. During the second quarter,
various customers delayed processing projects and this trend has continued, which negatively affected
our backlog. Data processing revenues were down in 2014 compared to 2013, and we expect our data
processing business to remain soft into 2015. During 2014, we took measured actions to reduce our
data processing cost structure.
Our business has traditionally been seasonal, with the strongest demand for our services and
products often in the fourth quarter of our fiscal year. As discussed above, we have seen reduced levels
of exploration-related spending by E&P companies as those companies focus more of their current
spending on optimizing production of existing assets.
At December 31, 2014, our Solutions segment backlog, which consists of commitments for (i) data
processing work and (ii) both multi-client new venture projects and proprietary projects by our
GeoVentures group underwritten by our customers, was $46.7 million, compared with $84.4 million at
December 31, 2013. The decline in backlog was primarily due to (i) the softening of customer
47
underwriting for new ventures projects and (ii) the delay of certain processing projects by customers.
We anticipate that the majority of our backlog will be recognized as revenue over the first half of 2015.
Our Software segment revenues increased slightly for 2014 compared to the same period of 2013.
Our Software segment experienced record revenue quarters in the first half of 2014, which was mostly
offset by a reduction in revenues in the fourth quarter.
Our traditional seismic contractor customers are also experiencing weakened demand due to the
reduction in seismic spend by their customers. As a result, our systems segment continues to experience
weak year-over-year sales. Our Systems segment revenues decreased primarily because of lower towed
streamer products sales and no ocean bottom systems sales in 2014. These declines were partially offset
by an increase in repair and replacement marine positioning equipment revenues.
In January 2014, we increased our ownership in OceanGeo, our seabed data acquisition joint
venture, from 30% to 70%. In July 2014, we increased our ownership in OceanGeo to 100%. Our 2014
OBS results include the consolidated revenues of OceanGeo for February through December. During
those eleven months, OceanGeo recognized $103.2 million of revenues for the work performed in
Trinidad that was completed in May and from other projects offshore West Africa. OceanGeo began
work on a new contract in West Africa in late July and completed it successfully. OceanGeo was
awarded an additional short-term project nearby and completed that project in the fourth quarter.
These projects are in an area where OceanGeo is pursuing several tenders for additional long-term
work.
Prior to February, we accounted for our interest in OceanGeo as an equity method investment.
For information regarding our acquisition of OceanGeo, see Footnote 3 ‘‘Acquisition of OceanGeo’’ of
Footnotes to Consolidated Financial Statements.
INOVA Geophysical reported a decrease in revenues for 2014, compared to 2013. This decrease in
revenues primarily occurred as a result of decreased sales during 2014 as a result of (i) the soft land
seismic market caused by the reduction in exploration spending by E&P companies and (ii) reduced
purchases by BGP.
We continue to monitor the global economy, the demand for crude oil and natural gas and the
resultant impact on the capital spending plans and operations of our E&P customers in order to plan
our business. We remain confident that, despite current marketplace issues that we describe above, we
have positioned ourselves to take advantage of the next upturn in the energy cycle by shifting our focus
towards E&P solutions and away from equipment sales, and by diversifying our offerings across the
E&P lifecycle.
It is our view that technologies that add a competitive advantage through improved imaging, cost
reductions or improvements in well productivity will continue to be valued in our marketplace. We
believe that our newest technologies, such as Calypso, WiBand, Orca and Narwhal, will continue to
attract customer interest, because those technologies are designed to deliver improvements in image
quality within more productive delivery systems.
Restructuring and Other Charges
Due to the current economic and market conditions described above, including significant
reductions in E&P capital expenditures, in the fourth quarter we initiated restructurings across all our
segments, except for our Ocean Bottom Services segment, reducing our overall workforce by
approximately 10%. This action was taken to rightsize the Company to meet the current demands of
the marketplace.
In connection with this restructuring, we incurred a total of $2.3 million of severance charges,
which will be paid out in 2015. We expect that this reduction will result in an annual cash savings of
48
approximately $15.0 million. Additionally, we incurred charges to write-down the value of certain assets,
including our multi-client data library, our investment in INOVA Geophysical, our goodwill in the
Marine Systems reporting unit and excess and obsolete inventory totaling approximately $176.1 million.
See Footnote 2 ‘‘Impairments, Restructurings and Other Charges’’ of Footnotes to Consolidated Financial
Statements.
Key Financial Metrics
Our results of operations have been materially affected by the impairments and restructuring
charges within our Solutions, Systems and Software segments and with respect to our INOVA
Geophysical joint venture, and by other charges, which affect the comparability of certain of the
financial information contained in this Form 10-K. In order to assist with the comparability to our
historical results of operations, certain of the financial metrics tables and the discussion below exclude
charges related to impairments, the restructuring and other write-downs. The gross profit (loss), income
(loss) from operations, costs and expenses below that are identified as ‘‘As Adjusted’’ reflect the
exclusion of the restructuring and other charges shown and described in the tables below. We believe
that the non-GAAP presentation of results of operations excluding these items provides a more
meaningful comparison of reporting periods.
The tables below provide (i) a summary of our net revenues for our company as a whole, and by
segment, for 2014, 2013 and 2012, and (ii) an overview of other certain key financial metrics for our
company as a whole and our four business segments on a comparative basis for 2014, 2013 and 2012, as
reported and as adjusted in all three years for the restructuring and other charges recorded for those
years.
For certain tabular information on the operating results of our INOVA Geophysical joint venture,
see ‘‘—Other Items—Equity in Earnings (Losses) of Investments.’’
Years Ended December 31,
2014
2013
2012
(In thousands)
Net revenues:
Solutions:
New Venture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Data Library . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 98,649
66,180
$154,578
111,998
$147,346
88,085
Total multi-client revenues . . . . . . . . . . . . . . . . . . . . . . . . . . .
Data Processing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
164,829
113,075
266,576
120,808
235,431
115,834
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$277,904
$387,384
$351,265
Systems:
Towed Streamer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ocean Bottom Equipment
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 43,995
—
44,422
$ 66,991
7,307
48,134
$ 77,769
14,823
39,404
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 88,417
$122,432
$131,996
Software:
Software Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 36,203
3,790
$ 35,418
3,933
$ 39,738
3,318
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 39,993
$ 39,351
$ 43,056
Ocean Bottom Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$103,244
$
— $
—
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$509,558
$549,167
$526,317
49
Year Ended December 31, 2014
Year Ended December 31, 2013
Year Ended December 31, 2012
As Reported
Restructuring
and Other
Charges
As Adjusted As Reported
Restructuring
and Other
Charges
As Adjusted As Reported
Restructuring
and Other
Charges
As Adjusted
(In thousands, except per share data)
$ (24,345)
29,829
28,835
27,904
$100,825(a)
7,580(b)
137(e)
—
$ 76,480
37,409
28,972
27,904
$ 111,108
19,999
28,206
—
$
5,461(a)
25,688(c)
—
—
$116,569
45,687
28,206
—
$132,950
50,790
32,061
—
$ —
1,280(d)
—
—
$ 62,223
$108,542
$170,765
$ 159,313
$ 31,149
$190,462
$215,801
$ 1,280
$132,950
52,070
32,061
—
$217,081
(9)%
34%
72%
27%
12%
37%
8%
—%
—%
22%
28%
42%
72%
27%
34%
29%
16%
72%
—%
29%
1%
21%
—%
—%
6%
30%
37%
72%
—%
35%
38%
38%
74%
—%
41%
—%
1%
—%
—%
—%
38%
39%
74%
—%
41%
$ (80,653)
(23,521)
20,212
19,070
(53,037)
$102,740(a)
32,492(b)
223(e)
—
6,487(f)
$ 22,087
8,971
20,435
19,070
(46,550)
$ 61,146
(9,957)
23,602
—
(58,395)
$
5,461(a)
28,050(c)
—
—
9,157(g)
$ 66,607
18,093
23,602
—
(49,238)
$ 88,589
10,132
28,129
—
(52,323)
$ —
12,848(d)
—
—
—
$ 88,589
22,980
28,129
—
(52,323)
$(117,929)
$141,942
$ 24,013
$ 16,396
$ 42,668
$ 59,064
$ 74,527
$12,848
$ 87,375
(29)%
(27)%
51%
18%
(10)%
(23)%
37%
37%
—%
—%
1%
28%
8%
10%
51%
18%
(9)%
5%
16%
(8)%
60%
—%
(11)%
3%
1%
23%
—%
—%
2%
8%
17%
15%
60%
—%
(9)%
11%
25%
8%
65%
—%
(10)%
14%
—%
9%
—%
—%
—%
3%
25%
17%
65%
—%
(10)%
17%
$(128,252)
$ 94,143(h)
$ (34,109)
$(251,874)
$271,208(i)
$ 19,334
$ 61,963
$ (369)
$ 61,594
$
(0.78)
$
0.57
$
(0.21)
$
(1.59)
$
1.71
$
0.12
$
0.39
$ —
$
0.39
Gross profit:
.
.
.
Solutions
.
.
.
Systems .
Software .
.
.
.
Ocean Bottom Services .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
Total
.
.
.
.
.
.
.
.
.
.
Gross margin:
.
.
.
Solutions
.
.
.
Systems .
Software .
.
.
.
Ocean Bottom Services .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
Total
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
Income (loss) from operations:
.
.
.
.
Solutions
.
.
.
.
Systems .
.
Software .
.
.
.
.
Ocean Bottom Services .
.
.
Corporate and other
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
Total
.
.
.
.
.
.
.
.
.
.
Operating margin:
.
.
.
.
.
.
Solutions
.
.
.
Systems .
Software .
.
.
.
Ocean Bottom Services .
.
Corporate and other
.
.
.
.
.
.
.
.
.
.
.
.
.
Total
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
Net income (loss) applicable to
.
common shares .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
Diluted net income (loss) per common
.
.
share .
.
.
.
.
.
.
.
.
.
.
.
.
.
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
(i)
Primarily relates to the write-down of our multi-client data library in 2014 and 2013 with the Solutions segment. Also, 2014 was impacted by the impairment of
intangible assets and severance-related charges.
Primarily relates to the write-down of goodwill, impacting income (loss) from operations, in addition to inventory write-downs, impacting gross profit (loss), and
severance-related charges within the Systems segment.
Represents excess and obsolete inventory and severance-related charges within the Systems segment in 2013.
Represents the write-down of excess and obsolete inventory, marine equipment and receivables within the Systems segment in 2012.
Represents severance-related charges within the Software segment.
Represents the write-down of receivables due from INOVA Geophysical, in addition to severance-related charges.
Represents the write-down of the carrying value of all receivables due from OceanGeo at September 30, 2013.
In addition to items (a), (b), (e) and (f), also impacting net income (loss) applicable to common shares was (i) the full write-down of our equity method investment
in INOVA Geophysical of $30.7 million, in addition to our share of charges related to excess and obsolete inventory and customer bad debts of $3.5 million, (ii) a
reduction in the WesternGeco legal contingency by $69.6 million, and (iii) non-recurring gains on the sale of a cost method investment of $5.5 million and on the
sale of the Source product line of $6.5 million (before tax).
In addition to items (a),(c) and (g), also impacting net income (loss) applicable to common shares was (i) a charge to income tax expense related to our establishing
a valuation allowance on our net deferred tax assets, (ii) a third quarter payment made to the holder of our outstanding Series D Preferred Stock in connection with
the holder’s conversion of the Series D Preferred Stock, (iii) our additional loss contingency accrual related to the WesternGeco legal proceedings, (iv) $18.8 million
representing ION’s 49% share of restructuring charges within the INOVA joint venture, associated with the impairment of intangible assets, write-down of excess and
obsolete inventory and rental equipment, and severance-related charges, and (v) $12.5 million representing losses incurred as a result of ION taking a larger
ownership position in OceanGeo.
50
We intend that the following discussion of our financial condition and results of operations will
provide information that will assist in understanding our consolidated financial statements, the changes
in certain key items in those financial statements from year to year, and the primary factors that
accounted for those changes.
We account for our 49% interest in INOVA Geophysical as an equity method investment and
record our share of earnings (losses) of INOVA Geophysical on a one fiscal quarter lag basis. Thus, for
2014, 2013 and 2012, we recognized in our consolidated results of operations our share of earnings
(losses) in INOVA Geophysical of approximately $(19.5) million (excluding the write-down of our
investment in INOVA), $(22.5) million and $0.3 million, respectively.
Prior to our acquisition of a controlling interest in OceanGeo in January 2014, we accounted for
our interest in OceanGeo as an equity method investment and recorded our share of earnings of
OceanGeo on a then current quarter basis. In February 2014, we began to consolidate the results of
OceanGeo.
For a discussion of factors that could impact our future operating results and financial condition,
see Item 1A. ‘‘Risk Factors’’ above.
Results of Operations
Year Ended December 31, 2014 (As Adjusted) Compared to Year Ended December 31, 2013 (As Adjusted)
Our total net revenues of $509.6 million for 2014 decreased $39.6 million, or 7%, compared to
total net revenues for 2013. Our overall gross profit percentage for 2014 was 34%, as adjusted,
compared to 2013’s gross profit percentage of 35%, as adjusted. Total operating expenses, as adjusted,
as a percentage of net revenues for 2014 and 2013 were 29% and 24%, respectively. During 2014,
income from operations of $24.0 million, as adjusted, compared to $59.1 million, as adjusted, for 2013.
Net loss for 2014 was $34.1 million, as adjusted, or $(0.21) per share, compared to net income of
$19.3 million, as adjusted, or $0.12 per diluted share for 2013. As noted above, net loss for 2014 and
2013 included restructuring and other charges totaling $94.1 million and $271.2 million, respectively,
impacting our diluted earnings per share by $0.57 and $1.71, respectively.
Net Revenues, Gross Profits and Gross Margins (As Adjusted)
Solutions—Net revenues for 2014 decreased by $109.5 million, or 28%, to $277.9 million, compared
to $387.4 million for 2013. Revenues for our multi-client businesses within Solutions decreased due to
(i) the continued softness of exploration spending and (ii) record data library sales in the fourth
quarter of 2013 that were not repeated in 2014. Data processing revenues were also impacted by the
softness in exploration spending, but benefited by $15.0 million of revenues recognized in the first
quarter 2014 that related to work performed for a customer in 2013.
Gross profit decreased by $40.1 million to $76.5 million, as adjusted, representing a 28% gross
margin, compared to $116.6 million, as adjusted, or a 30% gross margin, for 2013. This decrease was
attributable to the significant revenue decline in our multi-client businesses in 2014, which was partially
offset by the inclusion of $15.0 million of revenues recognized in the first quarter of 2014 that related
to work performed for a customer in 2013.
Systems—Net revenues for 2014 decreased by $34.0 million, or 28%, to $88.4 million, compared to
$122.4 million for 2013. This decrease in revenues was principally due to (i) lower sales of new marine
positioning products; (ii) a lack of ocean bottom cable systems sales in 2014; (iii) lower geophone string
sales; partially offset by (iv) additional marine repair and replacement revenues in 2014 versus 2013.
Gross profit for 2014 decreased by $8.3 million to $37.4 million, as adjusted, representing a 42% gross
margin, compared to $45.7 million, as adjusted, or a 37% gross margin, for 2013. Gross profit
51
decreased in line with the decrease in revenues. Gross margin increased primarily due to cost savings
from the restructuring in 2013 that took full effect in 2014 and to a lesser extent on a change in sales
mix to higher margin repair and replacement business.
Software—Net revenues for 2014 increased by $0.6 million, or 2%, to $40.0 million, compared to
$39.4 million for 2013. This increase in revenues was due to record revenue quarters in the first half of
2014, which was mostly offset by a reduction in revenues in the fourth quarter. Gross profit for 2014
increased by $0.8 million to $29.0 million, as adjusted, representing a 72% gross margin, compared to
$28.2 million, for 2013, which represented a 72% gross margin. Gross profit increased slightly and is
primarily due to recent fluctuations in the U.K. Pound Sterling relative to the U.S. Dollar.
Ocean Bottom Services—Net revenues for 2014 were $103.2 million and gross profit was
$27.9 million, representing a 27% gross margin. During 2014, we established a new operating segment
through the acquisition of OceanGeo. In February, we began consolidating OceanGeo and therefore
have included OceanGeo revenues and gross profit for 2014 related to projects completed in Trinidad
and West Africa. In 2013, OceanGeo was an equity-method investment and not a consolidated
subsidiary. Therefore, our share of OceanGeo’s results of operations were recorded as equity in income
(losses) of investment. See ‘‘Other Items—Equity in Losses of Investments’’ below.
Operating Expenses (As Adjusted)
The following table presents the ‘‘As Adjusted’’ in both 2014 and 2013, excluding special charges
that resulted from both the 2014 and 2013 restructurings and other write-downs (in thousands):
Year Ended December 31, 2014
Year Ended December 31, 2013
As
Reported
Special
Items(a)
As
Adjusted
As
Reported
Special
Items(b)
As
Adjusted
Operating expenses:
Research, development and engineering . $ 41,009 $
Marketing and sales . . . . . . . . . . . . . . . .
General, administrative and other
39,682
(572) $ 40,437 $ 37,742 $ (1,388) $ 36,354
38,306
38,583
(326)
39,356
(277)
operating expenses . . . . . . . . . . . . . . .
76,177
(9,218)
66,959
66,592
(9,854)
56,738
Impairment of goodwill and intangible
assets . . . . . . . . . . . . . . . . . . . . . . . .
23,284
(23,284)
—
—
—
—
Total operating expenses . . . . . . . . . . . $ 180,152 $ (33,400) $146,752 $142,917 $(11,519) $131,398
Income (loss) from operations . . . . . . . . $(117,929) $141,942 $ 24,013 $ 16,396 $ 42,668 $ 59,064
(a)
(b)
Includes (i) the write-down of goodwill related to our Marine Systems reporting unit, (ii) the
write-down of intangible assets, (iii) the write-down of receivables related to INOVA Geophysical
and other customer bad debt, and (iv) severance charges affecting operating expense lines.
Includes (i) the write-down of the remaining carrying value of our receivables from OceanGeo,
and (ii) restructuring charges affecting the operating expense lines.
Research, Development and Engineering—Research, development and engineering expense was
$40.4 million, as adjusted, or 8% of net revenues, for 2014, an increase of $4.0 million compared to
$36.4 million, as adjusted, or 7% of net revenues, for 2013. This increase was due to increased
investment in our Calypso ocean bottom cable system to be used in OBS data acquisition services by
OceanGeo.
Marketing and Sales—Marketing and sales expense of $39.4 million, as adjusted, or 8% of net
revenues, for 2014, increased $1.1 million compared to $38.3 million, as adjusted, or 7% of net
52
revenues, for 2013. This increase was primarily due to an increase in marketing and sales personnel in
our Solutions segment.
General, Administrative and Other Operating Expenses—General, administrative and other operating
expenses of $67.0 million, as adjusted, or 13%, for 2014 increased $10.3 million compared to
$56.7 million, or 10%, as adjusted, for 2013. This increase was primarily related to the consolidation of
general and administrative expenses incurred at OceanGeo.
Other Items
Interest Expense, net—Interest expense, net, of $19.4 million for 2014 increased compared to
$12.3 million for 2013. This increase is directly related to the issuance of the Notes in May 2013. For
additional information, please refer to ‘‘—Liquidity and Capital Resources—Sources of Capital’’ below.
Equity in Losses of Investments—We account for our investment in INOVA Geophysical as an
equity method investment.
We record our share of earnings and losses of our 49% interest in INOVA Geophysical on a one
fiscal quarter lag basis. Thus, our share of INOVA Geophysical’s earnings (losses) for the periods from
October 1, 2013 to September 30, 2014 (‘‘Fiscal 2014’’) and from October 1, 2012 to September 30,
2013 (‘‘Fiscal 2013’’) were included in our consolidated financial results for fiscal 2014 and fiscal 2013,
respectively. For 2014, we recorded our 49% share of equity in INOVA Geophysical’s losses of
approximately $50.2 million (including (i) $3.5 million representing our share of charges associated with
the write-down of excess and obsolete inventory and certain receivables and (ii) the $30.7 million
write-down of our equity interest in INOVA Geophysical to zero). For 2013, we recorded our 49%
share in INOVA Geophysical’s losses of approximately $22.5 million (including $18.8 million
representing our share of several restructuring charges and write-downs of excess and obsolete
inventory). Results for Fiscal 2014 were primarily impacted by a 51% decrease in sales during twelve
months ended September 30, 2014 as a result of (i) the soft land seismic market caused by the
reduction in exploration spending by E&P companies and (ii) reduced purchases by BGP. For a
discussion of the impairment of our equity method investment in INOVA, see Footnote 5 ‘‘Equity
Method Investments’’ of Footnotes to Consolidated Financial Statements contained elsewhere in this
Annual Report on Form 10-K.
The following table reflects the summarized financial information for INOVA Geophysical for
Fiscal 2014 and Fiscal 2013 (in thousands):
Total net revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) from operations . . . . . . . . . . . . . . . . . . . . .
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 89,975
247(1)
$
$(34,540)(1)
$(40,087)
$183,619
$ (1,988)(2)
$(44,463)
$(46,149)(2)
Fiscal 2014
Fiscal 2013
(1)
(2)
Impacting INOVA Geophysical’s gross profit in Fiscal 2014, is $3.8 million of a
write-down of excess and obsolete inventory. In addition to the special item impacting
gross profit (loss), income (loss) from operations was also impacted by $3.4 million of
charges related to customer bad debts.
Impacting INOVA Geophysical’s gross profit in Fiscal 2013, is $36.5 million of
restructuring and special items associated with the impairment of intangible assets,
write-down of excess and obsolete inventory and rental equipment, and severance-related
charges. In addition to the restructuring and special items impacting gross profit, net
income (loss) was also impacted by $1.8 million of other restructuring and special items.
53
For the period of January 1 to January 26, 2014, we accounted for our equity interest in
OceanGeo as an equity method investment. For that period, our share of OceanGeo’s earnings was
$0.7 million. Following our acquisition of a controlling interest in OceanGeo on January 27, 2014,
OceanGeo’s results of operations are consolidated into our results of operations. For additional
information about the acquisition of OceanGeo, see Footnote 3 ‘‘Acquisition of OceanGeo’’ of
Footnotes to Consolidated Financial Statements. In 2013, we recorded our share of equity in
OceanGeo’s losses of approximately $19.8 million.
Other Income (Expense)—Other income for 2014 was $79.9 million compared to other expense of
$182.5 million for 2013. The difference primarily relates to changes in our accrual for loss contingency
related to a legal matter. See further discussion at Part 1, Item 3, ‘‘Legal Proceedings.’’
The following table reflects the significant items of other income (expense) (in thousands):
Years Ended
December 31,
2014
2013
Reduction of (accrual for) loss contingency related to legal
proceedings (Footnote 17) . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on sale of a product line(1) . . . . . . . . . . . . . . . . . . . . . . .
Gain on sale of a cost method investment(2)
. . . . . . . . . . . . . .
Other income (expense) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$69,557
6,522
5,463
(1,682)
$(183,327)
—
3,591
(2,794)
Total other income (expense) . . . . . . . . . . . . . . . . . . . . . . .
$79,860
$(182,530)
(1)
(2)
In 2014, we sold our Source product line for approximately $14.4 million, net of
transaction fees, recording a gain of approximately $6.5 million before taxes. The
historical results of this product line have not been material to our results of operations.
Includes the 2014 sale of our cost method investment in a privately-owned U.S.-based
technology company for total proceeds of approximately $16.5 million, of which
$14.1 million was due and paid at closing.
Income Tax Expense—Income tax expense for 2014 was $20.6 million compared to $25.7 million for
2013. Our effective tax rates for 2014 and 2013 were (19.2)% and (11.6)%, respectively. Our effective
tax rate for 2014 was negatively impacted by the establishment of a valuation allowance related to our
U.S. losses incurred in 2014. See further discussion of establishment of the deferred tax valuation
allowance at Footnote 8 ‘‘Income Taxes’’ of Footnotes to Consolidated Financial Statements. Our income
tax expense for 2014 relates to income from our non-U.S. businesses, including OceanGeo. This foreign
tax expense has not been offset by the tax benefits on losses within the U.S. and other jurisdictions,
from which we cannot currently benefit.
Preferred Stock Dividends and Conversion Payment of Preferred Stock—On September 30, 2013, the
holder of all of the outstanding shares of our Series D Preferred Stock converted all of the shares into
6,065,075 shares of our common stock. Concurrent with the holder’s conversion of its shares of
Series D Preferred Stock, we paid the holder a cash payment of approximately $5.0 million,
representing dividends in respect of the Preferred Stock and the estimated present value of certain
future dividends in respect of the Series D Preferred Stock. As a result of the conversion, all
outstanding shares of Series D Preferred Stock were converted into shares of our common stock, and
no shares of Series D Preferred Stock remain outstanding.
54
Results of Operations
Year Ended December 31, 2013 (As Adjusted) Compared to Year Ended December 31, 2012 (As Adjusted)
Our total net revenues of $549.2 million for 2013 increased $22.9 million, or 4%, compared to
total net revenues for 2012. Our overall gross profit percentage for 2013 was 35%, as adjusted,
compared to 2012’s gross profit percentage of 41%, as adjusted. Total operating expenses, as adjusted,
as a percentage of net revenues for 2013 and 2012 were 24% and 25%, respectively. During 2013,
income from operations, as adjusted, of $59.1 million compared to $87.4 million, as adjusted, for 2012.
Net loss for 2013 was $251.9 million, or $(1.59) per share, compared to net income of $62.0 million, or
$0.39 per diluted share for 2012. As noted above, 2013 included restructuring and other charges
totaling $271.2 million, impacting our diluted earnings per share by $1.71.
Net Revenues, Gross Profits and Gross Margins (As Adjusted)
Solutions—Net revenues for 2013 increased by $36.1 million, or 10%, to $387.4 million, compared
to $351.3 million for 2012. This increase was primarily driven by a large increase in our data library
sales and nominal increases in new ventures and data processing revenues. Sales in the fourth quarter
of 2013 of $166.1 million, or 43% of total annual Solutions revenues for 2013, increased primarily due
to a significant increase in data library sales, mainly relating to offshore East and West Africa, East and
West India and the Gulf of Mexico. Sales are typically higher in the fourth quarter of each year
compared to the prior three quarters. Gross profit decreased by $16.4 million to $116.6 million, as
adjusted, representing a 30% gross margin, compared to $133.0 million, or a 38% gross margin, for
2012. This decrease was attributable to (i) cost overruns on our 3-D marine program during the first
half of 2013 and (ii) the negative impact of approximately $15 million of unrecorded revenues tied to a
customer contract that was pending final execution at the end of 2013.
Systems—Net revenues for 2013 decreased by $9.6 million, or 7%, to $122.4 million, compared to
$132.0 million for 2012. Fourth quarter 2013 sales accounted for $40.5 million, or 33%, of total annual
Systems revenues for 2013. Sales in the fourth quarter of each year typically account for the largest
share of sales each year. This decrease in revenues in 2013 was principally due to reduced demand
from the shrinking marketplace and spare capacity in the industry resulting from recent further
consolidation of marine geophysical contractors; these conditions contributed to a decrease in sales of
new towed streamer systems. This decrease was partially offset by increasing levels of repair work from
the existing installed product base with our customers. Gross profit for 2013 decreased by $6.4 million
to $45.7 million, as adjusted, representing a 37% gross margin, compared to $52.1 million, as adjusted,
representing a 39% gross margin, for 2012. The decrease in gross profit was due to the change in
revenues, as described above.
Software—Net revenues for 2013 decreased by $3.7 million, or 9%, to $39.4 million, compared to
$43.1 million for 2012. This decrease in revenues was due in part to decreased revenues from our
Gator seabed software and declines in our Orca towed streamer software revenues. The reduction in
revenues for seabed software was due primarily to our previous customer, RXT, filing for bankruptcy in
June 2013. The declines in towed streamer software revenues were due to continuing consolidation in
the towed streamer contractor sector. Gross profit for 2013 decreased by $3.9 million to $28.2 million,
representing a 72% gross margin, compared to $32.1 million, for 2012, which represented a 74% gross
margin.
55
Operating Expenses (As Adjusted)
The following table presents the ‘‘As Adjusted’’ operating expenses in both 2013 and 2012,
excluding special charges that resulted from the 2013 restructuring and other 2013 and 2012 write-
downs (in thousands):
Year Ended December 31, 2013
Year Ended December 31, 2012
As
Reported
Special
Items(1)
As
Adjusted
As
Reported
Special
Items(2)
As
Adjusted
Operating expenses:
Research, development and engineering . . $ 37,742 $ (1,388) $ 36,354 $ 34,080 $
Marketing and sales . . . . . . . . . . . . . . . .
General, administrative and other
38,583
35,240
38,306
(277)
— $ 34,080
— 35,240
operating expenses . . . . . . . . . . . . . . . .
66,592
(9,854)
56,738
71,954
(11,568)
60,386
Total operating expenses . . . . . . . . . . . $142,917 $(11,519) $131,398 $141,274 $(11,568) $129,706
Income from operations . . . . . . . . . . . . . $ 16,396 $ 42,668 $ 59,064 $ 74,527 $ 12,848 $ 87,375
(1) Represents severance-related charges as a result of a restructuring of the Systems segment and the
write-down of the carrying value of receivables due from OceanGeo.
(2) Represents the write-down of marine equipment and receivables within the Systems segment in
2012.
Research, Development and Engineering—Research, development and engineering expense was
$36.4 million, as adjusted, or 7% of net revenues, for 2013, an increase of $2.3 million compared to
$34.1 million, or 6% of net revenues, for 2012. This increase in research and development expense was
primarily due to increased investment of labor and technology related to product development. During
2013, we continued to invest in Calypso, our next generation re-deployable OBS data acquisition system
and Narwhal, our ice management system for operations in harsh Arctic environments.
Marketing and Sales—Marketing and sales expense of $38.3 million, as adjusted, or 7% of net
revenues, for 2013, increased $3.1 million compared to $35.2 million, or 7% of net revenues, for 2012.
This increase in marketing and sales expense was primarily due to investment in our Solutions sales
teams to support the continued growth in the Solutions segment.
General, Administrative and Other Operating Expenses—General, administrative and other operating
expenses of $56.7 million, as adjusted, for 2013 decreased $3.6 million compared to $60.4 million, as
adjusted, for the corresponding period of 2012. General, administrative and other operating expenses as
a percentage of net revenues for 2013 and 2012 were 10% and 11%, respectively. This decrease was
primarily related to the lower levels of legal costs incurred during 2013 compared to those incurred in
connection with the WesternGeco trial in 2012. See further discussion at Part I, Item 3. ‘‘Legal
Proceedings.’’
Other Items
Interest Expense, net—Interest expense, net, of $12.3 million for 2013 increased compared to
$5.3 million for 2012. This increase is directly related to the issuance of the Notes in May 2013, which
carry a higher interest rate and represent a greater principal amount outstanding, than do the interest
rate and the average outstanding balance of indebtedness under our revolving line of credit, which was
our only major indebtedness outstanding in 2012. For additional information, please refer to
‘‘—Liquidity and Capital Resources—Sources of Capital’’ below.
Equity in Earnings (Losses) of Investments—In 2013 and 2012, we accounted for our investments in
both INOVA Geophysical and OceanGeo as equity method investments.
56
We record our share of earnings and losses of our 49% interest in INOVA Geophysical on a one
fiscal quarter lag basis. Thus, our share of INOVA Geophysical’s earnings (losses) for the periods from
October 1, 2012 to September 30, 2013 (‘‘Fiscal 2013’’) and from October 1, 2011 to September 30,
2012 (‘‘Fiscal 2012’’) were included in our consolidated financial results for fiscal 2013 and fiscal 2012,
respectively. For 2013, we recorded our 49% share of equity in INOVA Geophysical’s losses of
approximately $22.5 million (including $18.8 million representing our share of several restructuring
charges and write-downs of excess and obsolete inventory). For 2012, we recorded our 49% share in
INOVA Geophysical’s earnings of approximately $0.3 million.
The following table reflects the summarized financial information for INOVA Geophysical for
Fiscal 2013 and Fiscal 2012 (in thousands):
Total net revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) from operations . . . . . . . . . . . . . . . . . . . . . .
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$183,619
$ (1,988)(1)
$(44,463)
$(46,149)(1)
$188,336
$ 39,320
3,241
$
2,197
$
Fiscal 2013
Fiscal 2012
(1)
Impacting INOVA Geophysical’s gross profit in Fiscal 2013, is $36.5 million of
restructuring and special items associated with the impairment of intangible assets,
write-down of excess and obsolete inventory and rental equipment, and severance-related
charges. In addition to the restructuring and special items impacting gross profit, net
income (loss) was also impacted by $1.8 million of other restructuring and special items.
In 2013, we accounted for our 30% interest in OceanGeo as an equity method investment and
recorded our share of earnings of OceanGeo on a current quarter basis. In 2013, we recorded our
share of equity in OceanGeo’s losses of approximately $19.8 million. OceanGeo’s losses were related to
idle activity prior to them mobilizing in late December 2013.
Other Income (Expense)—Other expense for 2013 was $182.5 million compared to other income of
$17.1 million for 2012. The difference primarily relates to the settlements of litigation and the accrual
for loss contingency related to a legal matter. See further discussion at Part 1, Item 3, ‘‘Legal
Proceedings.’’
The following table reflects the significant items of other income (expense) (in thousands):
Years Ended
December 31,
2013
2012
Accrual for loss contingency related to legal proceedings
(Footnote 17) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on sale of a cost method investment . . . . . . . . . . . . . . .
Gain on legal settlement(1)
. . . . . . . . . . . . . . . . . . . . . . . . . .
Other income (expense) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(183,327) $(10,000)
—
30,895
(3,771)
3,591
—
(2,794)
Total other income (expense) . . . . . . . . . . . . . . . . . . . . . . .
$(182,530) $ 17,124
(1) Gain related to the 2012 settlement of a patent infringement lawsuit with Sercel.
Income Tax Expense—Income tax expense for 2013 was $25.7 million compared to $23.9 million for
2012. Our effective tax rates for 2013 and 2012 were (11.6)% and 27.5%, respectively. The change in
our effective tax rate between 2013 and 2012 was due to the establishment during 2013 of an additional
valuation allowance on U.S. federal net deferred tax assets and nondeductible equity losses related to
57
OceanGeo and INOVA Geophysical. Our effective tax rate for 2013, excluding changes in the valuation
allowance, was 28.3%. We currently maintain a valuation allowance on substantially all net deferred tax
assets.
Liquidity and Capital Resources
Sources of Capital
As of December 31, 2014, we had $173.6 million in cash on hand. As of December 31, 2014, we
have approximately $68.2 million available under the New Credit Facility. Our cash requirements
include our working capital requirements and cash required for our debt service payments, multi-client
seismic data acquisition activities and capital expenditures. As of December 31, 2014, we had working
capital of $222.1 million. Working capital requirements are primarily driven by our continued
investment in our multi-client data library ($67.8 million in 2014) and, to a lesser extent, our inventory
purchase obligations. At December 31, 2014, our outstanding inventory purchase obligations were
$14.3 million. Also, our headcount has traditionally been a significant driver of our working capital
needs. Because a significant portion of our business is involved in the planning, processing and
interpretation of seismic data services, one of our largest investments is in our employees, which
involves cash expenditures for their salaries, bonuses, payroll taxes and related compensation expenses.
Our working capital requirements may change from time to time depending upon many factors,
including our operating results and adjustments in our operating plan required in response to industry
conditions, competition, acquisition opportunities and unexpected events, such as a requirement to
collateralize the appeal bond for our ongoing WesternGeco litigation or to satisfy an adverse outcome
in the litigation, which is further discussed at Part I, Item 3. ‘‘Legal Proceedings.’’ In recent years, our
primary sources of funds have been cash flows generated from our operations, our existing cash
balances, debt and equity issuances and borrowings under our revolving credit facilities.
New Credit Facility, including Revolving Line of Credit—In August 2014, we entered into a new
credit facility with PNC Bank, National Association (the ‘‘New Credit Facility’’), that replaced our prior
credit facility under a credit agreement dated as of March 25, 2010, as amended, by and among ION,
the subsidiary guarantors that are parties thereto and China Merchants Bank Co., Ltd., New York
Branch, as administrative agent and lender (the ‘‘Prior Credit Facility’’).
Our New Credit Facility contemplates maximum credit facilities of up to $175.0 million in the
aggregate with current commitments being subject to a borrowing base. Under our New Credit Facility,
the lenders have currently committed $80.0 million of revolving credit, subject to a borrowing base. As
of December 31, 2014, we have approximately $68.2 million available under the New Credit Facility.
The amount available will increase or decrease monthly as our borrowing base changes. The borrowing
base for revolving credit borrowings under the New Credit Facility is calculated using a formula based
on certain eligible receivables, eligible inventory and other amounts. The interest rate on revolving
credit borrowings under the New Credit Facility will be, at our option, (i) an alternate base rate equal
to the highest of (a) the prime rate of PNC, (b) a federal funds effective rate plus 0.50% or (c) a
LIBOR-based rate plus 1.0%, plus an applicable interest margin, or (ii) a LIBOR-based rate, plus an
applicable interest margin. The revolving credit indebtedness under the New Credit Facility is scheduled
to mature on the earlier of (x) August 22, 2019 or (y) the date which is 90 days prior to the maturity
date of the Notes (or such later due date if the Notes have been refinanced). As of December 31,
2014, there was no outstanding indebtedness under the New Credit Facility. The New Credit Facility
requires us to maintain compliance with various covenants. At December 31, 2014, we were in
compliance with all of the covenants under the New Credit Facility. For further information regarding
our New Credit Facility, see Footnote 6 ‘‘Long-term Debt and Lease Obligations’’ of Footnotes to
Consolidated Financial Statements.
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Senior Secured Second-Priority Notes—In May 2013, we sold $175.0 million aggregate principal
amount of 8.125% Senior Secured Second-Priority Notes due 2018 in a private offering. The Notes are
senior secured second-priority obligations, are guaranteed by our material U.S. subsidiaries: GX
Technology Corporation, ION Exploration Products (U.S.A.), Inc. and I/O Marine Systems, Inc. (‘‘the
Notes Guarantors’’), and mature on May 15, 2018. Interest on the Notes accrues at the rate of 8.125%
per annum and is payable semiannually in arrears on May 15 and November 15 of each year during
their term. In May 2014, the holders of the Notes exchanged their Notes for a like principal amount of
registered Notes with the same terms.
On or after May 15, 2015, we may on one or more occasions redeem all or a part of the Notes at
the redemption prices set forth below, plus accrued and unpaid interest and special interest, if any, on
the Notes redeemed during the twelve-month period beginning on May 15th of the years indicated
below:
Date
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 and thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Percentage
104.063%
102.031%
100.000%
The Indenture governing the Notes requires us to maintain compliance with various covenants. At
December 31, 2014, we were in compliance with all of the covenants under the Indenture. For further
information regarding the Notes, see Footnote 6 ‘‘Long-term Debt and Lease Obligations’’ of Footnotes
to Consolidated Financial Statements.
For additional information regarding the terms of the Notes and related Indenture and
Intercreditor Agreement, see our Current Report on Form 8-K filed with the SEC on May 13, 2013.
Meeting our Liquidity Requirements
As of December 31, 2014, our total outstanding indebtedness (including capital lease obligations)
was approximately $190.6 million, consisting primarily of approximately $175.0 million outstanding
Notes and $15.1 million of capital leases. As of December 31, 2014, there was no outstanding
indebtedness under our New Credit Facility.
For 2014, total capital expenditures, including investments in our multi-client data library, were
$76.0 million. We currently expect that our capital expenditures, including investments in our multi-
client data library, will be reduced in 2015 compared to 2014. However, we do not expect to finalize
our annual budget until such time that our E&P customers finalize their exploration budgets for 2015.
The 2015 budgeting process by our E&P customers has been delayed due to the rapid decline in crude
oil prices during the fourth quarter of 2014 and into early 2015, as described in ‘‘Executive Summary—
Macroeconomic Conditions’’ above. For 2015, we have operating lease commitments of approximately
$19.9 million for two seismic vessels leased by OceanGeo for use in OBS data acquisition services.
Subject to a requirement to collateralize the appeal bond for our ongoing WesternGeco litigation
or to satisfy a payment obligation in the amount of the loss contingency we have established with
respect to the litigation, we currently believe that our existing cash, cash generated from operations,
our sources of working capital, and our New Credit Facility will be sufficient for us to meet our
anticipated cash needs for the foreseeable future. However, as set forth below, a requirement to
collateralize the appeal bond or to satisfy a payment obligation with respect to the WesternGeco
litigation could have a material adverse effect on our liquidity and, as a result, our business, financial
condition and results of operations.
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Loss Contingency—WesternGeco Lawsuit
As of December 31, 2014, we have a loss contingency of $123.8 million accrued related to the legal
proceedings with WesternGeco. As described at Part I, Item 3. ‘‘Legal Proceedings,’’ there are possible
scenarios involving an outcome in the WesternGeco lawsuit that could materially and adversely affect
our liquidity. In connection with our appeal of the trial court judgment, we arranged with sureties to
post an appeal bond on our behalf in the amount of $120.0 million. The terms of the appeal bond
arrangements provide the sureties the contractual right for as long as the bond is outstanding to
require us to post cash collateral for up to the full amount of the bond. If the sureties exercise their
right to require collateral while the appeal bond is outstanding, we intend to utilize a combination of
cash on hand and undrawn balances available under our New Credit Facility. Any requirements that we
collateralize the appeal bond will reduce our liquidity and may reduce the amount otherwise available
to be borrowed under our New Credit Facility. If we are required to collateralize the full amount of the
bond, we might also seek additional debt and/or equity financing. No assurances can be made whether
our efforts to raise additional cash would be successful and, if so, on what terms and conditions, and at
what cost we might be able to secure any such financing. If additional funds are raised through the
issuance of debt and/or equity securities, these securities could have rights, preferences and privileges
less favorable to us than our current debt or equity securities, and the terms of these securities could
impose further restrictions on our operations.
If we are unable to raise additional capital under these circumstances or if our efforts on appeal to
reverse or reduce the verdict substantially are unsuccessful, it would likely have the effect of reducing
our capital resources available to fund our operations and take advantage of certain business
opportunities (including the ability to fund investments in our multi-client data library, research and
development, and future acquisition opportunities), which could have a material adverse effect on our
business, results of operations and financial condition.
We may not ultimately prevail in the appeals process and we could be required to pay damages up
to the amount of the loss contingency accrual plus any additional amount ordered by the court. Our
assessment of our potential loss contingency may change in the future due to developments at the
appellate court and other events, such as changes in applicable law, and such reassessment could lead
to the determination that no loss contingency is probable or that a greater loss contingency is probable,
which could have a material effect on our business, financial condition and results of operations.
Amounts of estimated loss contingency accruals as disclosed in this Annual Report on Form 10-K or
elsewhere are based on currently available information and involve elements of judgment and
significant uncertainties. Actual losses may exceed or be considerably less than these accrual amounts.
Cash Flow from Operations
Net cash provided by operating activities was $129.8 million for 2014, compared to $147.6 million
for 2013. The decrease in our cash flows from operations was primarily due to lower revenues in 2014
compared to 2013, partially offset by lower levels of accounts receivable and unbilled receivables.
Net cash provided by operating activities was $147.6 million for 2013, compared to $169.1 million
of net cash provided by operating activities in 2012. The negative effects caused by the 2013 net loss to
our cash flow from operations were partially offset by non-cash special charges taken during 2013 for
write-downs of inventory, certain receivables and certain data library projects, our equity method
investment losses in OceanGeo and INOVA Geophysical and the additional accruals for loss
contingencies related to the WesternGeco lawsuit. Positively affecting our 2013 net cash flows from
operations were lower levels of outstanding unbilled receivables for 2013, partially offset by an
investment in inventory and higher accounts receivable at December 31, 2013.
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Cash Flow Used In Investing Activities
Net cash flow used in investing activities was $48.8 million for 2014, compared to $159.0 million
for 2013. The principal uses of cash in our investing activities during 2014 were $67.8 million of
continued investments in our multi-client data library, $8.3 million of investments in property, plant and
equipment and investments in and cash advances to OceanGeo totaling $3.1 million, offset by
$14.4 million of net proceeds from the sale of a product line and $14.1 million of net proceeds from
the sale of a cost method investment.
Net cash flow used in investing activities was $159.0 million for 2013, compared to net cash used in
investing activities of $144.3 million for 2012. The principal uses of cash in our investing activities
during 2013 were $114.6 million of continued investments in our multi-client data library, $24.8 million
of cash invested in and advanced to OceanGeo, and $16.9 million invested in property, plant and
equipment.
Cash Flow from Financing Activities
Net cash flow used in financing activities was $56.0 million for 2014, compared to $98.7 million of
net cash flow provided by financing activities for 2013. The net cash flow used in financing activities
during 2014 was primarily related to the $35.0 million of net repayments on our Prior Credit Facility,
$13.0 million of payments on long-term debt, and $6.0 million to purchase the remaining interest in
OceanGeo.
Net cash flow provided by financing activities was $98.7 million for 2013, compared to $6.5 million
of net cash flow used in financing activities for 2012. The net cash flow provided by financing activities
during 2013 was primarily related to our issuance of $175.0 million principal amount of the Notes. We
also drew $35.0 million of net borrowings under our revolving line of credit during 2013. Offsetting
these cash provisions were our total repayments under of our revolving line of credit during 2013 of
$97.3 million. In 2013, we also paid $1.4 million in cash dividends on our outstanding Series D
Preferred Stock and an additional $5.0 million with respect to the Series D Preferred Stock when it was
converted in September 2013. The $6.5 million of net cash flow used in financing activities during 2012
was primarily related to repayment of an outstanding term loan of $98.3 million, offset by net
borrowings under our amended revolving line of credit of $97.3 million. We also paid $1.4 million in
cash dividends on our outstanding Series D Preferred Stock in 2012.
Inflation and Seasonality
Inflation in recent years has not had a material effect on our costs of goods or labor, or the prices
for our products or services. Traditionally, our business has been seasonal, with strongest demand
typically in the fourth quarter of our fiscal year. We experienced increased demand in the fourth
quarter of 2013 driven by increased capital expenditures from our E&P customers, consistent with our
historical seasonality. However, sales in 2014 have been negatively impacted by reduced exploration
spending by our E&P customers.
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Future Contractual Obligations
The following table sets forth estimates of future payments of our consolidated contractual
obligations, as of December 31, 2014 (in thousands):
Contractual Obligations
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . .
Interest on long-term debt obligations . . . . . . . .
Equipment capital lease obligations . . . . . . . . .
Operating leases . . . . . . . . . . . . . . . . . . . . . . .
Purchase obligations . . . . . . . . . . . . . . . . . . . .
Total
$175,535
51,030
15,059
111,055
14,331
Less Than
1 Year
1 - 3
Years
3 - 5
Years
More Than
5 Years
$
535
15,259
7,114
29,604
14,331
$ — $175,000
5,932
29,839
—
7,945
17,538
20,947
—
—
$ —
—
—
42,966
—
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$367,010
$66,843
$58,731
$198,470
$42,966
The long-term debt at December 31, 2014 included $175.0 million of principal amount of
indebtedness outstanding under our Notes issued in May 2013. The $15.1 million of equipment capital
lease obligations relates to GXT’s financing of computer and other equipment purchases.
The operating lease commitments at December 31, 2014 relate to our leases for certain equipment,
offices, processing centers, warehouse space and seismic vessels under non-cancelable operating leases.
Our purchase obligations primarily relate to our committed inventory purchase orders under which
deliveries of inventory are scheduled to be made in 2015.
Critical Accounting Policies and Estimates
The preparation of consolidated financial statements in conformity with generally accepted
accounting principles in the United States requires management to make choices between acceptable
methods of accounting and to use judgment in making estimates and assumptions that affect the
reported amounts of assets and liabilities, disclosure of contingent assets and liabilities, and the
reported amounts of revenue and expenses. The following accounting policies are based on, among
other things, judgments and assumptions made by management that include inherent risk and
uncertainties. Management’s estimates are based on the relevant information available at the end of
each period. We believe that all of the judgments and estimates used to prepare our financial
statements were reasonable at the time we made them, but circumstances may change requiring us to
revise our estimates in ways that could be materially adverse to our results of operations and financial
condition. We describe our significant accounting policies more fully in Footnote 1 ‘‘Summary of
Significant Accounting Policies’’ of Footnotes to Consolidated Financial Statements.
Revenue Recognition
We derive revenue from the sale of (i) multi-client and proprietary surveys, licenses of
‘‘on-the-shelf’’ data libraries and imaging services, within our Solutions segment; (ii) seismic data
acquisition systems and other seismic equipment within our Systems segment; (iii) seismic command
and control software systems and software solutions for operations management within our Software
segment; and (iv) fully-integrated OBS solutions that include survey design and planning and data
acquisition within our Ocean Bottom Services segment. All revenues of the Solutions and Ocean
Bottom Services segments and the services component of revenues for the Software segment are
classified as services revenues. All other revenues are classified as product revenues.
Multi-Client and Proprietary Surveys, Data Libraries and Imaging Services—As our multi-client
surveys are being designed, acquired or processed (referred to as the ‘‘new venture’’ phase), we enter
into non-exclusive licensing arrangements with our customers. License revenues from these new venture
survey projects are recognized during the new venture phase as the seismic data is acquired and/or
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processed on a proportionate basis as work is performed. Under this method, we recognize revenues
based upon quantifiable measures of progress, such as kilometers acquired or days processed. Upon
completion of a multi-client seismic survey, the seismic survey is considered ‘‘on-the-shelf,’’ and licenses
to the survey data are granted to customers on a non-exclusive basis. Revenues on licenses of
completed multi-client data surveys are recognized when (a) a signed final master geophysical data
license agreement and accompanying supplemental license agreement are returned by the customer;
(b) the purchase price for the license is fixed or determinable; (c) delivery or performance has
occurred; and (d) no significant uncertainty exists as to the customer’s obligation, willingness or ability
to pay. In limited situations, we have provided the customer with a right to exchange seismic data for
another specific seismic data set. In these limited situations, we recognize revenue at the earlier of the
customer exercising its exchange right or the expiration of the customer’s exchange right.
We also perform seismic surveys under contracts to specific customers, whereby the seismic data is
owned by those customers. We recognize revenue as the seismic data is acquired and/or processed on a
proportionate basis as work is performed. We use quantifiable measures of progress consistent with our
multi-client surveys.
Revenues from all imaging and other services are recognized when persuasive evidence of an
arrangement exists, the price is fixed or determinable, and collectibility is reasonably assured. Revenues
from contract services performed on a dayrate basis are recognized as the service is performed.
Acquisition Systems and Other Seismic Equipment—For the sales of seismic data acquisition systems
and other seismic equipment, we follow the requirements of ASC 605-10 ‘‘Revenue Recognition’’ and
recognize revenue when (a) evidence of an arrangement exists; (b) the price to the customer is fixed
and determinable; (c) collectibility is reasonably assured; and (d) the acquisition system or other
seismic equipment is delivered to the customer and risk of ownership has passed to the customer, or, in
the case in which a substantive customer-specified acceptance clause exists in the contract, the later of
delivery or when the customer-specified acceptance is obtained
Software—For the sales of navigation, survey and quality control software systems, we follow the
requirements for these transactions of ASC 985-605 ‘‘Software Revenue Recognition’’ (‘‘ASC 985-605’’).
We recognize revenue from sales of these software systems when (a) evidence of an arrangement exists;
(b) the price to the customer is fixed and determinable; (c) collectibility is reasonably assured; and
(d) the software is delivered to the customer and risk of ownership has passed to the customer, or, in
the limited case in which a substantive customer-specified acceptance clause exists, the later of delivery
or when the customer-specified acceptance is obtained. These arrangements generally include us
providing related services, such as training courses, engineering services and annual software
maintenance. We allocate revenue to each element of the arrangement based upon vendor-specific
objective evidence (‘‘VSOE’’) of fair value of the element or, if VSOE is not available for the delivered
element, we apply the residual method.
In addition to perpetual software licenses, we offer time-based software licenses. For time-based
licenses, we recognize revenue ratably over the contract term, which is generally two to five years.
Ocean Bottom Services—We recognize revenues as they are realized and earned and can be
reasonably measured, based on contractual dayrates or on a fixed-price basis, and when collectability is
reasonably assured. In connection with acquisition contracts, we may receive revenues for preparation
and mobilization of equipment and personnel or for capital improvements to vessels. We defer the
revenues earned and incremental costs incurred that are directly related to contract preparation and
mobilization and recognize such revenues and costs over the primary contract term of the acquisition
project. We use the ratio of square kilometers acquired as a percentage of the total square kilometers
expected to be acquired over the primary term of the contract to recognize deferred revenues and
amortize, in cost of services, the costs related to contract preparation and mobilization. We recognize
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the costs of relocating vessels without contracts to more promising market sectors as such costs are
incurred. Upon completion of acquisition contracts, we recognize in earnings any demobilization fees
received and expenses incurred.
Multiple-element Arrangements—When separate elements (such as an acquisition system, other
seismic equipment and/or imaging and acquisition services) are contained in a single sales arrangement,
or in related arrangements with the same customer, we follow the requirements of ASC 605-25
‘‘Accounting for Multiple-Element Revenue Arrangement’’ (‘‘ASC 605-25’). We adopted this guidance as of
January 1, 2010, and applied the guidance to transactions initiated or materially modified on or after
January 1, 2010. The guidance does not apply to software sales accounted for under ASC 985-605. We
also adopted, in the same period, guidance within ASC 985-605 that excludes from its scope revenue
arrangements that include both tangible products and software elements, such that the tangible
products contain both software and non-software components that function together to deliver the
tangible product’s essential functionality.
This guidance requires that arrangement consideration be allocated at the inception of an
arrangement to all deliverables using the relative selling price method. We allocate arrangement
consideration to each deliverable qualifying as a separate unit of accounting in an arrangement based
on its relative selling price. We determine selling price using VSOE, if it exists, and otherwise, third-
party evidence (‘‘TPE’’). If neither VSOE nor TPE of selling price exists for a unit of accounting, we
use estimated selling price (‘‘ESP’’). We generally expect that we will not be able to establish TPE due
to the nature of the markets in which we compete, and, as such, we typically will determine selling
price using VSOE or if not available, ESP. VSOE is generally limited to the price charged when the
same or similar product is sold on a standalone basis. If a product is seldom sold on a standalone basis,
it is unlikely that we can determine VSOE for the product.
The objective of ESP is to determine the price at which we would transact if the product were sold
by us on a standalone basis. Our determination of ESP involves a weighting of several factors based on
the specific facts and circumstances of the arrangement. Specifically, we consider the anticipated margin
on the particular deliverable, the selling price and profit margin for similar products and our ongoing
pricing strategy and policies.
Multi-Client Data Library
Our multi-client data library consists of seismic surveys that are offered for licensing to customers
on a non-exclusive basis. The capitalized costs include the costs paid to third parties for the acquisition
of data and related activities associated with the data creation activity and direct internal processing
costs, such as salaries, benefits, computer-related expenses and other costs incurred for seismic data
project design and management. For 2014, 2013 and 2012, we capitalized, as part of our multi-client
data library, $8.3 million, $2.1 million and $3.8 million, respectively, of direct internal processing costs.
Our method of amortizing the costs of an in-process multi-client data library (the period during
which the seismic data is being acquired or processed, referred to as the ‘‘new venture’’ phase) consists
of determining the percentage of actual revenue recognized to the total estimated revenues (which
includes both revenues estimated to be realized during the new venture phase and estimated revenues
from the licensing of the resulting ‘‘on-the-shelf’’ data survey) and multiplying that percentage by the
total cost of the project (the sales forecast method). We consider a multi-client data survey to be
complete when all work on the creation of the seismic data is finished and that data survey is available
for licensing.
Once a multi-client data survey is completed, the data survey is considered ‘‘on-the-shelf’’ and our
method of amortization is then the greater of (i) the sales forecast method or (ii) the straight-line basis
over a four-year period. The greater amount of amortization resulting from the sales forecast method
or the straight-line amortization policy is applied on a cumulative basis at the individual survey level.
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Under this policy, we first record amortization using the sales forecast method. The cumulative
amortization recorded for each survey is then compared with the cumulative straight-line amortization.
The four-year period utilized in this cumulative comparison commences when the data survey is
determined to be complete. If the cumulative straight-line amortization is higher for any specific survey,
additional amortization expense is recorded, resulting in the accumulated amortization being equal to
the cumulative straight-line amortization for that survey. We have determined the amortization period
to be four years based upon our historical experience that indicates that the majority of our revenues
from multi-client surveys are derived during the acquisition and processing phases and during the four
years subsequent to survey completion.
Estimated sales are determined based upon discussions with our customers, our experience and our
knowledge of industry trends. Changes in sales estimates may have the effect of changing the
percentage relationship of cost of services to revenue. In applying the sales forecast method, an
increase in the projected sales of a survey will result in lower cost of services as a percentage of
revenue and higher earnings when revenue associated with that particular survey is recognized, while a
decrease in projected sales will have the opposite effect. Assuming that the overall volume of sales mix
of surveys generating revenue in the period was held constant in 2014, an increase of 10% in the sales
forecasts of all surveys would have decreased our amortization expense by approximately $5.9 million.
We estimate the ultimate revenue expected to be derived from a particular seismic data survey
over its estimated useful economic life to determine the costs to amortize, if greater than straight-line
amortization. That estimate is made by us at the project’s initiation. For a completed multi-client
survey, we review the estimate quarterly. If during any such review, we determine that the ultimate
revenue for a survey is expected to be materially more or less than the original estimate of total
revenue for such survey, we decrease or increase (as the case may be) the amortization rate
attributable to the future revenue from such survey. In addition, in connection with such reviews, we
evaluate the recoverability of the multi-client data library, and if required under ASC 360-10
‘‘Impairment and Disposal of Long-Lived Assets,’’ record an impairment charge with respect to such
data. In 2014, we wrote down our multi-client data library by $100.1 million due to current market
conditions. For a full discussion of impairments of our multi-client data library in 2014 and 2013, see
Footnote 2 ‘‘Impairments, Restructurings and Other Charges’’ of Footnotes to Consolidated Financial
Statements included elsewhere in this Form 10-K for additional information. There were no significant
impairment charges during 2012.
Reserve for Excess and Obsolete Inventories
Our reserve for excess and obsolete inventories is based on historical sales trends and various
other assumptions and judgments, including future demand for our inventory, the timing of market
acceptance of our new products and the risk of obsolescence driven by new product introductions.
When we record a charge for excess and obsolete inventories, the amount is applied as a reduction in
the cost basis of the specific inventory item for which the charge was recorded. Should these
assumptions and judgments not be realized for these or for other reasons, our reserve would be
adjusted to reflect actual results. Our industry is subject to technological change and new product
development that could result in obsolete inventory. Our reserve for inventory at December 31, 2014
was $29.8 million compared to $32.6 million at December 31, 2013.
Goodwill and Other Intangible Assets
Goodwill is allocated to our reporting units, which is either the operating segment or one reporting
level below the operating segment. For purposes of performing the impairment test for goodwill as
required by ASC 350 ‘‘Intangibles—Goodwill and Other’’ (‘‘ASC 350’’), we established the following
reporting units: Solutions, Software and Marine Systems. To determine the fair value of our reporting
units, we use a discounted future returns valuation method. If we had established different reporting
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units or utilized different valuation methodologies, our impairment test results could differ.
Additionally, we compared the sum of the estimated fair values of the individual reporting units less
consolidated debt to our overall market capitalization as reflected by the our stock price.
In accordance with ASC 350, we are required to evaluate the carrying value of our goodwill at
least annually for impairment, or more frequently if facts and circumstances indicate that it is more
likely than not impairment has occurred. We formally evaluate the carrying value of our goodwill for
impairment as of December 31 for each of our reporting units. We first perform a qualitative
assessment by evaluating relevant events or circumstances to determine whether it is more likely than
not that the fair value of a reporting unit is less than its carrying amount. If we are unable to conclude
qualitatively that it is more likely than not that a reporting unit’s fair value exceeds its carrying value,
then we will use a two-step quantitative assessment of the fair value of a reporting unit. If the carrying
value of a reporting unit of an entity that includes goodwill is determined to be more than the fair
value of the reporting unit, there exists the possibility of impairment of goodwill. An impairment loss of
goodwill is measured in two steps by first allocating the fair value of the reporting unit to net assets
and liabilities including recorded and unrecorded other intangible assets to determine the implied
carrying value of goodwill. The next step is to measure the difference between the carrying value of
goodwill and the implied carrying value of goodwill, and, if the implied carrying value of goodwill is
less than the carrying value of goodwill, an impairment loss is recorded equal to the difference.
We completed our annual goodwill impairment testing as of December 31, 2014 and recorded a
charge of $21.9 million through Income (loss) from operations. Remaining goodwill as of December 31,
2014 was comprised of $24.4 million in our Software and $2.9 million in our Solutions reporting units.
For goodwill testing purposes, the $123.8 million litigation contingency accrual is assigned to the
Marine Systems reporting unit. Based on this accrual and the recording of a valuation allowance on
substantially all of our net deferred tax assets, this reporting unit’s carrying value was negative as of
December 31, 2014. The negative carrying value required us to perform step 2 of the impairment test
on our Marine Systems reporting unit; the test determined that the goodwill associated with our
Marine Systems reporting unit was fully impaired.
Our 2014 quantitative assessment indicated that the fair values of our Software and Solutions
reporting units significantly exceeded their carrying values. Our analyses are based upon our internal
operating forecasts, which include assumptions about market and economic conditions. However, if our
estimates or related projections associated with the reporting units significantly change in the future, we
may be required to record further impairment charges. If the operational results of our segments are
lower than forecasted or the economic conditions are worse than expected, then the fair value of our
segments will be adversely affected.
Our intangible assets, other than goodwill, relate to our customer relationships. We amortize our
customer relationship intangible assets on an accelerated basis over a 10- to 15-year period, using the
undiscounted cash flows of the initial valuation models. We use an accelerated basis as these intangible
assets were initially valued using an income approach, with an attrition rate that resulted in a pattern of
declining cash flows over a 10- to 15-year period.
Following the guidance of ASC 360 ‘‘Property, Plant and Equipment,’’ we review the carrying values
of these intangible assets for impairment if events or changes in the facts and circumstances indicate
that it is more likely than not their carrying value may not be recoverable. Any impairment determined
is recorded in the current period and is measured by comparing the fair value of the related asset to its
carrying value.
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Similar to our treatment of goodwill, in making these assessments, we rely on a number of factors,
including operating results, business plans, internal and external economic projections, anticipated
future cash flows and external market data. However, if our estimates or related projections associated
with the reporting units significantly change in the future, we may be required to record further
impairment charges.
Deferred Tax Assets
During 2013 we established a valuation allowance on a substantial majority of our U.S. net
deferred tax assets due to the large one time charges taken during the year. The valuation allowance
was calculated in accordance with the provisions of ASC 740-10, ‘‘Accounting for Income Taxes,’’ which
requires that a valuation allowance be established or maintained when it is ‘‘more likely than not’’ that
all or a portion of deferred tax assets will not be realized. We will continue to record a valuation
allowance for the substantial majority of all of our deferred tax assets until there is sufficient evidence
to warrant reversal. In the event our expectations of future operating results change, an additional
valuation allowance may be required to be established on our existing unreserved net U.S. deferred tax
assets.
Foreign Sales Risks
For 2014, we recognized $100.2 million of sales to customers in Europe, $49.9 million of sales to
customers in Asia Pacific, $111.1 million of sales to customers in Latin American countries,
$39.1 million of sales to customers in the Middle East, $75.5 million of sales to customers in Africa and
$3.5 million of sales to customers in the Commonwealth of Independent States, or former Soviet Union
(CIS). The majority of our foreign sales are denominated in U.S. dollars. For 2014, 2013 and 2012,
international sales comprised 74%, 73% and 69%, respectively, of total net revenues. Since 2008, global
economic problems and uncertainties have generally increased in scope and nature. In the fourth
quarter of 2014, crude oil prices dropped by approximately 45%-50% as the non-U.S. economic outlook
continues to weaken, North American production continues to expand, and more recently, Saudi
Arabia has publicly stated its intention to support its global market share at the expense of lower
prices. The decline in crude oil prices, as well as U.S. and European Union sanctions against Russia
related to its actions in Ukraine, have both contributed to the devaluation of the Russian ruble putting
significant pressure on our Russian-based customers and negatively impacting the appeal of seismic
data located in Russia to potential non-Russian buyers. Our results of operations, liquidity and financial
condition related to our operations in Russia are primarily denominated in U.S. dollars. To the extent
that world events or economic conditions negatively affect our future sales to customers in many
regions of the world, as well as the collectability of our existing receivables, our future results of
operations, liquidity and financial condition would be adversely affected.
Off-Balance Sheet Arrangements
Variable interest entities. As of December 31, 2014, our investment in INOVA Geophysical
constitutes an investment in a variable interest entity, as that term is defined in FASB ASC
Topic 810-10 ‘‘Consolidation—Overall’’ and as defined in Item 303(a)(4)(ii) of SEC Regulation S-K. See
Footnote 5 ‘‘Equity Method Investments’’ of Footnotes to Consolidated Financial Statements included
elsewhere in this Form 10-K for additional information.
Indemnification
In the ordinary course of our business, we enter into contractual arrangements with our customers,
suppliers and other parties under which we may agree to indemnify the other party to such
arrangement from certain losses it incurs relating to our products or services or for losses arising from
certain events as defined within the particular contract. Some of these indemnification obligations may
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not be subject to maximum loss limitations. Historically, payments we have made related to these
indemnification obligations have been immaterial.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Market risk is the risk of loss from adverse changes in market prices and rates. Our primary
market risks include risks related to interest rates and foreign currency exchange rates.
Interest Rate Risk
As of December 31, 2014, we had outstanding total indebtedness of approximately $190.6 million,
including capital lease obligations. As of December 31, 2014, all of this indebtedness accrues interest at
fixed interest rates.
As our borrowings under the revolving credit facility are subject to variable interest rates, we are
subject to interest rate risk to the extent we have outstanding balances under the revolving credit
facility. We are therefore impacted by changes in LIBOR and/or our bank’s base rates. We may, from
time to time, use derivative financial instruments (e.g., interest rate caps), to help mitigate rising
interest rates under our credit facility. We do not use derivatives for trading or speculative purposes
and only enter into contracts with major financial institutions based on their credit rating and other
factors.
Foreign Currency Exchange Rate Risk
Our operations are conducted in various countries around the world, and we receive revenue from
these operations in a number of different currencies with the most significant of our international
operations using British pounds sterling. As such, our earnings are subject to movements in foreign
currency exchange rates when transactions are denominated in currencies other than the U.S. dollar,
which is our functional currency, or the functional currency of many of our subsidiaries, which is not
necessarily the U.S. dollar. To the extent that transactions of these subsidiaries are settled in currencies
other than the U.S. dollar, a devaluation of these currencies versus the U.S. dollar could reduce the
contribution from these subsidiaries to our consolidated results of operations as reported in U.S.
dollars.
Through our subsidiaries, we operate in a wide variety of jurisdictions, including the United
Kingdom, Australia, the Netherlands, Brazil, China, Canada, Russia, the United Arab Emirates, Egypt
and other countries. Our financial results may be affected by changes in foreign currency exchange
rates. Our consolidated balance sheet at December 31, 2014 reflected approximately $15.3 million of
net working capital related to our foreign subsidiaries, a majority of which is within the United
Kingdom. Our foreign subsidiaries receive their income and pay their expenses primarily in their local
currencies. To the extent that transactions of these subsidiaries are settled in the local currencies, a
devaluation of these currencies versus the U.S. dollar could reduce the contribution from these
subsidiaries to our consolidated results of operations as reported in U.S. dollars. For the year ended
December 31, 2014, we recorded net foreign currency losses of approximately $1.8 million in Other
income (expense), a majority of these losses are due to currency losses related to our operations within
Brazil, Australia and Canada, partially offset by currency gains related to our operations in the United
Kingdom.
Item 8. Financial Statements and Supplementary Data
The financial statements and related notes thereto required by this item begin at page F-1 hereof.
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Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable.
Item 9A. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures. Disclosure controls and procedures are
designed to ensure that information required to be disclosed in the reports we file with or submit to
the SEC under the Securities Exchange Act of 1934, as amended (the ‘‘Exchange Act’’) is recorded,
processed, summarized and reported within the time period specified by the SEC’s rules and forms.
Disclosure controls and procedures are defined in Rule 13a-15(e) under the Exchange Act, and they
include, without limitation, controls and procedures designed to ensure that information required to be
disclosed under the Exchange Act is accumulated and communicated to management, including the
principal executive officer and the principal financial officer, as appropriate, to allow timely decisions
regarding required disclosure.
Our management carried out an evaluation of the effectiveness of the design and operation of our
disclosure controls and procedures as of December 31, 2014. Based upon that evaluation, our principal
executive officer and principal financial officer have concluded that our disclosure controls and
procedures were effective as of December 31, 2014.
(b) Management’s Report on Internal Control Over Financial Reporting. Our management is
responsible for establishing and maintaining adequate internal control over financial reporting as
defined in Rules 13a-15(f) under the Exchange Act. Our internal control over financial reporting is
designed to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted
accounting principles. Our internal control over financial reporting includes those policies and
procedures that:
(i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect
the transactions and dispositions of the assets of our company;
(ii) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of our company are being made only in
accordance with authorizations of our management and directors; and
(iii) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of our assets that could have a material effect on the financial
statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject
to the risk that controls may become inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
Under the supervision and with the participation of our management, including our principal
executive officer and principal financial officer, we assessed the effectiveness of our internal control
over financial reporting as of December 31, 2014 based upon criteria established in the 2013 Internal
Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). Management excluded from its assessment the internal control over financial
reporting at OceanGeo B.V. and its subsidiaries, which was acquired in January 2014 and whose
financial statements reflect total assets and revenues constituting 9% and 20%, respectively, of our
consolidated financial statement amounts as of and for the year ended December 31, 2014. Based upon
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their assessment, management concluded that the internal control over financial reporting was effective
as of December 31, 2014.
The independent registered public accounting firm that has also audited our consolidated financial
statements included in this Annual Report on Form 10-K has issued an audit report on our internal
control over financial reporting. This report appears below.
(c) Changes in Internal Control over Financial Reporting. There was not any change in our
internal control over financial reporting that occurred during the three months ended December 31,
2014, which has materially affected, or is reasonably likely to materially affect, our internal control over
financial reporting.
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Report of Independent Registered Public Accounting Firm
Board of Directors and Shareholders
ION Geophysical Corporation
We have audited the internal control over financial reporting of ION Geophysical Corporation (a
Delaware corporation) and subsidiaries (the ‘‘Company’’) as of December 31, 2014, based on criteria
established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). The Company’s management is responsible for
maintaining effective internal control over financial reporting and for its assessment of the effectiveness
of internal control over financial reporting, included in the accompanying Management’s Report on
Internal Control Over Financial Reporting (‘‘Management’s Report’’). Our responsibility is to express
an opinion on the Company’s internal control over financial reporting based on our audit. Our audit of,
and opinion on, the Company’s internal control over financial reporting does not include the internal
control over financial reporting of OceanGeo B.V. and its subsidiaries (OceanGeo), a wholly-owned
subsidiary, whose financial statements reflect total assets and revenues constituting 9 and 20 percent,
respectively, of the related consolidated financial statement amounts as of and for the year ended
December 31, 2014. As indicated in Management’s Report, OceanGeo was acquired during 2014.
Management’s assertion on the effectiveness of the Company’s internal control over financial reporting
excluded internal control over financial reporting of OceanGeo.
We conducted our audit in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was maintained
in all material respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design
and operating effectiveness of internal control based on the assessed risk, and performing such other
procedures as we considered necessary in the circumstances. We believe that our audit provides a
reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles. A company’s internal
control over financial reporting includes those policies and procedures that (1) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the company are being made only
in accordance with authorizations of management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject
to the risk that controls may become inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over
financial reporting as of December 31, 2014, based on criteria established in the 2013 Internal Control—
Integrated Framework issued by COSO.
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We also have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated financial statements of the Company as of and for
the year ended December 31, 2014, and our report dated February 17, 2015 expressed an unqualified
opinion on those financial statements.
/s/ GRANT THORNTON LLP
Houston, Texas
February 17, 2015
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Item 9B. Other Information
Not applicable.
Item 10. Directors, Executive Officers and Corporate Governance
PART III
Reference is made to the information appearing in the definitive proxy statement, under ‘‘Item 1—
Election of Directors,’’ for our annual meeting of stockholders to be held on May 20, 2015 (the ‘‘2015
Proxy Statement’’) to be filed with the SEC with respect to Directors, Executive Officers and Corporate
Governance, which is incorporated herein by reference and made a part hereof in response to the
information required by Item 10.
Item 11. Executive Compensation
Reference is made to the information appearing in the 2015 Proxy Statement, under ‘‘Executive
Compensation,’’ to be filed with the SEC with respect to Executive Compensation, which is
incorporated herein by reference and made a part hereof in response to the information required by
Item 11.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Reference is made to the information appearing in the 2015 Proxy Statement, under ‘‘Item 1—
Ownership of Equity Securities of ION’’ and ‘‘Equity Compensation Plan Information,’’ to be filed with
the SEC with respect to Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters, which is incorporated herein by reference and made a part hereof in
response to the information required by Item 12.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Reference is made to the information appearing in the 2015 Proxy Statement, under ‘‘Item 1—
Certain Transactions and Relationships,’’ to be filed with the SEC with respect to Certain Relationships
and Related Transactions and Director Independence, which is incorporated herein by reference and
made a part hereof in response to the information required by Item 13.
Item 14. Principal Accounting Fees and Services
Reference is made to the information appearing in the 2015 Proxy Statement, under ‘‘Principal
Auditor Fees and Services,’’ to be filed with the SEC with respect to Principal Accountant Fees and
Services, which is incorporated herein by reference and made a part hereof in response to the
information required by Item 14.
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Item 15. Exhibits and Financial Statement Schedules
PART IV
(a) List of Documents Filed
(1) Financial Statements
The financial statements filed as part of this report are listed in the ‘‘Index to Consolidated
Financial Statements’’ on page F-1 hereof.
(2) Financial Statement Schedules
The following financial statement schedule is listed in the ‘‘Index to Consolidated Financial
Statements’’ on page F-1 hereof, and is included as part of this Annual Report on Form 10-K:
Schedule II—Valuation and Qualifying Accounts
All other schedules are omitted because they are not applicable or the requested information is
shown in the financial statements or noted therein.
(3) Exhibits
3.1 — Restated Certificate of Incorporation dated September 24, 2007 filed on September 24,
2007 as Exhibit 3.4 to the Company’s Current Report on Form 8-K and incorporated
herein by reference.
3.2 — Amended and Restated Bylaws of ION Geophysical Corporation filed on September 24,
2007 as Exhibit 3.5 to the Company’s Current Report on Form 8-K and incorporated
herein by reference.
3.3 — Certificate of Ownership and Merger merging ION Geophysical Corporation with and into
Input/Output, Inc. dated September 21, 2007, filed on September 24, 2007 as Exhibit 3.1 to
the Company’s Current Report on Form 8-K and incorporated herein by reference.
4.1 — Certificate of Rights and Designations of Series D-1 Cumulative Convertible Preferred
Stock, dated February 16, 2005 and filed on February 17, 2005 as Exhibit 3.1 to the
Company’s Current Report on Form 8-K and incorporated herein by reference.
4.2 — Certificate of Elimination of Series B Preferred Stock dated September 24, 2007, filed on
September 24, 2007 as Exhibit 3.2 to the Company’s Current Report on Form 8-K and
incorporated herein by reference.
4.3 — Certificate of Elimination of Series C Preferred Stock dated September 24, 2007, filed on
September 24, 2007 as Exhibit 3.3 to the Company’s Current Report on Form 8-K and
incorporated herein by reference.
4.4 — Certificate of Designation of Series D-2 Cumulative Convertible Preferred Stock dated
December 6, 2007, filed on December 6, 2007 as Exhibit 3.1 to the Company’s Current
Report on Form 8-K and incorporated herein by reference.
4.5 — Certificate of Designations of Series A Junior Participating Preferred Stock of ION
Geophysical Corporation effective as of December 31, 2008, filed on January 5, 2009 as
Exhibit 3.1 to the Company’s Current Report on Form 8-K and incorporated herein by
reference.
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4.6 — Certificate of Elimination of Series A Junior Participating Preferred Stock dated
February 10, 2012, filed on February 13, 2012 as Exhibit 3.1 to the Company’s Current
Report on Form 8-K, and incorporated herein by reference.
4.7 — Indenture, dated May 13, 2013, among ION Geophysical Corporation, the subsidiary
guarantors named therein, Wilmington Trust, National Association, as trustee, and U.S.
Bank National Association, as collateral agent, filed on May 13, 2013 as Exhibit 4.1 to the
Company’s Current Report on Form 8-K and incorporated herein by reference.
4.8 — Registration Rights Agreement, dated May 13, 2013, among ION Geophysical Corporation,
the subsidiary guarantors named therein and Citigroup Global Markets Inc. and Wells
Fargo Securities, LLC, as representatives of the initial purchasers named therein, filed on
May 13, 2013 as Exhibit 4.2 to the Company’s Current Report on Form 8-K and
incorporated herein by reference.
4.9 — Certificate of Elimination of Series D-1 Cumulative Convertible Preferred Stock dated
September 30, 2013, filed on September 30, 2013 as Exhibit 3.1 to the Company’s Current
Report on Form 8-K and incorporated herein by reference.
4.10 — Certificate of Elimination of Series D-2 Cumulative Convertible Preferred Stock dated
September 30, 2013, filed on September 30, 2013 as Exhibit 3.2 to the Company’s Current
Report on Form 8-K and incorporated herein by reference.
**10.1 — Amended and Restated 1990 Stock Option Plan, filed on June 9, 1999 as Exhibit 4.2 to the
Company’s Registration Statement on Form S-8 (Registration No. 333-80299), and
incorporated herein by reference.
10.2 — Office and Industrial/Commercial Lease dated June 2005 by and between Stafford Office
Park II, LP as Landlord and Input/Output, Inc. as Tenant, filed on March 31, 2006 as
Exhibit 10.2 to the Company’s Annual Report on Form 10-K for the year ended
December 31, 2005, and incorporated herein by reference.
10.3 — Office and Industrial/Commercial Lease dated June 2005 by and between Stafford Office
Park District as Landlord and Input/Output, Inc. as Tenant, filed on March 31, 2006 as
Exhibit 10.3 to the Company’s Annual Report on Form 10-K for the year ended
December 31, 2005, and incorporated herein by reference.
**10.4 — Input/Output, Inc. Amended and Restated 1996 Non-Employee Director Stock Option
Plan, filed on June 9, 1999 as Exhibit 4.3 to the Company’s Registration Statement on
Form S-8 (Registration No. 333-80299), and incorporated herein by reference.
**10.5 — Amendment No. 1 to the Input/Output, Inc. Amended and Restated 1996 Non-Employee
Director Stock Option Plan dated September 13, 1999 filed on November 14, 1999 as
Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended
August 31, 1999 and incorporated herein by reference.
**10.6 — Input/Output, Inc. Employee Stock Purchase Plan, filed on March 28, 1997 as Exhibit 4.4
to the Company’s Registration Statement on Form S-8 (Registration No. 333-24125), and
incorporated herein by reference.
**10.7 — Fifth Amended and Restated—2004 Long-Term Incentive Plan, filed as Appendix A to the
definitive proxy statement for the 2010 Annual Meeting of Stockholders of ION
Geophysical Corporation, filed on April 21, 2010, and incorporated herein by reference.
75
10.8 — Registration Rights Agreement dated as of November 16, 1998, by and among the
Company and The Laitram Corporation, filed on March 12, 2004 as Exhibit 10.7 to the
Company’s Annual Report on Form 10-K for the year ended December 31, 2003, and
incorporated herein by reference.
**10.9 — Input/Output, Inc. 1998 Restricted Stock Plan dated as of June 1, 1998, filed on June 9,
1999 as Exhibit 4.7 to the Company’s Registration Statement on S-8 (Registration
No. 333-80297), and incorporated herein by reference.
**10.10 — Input/Output Inc. Non-qualified Deferred Compensation Plan, filed on April 1, 2002 as
Exhibit 10.14 to the Company’s Annual Report on Form 10-K for the year ended
December 31, 2001, and incorporated herein by reference.
**10.11 — Input/Output, Inc. 2000 Restricted Stock Plan, effective as of March 13, 2000, filed on
August 17, 2000 as Exhibit 10.27 to the Company’s Annual Report on Form 10-K for the
fiscal year ended May 31, 2000, and incorporated herein by reference.
**10.12 — Input/Output, Inc. 2000 Long-Term Incentive Plan, filed on November 6, 2000 as
Exhibit 4.7 to the Company’s Registration Statement on Form S-8 (Registration
No. 333-49382), and incorporated by reference herein.
**10.13 — Employment Agreement dated effective as of March 31, 2003, by and between the
Company and Robert P. Peebler, filed on March 31, 2003 as Exhibit 10.1 to the Company’s
Current Report on Form 8-K and incorporated herein by reference.
**10.14 — First Amendment to Employment Agreement dated September 6, 2006, between Input/
Output, Inc. and Robert P. Peebler, filed on September 7, 2006, as Exhibit 10.1 to the
Company’s Current Report on Form 8-K, and incorporated herein by reference.
**10.15 — Second Amendment to Employment Agreement dated February 16, 2007, between Input/
Output, Inc. and Robert P. Peebler, filed on February 16, 2007 as Exhibit 10.1 to the
Company’s Current Report on Form 8-K, and incorporated herein by reference.
**10.16 — Third Amendment to Employment Agreement dated as of August 20, 2007 between Input/
Output, Inc. and Robert P. Peebler, filed on August 21, 2007 as Exhibit 10.2 to the
Company’s Current Report on Form 8-K and incorporated herein by reference.
**10.17 — Fourth Amendment to Employment Agreement, dated as of January 26, 2009, between
ION Geophysical Corporation and Robert P. Peebler, filed on January 29, 2009 as
Exhibit 10.1 to the Company’s Current Report on Form 8-K and incorporated herein by
reference.
**10.18 — Employment Agreement dated effective as of June 15, 2004, by and between the Company
and David L. Roland, filed on August 9, 2004 as Exhibit 10.5 to the Company’s Quarterly
Report on Form 10-Q for the quarterly period ended June 30, 2004, and incorporated
herein by reference.
**10.19 — GX Technology Corporation Employee Stock Option Plan, filed on August 9, 2004 as
Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarterly period
ended June 30, 2004, and incorporated herein by reference.
10.20 — Concept Systems Holdings Limited Share Acquisition Agreement dated February 23, 2004,
filed on March 5, 2004 as Exhibit 2.1 to the Company’s Current Report on Form 8-K, and
incorporated herein by reference.
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10.21 — Registration Rights Agreement by and between ION Geophysical Corporation and 1236929
Alberta Ltd. dated September 18, 2008, filed on November 7, 2008 as Exhibit 10.1 to the
Company’s Quarterly Report on Form 10-Q and incorporated herein by reference.
**10.22 — Form of Employment Inducement Stock Option Agreement for the Input/Output, Inc.—
Concept Systems Employment Inducement Stock Option Program, filed on July 27, 2004 as
Exhibit 4.1 to the Company’s Registration Statement on Form S-8 (Reg. No. 333-117716),
and incorporated herein by reference.
**10.23 — Form of Employee Stock Option Award Agreement for ARAM Systems Employee
Inducement Stock Option Program, filed on November 14, 2008 as Exhibit 4.4 to the
Company’s Registration Statement on Form S-8 (Registration No. 333-155378) and
incorporated herein by reference.
**10.24 — Input/Output, Inc. 2003 Stock Option Plan, dated March 27, 2003, filed as Appendix B of
the Company’s definitive proxy statement filed with the SEC on April 30, 2003, and
incorporated herein by reference.
**10.25 — Form of Employment Inducement Stock Option Agreement for the Input/Output, Inc.—
GX Technology Corporation Employment Inducement Stock Option Program, filed on
April 4, 2005 as Exhibit 4.1 to the Company’s Registration Statement on Form S-8 (Reg.
No. 333-123831), and incorporated herein by reference.
**10.26 — ION Stock Appreciation Rights Plan dated November 17, 2008, filed as Exhibit 10.47 to the
Company’s Annual Report on Form 10-K for the year ended December 31, 2008, and
incorporated herein by reference.
10.27 — Canadian Master Loan and Security Agreement dated as of June 29, 2009 by and among
ICON ION, LLC, as lender, ION Geophysical Corporation and ARAM Rentals
Corporation, a Nova Scotia corporation, filed on August 6, 2009 as Exhibit 10.3 to the
Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2009,
and incorporated herein by reference.
10.28 — Master Loan and Security Agreement (U.S.) dated as of June 29, 2009 by and among
ICON ION, LLC, as lender, ION Geophysical Corporation and ARAM Seismic
Rentals, Inc., a Texas corporation, filed on August 6, 2009 as Exhibit 10.4 to the Company’s
Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2009, and
incorporated herein by reference.
10.29 — Registration Rights Agreement dated as of October 23, 2009 by and between ION
Geophysical Corporation and BGP Inc., China National Petroleum Corporation filed on
March 1, 2010 as Exhibit 10.54 to the Company’s Annual Report on Form 10-K for the
year ended December 31, 2009, and incorporated herein by reference.
10.30 — Stock Purchase Agreement dated as of March 19, 2010, by and between ION Geophysical
Corporation and BGP Inc., China National Petroleum Corporation, filed on March 31,
2010 as Exhibit 10.1 to the Company’s Current Report on Form 8-K, and incorporated
herein by reference.
10.31 — Investor Rights Agreement dated as of March 25, 2010, by and between ION Geophysical
Corporation and BGP Inc., China National Petroleum Corporation, filed on March 31,
2010 as Exhibit 10.2 to the Company’s Current Report on Form 8-K, and incorporated
herein by reference.
77
10.32 — Share Purchase Agreement dated as of March 24, 2010, by and among ION Geophysical
Corporation, INOVA Geophysical Equipment Limited and BGP Inc., China National
Petroleum Corporation, filed on March 31, 2010 as Exhibit 10.3 to the Company’s Current
Report on Form 8-K, and incorporated herein by reference.
10.33 — Joint Venture Agreement dated as of March 24, 2010, by and between ION Geophysical
Corporation and BGP Inc., China National Petroleum Corporation, filed on March 31,
2010 as Exhibit 10.4 to the Company’s Current Report on Form 8-K, and incorporated
herein by reference.
**10.34 — Fifth Amendment to Employment Agreement dated June 1, 2010, between ION
Geophysical Corporation and Robert P. Peebler, filed on June 1, 2010 as Exhibit 10.1 to the
Company’s Current Report on Form 8-K, and incorporated herein by reference.
**10.35 — Employment Agreement dated August 2, 2011, effective as of January 1, 2012, between
ION Geophysical Corporation and R. Brian Hanson, filed on November 3, 2011 as
Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarterly period
ended September 30, 2011, and incorporated herein by reference.
**10.36 — Employment Agreement dated effective as of November 28, 2011, between ION
Geophysical Corporation and Gregory J. Heinlein, filed on December 1, 2011 as
Exhibit 10.1 to the Company’s Current Report on Form 8-K, and incorporated herein by
reference.
**10.37 — First Amendment to Credit Agreement and Loan Documents dated May 29, 2012, filed on
May 29, 2012 as Exhibit 10.1 to the Company’s Current Report on Form 8-K, and
incorporated herein by reference.
**10.38 — Consulting Services Agreement dated January 1, 2013, between ION Geophysical
Corporation and The Peebler Group LLC, filed on January 4, 2013 as Exhibit 10.1 to the
Company’s Current Report on Form 8-K, and incorporated herein by reference.
10.39 — 2013 Long-Term Incentive Plan, filed as Exhibit 1 to the definitive proxy statement for the
2013 Annual Meeting of Stockholders of ION Geophysical Corporation, filed on April 16,
2013, and incorporated herein by reference.
10.40 — Purchase Agreement, dated May 8, 2013, among ION Geophysical Corporation, the
subsidiary guarantors named therein and Citigroup Global Markets Inc. and Wells Fargo
Securities, LLC, as representatives of the initial purchasers named therein, filed on May 13,
2013 as Exhibit 10.1 to the Company’s Current Report on Form 8-K and incorporated
herein by reference.
10.41 — Second Lien Intercreditor Agreement by and among China Merchants Bank Co., Ltd., New
York Branch, as administrative agent, first lien representative for the first lien secured
parties and collateral agent for the first lien secured parties, Wilmington Trust Company,
National Association, as trustee and second lien representative for the second lien secured
parties, and U.S. Bank National Association, as collateral agent for the second lien secured
parties, and acknowledged and agreed to by ION Geophysical Corporation and the other
grantors named therein, filed on May 13, 2013 as Exhibit 10.2 to the Company’s Current
Report on Form 8-K and incorporated herein by reference.
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10.42 — Revolving Credit and Security Agreement dated as of August 22, 2014 among PNC Bank,
National Association, as agent for lenders, the lenders from time to time party thereto, as
lenders, and PNC Capital Markets LLC, as lead arranger and bookrunner, with ION
Geophysical Corporation, ION Exploration Products (U.S.A.), Inc., I/O Marine
Systems, Inc. and GX Technology Corporation, as borrowers, filed on November 6, 2014 as
Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarterly period
ended September 30, 2014, and incorporated herein by reference.
**10.43 — Transition and Separation Agreement dated effective as of October 30, 2014, by and
between ION Geophysical Corporation and Gregory J. Heinlein.
**10.44 — Employment Agreement dated effective as of November 13, 2014, between ION
Geophysical Corporation and Steve Bate.
*21.1 — Subsidiaries of the Company.
*23.1 — Consent of Grant Thornton LLP.
*23.2 — Consent of Ernst & Young LLP.
*24.1 — The Power of Attorney is set forth on the signature page hereof.
25.1 — Registration Statement (Form S-4 No. 333-194110) of ION Geophysical Corporation, and
incorporated herein by reference.
*31.1 — Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a).
*31.2 — Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a).
*32.1 — Certification of Chief Executive Officer Pursuant to 18 U.S.C. §1350.
*32.2 — Certification of Chief Financial Officer Pursuant to 18 U.S.C. §1350.
101 — The following materials are formatted in Extensible Business Reporting Language (XBRL):
(i) Consolidated Balance Sheets at December 31, 2014 and 2013, (ii) Consolidated
Statements of Operations for the years ended December 31, 2014, 2013 and 2012,
(iii) Comprehensive Income (Loss) for the years ended December 31, 2014, 2013 and 2012,
(iv) Consolidated Statements of Cash Flows for the years ended December 31, 2014, 2013
and 2012, (v) Consolidated Statements of Stockholders’ Equity for the years ended
December 31, 2014, 2013 and 2012, (vi) Footnotes to Consolidated Financial Statements
and (vii) Schedule II—Valuation and Qualifying Accounts.
*
Filed herewith.
** Management contract or compensatory plan or arrangement.
(b) Exhibits required by Item 601 of Regulation S-K.
Reference is made to subparagraph (a) (3) of this Item 15, which is incorporated herein by
reference.
(c) Not applicable.
79
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized in the City of Houston, State of Texas, on February 17, 2015.
SIGNATURES
ION GEOPHYSICAL CORPORATION
By
/s/ R. BRIAN HANSON
R. Brian Hanson
President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints R. Brian Hanson and Jamey S. Seely and each of them, as his or her true and
lawful attorneys-in-fact and agents with full power of substitution and re-substitution for him or her and
in his or her name, place and stead, in any and all capacities, to sign any and all documents relating to
the Annual Report on Form 10-K for the year ended December 31, 2014, including any and all
amendments and supplements thereto, and to file the same with all exhibits thereto and other
documents in connection therewith with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully as to all intents and purposes as
he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents or their or his or her substitute or substitutes may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Annual
Report on Form 10-K has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Name
Capacities
Date
/s/ R. BRIAN HANSON
R. Brian Hanson
President, Chief Executive Officer and
Director (Principal Executive Officer)
February 17, 2015
/s/ STEVEN A. BATE
Steven A. Bate
Executive Vice President and Chief
Financial Officer (Principal Financial
Officer)
February 17, 2015
/s/ SCOTT SCHWAUSCH
Scott Schwausch
Vice President and Corporate
Controller (Principal Accounting
Officer)
February 17, 2015
/s/ JAMES M. LAPEYRE, JR.
James M. Lapeyre, Jr.
Chairman of the Board of Directors
and Director
February 17, 2015
80
Name
Capacities
Date
/s/ DAVID H. BARR
David H. Barr
/s/ HAO HUIMIN
Hao Huimin
/s/ MICHAEL C. JENNINGS
Michael C. Jennings
/s/ FRANKLIN MYERS
Franklin Myers
/s/ S. JAMES NELSON, JR.
S. James Nelson, Jr.
/s/ JOHN N. SEITZ
John N. Seitz
Director
February 17, 2015
Director
February 17, 2015
Director
February 17, 2015
Director
February 17, 2015
Director
February 17, 2015
Director
February 17, 2015
81
ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
ION Geophysical Corporation and Subsidiaries:
Reports of Independent Registered Public Accounting Firms . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Balance Sheets—December 31, 2014 and 2013 . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Operations—Years ended December 31, 2014, 2013 and 2012 . . . .
Consolidated Statements of Comprehensive Income (Loss)—Years ended December 31, 2014,
2013 and 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Cash Flows—Years ended December 31, 2014, 2013 and 2012 . . . .
Consolidated Statements of Stockholders’ Equity—Years ended December 31, 2014, 2013 and
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Footnotes to Consolidated Financial Statements
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Schedule II—Valuation and Qualifying Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Page
F-2
F-4
F-5
F-6
F-7
F-8
F-9
S-1
F-1
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
ION Geophysical Corporation
We have audited the accompanying consolidated balance sheet of ION Geophysical Corporation
(a Delaware corporation) and subsidiaries (the ‘‘Company’’) as of December 31, 2014, and the related
consolidated statements of operations, comprehensive income (loss), shareholders’ equity, and cash
flows for the year ended December 31, 2014. Our audit of the basic consolidated financial statements
included the financial statement schedule listed in the index appearing under 15(a). These financial
statements and financial statement schedule are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial statements and the financial statement
schedule based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of ION Geophysical Corporation and subsidiaries as of
December 31, 2014, and the results of their operations and their cash flows for the year ended
December 31, 2014 in conformity with accounting principles generally accepted in the United States of
America. Also in our opinion, the related financial statement schedule, when considered in relation to
the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the Company’s internal control over financial reporting as of
December 31, 2014, based on criteria established in the 2013 Internal Control—Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our
report dated February 17, 2015 expressed an unqualified opinion thereon.
/s/ GRANT THORNTON LLP
Houston, Texas
February 17, 2015
F-2
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of ION Geophysical Corporation and Subsidiaries
We have audited the accompanying consolidated balance sheet of ION Geophysical Corporation
and subsidiaries as of December 31, 2013, and the related consolidated statements of operations,
comprehensive income (loss), cash flows, and stockholders’ equity for each of the two years in the
period ended December 31, 2013. Our audits also included the financial statement schedule for each of
the two years in the period ended December 31, 2013 listed in the Index at Item 15(a). These financial
statements and schedule are the responsibility of the Company’s management. Our responsibility is to
express an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects,
the consolidated financial position of ION Geophysical Corporation and subsidiaries at December 31,
2013, and the consolidated results of their operations and their cash flows for each of the two years in
the period ended December 31, 2013, in conformity with U.S. generally accepted accounting principles.
Also, in our opinion, the related financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material respects the information set forth
therein.
/s/ Ernst & Young LLP
Houston, Texas
February 24, 2014
F-3
ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
2014
2013
(In thousands, except
share data)
Current assets:
ASSETS
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unbilled receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 173,608
114,325
22,599
51,162
13,662
$ 148,056
149,448
49,468
57,173
24,772
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income tax asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property, plant, equipment and seismic rental equipment, net . . . . . . . . . . . . . . . . . . . .
Multi-client data library, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity method investments
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
375,356
8,604
69,840
118,669
—
27,388
6,788
10,612
428,917
14,650
46,684
238,784
53,865
55,876
11,247
14,648
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 617,257
$ 864,671
Current liabilities:
LIABILITIES AND STOCKHOLDERS’ EQUITY
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current maturities of long-term debt
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued multi-client data library royalties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
Total current liabilities
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt, net of current maturities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Redeemable noncontrolling interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commitments and contingencies
7,649
36,863
65,264
35,219
8,262
153,257
182,945
143,804
480,006
1,539
$
5,906
22,654
84,358
46,460
20,682
180,060
214,246
210,602
604,908
1,878
Equity:
Common stock, $0.01 par value; authorized 200,000,000 shares; outstanding 164,484,095
and 163,737,757 shares at December 31, 2014 and 2013, respectively, net of treasury
stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Treasury stock, at cost, 849,539 shares at both December 31, 2014 and 2013 . . . . . . . . .
Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,645
887,749
(734,409)
(12,807)
(6,565)
135,613
99
135,712
1,637
879,969
(606,157)
(11,138)
(6,565)
257,746
139
257,885
Total liabilities and equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 617,257
$ 864,671
See accompanying Footnotes to Consolidated Financial Statements.
F-4
ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31,
2014
2013
2012
Service revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Product revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total net revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment of multi-client data library . . . . . . . . . . . . . . . . . . . . . .
(In thousands, except per share data)
$ 391,317
157,850
$ 384,938
124,620
$354,583
171,734
509,558
278,627
68,608
100,100
549,167
526,317
272,047
112,346
5,461
219,324
91,192
—
Gross profit
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
62,223
159,313
215,801
Operating expenses:
Research, development and engineering . . . . . . . . . . . . . . . . . . .
Marketing and sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General, administrative and other operating expenses . . . . . . . . .
Impairment of goodwill and intangible assets . . . . . . . . . . . . . . .
41,009
39,682
76,177
23,284
37,742
38,583
66,592
—
34,080
35,240
71,954
—
Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
180,152
142,917
141,274
Income (loss) from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity in earnings (losses) of investments . . . . . . . . . . . . . . . . . . . .
Other income (expense) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) before income taxes . . . . . . . . . . . . . . . . . . . . . . .
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net (income) loss attributable to noncontrolling interests . . . . . . . .
Net income (loss) attributable to ION . . . . . . . . . . . . . . . . . . . .
Preferred stock dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Conversion payment of preferred stock . . . . . . . . . . . . . . . . . . . . .
(117,929)
(19,382)
(49,485)
79,860
(106,936)
20,582
(127,518)
(734)
(128,252)
—
—
16,396
(12,344)
(42,320)
(182,530)
(220,798)
25,720
(246,518)
658
(245,860)
1,014
5,000
74,527
(5,265)
297
17,124
86,683
23,857
62,826
489
63,315
1,352
—
Net income (loss) applicable to common shares . . . . . . . . . . . . .
$(128,252) $(251,874) $ 61,963
Net income (loss) per share:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
(0.78) $
(0.78) $
(1.59) $
(1.59) $
0.40
0.39
Weighted average number of common shares outstanding:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
164,089
164,089
158,506
158,506
155,801
162,765
See accompanying Footnotes to Consolidated Financial Statements.
F-5
ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Years Ended December 31,
2014
2013
2012
(In thousands)
$(127,518) $(246,518) $62,826
(882)
(841)
28
26
713
(373)
277
131
748
2,756
1,003
425
123
4,307
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income (loss), net of taxes, as appropriate:
Foreign currency translation adjustments . . . . . . . . . . . . . . . . . . .
Equity interest in investee’s other comprehensive income (loss) . . .
Unrealized gain on available-for-sale securities . . . . . . . . . . . . . . .
Other changes in other comprehensive income . . . . . . . . . . . . . . .
Total other comprehensive income (loss), net of taxes . . . . . . . .
(1,669)
Comprehensive net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . .
(129,187)
(245,770)
67,133
Comprehensive (income) loss attributable to noncontrolling
interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(734)
658
489
Comprehensive net income (loss) attributable to ION . . . . . . . . . . . .
$(129,921) $(245,112) $67,622
See accompanying Footnotes to Consolidated Financial Statements.
F-6
ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Cash flows from operating activities:
Net income (loss)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization (other than multi-client library)
. . . . . . . . . . . . . . .
Amortization of multi-client data library . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity in (earnings) losses of investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on sale of Source product line . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on sale of cost method investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrual for (reduction of) loss contingency related to legal proceedings . . . . . . . . . .
Impairment of goodwill and intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment of multi-client data library . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Write-down of excess and obsolete inventory . . . . . . . . . . . . . . . . . . . . . . . . . . .
Write-down of receivables from INOVA Geophysical . . . . . . . . . . . . . . . . . . . . . .
Write-down of receivables from OceanGeo . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Write-down of marine equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in operating assets and liabilities:
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unbilled receivables
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable, accrued expenses and accrued royalties
. . . . . . . . . . . . . . . . . .
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets and liabilities
Years Ended December 31,
2014
2013
2012
(In thousands)
$(127,518)
$(246,518)
$ 62,826
27,656
64,374
8,707
49,485
(6,522)
(5,463)
(69,557)
23,284
100,100
6,952
5,510
—
—
(437)
41,943
26,762
(13,892)
(4,771)
(8,382)
11,549
18,158
86,716
7,476
42,320
—
(3,591)
183,327
—
5,461
21,197
—
9,157
—
4,844
(27,571)
40,211
(8,906)
8,482
(6,253)
13,077
16,202
89,080
6,598
(297)
—
—
10,000
—
—
1,326
—
—
5,928
3,686
4,006
(64,156)
(7,039)
61,873
(6,957)
(13,995)
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . .
129,780
147,587
169,081
Cash flows from investing activities:
Investment in multi-client data library . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase of property, plant, equipment and seismic rental equipment
. . . . . . . . . . .
Repayment of (net advances to) INOVA Geophysical
. . . . . . . . . . . . . . . . . . . . .
Net investment in and advances to OceanGeo B.V. prior to its consolidation . . . . . . .
Net proceeds from sale of Source product line . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sale of cost method investments
. . . . . . . . . . . . . . . . . . . . . . . . .
Maturity of short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment in convertible notes
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(67,785)
(8,264)
1,000
(3,074)
14,394
14,051
—
—
928
(114,582)
(16,914)
(5,000)
(24,755)
—
4,150
—
(2,000)
128
(145,627)
(16,650)
—
—
—
—
20,000
(2,000)
—
Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(48,750)
(158,973)
(144,277)
Cash flows from financing activities:
Proceeds from issuance of notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Borrowings under revolving line of credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments under revolving line of credit
Payments on notes payable and long-term debt
. . . . . . . . . . . . . . . . . . . . . . . . .
Cost associated with issuance of debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition of non-controlling interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payment of preferred dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Conversion payment of preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from employee stock purchases and exercise of stock options
. . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other financing activities
Net cash provided by (used in) financing activities . . . . . . . . . . . . . . . . . . . . . .
Effect of change in foreign currency exchange rates on cash and cash equivalents
. . . . . .
Net increase in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
15,000
(50,000)
(12,998)
(2,194)
(6,000)
—
—
577
(359)
(55,974)
496
25,552
148,056
175,000
35,000
(97,250)
(4,361)
(6,773)
—
(1,014)
(5,000)
2,527
573
—
148,250
(51,000)
(101,702)
—
—
(1,352)
—
807
(1,457)
98,702
(6,454)
(231)
87,085
60,971
219
18,569
42,402
Cash and cash equivalents at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 173,608
$ 148,056
$ 60,971
See accompanying Footnotes to Consolidated Financial Statements.
F-7
ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
.
.
(In thousands, except shares)
Balance at January 1, 2012 .
.
.
.
.
Net income(a) .
Translation adjustment
.
Change in fair value of effective cash flow
.
.
Equity interest in INOVA Geophysical’s
.
other comprehensive income .
hedges (net of taxes) .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
Unrealized net gain (loss) on
.
.
.
.
.
.
.
.
.
.
.
.
.
available-for-sale securities .
.
.
.
.
Preferred stock dividends .
.
.
Stock-based compensation expense .
Exercise of stock options .
.
.
Vesting of restricted stock units/awards .
Restricted stock cancelled for employee
.
.
.
Issuance of stock for the ESPP .
Tax benefits from stock-based
.
minimum income taxes .
.
Contribution from noncontrolling
.
.
.
.
.
.
.
.
.
.
compensation .
interests .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
Balance at December 31, 2012 .
.
.
.
.
.
.
Net loss(a)
Translation adjustment
.
Change in fair value of effective cash flow
.
.
Equity interest in INOVA Geophysical’s
.
other comprehensive loss .
hedges (net of taxes) .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
Unrealized gain (loss) on
.
.
.
.
.
.
.
.
.
available-for-sale securities .
.
.
Preferred stock dividends .
.
Conversion payment of preferred stock .
.
Stock-based compensation expense .
Exercise of stock options .
.
.
Vesting of restricted stock units/awards .
Restricted stock cancelled for employee
.
.
.
Issuance of stock for the ESPP .
Tax benefits from stock-based
.
minimum income taxes .
compensation .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
Balance at December 31, 2013 .
.
.
.
.
.
.
Net loss(a)
Translation adjustment
.
Change in fair value of effective cash flow
.
.
Equity interest in INOVA Geophysical’s
.
other comprehensive loss .
hedges (net of taxes) .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
Unrealized gain (loss) on
.
.
.
.
.
.
.
available-for-sale securities .
.
.
.
Stock-based compensation expense .
Exercise of stock options .
.
.
Vesting of restricted stock units/awards .
Restricted stock cancelled for employee
.
.
.
.
Issuance of stock for the ESPP .
.
Purchase of subsidiary shares from
.
minimum income taxes .
noncontrolling interest
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
Cumulative
Convertible
Preferred Stock
Common Stock
Shares Amount
Shares
Amount
Additional
Paid-In
Capital
Accumulated
Other
Accumulated Comprehensive Treasury Noncontrolling
Deficit
Loss
Stock
Interests
Total
Equity
27,000 $ 27,000 155,479,776
—
—
—
—
—
—
$1,555
—
—
$843,271
—
—
$(423,612)
63,315
—
$(16,193)
—
2,756
$(6,565)
—
—
$ 356
4
(38)
$ 425,812
63,319
2,718
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
194,410
764,704
(209,068)
127,127
—
—
—
—
—
—
—
2
8
(2)
1
—
—
—
—
—
(1,352)
6,598
805
(8)
(1,266)
758
(137)
—
—
—
—
—
—
—
—
—
—
—
—
27,000
—
—
27,000 156,356,949
—
—
—
—
1,564
—
—
848,669
—
—
(360,297)
(245,860)
—
—
—
—
—
—
—
—
—
(27,000)
—
—
—
—
—
(27,000)
—
—
—
—
—
6,065,075
—
707,575
578,369
(115,080)
144,869
—
—
—
—
—
—
—
—
61
—
7
5
(1)
1
—
—
—
—
(1,014)
21,939
7,476
2,520
(5)
(482)
779
87
—
—
—
—
—
—
—
—
—
—
—
— 163,737,757
—
—
—
—
1,637
—
—
879,969
—
—
(606,157)
(128,252)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
28,500
662,451
(136,131)
191,518
—
—
—
—
—
—
7
(1)
2
—
—
—
—
8,707
95
(7)
(349)
480
(1,146)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
123
1,003
425
—
—
—
—
—
—
—
—
(11,886)
—
713
131
(373)
277
—
—
—
—
—
—
—
—
(11,138)
—
(882)
26
(841)
28
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(6,565)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
212
534
(339)
(56)
—
—
—
—
—
—
—
—
—
—
—
123
1,003
425
(1,352)
6,598
807
—
(1,268)
759
(137)
212
499,019
(246,199)
657
131
(373)
277
(1,014)
(5,000)
7,476
2,527
—
(483)
780
87
(6,565)
—
—
139
18
(58)
257,885
(128,234)
(940)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
26
(841)
28
8,707
95
—
(350)
482
(1,146)
Balance at December 31, 2014 .
.
.
— $
— 164,484,095
$1,645
$887,749
$(734,409)
$(12,807)
$(6,565)
$ 99
$ 135,712
(a)
Net income attributable to noncontrolling interests for 2014, 2013 and 2012 excludes $(0.7) million, $(0.3) million and $(0.5) million, respectively, related to the
redeemable noncontrolling interests, which is reported in the mezzanine equity section of the Consolidated Balance Sheet.
See accompanying Footnotes to Consolidated Financial Statements.
F-8
ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES
FOOTNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Summary of Significant Accounting Policies
General Description and Principles of Consolidation
ION Geophysical Corporation and its subsidiaries offer a full suite of services and products for
seismic data acquisition and processing. The consolidated financial statements include the accounts of
ION Geophysical Corporation and its majority-owned subsidiaries (collectively referred to as the
‘‘Company’’ or ‘‘ION’’). Intercompany balances and transactions have been eliminated. Certain
reclassifications were made to previously reported amounts in the consolidated financial statements and
notes thereto to make them consistent with the current presentation format.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted
in the United States of America requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Significant estimates are made at
discrete points in time based on relevant market information. These estimates may be subjective in
nature and involve uncertainties and matters of judgment and, therefore, cannot be determined with
precision. Areas involving significant estimates include, but are not limited to, accounts and unbilled
receivables, inventory valuation, sales forecasts related to multi-client data libraries, goodwill and
intangible asset valuation and deferred taxes. Actual results could materially differ from those
estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity of three months or
less to be cash equivalents. The Company places its temporary cash investments with high credit quality
financial institutions. At times such investments may be in excess of the Federal Deposit Insurance
Corporation (FDIC) insurance limit. At December 31, 2014 and 2013, there was $0.4 million and
$0.7 million, respectively, of short-term restricted cash used to secure standby and commercial letters of
credit, which is included within Prepaid Expenses and Other Current Assets.
Accounts and Unbilled Receivables
Accounts and unbilled receivables are recorded at cost, less the related allowance for doubtful
accounts. The Company considers current information and events regarding the customers’ ability to
repay their obligations, such as the length of time the receivable balance is outstanding, the customers’
credit worthiness and historical experience. Unbilled receivables relate to revenues recognized on multi-
client surveys, imaging services and ocean bottom acquisition services on a proportionate basis, and on
licensing of multi-client data libraries for which invoices have not yet been presented to the customer.
Inventories
Inventories are stated at the lower of cost (primarily first-in, first-out method) or market. The
Company provides reserves for estimated obsolescence or excess inventory equal to the difference
between cost of inventory and its estimated market value based upon assumptions about future demand
for the Company’s products, market conditions and the risk of obsolescence driven by new product
introductions.
F-9
Property, Plant, Equipment and Seismic Rental Equipment
Property, plant, equipment and seismic rental equipment are stated at cost. Depreciation expense
is provided straight-line over the following estimated useful lives:
Machinery and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Seismic rental equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Leased equipment and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Years
3 - 7
5 - 25
3 - 5
3 - 10
Expenditures for renewals and betterments are capitalized; repairs and maintenance are charged to
expense as incurred. The cost and accumulated depreciation of assets sold or otherwise disposed of are
removed from the accounts and any gain or loss is reflected in operating expenses.
The Company evaluates the recoverability of long-lived assets, including property, plant, equipment
and seismic rental equipment, when indicators of impairment exist, relying on a number of factors
including operating results, business plans, economic projections and anticipated future cash flows.
Impairment in the carrying value of an asset held for use is recognized whenever anticipated future
cash flows (undiscounted) from an asset are estimated to be less than its carrying value. The amount of
the impairment recognized is the difference between the carrying value of the asset and its fair value.
Multi-Client Data Library
The multi-client data library consists of seismic surveys that are offered for licensing to customers
on a non-exclusive basis. The capitalized costs include costs paid to third parties for the acquisition of
data and related activities associated with the data creation activity and direct internal processing costs,
such as salaries, benefits, computer-related expenses and other costs incurred for seismic data project
design and management. For 2014, 2013 and 2012, the Company capitalized, as part of its multi-client
data library, $8.3 million, $2.1 million and $3.8 million, respectively, of direct internal processing costs.
At December 31, 2014 and 2013, multi-client data library costs and accumulated amortization consisted
of the following (in thousands):
Gross costs of multi-client data creation . . . . . . . . . . . . . . . .
Less accumulated amortization . . . . . . . . . . . . . . . . . . . . . .
Less impairments to multi-client data library . . . . . . . . . . . .
$ 849,522
(611,651)
(119,202)
$ 791,522
(547,277)
(5,461)
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 118,669
$ 238,784
December 31,
2014
2013
The Company’s method of amortizing the costs of an in-process multi-client data library (the
period during which the seismic data is being acquired and/or processed, referred to as the ‘‘new
venture’’ phase) consists of determining the percentage of actual revenue recognized to the total
estimated revenues (which includes both revenues estimated to be realized during the new venture
phase and estimated revenues from the licensing of the resulting ‘‘on-the-shelf’’ data survey) and
multiplying that percentage by the total cost of the project (the sales forecast method). The Company
considers a multi-client data survey to be complete when all work on the creation of the seismic data is
finished and that data survey is available for licensing. Once a multi-client data survey is complete, the
data survey is considered ‘‘on-the-shelf’’ and the Company’s method of amortization is then the greater
of (i) the sales forecast method or (ii) the straight-line basis over a four-year period. The greater
amount of amortization resulting from the sales forecast method or the straight-line amortization policy
is applied on a cumulative basis at the individual survey level. Under this policy, the Company first
F-10
records amortization using the sales forecast method. The cumulative amortization recorded for each
survey is then compared with the cumulative straight-line amortization. The four-year period utilized in
this cumulative comparison commences when the data survey is determined to be complete. If the
cumulative straight-line amortization is higher for any specific survey, additional amortization expense is
recorded, resulting in accumulated amortization being equal to the cumulative straight-line amortization
for such survey. The Company has determined the amortization period of four years based upon its
historical experience that indicates that the majority of its revenues from multi-client surveys are
derived during the acquisition and processing phases and during four years subsequent to survey
completion.
The Company estimates the ultimate revenue expected to be derived from a particular seismic data
survey over its estimated useful economic life to determine the costs to amortize, if greater than
straight-line amortization. That estimate is made by the Company at the project’s initiation. For a
completed multi-client survey, the Company reviews the estimate quarterly. If during any such review,
the Company determines that the ultimate revenue for a survey is expected to be materially more or
less than the original estimate of ultimate revenue for such survey, the Company decreases or increases
(as the case may be) the amortization rate attributable to the future revenue from such survey. In
addition, in connection with such reviews, the Company evaluates the recoverability of the multi-client
data library, and, if required under Accounting Standards Codification (‘‘ASC’’) 360-10 ‘‘Impairment
and Disposal of Long-Lived Assets,’’ records an impairment charge with respect to such data. For a
discussion of impairments of the Company’s multi-client data library in 2014 and 2013, see Footnote 2
‘‘Impairments, Restructurings and Other Charges.’’ There were no impairment charges associated with the
Company’s multi-client data library during 2012.
Polarcus Alliance
In June 2013, the Company entered into an alliance (the ‘‘Polarcus Alliance’’) with Polarcus
MC Ltd., a Cayman Islands limited liability company, (‘‘Polarcus’’) in order to collaborate on 3D multi-
client data library projects. The premise of the Polarcus Alliance is for towed-streamer seismic services
and other related services to be provided by Polarcus and data processing and reservoir services to be
provided by the Company. Under the Polarcus Alliance, each party can identify and propose potential
project opportunities to the other party, which the other party then has the option to propose
amendments to the potential project and accept or reject participation in the proposed project.
Under the Polarcus Alliance, the Company is currently participating in one project, offshore
Ireland, that was proposed by Polarcus and accepted by the Company. Acquisition started and
completed in the third quarter of 2014. This project is currently in the data processing phase. The
transactions related to this project are included within the Company’s consolidated results of
operations, financial position and cash flows and are immaterial.
The activities of each project under the Polarcus Alliance are accounted for consistent with the
Company’s accounting policies related to the Company’s multi-client data library, except that the
Company only records revenue at the Company’s agreed sharing ratio of each project and capitalizes its
agreed share of the direct project costs. When the current project is complete, the Company will have
increased its multi-client data library by its share of the total direct project costs.
The Company periodically settles any differences between actual payments for direct project costs
made by each company and the agreed sharing ratio on a specific project through cash payments
between the companies. As a result, the Company may build up a payable and/or receivable balance
with Polarcus to be settled at a later date.
F-11
Equity Method Investments
In accordance with ASC 810 ‘‘Consolidation,’’ the Company determined that INOVA Geophysical
is a variable interest entity because the Company’s voting rights with respect to INOVA Geophysical
are not proportionate to its ownership interest and substantially all of INOVA Geophysical’s activities
are conducted on behalf of the Company and BGP, a related party to the Company. The Company is
not the primary beneficiary of INOVA Geophysical because it does not have the power to direct the
activities of INOVA Geophysical that most significantly impact its economic performance. Accordingly,
the Company does not consolidate INOVA Geophysical, but instead accounts for INOVA Geophysical
using the equity method of accounting. Under this method, an investment is carried at the acquisition
cost, plus the Company’s equity in undistributed earnings or losses since acquisition, less distributions
received. As provided by ASC 815 ‘‘Investments,’’ the Company accounts for its share of earnings in
INOVA Geophysical on a one fiscal quarter lag basis. See further discussion regarding the Company’s
equity method investment, including the write-down of its investment, in INOVA Geophysical at
Footnote 5 ‘‘Equity Method Investments.’’
Noncontrolling Interests
The Company has both redeemable and non-redeemable noncontrolling interests. Non-redeemable
noncontrolling interests in majority-owned affiliates are reported as a separate component of equity in
‘‘Noncontrolling interests’’ in the Consolidated Balance Sheets. Redeemable noncontrolling interests
include noncontrolling ownership interests which provide the holders the rights, at certain times, to
require the Company to acquire their ownership interest in those entities. These interests are not
considered to be permanent equity and are reported in the mezzanine section of the Consolidated
Balance Sheets at the greater of their carrying value or redemption value at the balance sheet date. Net
income (loss) in the Consolidated Statements of Operations is attributable to both controlling and
noncontrolling interests.
Goodwill and Other Intangible Assets
Goodwill is allocated to reporting units, which are either the operating segment or one reporting
level below the operating segment. For purposes of performing the impairment test for goodwill as
required by ASC 350 ‘‘Intangibles—Goodwill and Other,’’ (‘‘ASC 350’’) the Company established the
following reporting units: Solutions, Software and Marine Systems.
In accordance with ASC 350, the Company is required to evaluate the carrying value of its
goodwill at least annually for impairment, or more frequently if facts and circumstances indicate that it
is more likely than not impairment has occurred. The Company formally evaluates the carrying value of
its goodwill for impairment as of December 31 for each of its reporting units. The Company first
performs a qualitative assessment by evaluating relevant events or circumstances to determine whether
it is more likely than not that the fair value of a reporting unit exceeds its carrying amount. If the
Company is unable to conclude qualitatively that it is more likely than not that a reporting unit’s fair
value exceeds its carrying value, then it will use a two-step quantitative assessment of the fair value of a
reporting unit. To determine the fair value of these reporting units, the Company uses a discounted
future returns valuation model, which includes a variety of level 3 inputs. The key inputs for the model
include the operational three-year forecast for the Company and the then-current market discount
factor. Additionally, the Company compares the sum of the estimated fair values of the individual
reporting units less consolidated debt to the Company’s overall market capitalization as reflected by the
Company’s stock price. If the carrying value of a reporting unit that includes goodwill is determined to
be more than the fair value of the reporting unit, there exists the possibility of impairment of goodwill.
An impairment loss of goodwill is measured in two steps by first allocating the fair value of the
reporting unit to net assets and liabilities including recorded and unrecorded intangible assets to
determine the implied carrying value of goodwill. The next step is to measure the difference between
F-12
the carrying value of goodwill and the implied carrying value of goodwill, and, if the implied carrying
value of goodwill is less than the carrying value of goodwill, an impairment loss is recorded equal to
the difference. See further discussion below at Footnote 11 ‘‘Goodwill.’’
The intangible assets, other than goodwill, relate to customer relationships. The Company
amortizes its customer relationship intangible assets on an accelerated basis over a 10- to 15-year
period, using the undiscounted cash flows of the initial valuation models. The Company uses an
accelerated basis as these intangible assets were initially valued using an income approach, with an
attrition rate that resulted in a pattern of declining cash flows over a 10- to 15-year period.
Following the guidance of ASC 360 ‘‘Property, Plant and Equipment,’’ the Company reviews the
carrying values of these intangible assets for impairment if events or changes in the facts and
circumstances indicate that their carrying value may not be recoverable. Any impairment determined is
recorded in the current period and is measured by comparing the fair value of the related asset to its
carrying value. See further discussion below at Footnote 10 ‘‘Details of Selected Balance Sheet
Accounts—Intangible Assets.’’
Fair Value of Financial Instruments
The Company’s financial instruments include cash and cash equivalents, short-term investments,
accounts and unbilled receivables, accounts payable, accrued multi-client data library royalties and
long-term debt. The carrying amounts of cash and cash equivalents, short-term investments, accounts
and unbilled receivables, accounts payable and accrued multi-client data library royalties approximate
fair value due to the highly liquid nature of these instruments. The fair value of the long-term debt is
calculated using a market approach based upon Level 1 inputs, including an active market price.
Revenue Recognition
The Company derives revenue from the sale of (i) multi-client and proprietary surveys, licenses of
‘‘on-the-shelf’’ data libraries and imaging services within its Solutions segment; (ii) seismic data
acquisition systems and other seismic equipment within its Systems segment; (iii) seismic command and
control software systems and software solutions for operations management within its Software
segment; and (iv) fully-integrated ocean bottom seismic (‘‘OBS’’) solutions that include survey design
and planning and data acquisition within its Ocean Bottom Services segment. All revenues of the
Solutions and Ocean Bottom Services segments and the services component of revenues for the
Software segment are classified as services revenues. All other revenues are classified as product
revenues.
Multi-Client and Proprietary Surveys, Data Libraries and Imaging Services—As multi-client surveys
are being designed, acquired and/or processed (referred to as the ‘‘new venture’’ phase), the Company
enters into non-exclusive licensing arrangements with its customers. License revenues from these new
venture survey projects are recognized during the new venture phase as the seismic data is acquired
and/or processed on a proportionate basis as work is performed. Under this method, the Company
recognizes revenues based upon quantifiable measures of progress, such as kilometers acquired or days
processed. Upon completion of a multi-client seismic survey, the seismic survey is considered
‘‘on-the-shelf,’’ and licenses to the survey data are granted to customers on a non-exclusive basis.
Revenues on licenses of completed multi-client data surveys are recognized when (a) a signed final
master geophysical data license agreement and accompanying supplemental license agreement are
returned by the customer; (b) the purchase price for the license is fixed or determinable; (c) delivery or
performance has occurred; (d) and no significant uncertainty exists as to the customer’s obligation,
willingness or ability to pay. In limited situations, the Company has provided the customer with a right
to exchange seismic data for another specific seismic data set. In these limited situations, the Company
F-13
recognizes revenue at the earlier of the customer exercising its exchange right or the expiration of the
customer’s exchange right.
The Company also performs seismic surveys under contracts to specific customers, whereby the
seismic data is owned by those customers. Revenue is recognized as the seismic data is acquired and/or
processed on a proportionate basis as work is performed. The Company uses quantifiable measures of
progress consistent with its multi-client surveys.
Revenues from all imaging and other services are recognized when (a) persuasive evidence of an
arrangement exists, (b) the price is fixed or determinable, and (c) collectibility is reasonably assured.
Revenues from contract services performed on a dayrate basis are recognized as the service is
performed.
Acquisition Systems and Other Seismic Equipment—For the sales of acquisition systems and other
seismic equipment, the Company follows the requirements of ASC 605-10 ‘‘Revenue Recognition’’ and
recognizes revenue when (a) evidence of an arrangement exists; (b) the price to the customer is fixed
and determinable; (c) collectibility is reasonably assured; and (d) the acquisition system or other
seismic equipment is delivered to the customer and risk of ownership has passed to the customer, or, in
the case in which a substantive customer-specified acceptance clause exists in the contract, the later of
delivery or when the customer-specified acceptance is obtained.
Software—For the sales of navigation, survey and quality control software systems, the Company
follows the requirements of ASC 985-605 ‘‘Software Revenue Recognition’’ (‘‘ASC 985-605’’). The
Company recognizes revenue from sales of these software systems when (a) evidence of an
arrangement exists; (b) the price to the customer is fixed and determinable; (c) collectibility is
reasonably assured; and (d) the software is delivered to the customer and risk of ownership has passed
to the customer, or, in the limited case in which a substantive customer-specified acceptance clause
exists, the later of delivery or when the customer-specified acceptance is obtained. These arrangements
generally include the Company providing related services, such as training courses, engineering services
and annual software maintenance. The Company allocates revenue to each element of the arrangement
based upon vendor-specific objective evidence (‘‘VSOE’’) of fair value of the element or, if VSOE is
not available for the delivered element, the Company applies the residual method.
In addition to perpetual software licenses, the Company offers time-based software licenses. For
time-based licenses, the Company recognizes revenue ratably over the contract term, which is generally
two to five years.
Ocean Bottom Services—The Company recognizes revenues as they are realized and earned and
can be reasonably measured, based on contractual dayrates or on a fixed-price basis, and when
collectability is reasonably assured. In connection with acquisition contracts, the Company may receive
revenues for preparation and mobilization of equipment and personnel or for capital improvements to
vessels. The Company defers the revenues earned and incremental costs incurred that are directly
related to contract preparation and mobilization and recognizes such revenues and costs over the
primary contract term of the acquisition project. The Company uses the ratio of square kilometers
acquired as a percentage of the total square kilometers expected to be acquired over the primary term
of the contract to recognize deferred revenues and amortize, in cost of services, the costs related to
contract preparation and mobilization. The Company recognizes the costs of relocating vessels without
contracts to more promising market sectors as such costs are incurred. Upon completion of acquisition
contracts, the Company recognizes in earnings any demobilization fees received and expenses incurred.
Multiple-element Arrangements—When separate elements (such as an acquisition system, other
seismic equipment and/or imaging and acquisition services) are contained in a single sales arrangement,
or in related arrangements with the same customer, the Company follows the requirements of
ASC 605-25 ‘‘Accounting for Multiple-Element Revenue Arrangement’’ (‘‘ASC 605-25’’). The Company
F-14
adopted this guidance as of January 1, 2010. Accordingly, the Company applied this guidance to
transactions initiated or materially modified on or after January 1, 2010. The guidance does not apply
to software sales accounted for under ASC 985-605. The Company also adopted, in the same period,
guidance within ASC 985-605 that excludes from its scope revenue arrangements that include both
tangible products and software elements, such that the tangible products contain both software and
non-software components that function together to deliver the tangible product’s essential functionality.
This guidance requires that arrangement consideration be allocated at the inception of an
arrangement to all deliverables using the relative selling price method. The Company allocates
arrangement consideration to each deliverable qualifying as a separate unit of accounting in an
arrangement based on its relative selling price. The Company determines its selling price using VSOE,
if it exists, or otherwise third-party evidence (‘‘TPE’’). If neither VSOE nor TPE of selling price exists
for a unit of accounting, the Company uses estimated selling price (‘‘ESP’’). The Company generally
expects that it will not be able to establish TPE due to the nature of the markets in which the
Company competes, and, as such, the Company typically will determine its selling price using VSOE or,
if not available, ESP. VSOE is generally limited to the price charged when the same or similar product
is sold on a standalone basis. If a product is seldom sold on a standalone basis, it is unlikely that the
Company can determine VSOE for the product.
The objective of ESP is to determine the price at which the Company would transact if the
product were sold by the Company on a standalone basis. The Company’s determination of ESP
involves a weighting of several factors based on the specific facts and circumstances of the arrangement.
Specifically, the Company considers the anticipated margin on the particular deliverable, the selling
price and profit margin for similar products and the Company’s ongoing pricing strategy and policies.
Product Warranty—The Company generally warrants that its manufactured equipment will be free
from defects in workmanship, materials and parts. Warranty periods generally range from 30 days to
three years from the date of original purchase, depending on the product. The Company provides for
estimated warranty as a charge to costs of sales at the time of sale. However, new information may
become available, or circumstances (such as applicable laws and regulations) may change, thereby
resulting in an increase or decrease in the amount required to be accrued for such matters (and
therefore a decrease or increase in reported net income in the period of such change). In limited cases,
the Company has provided indemnification of customers for potential intellectual property infringement
claims relating to products sold.
Research, Development and Engineering
Research, development and engineering costs primarily relate to activities that are designed to
improve the quality of the subsurface image and overall acquisition economics of the Company’s
customers. The costs associated with these activities are expensed as incurred. These costs include
prototype material and field testing expenses, along with the related salaries and stock-based
compensation, facility costs, consulting fees, tools and equipment usage and other miscellaneous
expenses associated with these activities.
Stock-Based Compensation
The Company accounts for stock-based compensation under the provisions of ASC 718,
‘‘Compensation—Stock Compensation’’ (‘‘ASC 718’’). The Company estimates the value of stock option
awards on the date of grant using the Black-Scholes option pricing model. The determination of the
fair value of stock-based payment awards on the date of grant using an option-pricing model is affected
by the Company’s stock price as well as assumptions regarding a number of subjective variables. These
variables include, but are not limited to, expected stock price volatility over the term of the awards,
actual and projected employee stock option exercise behaviors, risk-free interest rate and expected
F-15
dividends. The Company recognizes stock-based compensation on the straight-line basis over the service
period of each award (generally the award’s vesting period).
Income Taxes
Income taxes are accounted for under the liability method. Deferred income tax assets and
liabilities are recognized for the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and their respective tax bases,
including operating loss and tax credit carryforwards. Deferred income tax assets and liabilities are
measured using enacted tax rates expected to apply in the years in which those temporary differences
are expected to be recovered or settled. The Company records a valuation allowance when it is more
likely than not that all or a portion of deferred tax assets will not be realized (see Footnote 8 ‘‘Income
Taxes’’). The effect on deferred income tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
Comprehensive Net Income (Loss)
Comprehensive net income (loss) as shown in the Consolidated Statements of Comprehensive
Income (Loss) and the balance in Accumulated Other Comprehensive Loss as shown in the
Consolidated Balance Sheets as of December 31, 2014 and 2013, consist of foreign currency translation
adjustments, equity interest in INOVA Geophysical’s accumulated other comprehensive income (loss)
and unrealized gains or losses on available-for-sale securities.
Foreign Currency Gains and Losses
Assets and liabilities of the Company’s subsidiaries operating outside the United States that have a
functional currency other than the U.S. dollar have been translated to U.S. dollars using the exchange
rate in effect at the balance sheet date. Results of foreign operations have been translated using the
average exchange rate during the periods of operation. Resulting translation adjustments have been
recorded as a component of Accumulated Other Comprehensive Loss. Foreign currency transaction
gains and losses are included in the Consolidated Statements of Operations in Other income (expense)
as they occur. Total foreign currency transaction losses were $1.8 million, $1.1 million and $1.9 million
for 2014, 2013 and 2012, respectively.
Concentration of Foreign Sales Risk
The majority of the Company’s foreign sales are denominated in U.S. dollars. For 2014, 2013 and
2012, international sales comprised 74%, 73% and 69%, respectively, of total net revenues. Since 2008,
global economic problems and uncertainties have generally increased in scope and nature. In the fourth
quarter of 2014, crude oil prices dropped by approximately 45%-50% as the non-U.S. economic outlook
continues to weaken, North American production continues to expand, and more recently, Saudi
Arabia has publicly stated its intention to support its global market share at the expense of lower
prices. The decline in crude oil prices, as well as U.S. and European Union sanctions against Russia
related to its actions in Ukraine, have both contributed to the devaluation of the Russian ruble putting
significant pressure on the Company’s Russian-based customers and negatively impacting the appeal of
seismic data located in Russia to potential non-Russian buyers. The Company’s results of operations,
liquidity and financial condition related to its operations in Russia are primarily denominated in U.S.
dollars. To the extent that world events or economic conditions negatively affect the Company’s future
sales to customers in many regions of the world, as well as the collectability of the Company’s existing
receivables, the Company’s future results of operations, liquidity and financial condition would be
adversely affected.
F-16
(2) Impairments, Restructurings and Other Charges
The recent decline in crude oil prices to five-year lows has negatively impacted the economic
outlook of the Company’s E&P customers, which has also negatively impacted the outlook for the
Company’s seismic contractor customers. In response to the decline in crude oil prices, E&P companies
have turned their focus to spending reductions, with exploration spending receiving the largest
reductions and seismic spending being one of the most discretionary parts of their exploration budgets.
During 2014, the Company recognized the following pre-tax charges (in thousands):
Cost of goods sold . . . . . . . .
Operating expenses . . . . . . .
Equity in earnings (losses) of
investments . . . . . . . . . . .
Multi-client
data library,
net
Equity
method
investments(a)
Goodwill and
Intangible
Assets(b)
Asset write-
downs and
other
Severance
charges
Total
$100,100
—
$ —
—
$ —
23,284
$ 8,051
8,214(c)
$ 391
1,902
$108,542
33,400
—
34,199
—
—
—
34,199
Consolidated total
. . . . . .
$100,100
$34,199
$23,284
$16,265
$2,293
$176,141
(a) Represents the full write-down of the Company’s equity method investment in INOVA Geophysical
of $30.7 million, in addition to the Company’s share of charges related to excess and obsolete
inventory and customer bad debts of $3.5 million. For a discussion of the Company’s impairment
of its equity method investment, see Footnote 5 ‘‘Equity Method Investments.’’
(b)
(c)
Includes an impairment of the goodwill on the Company’s Marine Systems reporting unit and an
impairment of certain intangible assets. For a discussion of the impairment of the goodwill, see
Footnote 11 ‘‘Goodwill.’’ For a discussion of the impairment of the intangible asset, see
Footnote 10 ‘‘Details of Selected Balance Sheet Accounts.’’
Includes outstanding receivables from INOVA Geophysical of $5.5 million.
Impairment of Multi-client Data Library
In connection with the preparation of these financial statements, the Company wrote down the
multi-client data library, primarily associated with Arctic and onshore North American programs, by
$100.1 million after it was determined that estimated future cash flows would not be sufficient to
recover the carrying value due to current market conditions. The reductions in exploration spending,
discussed above, have had an impact on the Company’s results of operations for 2014, especially those
of its Solutions segment. Sales of Arctic programs have been specifically impacted by recent events in
Russia. The decline in crude oil prices, as well as U.S. and European Union sanctions against Russia
related to its actions in Ukraine, have both contributed to the devaluation of the Russian ruble putting
significant pressure on the Company’s Russian-based customers and negatively impacting the appeal of
seismic data located in Russia to potential non-Russian buyers. In North America, the land seismic
market continues to experience softness. E&P customer spending in the natural gas shale plays has
been limited due to associated gas being produced from unconventional oil wells in North America
increasing natural gas supplies putting downward pressure on U.S. natural gas prices.
This impairment of the Company’s multi-client data library was recorded because the net
capitalized costs exceeded the fair value of the multi-client data library as measured by estimated future
cash flows. The fair values of the individual libraries were measured using valuation techniques
consistent with the income approach, converting future cash flows to a single discounted amount.
Significant inputs used to determine the fair values of the libraries included estimates of: (i) revenues;
(ii) future costs including royalties; and (iii) an appropriate discount rate. In order to estimate future
cash flows, the Company considered historical cash flows, existing and future contracts and changes in
F-17
the market environment and other factors that may affect future cash flows. To the extent applicable,
the assumptions the Company used are consistent with forecasts that it is otherwise required to make
(for example, in preparing its earnings forecasts). The use of this method involves inherent uncertainty.
The Company has determined that the fair value measurements of this nonfinancial asset are level 3 in
the fair value hierarchy.
In 2013, the Company wrote down the multi-client data library by $5.5 million primarily due to
cost overruns, which resulted in costs exceeding the sales forecast, triggering the impairment.
2014 Restructuring
Due to the economic conditions described above, in the fourth quarter of 2014, the Company
initiated restructurings across all of its segments, except for its Ocean Bottom Services segment. This
restructuring involves the reduction of headcount in all those segments by approximately 10%. The
Company incurred a total of $2.3 million of severance charges, which will be paid out in 2015. The
Company expects that this reduction will result in annual cash savings of approximately $15.0 million
related to this restructuring.
In connection with the preparation of these financial statements, the Company re-evaluated the
realizability of certain inventory and receivables. The Company wrote down inventory by recording
$7.0 million of charges related to excess and obsolete inventory and wrote down certain receivables
totaling $8.2 million, which includes receivables due from INOVA Geophysical.
2013 Restructuring
In the third quarter of 2013, the Company initiated a restructuring of its Systems segment. This
restructuring involved the closing of certain manufacturing facilities and a reduction of headcount in
those and other facilities.
As of September 30, 2013, the Company had reduced its employee headcount in its Systems
segment by 31% of the total Systems full-time employee headcount. Of the total amount expensed in
2013, $3.7 million is included in cost of sales, with the remaining $1.9 million included in operating
expenses.
During 2013, the Company recognized the following pre-tax charges related to its Systems segment
restructuring activity (in thousands):
Cost of goods sold . . . . . . . . . . . . . . . . . .
Operating expenses . . . . . . . . . . . . . . . . . .
$647
$3,729
$ — $1,873
$21,351
383
$
Facility
charges
Severance
charges
Asset write-
downs and
other
Total
$25,727
$ 2,256
Consolidated total . . . . . . . . . . . . . . . . .
$647
$5,602
$21,734
$27,983
(3) Acquisition of OceanGeo
In February 2013, the Company acquired a 30% ownership interest in OceanGeo B.V.
(‘‘OceanGeo’’). OceanGeo specializes in seismic acquisition operations using ocean bottom cables
deployed from vessels leased by OceanGeo. In October 2013, the Company reached agreement with its
joint venture partner in OceanGeo, Georadar Levantamentos Geofisicos S/A (‘‘Georadar’’), for the
Company to have the option to increase its ownership percentage in OceanGeo from 30% to 70%,
subject to certain conditions.
To further assist OceanGeo in acquiring backlog, in October 2013, the Company also agreed to
loan OceanGeo additional funds for working capital, as necessary, up to a maximum of $25.0 million.
F-18
Prior to obtaining a controlling interest in OceanGeo, the Company advanced a total of $18.9 million
to OceanGeo.
In January 2014, the Company acquired an additional 40% interest in OceanGeo, through the
conversion of certain outstanding amounts loaned to OceanGeo by the Company into additional equity
interests of OceanGeo, bringing the Company’s total equity interest in OceanGeo to 70% and giving
the Company control over OceanGeo. The Company has included in its results of operations, the
results of OceanGeo from the date of the Company’s acquisition of a controlling interest.
In July 2014, the Company paid $6.0 million to Georadar for the remaining 30% of OceanGeo,
increasing its equity interest in OceanGeo to 100%. Since the initial investment in early 2013 up to the
time the Company increased its interest to 100%, the Company has invested approximately
$40.5 million to OceanGeo.
The Company acquired OceanGeo as part of its strategy to expand the range of service offerings it
can provide to oil and gas exploration and production customers and to put its Calypso(cid:2) seabed
acquisition technology to work in a service model to meet the growing demand for seabed seismic
services.
The acquisition of OceanGeo was accounted for by the acquisition method, whereby the assets
acquired and liabilities assumed were recorded at their fair values as of the acquisition date based on
an income approach. The estimated fair value of the assets acquired and liabilities assumed
approximated the purchase price and therefore no goodwill or bargain purchase was recognized. During
the three months ended September 30, 2014, management adjusted its purchase accounting valuation
estimates and, as a result, retrospectively adjusted the valuations of assets with a corresponding increase
to property, plant, and equipment as of the acquisition date. The retrospective adjustments amounted
to approximately $3.9 million and primarily related to revisions of estimates of recoverability of
OceanGeo’s multi-client data library. As of December 31, 2014, the Company completed its purchase
price allocation and no other material adjustments to the preliminary purchase price adjustments were
recorded. In connection with the acquisition, the Company incurred $1.3 million in acquisition-related
transaction costs related to professional services and fees. These costs were expensed as incurred and
were included in other income (expense), net in the Company’s condensed consolidated statement of
operations for the twelve months ended December 31, 2014. As a result of consolidating OceanGeo’s
results into the Company’s consolidated results of operations for the period from the acquisition date
at the end of January 2014 to December 31, 2014, the Company’s results of operations include
$103.2 million of OceanGeo revenues and $19.1 million of income from OceanGeo’s operations for the
twelve months ended December 31, 2014. The following table summarizes the fair value assigned to the
F-19
assets acquired and liabilities assumed, as well as the noncontrolling interest, at the acquisition date (in
thousands):
Estimated Fair Value of Assets Acquired and Liabilities Assumed:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . . . .
Property, plant, equipment and seismic rental equipment, net . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
609
9,247
1,433
18,474
2,227
Total identifiable assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable and accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . .
Bank loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noncontrolling interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
31,990
(13,464)
(6,135)
(1,026)
11,365
(3,410)
Total consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 7,955
The following summarized unaudited pro forma consolidated income statement information for
2014 and 2013, assumes that the OceanGeo acquisition had occurred as of the beginning of the periods
presented. The Company has prepared these unaudited pro forma financial results for comparative
purposes only. These unaudited pro forma financial results may not be indicative of the results that
would have occurred if the Company had completed the acquisition as of the beginning of the periods
presented or the results that may be attained in the future. Amounts presented below are in thousands,
except for the per share amounts:
Pro forma Consolidated ION Income Statement Information (Unaudited)
2014
2013
Net revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net loss applicable to common shares . . . . . . . . . . . . . . . . .
Basic and diluted net loss per common share . . . . . . . . . . . .
$ 518,742
$ 580,834
$(114,346) $ (19,300)
$(126,492) $(262,974)
$(127,226) $(268,330)
(1.69)
$
(0.78) $
Years Ended December 31,
(4) Segment and Geographic Information
The Company evaluates and reviews its results based on four segments: Solutions, Systems,
Software and Ocean Bottom Services. The Company measures segment operating results based on
income (loss) from operations. In addition, the Company has an equity ownership interest its INOVA
Geophysical joint venture. See Footnote 5 ‘‘Equity Method Investments’’ for the summarized financial
information for INOVA Geophysical.
F-20
A summary of segment information follows (in thousands):
Years Ended December 31,
2014
2013
2012
Net revenues:
Solutions:
New Venture . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Data Library . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 98,649
66,180
$ 154,578
111,998
$147,346
88,085
Total multi-client revenues . . . . . . . . . . . . . . . . . .
Data Processing . . . . . . . . . . . . . . . . . . . . . . . . . . .
164,829
113,075
266,576
120,808
235,431
115,834
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 277,904
$ 387,384
$351,265
Systems:
Towed Streamer
. . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . .
Ocean Bottom Equipment
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 43,995
—
44,422
$ 66,991
7,307
48,134
$ 77,769
14,823
39,404
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 88,417
$ 122,432
$131,996
Software:
Software Systems . . . . . . . . . . . . . . . . . . . . . . . . . .
Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 36,203
3,790
$ 35,418
3,933
$ 39,738
3,318
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 39,993
$ 39,351
$ 43,056
Ocean Bottom Services . . . . . . . . . . . . . . . . . . . . . . .
$ 103,244
$
— $
—
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 509,558
$ 549,167
$526,317
Gross profit:
Solutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ocean Bottom Services . . . . . . . . . . . . . . . . . . . . . .
$ (24,345)(a) $ 111,108
19,999
28,206
—
29,829(b)
28,835
27,904
$132,950
50,790
32,061
—
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 62,223
$ 159,313
$215,801
Gross margin:
Solutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ocean Bottom Services . . . . . . . . . . . . . . . . . . . . . .
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(9)%
34%
72%
27%
12%
29%
16%
72%
—%
29%
38%
38%
74%
—%
41%
Income (loss) from operations:
Solutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ocean Bottom Services . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . .
Corporate and other
$ (80,653)(a) $ 61,146
(9,957)
23,602
—
(58,395)
(23,521)(b)
20,212
19,070
(53,037)
$ 88,589
10,132
28,129
—
(52,323)
Income (loss) from operations . . . . . . . . . . . . . . . . .
Interest expense, net
. . . . . . . . . . . . . . . . . . . . . . .
Equity in earnings (losses) of investments . . . . . . . . .
Other income (expense) . . . . . . . . . . . . . . . . . . . . .
(117,929)
(19,382)
(49,485)
79,860
16,396
(12,344)
(42,320)
(182,530)
74,527
(5,265)
297
17,124
Income (loss) before income taxes . . . . . . . . . . . . . .
$(106,936)
$(220,798) $ 86,683
(a)
(b)
Includes a charge of $100.1 million to write down the multi-client data library, impacting gross profit
(loss), in addition to charges for the impairment of intangible assets and severance-related charges
within the Solutions segment.
Includes a charge of $21.9 million to write down goodwill, impacting income (loss) from operations,
in addition to charges for write-downs of inventory and receivables and severance-related charges
within the Systems segment.
F-21
Years Ended December 31,
2014
2013
2012
Depreciation and amortization (including multi-
client data library):
Solutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ocean Bottom Services . . . . . . . . . . . . . . . . . . . .
Corporate and other . . . . . . . . . . . . . . . . . . . . . .
$80,138
1,860
989
6,517
2,526
$ 99,774
2,665
699
—
1,736
$ 98,342
4,185
776
—
1,979
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$92,030
$104,874
$105,282
December 31,
2014
2013
Total assets:
Solutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ocean Bottom Services . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$265,505
84,465
38,479
56,637
172,171
$445,581
139,074
45,343
—
234,673
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$617,257
$864,671
A summary of total assets by geographic area follows (in thousands):
December 31,
2014
2013
Total assets by geographic area:
North America . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Middle East
Latin America . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$347,419
117,622
96,532
36,529
19,155
$609,739
76,601
128,909
33,375
16,047
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$617,257
$864,671
Intersegment sales are insignificant for all periods presented. Corporate assets include all assets
specifically related to corporate personnel and operations, a majority of cash and cash equivalents, and
the investment in INOVA Geophysical. Depreciation and amortization expense is allocated to segments
based upon use of the underlying assets.
F-22
A summary of net revenues by geographic area follows (in thousands):
Years Ended December 31,
2014
2013
2012
Net revenues by geographic area:
North America . . . . . . . . . . . . . . . . . . . . . . . . .
Latin America . . . . . . . . . . . . . . . . . . . . . . . . .
Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Africa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asia Pacific . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Middle East . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commonwealth of Independent States . . . . . . . .
$130,224
111,078
100,188
75,507
49,881
39,142
3,538
$150,160
54,008
198,977
16,474
52,672
63,157
13,719
$164,157
46,212
200,589
18,469
55,028
37,471
4,391
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$509,558
$549,167
$526,317
Net revenues are attributed to geographic areas on the basis of the ultimate destination of the
equipment or service, if known, or the geographic area imaging services are provided. If the ultimate
destination of such equipment is not known, net revenues are attributed to the geographic area of
initial shipment.
(5) Equity Method Investments
The following table reflects the change in the Company’s equity method investments from equity
method investees during the year ended December 31, 2014 (in thousands):
Investment at December 31, 2013 . . . . . . . . . . . . .
Equity in losses of investments . . . . . . . . . . . . .
Advances to OceanGeo (prior to consolidation) .
Acquisition of controlling interest (consolidation)
of OceanGeo . . . . . . . . . . . . . . . . . . . . . . . .
Equity interest in investees’ other comprehensive
income (loss) . . . . . . . . . . . . . . . . . . . . . . . .
Write-down of equity-method investment in
INOVA
Geophysical OceanGeo
Total
$ 51,065
(19,525)
—
$ 2,800
738
3,683
$ 53,865
(18,787)
3,683
—
(7,221)
(7,221)
(1,987)
—
(1,987)
INOVA(1)
. . . . . . . . . . . . . . . . . . . . . . . . . . .
(29,553)
— (29,553)
Investments at December 31, 2014 . . . . . . . . . . . .
$
— $ — $
—
(1) This write-down does not include an additional $1.1 million impairment of the Company’s
share of INOVA’s balance of Accumulated other comprehensive loss. The total
impairment recorded by the Company equals $30.7 million, as discussed below.
INOVA Geophysical
The Company owns a 49% interest in a land seismic equipment business with BGP. BGP is a
subsidiary of China National Petroleum Corporation (‘‘CNPC’’) and is a leading global geophysical
services contracting company. The joint venture company, organized under the laws of the People’s
Republic of China, is named INOVA Geophysical Equipment Limited (‘‘INOVA Geophysical’’). BGP
owns the remaining 51% interest in INOVA Geophysical. INOVA Geophysical is managed through a
Board of Directors consisting of four members appointed by BGP and three members appointed by the
Company.
F-23
Equity in Losses—The Company accounts for its share of earnings in INOVA Geophysical on a one
fiscal quarter lag basis. Thus, the Company’s share of INOVA Geophysical’s results for the period from
October 1, 2013 to September 30, 2014 (‘‘Fiscal 2014’’), is included in the Company’s financial results
for its fiscal year ended December 31, 2014, the Company’s share of INOVA Geophysical’s results for
the period from October 1, 2012 to September 30, 2013 (‘‘Fiscal 2013’’), is included in the Company’s
financial results for its fiscal year ended December 31, 2013, and the Company’s share of INOVA
Geophysical’s results for the period from October 1, 2011 to September 30, 2012 (‘‘Fiscal 2012’’), is
included in the Company’s financial results for its fiscal year ended December 31, 2012.
INOVA Geophysical is a variable interest entity because the Company’s voting rights with respect
to INOVA Geophysical are not proportionate to its ownership interest and substantially all of INOVA
Geophysical’s activities are conducted on behalf of the Company and BGP, a related party to the
Company. The Company is not the primary beneficiary of INOVA Geophysical because it does not
have the power to direct the activities of INOVA Geophysical that most significantly impact its
economic performance. Accordingly, the Company does not consolidate INOVA Geophysical, but
instead accounts for INOVA Geophysical using the equity method of accounting. In December 2014,
the Company wrote its investment in INOVA down to zero as of December 31, 2014. The Company
has no obligation, implicit or explicit, to fund any expenses of INOVA Geophysical.
The following table reflects summarized financial information for INOVA Geophysical, on a 100%
basis, as of September 30, 2014 and 2013 and for Fiscal 2014, Fiscal 2013 and Fiscal 2012 (in
thousands):
(Unaudited)
Current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
September 30,
2014
2013
$105,085
63,212
99,732
6,498
$147,475
71,551
110,972
2,731
Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 62,067
$105,323
Fiscal 2014
(unaudited)
Fiscal 2013
(unaudited)
Total net revenues . . . . . . . . . . . . . . . . . . .
Gross profit (loss) . . . . . . . . . . . . . . . . . . .
Income (loss) from operations . . . . . . . . . .
Net income (loss) . . . . . . . . . . . . . . . . . . .
$ 89,975
247(a)
$
$(34,540)(a)
$(40,087)
$183,619
$ (1,988)(b)
$(44,463)
$(46,149)(b)
Fiscal 2012
$188,336
$ 39,320
3,241
$
2,197
$
(a)
(b)
Impacting INOVA Geophysical’s Fiscal 2014 gross profit (loss) is $3.8 million of a
write-down of excess and obsolete inventory. In addition to the special item impacting
gross profit (loss), income (loss) from operations was also impacted by $3.4 million of
charges related to customer bad debts.
Includes approximately $36.5 million of restructuring and special items associated with the
impairment of intangible assets, write-down of excess and obsolete inventory and rental
equipment, and severance-related charges. In addition to the restructuring and special
items impacting gross profit, Net income (loss) was also impacted by $1.8 million of other
restructuring and special items.
Impairment—In connection with the preparation of these financial statements, the Company’s
investment in INOVA was fully impaired as it determined that the decline in fair value below cost basis
was other-than-temporary. This impairment was the result of the land seismic market having softened
F-24
significantly due to reduced E&P company spending in the North American natural gas shale plays and
reduced seismic activity in Russia and other regions due to lower crude oil prices. INOVA Geophysical
has also experienced significant losses in four of the last five years and reduced equipment purchases
by BGP in the last year. The Company recorded a charge of $30.7 million, impairing its equity
investment in INOVA and its share of INOVA’s Accumulated other comprehensive loss, reducing both
balances to zero.
The Company considered various qualitative factors to determine if a decrease in the value of the
investment was other-than-temporary. These factors included the age of the venture, intent and ability
for the Company to recover its investment in the entity, financial condition and long-term prospects of
the unconsolidated entity, short-term liquidity needs of the unconsolidated entity, trends in the general
economic environment, recoverability of the investment through future cash flows and relationships
with the other partners and banks. The Company utilized a combination of the market and income
approaches or a combination of these valuation techniques to determine fair value. Inputs to such
measures included observable market data obtained from independent sources such as recent market
transactions for similar assets. To the extent observable inputs are not available the Company utilizes
unobservable inputs based upon the assumptions market participants would use in valuing the asset.
Examples of utilized unobservable inputs are future cash flows, long term growth rates and applicable
discount rates. The Company has determined that the fair value measurements of this nonfinancial
asset are level 3 in the fair value hierarchy.
Related Party Transactions
For information regarding transactions between the Company and its equity method investee, see
Footnote 19 ‘‘Certain Relationships and Related Party Transactions.’’
(6) Long-term Debt and Lease Obligations
Obligations (in thousands)
December 31,
2014
2013
Senior secured second-priority notes . . . . . . . . . . . . . . . . . . .
Revolving line of credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equipment capital leases . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other debt obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$175,000
—
15,059
535
$175,000
35,000
8,651
1,501
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current portion of long-term debt and lease obligations . . . . .
190,594
(7,649)
220,152
(5,906)
Non-current portion of long-term debt and lease obligations
$182,945
$214,246
New Credit Facility, including Revolving Line of Credit
In August 2014, ION and its subsidiaries, ION Exploration Products (U.S.A.), Inc., I/O Marine
Systems, Inc. and GX Technology Corporation (collectively, the ‘‘Subsidiary Borrowers’’ and together
with ION, the ‘‘Borrowers’’), entered into a new credit facility (the ‘‘New Credit Facility’’).
The terms of the New Credit Facility are set forth in a revolving credit and security agreement
dated as of August 22, 2014, among the Borrowers, the lenders party thereto and PNC Bank, National
Association (‘‘PNC’’), as agent for the lenders.
The New Credit Facility replaced the Company’s prior credit facility under a credit agreement
dated as of March 25, 2010, as amended, by and among ION, the subsidiary guarantors that were
parties thereto and China Merchants Bank Co., Ltd., New York Branch (‘‘CMB’’), as administrative
agent and lender (the ‘‘Prior Credit Facility’’). With the Prior Credit Facility being replaced by the New
F-25
Credit Facility in August 2014, INOVA no longer provides a bank standby letter of credit as credit
support for the Company’s obligations under the New Credit Facility.
The revolving credit and security agreement contemplates maximum credit facilities of up to
$175.0 million in the aggregate, consisting of (i) a revolving facility of up to $125.0 million, to which the
lenders have committed $80.0 million (with availability under such revolving facility subject at all times
to a borrowing base and other conditions to borrowing) and up to an additional $45.0 million of which
is subject to the implementation of certain accordion provisions and (ii) an uncommitted term facility
in an aggregate amount of up to $50.0 million on terms to be mutually agreed at a later date and
subject to receiving commitments of lenders to such term facility. As of December 31, 2014, the
Company’s has approximately $68.2 million available under the New Credit Facility. The amount
available will increase or decrease monthly as the Company’s borrowing base changes.
The borrowing base for revolving credit borrowings under the New Credit Facility is calculated
using a formula based on certain eligible receivables, eligible inventory and other amounts. In addition,
the New Credit Facility includes a $15.0 million sublimit for the issuance of documentary and standby
letters of credit. As of December 31, 2014, there was no outstanding indebtedness under the New
Credit Facility. The Company expects that any amounts drawn under the New Credit Facility sooner
than one year prior to the maturity of the New Credit Facility will be classified as long-term debt.
The New Credit Facility is available to provide for the Company’s general corporate needs,
including the Company’s working capital requirements, capital expenditures, surety deposits and
acquisition financing.
The interest rate on revolving credit borrowings under the New Credit Facility will be, at the
Company’s option, (i) an alternate base rate equal to the highest of (a) the prime rate of PNC, (b) a
federal funds effective rate plus 0.50% or (c) a LIBOR-based rate plus 1.0%, plus an applicable
interest margin, or (ii) a LIBOR-based rate, plus an applicable interest margin. The revolving credit
indebtedness under the New Credit Facility is scheduled to mature on the earlier of (x) August 22,
2019 or (y) the date which is 90 days prior to the maturity date of the Notes (as defined below) (or
such later due date if the Notes have been refinanced).
The obligations of the Borrowers under the New Credit Facility are secured by a first-priority
security interest in 100% of the stock of the Subsidiary Borrowers and 65% of the equity interests in
ION International Holdings L.P. and by substantially all other assets of the Borrowers.
The revolving credit and security agreement contains covenants that, among other things, restrict
the Company, subject to certain exceptions, from incurring additional indebtedness (including capital
lease obligations), repurchasing equity, paying dividends or distributions, granting or incurring
additional liens on the Company’s properties, pledging shares of the Company’s subsidiaries, entering
into certain merger or other change-in-control transactions, entering into transactions with the
Company’s affiliates, making certain sales or other dispositions of the Company’s assets, making certain
investments, acquiring other businesses and entering into sale-leaseback transactions with respect to the
Company’s property.
The revolving credit and security agreement requires compliance with certain financial covenants,
including requirements related to ION and the Subsidiary Borrowers, measured on a rolling four
quarter basis, (i) maintaining a minimum fixed charge coverage ratio of 1.1 to 1 as of the end of each
fiscal quarter during the existence of a covenant testing trigger event, and (ii) not exceeding a
maximum senior secured leverage ratio of 3.0 to 1 as of the end of each fiscal quarter.
The fixed charge coverage ratio is defined as the ratio of (i) ION’s EBITDA, minus unfunded
capital expenditures made during the relevant period, minus distributions (including tax distributions)
and dividends made during the relevant period, minus cash taxes paid during the relevant period, to
(ii) certain debt payments made during the relevant period. The senior secured leverage ratio is defined
F-26
as the ratio of (x) total senior funded debt to (y) ION’s EBITDA (excluding expenditures related
directly to the Company’s multi-client data library). As of December 31, 2014, the Company was in
compliance with these financial covenants.
The revolving credit and security agreement contains customary event of default provisions
(including a ‘‘change of control’’ event affecting ION), the occurrence of which could lead to an
acceleration of the Company’s obligations under the revolving credit and security agreement.
In connection with entering into the New Credit Facility, PNC replaced CMB as administrative
agent, first lien representative for the first lien secured parties and collateral agent for the first lien
secured parties under the Intercreditor Agreement (as defined below). The Company incurred
$1.9 million of costs related to entering into the New Credit Facility, which are being amortized over
3.5 years. As a part of the cancellation of the Prior Credit Facility, the Company wrote-off to interest
expense $0.3 million of unamortized debt issuance costs.
Senior Secured Second-Priority Notes
In May 2013, the Company sold $175.0 million aggregate principal amount of 8.125% Senior
Secured Second-Priority Notes due 2018 (‘‘Notes’’) in a private offering pursuant to an Indenture dated
as of May 13, 2013. The Notes are senior secured second-priority obligations of the Company, are
guaranteed by certain of the Company’s U.S. subsidiaries, and mature on May 15, 2018. Interest on the
Notes accrues at the rate of 8.125% per annum and will be payable semiannually in arrears on May 15
and November 15 of each year during their term. In May 2014, the holders of the Notes exchanged
their Notes for a like principal amount of registered Notes with the same terms.
On or after May 15, 2015, the Company may on one or more occasions redeem all or a part of the
Notes at the redemption prices set forth below, plus accrued and unpaid interest and special interest, if
any, on the Notes redeemed during the 12-month period beginning on May 15th of the years indicated
below:
Date
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 and thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Percentage
104.063%
102.031%
100.000%
The Notes are initially jointly and severally guaranteed on a senior secured basis by each of the
Company’s current material U.S. subsidiaries: GX Technology Corporation, ION Exploration Products
(U.S.A.), Inc. and I/O Marine Systems, Inc. (the ‘‘Notes Guarantors’’). The Notes and the guarantees
are secured, subject to certain exceptions and permitted liens, by second-priority liens on substantially
all of the assets that secure the indebtedness under the New Credit Facility (see ‘‘—New Credit Facility,
including Revolving Line of Credit’’ above). The indebtedness under the Notes is effectively junior to the
Company’s obligations under the New Credit Facility to the extent of the value of the collateral
securing the New Credit Facility, and to any other indebtedness secured on a first-priority basis to the
extent of the value of the Company’s assets subject to those first-priority security interests.
The Notes contain certain covenants that, among other things, limit or prohibit the Company’s
ability and the ability of its restricted subsidiaries to take certain actions or permit certain conditions to
exist during the term of the Notes, including among other things:
(cid:129) incurring additional indebtedness;
(cid:129) creating liens;
(cid:129) paying dividends and making other distributions in respect of the Company’s capital stock;
(cid:129) redeeming the Company’s capital stock;
F-27
(cid:129) making investments or certain other restricted payments;
(cid:129) selling certain kinds of assets;
(cid:129) entering into transactions with affiliates; and
(cid:129) effecting mergers or consolidations.
These and other restrictive covenants contained in the Indenture are subject to certain exceptions and
qualifications. All of the Company’s subsidiaries are currently restricted subsidiaries. As of
December 31, 2014, the Company was in compliance with these covenants.
Equipment Capital Leases
The Company has entered into capital leases that are due in installments for the purpose of
financing the purchase of computer equipment through 2017. Interest accrues under these leases at
rates of up to 4.0% per annum, and the leases are collateralized by liens on the computer equipment.
The assets are amortized over the lesser of their related lease terms or their estimated productive lives
and such charges are reflected within depreciation expense.
A summary of future principal obligations under long-term debt and equipment capital lease
obligations follows (in thousands):
Years Ended December 31,
Long-Term Debt
Capital Lease
Obligations
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
535
—
—
175,000
—
—
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$175,535
$ 7,114
5,383
2,562
—
—
—
$15,059
OceanGeo Brazil Bank Debt
In connection with the Company’s acquisition of a controlling interest in OceanGeo in the first
quarter of 2014, OceanGeo’s existing debt was consolidated into the Company’s accounts. Post
acquisition, OceanGeo repaid this debt in full.
(7) Net Income (Loss) per Common Share
Basic net income (loss) per common share is computed by dividing net income (loss) applicable to
common shares by the weighted average number of common shares outstanding during the period.
Diluted net income (loss) per common share is determined based on the assumption that dilutive
restricted stock and restricted stock unit awards have vested and outstanding dilutive stock options have
been exercised and the aggregate proceeds were used to reacquire common stock using the average
price of such common stock for the period. The total number of shares issuable under anti-dilutive
options at December 31, 2014, 2013 and 2012 were 8,986,025, 8,258,500 and 4,864,553, respectively.
Prior to September 30, 2013, there were 27,000 shares outstanding of the Company’s Series D
Cumulative Convertible Preferred Stock (‘‘Series D Preferred Stock’’). On September 30, 2013, the
holder of all of the outstanding shares of Series D Preferred Stock converted those shares into
6,065,075 shares of common stock. The effects of the outstanding shares of all Series D Preferred Stock
were anti-dilutive for the year ended December 31, 2013.
F-28
The following table summarizes the computation of basic and diluted net income (loss) per
common share (in thousands, except per share amounts):
Net income (loss) applicable to common shares . .
Income impact of assumed Series D Preferred
Years Ended December 31,
2014
2013
2012
$(128,252) $(251,874) $ 61,963
Stock conversion . . . . . . . . . . . . . . . . . . . . .
—
—
1,352
Net income (loss) after assumed Series D
Preferred Stock conversion . . . . . . . . . . . . . . .
$(128,252) $(251,874) $ 63,315
Weighted average number of common shares
outstanding . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of dilutive stock awards . . . . . . . . . . . . .
Effect of Series D Preferred Stock . . . . . . . . . .
164,089
—
—
158,506
—
—
155,801
899
6,065
Weighted average number of diluted common
shares outstanding . . . . . . . . . . . . . . . . . . . . .
164,089
158,506
162,765
Basic net income (loss) per share . . . . . . . . . . . .
Diluted net income (loss) per share . . . . . . . . . .
$
$
(0.78) $
(0.78) $
(1.59) $
(1.59) $
0.40
0.39
(8) Income Taxes
The sources of income (loss) before income taxes are as follows (in thousands):
Years Ended December 31,
2014
2013
2012
Domestic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(162,151) $(221,185) $34,633
52,050
55,215
387
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(106,936) $(220,798) $86,683
Components of income taxes are as follows (in thousands):
Years Ended December 31,
2014
2013
2012
Current:
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State and local . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (678) $ 4,113
485
16,278
(42)
21,722
$
873
192
19,106
Deferred:
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,004
(1,424)
4,012
832
3,822
(136)
Total income tax expense . . . . . . . . . . . . . . . . . . . . . .
$20,582
$25,720
$23,857
F-29
A reconciliation of the expected income tax expense on income (loss) before income taxes using
the statutory federal income tax rate of 35% for 2014, 2013 and 2012 to income tax expense follows (in
thousands):
Expected income tax expense (benefit) at 35% . . . . .
Foreign tax rate differential . . . . . . . . . . . . . . . . . . .
Foreign tax differences . . . . . . . . . . . . . . . . . . . . . .
State and local taxes . . . . . . . . . . . . . . . . . . . . . . . .
Nondeductible expenses and other . . . . . . . . . . . . . .
Goodwill impairment
. . . . . . . . . . . . . . . . . . . . . . .
Valuation allowance:
Valuation allowance on equity in losses of INOVA
Geophysical . . . . . . . . . . . . . . . . . . . . . . . . . . .
Valuation allowance on operations . . . . . . . . . . . .
Years Ended December 31,
2014
2013
2012
$(37,428) $(77,279) $30,339
(5,404)
(10,481)
4,897
6,444
192
(42)
47
(1,584)
—
9,444
(2,348)
16,808
485
(58)
—
17,644
36,585
7,871
80,241
(104)
(6,110)
Total income tax expense . . . . . . . . . . . . . . . . . . . . .
$ 20,582
$ 25,720
$23,857
The tax effects of the cumulative temporary differences resulting in the net deferred income tax
asset (liability) are as follows (in thousands):
December 31,
2014
2013
Current deferred:
Deferred income tax assets:
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . .
Allowance accounts . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . .
Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . .
Total current deferred income tax asset
$
6,495
7,076
13,571
(12,612)
$
5,898
6,282
12,180
(10,535)
Net current deferred income tax asset
. . . . . . . . . . . . . . .
959
1,645
Deferred income tax liabilities:
Unbilled receivables . . . . . . . . . . . . . . . . . . . . . . . . . . .
(6,865)
(13,516)
Total net current deferred income tax liability . . . . . . . . . .
$
(5,906) $ (11,871)
Non-current deferred:
Deferred income tax assets:
Net operating loss carryforward . . . . . . . . . . . . . . . . .
Capital loss carryforward . . . . . . . . . . . . . . . . . . . . . .
Equity method investment . . . . . . . . . . . . . . . . . . . . .
Basis in identified intangibles . . . . . . . . . . . . . . . . . .
Basis in research and development
. . . . . . . . . . . . . .
Contingency accrual . . . . . . . . . . . . . . . . . . . . . . . . .
Tax credit carryforwards and other . . . . . . . . . . . . . . .
$ 61,227
18,385
58,820
9,263
3,819
43,319
11,515
$
9,043
19,657
41,176
9,950
3,733
67,664
8,893
Total non-current deferred income tax asset . . . . . . . . . . .
Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . .
206,348
(192,652)
160,116
(140,500)
Net non-current deferred income tax asset . . . . . . . . . . . .
13,696
19,616
Deferred income tax liabilities:
Basis in property, plant and equipment . . . . . . . . . . . . .
(5,082)
(5,457)
Total net non-current deferred income tax asset
. . . . . . . .
$
8,614
$ 14,159
F-30
During 2013 the Company established a valuation allowance on the substantial majority of U.S. net
deferred tax assets due to the significant charges taken during the year and the related inability to rely
on projections of future income. As of December 31, 2014, the Company has a net U.S. deferred tax
asset of approximately $2.7 million. The Company has determined that this net deferred tax asset is
more likely than not to be realized through the expected reversal of existing temporary differences and
the ability to offset the related deductions against taxable income in open carryback years. The
valuation allowance was calculated in accordance with the provisions of ASC 740-10, ‘‘Accounting for
Income Taxes,’’ which requires that a valuation allowance be established or maintained when it is ‘‘more
likely than not’’ that all or a portion of deferred tax assets will not be realized. The Company will
continue to record a valuation allowance for the substantial majority of its deferred tax assets until
there is sufficient evidence to warrant reversal. In the event the Company’s expectations of future
operating results change, an additional valuation allowance may be required to be established on the
Company’s existing unreserved net U.S. deferred tax assets.
At December 31, 2014, the Company had U.S. net operating loss carryforwards of approximately
$146.5 million, expiring in 2034, and net operating loss carryforwards outside of the U.S. of
approximately $47.1 million, the majority of which expires beyond 2027. At December 31, 2014, the
Company also had $52.5 million of U.S. capital loss carryforwards. The majority of these capital loss
carryforwards expire in 2015.
As of December 31, 2014, the Company has approximately $2.0 million of unrecognized tax
benefits and does not expect to recognize any significant increases in unrecognized tax benefits during
the next twelve-month period. Interest and penalties, if any, related to unrecognized tax benefits are
recorded in income tax expense. During 2014, 2013 and 2012, the aggregate changes in the Company’s
total gross amount of unrecognized tax benefits are summarized as follows (in thousands):
Years Ended December 31,
2014
2013
2012
Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increases in unrecognized tax benefits—prior year positions . . . . . . . . . ..
Increases in unrecognized tax benefits—current year positions . . . . . . . . .
Decreases in unrecognized tax benefits—prior year position . . . . . . . . . . .
$2,219
—
263
(525)
$1,834
—
385
—
$1,375
—
459
—
Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,957
$2,219
$1,834
The Company’s U.S. federal tax returns for 2011 and subsequent years remain subject to
examination by tax authorities. The Company is no longer subject to IRS examination for periods prior
to 2011, although carryforward attributes that were generated prior to 2011 may still be adjusted upon
examination by the IRS if they either have been or will be used in a future period. In the Company’s
foreign tax jurisdictions, tax returns for 2009 and subsequent years generally remain open to
examination.
As of December 31, 2014, the Company considered the outside book-over-tax basis difference in
its foreign subsidiaries to be in the amount of approximately $61.2 million. United States income taxes
have not been provided on this difference as it is the Company’s intention to reinvest the undistributed
earnings of its foreign subsidiaries indefinitely. The Company’s U.S. operations are expected to be fully
supported by existing cash balances and U.S.-generated cash flows. These foreign earnings could
become subject to additional tax if remitted, or deemed remitted, to the United States as a dividend;
however, it is not practicable to estimate the additional amount of taxes payable.
F-31
(9) Other Income (Expense)
A summary of other income (expense) follows (in thousands):
Years Ended December 31,
2014
2013
2012
Reduction of (accrual for) loss contingency related to legal
proceedings (Footnote 17) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on sale of a product line(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on sale of cost method investments(2)
. . . . . . . . . . . . . . . . . . . .
Gain on legal settlement(3)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income (expense) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$69,557
6,522
5,463
—
(1,682)
$(183,327) $(10,000)
—
—
30,895
(3,771)
—
3,591
—
(2,794)
Total other income (expense) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$79,860
$(182,530) $ 17,124
(1)
(2)
In 2014, the Company sold its Source product line for $14.4 million, net of transaction fees,
recording a gain of approximately $6.5 million before taxes. The historical results of this product
line have not been material to the Company’s results of operations.
Includes the 2014 sale of the Company’s cost method investment in a privately-owned U.S.-based
technology company for total proceeds of approximately $16.5 million, of which $14.1 million was
due and paid at closing.
(3) Gain relates to the 2012 settlement of a patent infringement lawsuit with Sercel.
(10) Details of Selected Balance Sheet Accounts
Accounts Receivable
A summary of accounts receivable follows (in thousands):
Accounts receivable, principally trade . . . . . . . . . . . . . . . . . . .
Less allowance for doubtful accounts . . . . . . . . . . . . . . . . . . .
$121,957
(7,632)
$156,670
(7,222)
Accounts receivable, net . . . . . . . . . . . . . . . . . . . . . . . . . . .
$114,325
$149,448
December 31,
2014
2013
Inventories
A summary of inventories follows (in thousands):
Raw materials and purchased subassemblies . . . . . . . . . . . . . .
Work-in-process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Finished goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reserve for excess and obsolete inventories . . . . . . . . . . . . . . .
$ 41,461
18,221
21,284
(29,804)
$ 54,168
2,297
33,263
(32,555)
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 51,162
$ 57,173
December 31,
2014
2013
The Company provides for estimated obsolescence or excess inventory in amounts equal to the
difference between the cost of inventory and market based upon assumptions about future demand for
the Company’s products and market conditions. For 2014, the reserve for excess and obsolete
inventories decreased primarily due to the disposal of reserved inventory partially offset by the increase
F-32
in the Company’s reserve for excess and obsolete inventories by $7.0 million related to write-downs of
inventory resulting from restructuring activities. For additional information related to the Company’s
restructuring charges, see Footnote 2 ‘‘Impairments, Restructurings and Other Charges.’’ For 2013, the
Company recorded inventory obsolescence and excess inventory charges of approximately $21.2 million.
Property, Plant, Equipment and Seismic Rental Equipment
A summary of property, plant, equipment and seismic rental equipment follows (in thousands):
December 31,
2014
2013
Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Machinery and equipment . . . . . . . . . . . . . . . . . . . . . . . . . .
Seismic rental equipment . . . . . . . . . . . . . . . . . . . . . . . . . . .
Furniture and fixtures . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 25,343
144,864
2,166
4,064
16,481
$ 23,292
97,242
8,649
4,673
3,577
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . .
192,918
(123,078)
137,433
(90,749)
Property, plant, equipment and seismic rental equipment, net .
$ 69,840
$ 46,684
Total depreciation expense, including amortization of assets recorded under capital leases, for 2014,
2013 and 2012 was $25.1 million, $14.8 million and $12.5 million, respectively. In 2012, the Company
wrote down $5.9 million of marine seismic equipment it had leased to a marine seismic contractor. This
write-down was reflected in general, administrative and other operating expenses.
Intangible Assets
A summary of intangible assets, net, follows (in thousands):
Customer relationships . . . . . . . . . . . . . . . . . . . . . .
Intellectual property rights . . . . . . . . . . . . . . . . . . .
$40,234
3,350
$(33,446)
(3,350)
$6,788
—
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$43,584
$(36,796)
$6,788
December 31, 2014
Gross
Amount
Accumulated
Amortization
Net
December 31, 2013
Gross
Amount
Accumulated
Amortization
Net
Customer relationships . . . . . . . . . . . . . . . . . . . . .
Intellectual property rights . . . . . . . . . . . . . . . . . . .
$42,593
4,300
$(31,880)
(3,766)
$10,713
534
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$46,893
$(35,646)
$11,247
In connection with the preparation of these financial statements, the Company wrote down the
book value of certain relationships in its Solutions segment by $1.4 million. Total amortization expense
for intangible assets for 2014, 2013 and 2012 was $2.5 million, $3.8 million and $3.9 million,
F-33
respectively. A summary of the estimated amortization expense for the next five years follows (in
thousands):
Years Ended December 31,
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,939
$1,675
$1,452
$1,225
$ 497
Accrued Expenses
A summary of accrued expenses follows (in thousands):
Accrued multi-client data library acquisition costs . . . . . . . . . . . .
Compensation, including compensation-related taxes and
commissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income tax liability . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31,
2014
2013
$ 6,458
$25,140
33,386
5,900
8,865
10,655
29,727
11,967
5,845
11,679
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$65,264
$84,358
Other Long-term Liabilities
A summary of other long-term liabilities follows (in thousands):
Accrual for loss contingency related to legal proceedings
(Footnote 17) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Facility restructuring accrual
. . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$123,770
4,667
15,367
$193,327
4,837
12,438
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$143,804
$210,602
December 31,
2014
2013
(11) Goodwill
On December 31, 2014, the Company completed the annual reviews of the carrying value of
goodwill in its Solutions, Software and Marine Systems reporting units, and recorded a charge through
Income (loss) from operations. In connection with the preparation of these financial statements, the
Company determined that the $21.9 million of goodwill in its Marine Systems reporting unit was fully
impaired. Remaining goodwill as of December 31, 2014 was comprised of $24.4 million and $2.9 million
in the Company’s Software and Solutions reporting units, respectively. The 2014 quantitative assessment
indicated that the fair values of its Software and Solutions reporting units significantly exceeded their
carrying values. However, if the estimates or related projections associated with the reporting units
significantly change in the future, the Company may be required to record impairment charges.
For goodwill testing purposes, the $123.8 million litigation contingency accrual is assigned to the
Marine Systems reporting unit. Based on this accrual and the recording of a valuation allowance on
substantially all of the Company’s net deferred tax assets, this reporting unit’s carrying value was
F-34
negative as of December 31, 2014. The negative carrying value required the Company to perform
step 2 of the impairment test on its Marine Systems reporting unit; the test determined that the
goodwill associated with the Marine Systems reporting unit was fully impaired.
The following is a summary of the changes in the carrying amount of goodwill for the years ended
December 31, 2014 and 2013 (in thousands):
Solutions
Software Marine Systems
Total
Balance at January 1, 2013 . . . . . . . . . . . . . . . . . . . . . .
Impact of foreign currency translation adjustments . . .
$2,943
—
$25,422
527
$ 26,984
—
$ 55,349
527
Balance at December 31, 2013 . . . . . . . . . . . . . . . . . . .
Reduction due to sale of Source product line(1) . . . . . .
Impairment of goodwill . . . . . . . . . . . . . . . . . . . . . . .
Impact of foreign currency translation adjustments . . .
2,943
—
—
—
25,949
—
—
(1,504)
26,984
(5,100)
(21,884)
—
55,876
(5,100)
(21,884)
(1,504)
Balance at December 31, 2014 . . . . . . . . . . . . . . . . . . .
$2,943
$24,445
$
—
$ 27,388
(1)
In connection with the Company’s sale of its Source product line in the second quarter of 2014,
the Company reduced goodwill associated with the Marine Systems reporting unit.
(12) Stockholders’ Equity and Stock-based Compensation
Stock Option Plans
The Company has adopted stock option plans for eligible employees, directors and consultants,
which provide for the granting of options to purchase shares of common stock. As of December 31,
2014, there were 8,986,025 outstanding options under the Company’s stock option plans, and 2,752,050
shares available for future grant and issuance.
The options under these plans generally vest in equal annual installments over a four-year period
and have a term of ten years. These options are typically granted with an exercise price per share equal
to or greater than the current market price and, upon exercise, are issued from the Company’s
unissued common shares. In August 2006, the Compensation Committee of the Board of Directors of
the Company approved fixed pre-established quarterly grant dates for all future grants of options.
F-35
Transactions under the stock option plans are summarized as follows:
January 1, 2012 . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cancelled/forfeited . . . . . . . . . . . . . . . . . . . . .
Restricted stock granted out of option plans . . .
Restricted stock forfeited or cancelled for
employee minimum income taxes and
returned to the plans . . . . . . . . . . . . . . . . . .
January 1, 2013 . . . . . . . . . . . . . . . . . . . . . . . . .
Increase in shares authorized . . . . . . . . . . . . . .
Plan Expiration . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cancelled/forfeited . . . . . . . . . . . . . . . . . . . . .
Restricted stock granted out of option plans . . .
Restricted stock forfeited or cancelled for
employee minimum income taxes and
returned to the plans . . . . . . . . . . . . . . . . . .
Option Price
per Share
$2.49 - $16.39
5.96 - 7.16
—
2.49 - 7.76
2.49 - 15.43
—
Outstanding
Vested
Available
for Grant
6,791,300
1,544,000
3,844,538
— 1,060,275
(194,410)
(119,165)
(194,410)
(212,540)
—
4,793,640
— (1,544,000)
—
—
127,125
— (667,000)
—
—
—
229,163
2.80 - 16.39
—
—
3.86 - 6.64
—
2.80 - 5.81
3.00 - 15.43
—
4,591,238
7,928,350
—
—
1,788,300
— 1,055,412
(707,575)
(353,600)
(707,575)
(750,575)
—
2,938,928
— 3,730,000
—
(79,250)
— (1,788,300)
—
—
702,325
— (714,950)
—
—
—
232,700
December 31, 2013 . . . . . . . . . . . . . . . . . . . . . . .
2.83 - 16.39
8,258,500
4,585,475
5,021,453
Plan Expiration . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cancelled/forfeited . . . . . . . . . . . . . . . . . . . . .
Restricted stock granted out of option plans . . .
Restricted stock forfeited or cancelled for
employee minimum income taxes and
returned to the plans . . . . . . . . . . . . . . . . . .
—
2.47 - 4.17
—
3.00
3.00 - 15.43
—
—
1,736,400
— 1,391,251
(28,500)
(572,375)
(28,500)
(980,375)
—
—
(66,783)
— (1,736,400)
—
—
216,800
— (727,550)
—
—
—
44,530
December 31, 2014 . . . . . . . . . . . . . . . . . . . . . . .
$2.47 - $16.39
8,986,025
5,375,851
2,752,050
Stock options outstanding at December 31, 2014 are summarized as follows:
Option Price per Share
$2.47 - $4.58 . . . . . . . . . . . . . . .
$4.79 - $7.19 . . . . . . . . . . . . . . .
$7.31 - $13.29 . . . . . . . . . . . . . .
$14.03 - $16.39 . . . . . . . . . . . . . .
Outstanding
3,682,125
3,683,700
838,250
781,950
Totals . . . . . . . . . . . . . . . . . . .
8,986,025
Weighted
Average Exercise
Price of
Outstanding
Options
$ 3.80
$ 6.23
$ 9.26
$15.25
$ 6.30
Weighted
Average
Remaining
Contract Life
7.5 years
6.7 years
3.5 years
3.2 years
Vested
1,063,826
2,698,075
832,000
781,950
6.7 years
5,375,851
Weighted
Average Exercise
Price of Vested
Options
$ 3.54
$ 6.28
$ 9.25
$15.25
$ 7.50
F-36
Additional information related to the Company’s stock options follows:
Weighted
Average
Weighted
Average
Grant Date
Weighted
Average
Remaining
Aggregate
Intrinsic
Exercise Price Fair Value Contractual Life Value (000’s)
Number of
Shares
Total outstanding at January 1, 2014 . . . . . 8,258,500
Options granted . . . . . . . . . . . . . . . . . . 1,736,400
(28,500)
Options exercised . . . . . . . . . . . . . . . . .
(470,500)
Options cancelled . . . . . . . . . . . . . . . . .
(509,875)
Options forfeited . . . . . . . . . . . . . . . . .
Total outstanding at December 31, 2014 . . . 8,986,025
$6.83
$3.96
$3.00
$4.94
$8.27
$6.30
Options exercisable and vested at
December 31, 2014 . . . . . . . . . . . . . . . . 5,375,851
$7.50
6.8 years
$2.41
6.7 years
5.2 years
$35
$—
The total intrinsic value of options exercised during 2014, 2013 and 2012 was less than $0.1 million,
$2.0 million and $0.6 million, respectively. Cash received from option exercises under all share-based
payment arrangements for 2014, 2013 and 2012 was $0.1 million, $2.5 million and $0.8 million,
respectively. The weighted average grant date fair value for stock option awards granted during 2014,
2013 and 2012 was $2.41, $2.52 and $3.54 per share, respectively.
Restricted Stock and Restricted Stock Unit Plans
The Company has issued restricted stock and restricted stock units under the Company’s 2013
Long-Term Incentive Plan and other applicable plans. Restricted stock units are awards that obligate
the Company to issue a specific number of shares of common stock in the future if continued service
vesting requirements are met. Non-forfeitable ownership of the common stock will vest over a period as
determined by the Company in its sole discretion, generally in equal annual installments over a
three-year period. Shares of restricted stock awarded may not be sold, assigned, transferred, pledged or
otherwise encumbered by the grantee during the vesting period.
The status of the Company’s restricted stock and restricted stock unit awards for 2014 follows:
Total nonvested at January 1, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Number of
Shares/Units
1,052,408
727,550
(662,451)
(120,814)
Total nonvested at December 31, 2014 . . . . . . . . . . . . . . . . . . . . . . . . .
996,693
At December 31, 2014, the intrinsic value of restricted stock and restricted stock unit awards was
approximately $2.7 million. The weighted average grant date fair value for restricted stock and
restricted stock unit awards granted during 2014, 2013 and 2012 was $3.98, $4.08 and $6.05 per share,
respectively. The total fair value of shares vested during 2014, 2013 and 2012 was $2.1 million,
$2.4 million and $4.6 million, respectively.
Employee Stock Purchase Plan
In June 2010, the Company adopted an Employee Stock Purchase Plan (‘‘ESPP’’) to replace the
prior ESPP, which terminated on December 31, 2008. The ESPP allows all eligible employees to
authorize payroll deductions at a rate of 1% to 10% of base compensation (or a fixed amount per pay
F-37
period) for the purchase of the Company’s common stock. Each participant is limited to purchase no
more than 500 shares per offering period or 1,000 shares annually. Additionally, no participant may
purchase shares in any calendar year that exceeds $10,000 in fair market value based on the fair market
value of the stock on the offering commencement date. The purchase price of the common stock is the
lesser of 85% of the closing price on the first day of the applicable offering period (or most recently
preceding trading day) or 85% of the closing price on the last day of the offering period (or most
recently preceding trading day). Each offering period is six months and commences on February 1 and
August 1 of each year. The ESPP is considered a compensatory plan under ASC 718, and the Company
recorded compensation expense of approximately $0.2 million, $0.2 million and $0.3 million during
2014, 2013 and 2012, respectively. The expense represents the estimated fair value of the look-back
purchase option. The fair value was determined using the Black-Scholes option pricing model and was
recognized over the purchase period. The total number of shares of common stock authorized and
available for issuance under the ESPP is 928,924. The maximum number of shares of common stock
that may be purchased for each offering period is 100,000 (200,000 annually).
Stock Appreciation Rights Plan
The Company has adopted a stock appreciation rights plan which provides for the award of stock
appreciation rights (‘‘SARs’’) to directors and selected key employees and consultants. The awards
under this plan are subject to the terms and conditions set forth in agreements between the Company
and the holders. The exercise price per SAR is not to be less than one hundred percent of the fair
market value of a share of common stock on the date of grant of the SAR. The term of each SAR
shall not exceed ten years from the grant date. Upon exercise of a SAR, the holder shall receive a cash
payment in an amount equal to the spread specified in the SAR agreement for which the SAR is being
exercised. In no event will any shares of common stock be issued, transferred or otherwise distributed
under the plan.
As of December 31, 2014, the Company had outstanding 140,000 SAR awards to one individual
with an exercise price of $3.00. The Company recorded less than $0.1 million, annually, of share-based
compensation expense during 2014, 2013 and 2012, related to employee stock appreciation rights.
Pursuant to ASC 718, the stock appreciation rights are considered liability awards and as such, these
amounts are accrued in the liability section of the balance sheet.
Valuation Assumptions
The Company calculated the fair value of each stock option on the date of grant using the Black-
Scholes option pricing model. The following assumptions were used for each respective period:
Years Ended December 31,
2014
2013
2012
Risk-free interest rates . . . . . . . .
Expected lives (in years) . . . . . . .
Expected dividend yield . . . . . . .
Expected volatility . . . . . . . . . . .
1.6% - 1.7%
5.5
—%
0.7% - 1.0%
5.5
—%
65.9% - 70.5% 62.1% - 70.6% 67.8% - 72.2%
0.9% - 1.8%
5.5
—%
The computation of expected volatility during 2014, 2013 and 2012 was based on an equally
weighted combination of historical volatility and market-based implied volatility. Historical volatility was
calculated from historical data for a period of time approximately equal to the expected term of the
option award, starting from the date of grant. Market-based implied volatility was derived from traded
options on the Company’s common stock having a term of six months. The Company’s computation of
expected life in 2014, 2013 and 2012 was determined based on historical experience of similar awards,
giving consideration to the contractual terms of the stock-based awards, vesting schedules and
expectations of future employee behavior. The risk-free interest rate assumption is based upon the U.S.
F-38
Treasury yield curve in effect at the time of grant for periods corresponding with the expected life of
the option.
Stock-based Compensation Expense
The following table summarizes stock-based compensation expense for the years ended
December 31, 2014, 2013 and 2012 as follows (in thousands):
Stock-based compensation expense . . . . . . . . . . . . . . .
Tax benefit related thereto . . . . . . . . . . . . . . . . . . . . .
$ 8,707
(2,908)
$ 7,476
(2,469)
$ 6,598
(2,056)
Stock-based compensation expense, net of tax . . . . . .
$ 5,799
$ 5,007
$ 4,542
Years Ended December 31,
2014
2013
2012
(13) Supplemental Cash Flow Information and Non-cash Activity
Supplemental disclosure of cash flow information follows (in thousands):
Years Ended December 31,
2014
2013
2012
Cash paid during the period for:
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$16,582
16,124
$ 9,576
15,872
$ 4,625
18,146
Non-cash items from investing and financing activities:
Purchase of computer equipment financed through capital leases . . . . .
Leasehold improvement paid by landlord . . . . . . . . . . . . . . . . . . . . . .
Conversion of the Company’s investment in a convertible note to
equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Transfer of inventory to property, plant and equipment . . . . . . . . . . . .
Purchases of property, plant, and equipment and seismic rental
equipment financed through accounts payable . . . . . . . . . . . . . . . . .
Sale of rental equipment financed with a note receivable . . . . . . . . . . .
12,153
—
3,151
10,149
472
—
6,455
5,000
6,765
1,422
909
3,636
4,647
—
—
6,737
—
—
(14) Operating Leases
Lessee. The Company leases certain equipment, offices and warehouse space under
non-cancelable operating leases. Rental expense was $12.9 million, $12.4 million and $14.4 million for
2014, 2013 and 2012, respectively.
A summary of future rental commitments over the next five years under non-cancelable operating
leases follows (in thousands):
Years Ending December 31,
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$29,604(a)
11,428(a)
9,519
8,808
8,730
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$68,089
(a)
Includes $19.9 million and $1.7 million of vessel leases for 2015 and 2016, respectively.
F-39
(15) Fair Value of Financial Instruments
Authoritative guidance on fair value measurements defines fair value, establishes a framework for
measuring fair value and stipulates the related disclosure requirements. The Company follows a three-
level hierarchy, prioritizing and defining the types of inputs used to measure fair value.
Investment in Convertible Notes. Since 2011, the Company has invested in and owned a cost-
method investment in a privately-owned U.S.-based technology company. As of December 31, 2013,
that investment included ownership of approximately 16.0% of the common shares of the investee and
$4.0 million loaned to the investee through a promissory note under a credit facility agreement the
Company made available to the investee. During 2014, the Company converted this note into additional
shares of the investee.
In November 2014, the Company sold its total investment in the investee for total proceeds of
approximately $16.5 million, of which $14.1 million was due and paid at closing. In connection with the
sale, the Company recorded a gain of approximately $5.5 million. Prior to the sale of the investment,
the Company had been performing a fair value analysis using Level 3 inputs. These inputs included a
market approach, including terms and likelihood of an investment event.
Fair Value of Other Financial Instruments. Due to their highly liquid nature, the amount of the
Company’s other financial instruments, including cash and cash equivalents, accounts and unbilled
receivables, notes receivable, accounts payable and accrued multi-client data library royalties, represent
their approximate fair value.
The carrying amounts of the Company’s long-term debt as of December 31, 2014 and 2013 were
$190.6 million and $220.2 million, respectively, compared to its fair values of $162.6 million and
$190.4 million as of December 31, 2014 and 2013, respectively. The fair value of the long-term debt was
calculated using Level 1 inputs, including an active market price.
(16) Benefit Plans
The Company has a 401(k) retirement savings plan, which covers substantially all employees.
Employees may voluntarily contribute up to 60% of their compensation, as defined, to the plan.
Effective June 1, 2000, the Company adopted a company matching contribution to the 401(k) plan. The
Company matched the employee contribution at a rate of 50% of the first 6% of compensation
contributed to the plan. Company contributions to the plans were $1.8 million, $1.7 million and
$1.4 million, during 2014, 2013 and 2012, respectively.
(17) Legal Matters
WesternGeco
In June 2009, WesternGeco L.L.C. (‘‘WesternGeco’’) filed a lawsuit against the Company in the
United States District Court for the Southern District of Texas, Houston Division. In the lawsuit, styled
WesternGeco L.L.C. v. ION Geophysical Corporation, WesternGeco alleged that the Company had
infringed several method and apparatus claims contained in four of its United States patents regarding
marine seismic streamer steering devices.
The trial began in July 2012. A verdict was returned by the jury in August 2012, finding that the
Company infringed the claims contained in the four patents by supplying its DigiFIN(cid:2) lateral streamer
control units and the related software from the United States and awarded WesternGeco the sum of
$105.9 million in damages, consisting of $12.5 million in reasonable royalty and $93.4 million in lost
profits.
In June 2013, the presiding judge entered a Memorandum and Order, ruling that WesternGeco is
entitled to be awarded supplemental damages for the additional DigiFIN units that were supplied from
F-40
the United States before and after trial that were not included in the jury verdict due to the timing of
the trial. In October 2013, the judge entered another Memorandum and Order, ruling on the number
of DigiFIN units that are subject to supplemental damages and also ruling that the supplemental
damages applicable to the additional units should be calculated by adding together the jury’s previous
reasonable royalty and lost profits damages awards per unit, resulting in supplemental damages of
$73.1 million.
In April 2014, the judge entered another Order, ruling that lost profits should not have been
included in the calculation of supplemental damages in the October 2013 Memorandum and Order and
reducing the supplemental damages award in the case from $73.1 million to $9.4 million. In the Order,
the judge also further reduced the damages award in the case by $3.0 million to reflect a settlement
and license that WesternGeco entered into with a customer of the Company that had purchased and
used DigiFIN units that were also included in the damage amounts awarded against the Company.
In May 2014, the judge signed and entered a Final Judgment in the amount of $123.8 million.
Also, the Final Judgment included an injunction that enjoins the Company, its agents and anyone
acting in concert with it, from supplying in or from the United States the DigiFIN product or any parts
unique to the DigiFIN product, or any instrumentality no more than colorably different from any of
these products or parts, for combination outside of the United States. The Company has conducted its
business in compliance with the Court’s orders in the case, and the Company has reorganized its
operations such that it no longer supplies the DigiFIN product or any parts unique to the DigiFIN
product in or from the United States.
As previously disclosed, the Company has taken a loss contingency accrual of $123.8 million
related to this case. Post-judgment interest will continue to accrue until this legal matter is fully
resolved. The Company’s assessment of its potential loss contingency may change in the future due to
developments in the case and other events, such as changes in applicable law, and such reassessment
could lead to the determination that no loss contingency is probable or that a greater or lesser loss
contingency is probable. Any such reassessment could have a material effect on the Company’s
financial condition or results of operations.
The Company and WesternGeco have each appealed the Final Judgment to the United States
Court of Appeals for the Federal Circuit. The Company filed its appeal brief in September 2014.
WesternGeco’s appeal brief was filed in October 2014. Oral arguments have been scheduled for
March 5, 2015. If the adverse ruling is affirmed, the Company intends to pursue all available
opportunities to make further appeals.
In order to stay the judgment during the appeal, the Company arranged with sureties to post an
appeal bond with the trial court on the Company’s behalf in the amount of $120.0 million. The terms
of the appeal bond arrangements provide the sureties the contractual right for as long as the bond is
outstanding to require the Company to post cash collateral for up to the full amount of the bond. If
the sureties exercise their right to require collateral while the appeal bond is outstanding, the Company
would intend to utilize a combination of cash on hand and undrawn balances available under the
Company’s New Credit Facility. If the Company is required to collateralize the full amount of the
bond, the Company might also seek additional debt and/or equity financing. The collateralization of the
full amount of the bond could have a material adverse effect on the Company’s liquidity. Any
requirements that the Company collateralize the appeal bond will reduce its liquidity and may reduce
the amount otherwise available to be borrowed under its New Credit Facility. No assurances can be
made whether the Company’s efforts to raise additional cash would be successful and, if so, on what
terms and conditions, and at what cost the Company might be able to secure any such financing. The
Company will incur fees of approximately $2.0 million per year to maintain the appeal bond until such
time as the appeal bond is no longer required.
F-41
Other
The Company has been named in various other lawsuits or threatened actions that are incidental
to its ordinary business. Litigation is inherently unpredictable. Any claims against the Company,
whether meritorious or not, could be time-consuming, cause the Company to incur costs and expenses,
require significant amounts of management time and result in the diversion of significant operational
resources. The results of these lawsuits and actions cannot be predicted with certainty. Management
currently believes that the ultimate resolution of these matters will not have a material adverse impact
on the financial condition, results of operations or liquidity of the Company.
(18) Selected Quarterly Information—(Unaudited)
A summary of selected quarterly information follows (in thousands, except per share amounts):
Three Months Ended
Year Ended December 31, 2014
March 31
June 30
September 30
December 31
Service revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Product revenues . . . . . . . . . . . . . . . . . . . . . . . . . . .
$110,696
34,002
$ 89,767
31,713
$ 71,923
34,617
$ 112,552
24,288
Total net revenues . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) from operations . . . . . . . . . . . . . . . . . .
Interest expense, net . . . . . . . . . . . . . . . . . . . . . . . . .
Equity in losses of Investments . . . . . . . . . . . . . . . . .
Other income (expense) . . . . . . . . . . . . . . . . . . . . . .
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . .
Net (income) loss attributable to noncontrolling
144,698
56,854
19,671
(4,797)
(1,688)
68,526
5,263
121,480
38,228
3,785
(4,934)
(1,781)
6,066
653
106,540
29,223
(5,349)
(5,048)
(5,558)
(622)
8,345
136,840
(62,082)
(136,036)
(4,603)
(40,458)
5,890
6,321
interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(470)
(1,295)
381
650
Net income (loss) applicable to common shares
. . .
$ 75,979
Net income (loss) per share:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
0.46
0.46
$
$
$
1,188
$ (24,541)
$(180,878)
0.01
0.01
$
$
(0.15)
(0.15)
$
$
(1.10)
(1.10)
Three Months Ended
Year Ended December 31, 2013
March 31
June 30
September 30
December 31
Service revenues . . . . . . . . . . . . . . . . . . . . . . . . . . .
Product revenues . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 89,949
39,788
$ 89,603
31,312
$ 44,679
35,159
$167,086
51,591
Total net revenues . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit (loss) . . . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) from operations . . . . . . . . . . . . . . . . .
Interest expense, net . . . . . . . . . . . . . . . . . . . . . . . .
Equity in earnings (losses) of Investments . . . . . . . . .
Other income (expense) . . . . . . . . . . . . . . . . . . . . . .
Income tax expense (benefit) . . . . . . . . . . . . . . . . . .
Net (income) loss attributable to noncontrolling
interests
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Preferred stock dividends . . . . . . . . . . . . . . . . . . . . .
Net income (loss) applicable to common shares . . .
Net income (loss) per share:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
129,737
34,957
1,923
(1,066)
1,116
1,027
1,201
120,915
36,618
6,770
(2,756)
(6,338)
(107,118)
(38,705)
79,838
(15,104)
(56,528)
(4,281)
(5,192)
(74,301)
56,954
218,677
102,842
64,231
(4,241)
(31,906)
(2,138)
6,270
76
338
(59)
338
498
5,338
143
—
1,537
$ (71,134)
$(202,096)
$ 19,819
0.01
0.01
$
$
(0.45)
(0.45)
$
$
(1.29)
(1.29)
$
$
0.12
0.12
F-42
(19) Certain Relationships and Related Party Transactions
For 2014, 2013 and 2012, the Company recorded revenues from BGP of $6.5 million, $8.0 million
and $13.7 million, respectively. Receivables due from BGP were $1.1 million and $1.5 million at
December 31, 2014 and 2013, respectively. BGP owned approximately 14.5% of the Company’s
outstanding common stock as of December 31, 2014. At December 31, 2014, the Company owed BGP
$1.3 million for unpaid services received for a seismic acquisition project.
Mr. James M. Lapeyre, Jr. is the Chairman of the Board on ION’s board of directors and a
significant equity owner of Laitram, L.L.C. (Laitram), and he has served as president of Laitram and
its predecessors since 1989. Laitram is a privately-owned, New Orleans-based manufacturer of food
processing equipment and modular conveyor belts. Mr. Lapeyre and Laitram together owned
approximately 6.4% of the Company’s outstanding common stock as of December 31, 2014.
The Company acquired DigiCourse, Inc., the Company’s marine positioning products business,
from Laitram in 1998. In connection with that acquisition, the Company entered into a Continued
Services Agreement with Laitram under which Laitram agreed to provide the Company certain
bookkeeping, software, manufacturing and maintenance services. Manufacturing services consist
primarily of machining of parts for the Company’s marine positioning systems. The term of this
agreement expired in September 2001 but the Company continues to operate under its terms. In
addition, from time to time, when the Company has requested, the legal staff of Laitram has advised
the Company on certain intellectual property matters with regard to the Company’s marine positioning
systems. Under an amended lease of commercial property dated February 1, 2006, between Lapeyre
Properties, L.L.C. (an affiliate of Laitram) and ION, the Company had previously leased certain office
and warehouse space from Lapeyre Properties that was vacated in 2013. During 2014, the Company
paid Laitram and its affiliates a total of approximately $2.4 million, which consisted of approximately
$2.3 million for manufacturing services, and $0.1 million for reimbursement for costs related to
providing administrative and other back-office support services in connection with the Company’s
Louisiana marine operations. For the 2013 and 2012 fiscal years, the Company paid Laitram and its
affiliates a total of approximately $4.2 million and $4.1 million, respectively, for these services. In the
opinion of the Company’s management, the terms of these services are fair and reasonable and as
favorable to the Company as those that could have been obtained from unrelated third parties at the
time of their performance.
In July 2013, the Company agreed to lend up to $10.0 million to INOVA Geophysical, and
received a promissory note issued by INOVA Geophysical to the order of the Company, which was
scheduled to mature on September 30, 2013. The maturity date of the promissory note was extended to
December 31, 2014. The loan was made by the Company to support certain short-term working capital
needs of INOVA Geophysical. The indebtedness under the note accrues interest at an annual rate
equal to the London Interbank Offered Rate plus 650 basis points. In 2013, the Company advanced the
full principal amount of $10.0 million to INOVA Geophysical under the promissory note. INOVA
Geophysical has repaid a total of $6.0 million, of which $4.0 million remained outstanding at
December 31, 2014. The term of the note has not been extended past December 31, 2014 and INOVA
has advised the Company that it is not currently able to repay the outstanding amount. In connection
with the preparation of these financial statements, the Company wrote down the book value of this
receivable to zero.
With the Prior Credit Facility being replaced by the New Credit Facility in August 2014, INOVA
no longer provides a bank stand-by letter of credit as credit support for the Company’s obligations
under the New Credit Facility. For further information regarding the Company’s New Credit Facility,
see Footnote 6 ‘‘Long-term Debt and Lease Obligations.’’
F-43
(20) Recent Accounting Pronouncements
Revenue Recognition—In May 2014, the FASB and the International Accounting Standards Board
(‘‘IASB’’) jointly issued new accounting guidance for recognition of revenue. This new guidance
replaces virtually all existing U.S. GAAP and IFRS guidance on revenue recognition. The new guidance
is effective for fiscal years beginning after December 15, 2016. This new guidance applies to all periods
presented. Therefore, when the Company issues its financial statements on Forms 10-Q and 10-K for
periods included in its year ended December 31, 2017, its comparative periods that are presented from
the years ended December 31, 2015 and 2016, must be retrospectively presented in compliance with
this new guidance. Early adoption is not allowed for U.S. GAAP. The new guidance requires companies
to make more estimates and use more judgment than under current accounting guidance. The
Company is currently evaluating (i) the two allowed adoption methods to determine which method it
plans to use for retrospective presentation of comparative periods and (ii) whether the implementation
of this new guidance will have a material impact on the Company’s consolidated financial position or
results of operations for the periods presented.
Reporting Discontinued Operations—In April 2014, the FASB issued amendments to guidance for
reporting discontinued operations and disposals of components of an entity. The amended guidance
requires that a disposal representing a strategic shift that has (or will have) a major effect on an
entity’s financial results or a business activity classified as held for sale should be reported as
discontinued operations. The amendments also expand the disclosure requirements for discontinued
operations and add new disclosures for individually significant dispositions that do not qualify as
discontinued operations. The amendments are effective prospectively for fiscal years, and interim
reporting periods within those years, beginning after December 15, 2014 (early adoption is permitted
only for disposals that have not been previously reported). The implementation of the amended
guidance is not expected to have a material impact on the Company’s consolidated financial position or
results of operations.
(21) Condensed Consolidating Financial Information
In May 2013, the Company sold $175 million of Senior Secured Second-Priority Notes. The notes
were issued by ION Geophysical Corporation, and are guaranteed by the Company’s current material
U.S. subsidiaries: GX Technology Corporation, ION Exploration Products (U.S.A.), Inc. and I/O
Marine Systems, Inc. (‘‘the Guarantors’’), which are 100-percent-owned subsidiaries. The Guarantors
have fully and unconditionally guaranteed the payment obligations of ION Geophysical Corporation
with respect to these debt securities. The following condensed consolidating financial information
presents the results of operations, financial position and cash flows for:
(cid:129) ION Geophysical Corporation and the guarantor subsidiaries (in each case, reflecting
investments in subsidiaries utilizing the equity method of accounting).
(cid:129) All other nonguarantor subsidiaries.
(cid:129) The consolidating adjustments necessary to present ION Geophysical Corporation’s results on a
consolidated basis.
This condensed consolidating financial information should be read in conjunction with the
accompanying consolidated financial statements and notes.
F-44
Balance Sheet
Current assets:
ASSETS
Cash and cash equivalents . . . . . . . . . . .
. . . . . . . . . . . .
Accounts receivable, net
Unbilled receivables . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets
Total current assets . . . . . . . . . . . . . .
Deferred income tax asset . . . . . . . . . . . . .
Property, plant, equipment and seismic
rental equipment, net . . . . . . . . . . . . . .
Multi-client data library, net . . . . . . . . . . .
Investment in subsidiaries . . . . . . . . . . . . .
Goodwill
. . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets, net . . . . . . . . . . . . . . . .
Intercompany receivables . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . .
December 31, 2014
ION
Geophysical
Corporation Guarantors
The
All Other
Subsidiaries
Consolidating
Adjustments
Total
Consolidated
(In thousands)
$ 109,514
123
—
—
6,692
116,329
(7,852)
6,412
—
675,499
—
—
29,979
10,191
$
—
49,892
18,548
4,013
2,697
75,150
6,675
33,065
96,423
278,294
—
6,254
—
147
$ 64,094
64,310
4,051
47,149
8,769
188,373
749
30,363
22,246
—
27,388
534
—
274
$
—
—
—
—
(4,496)
(4,496)
9,032
—
—
(953,793)
—
—
(29,979)
—
$ 173,608
114,325
22,599
51,162
13,662
375,356
8,604
69,840
118,669
—
27,388
6,788
—
10,612
Total assets . . . . . . . . . . . . . . . . . . . .
$ 830,558
$ 496,008
$269,927
$(979,236)
$ 617,257
LIABILITIES AND EQUITY
Current liabilities:
Current maturities of long-term debt . . . .
Accounts payable . . . . . . . . . . . . . . . . .
Accrued expenses . . . . . . . . . . . . . . . . .
Accrued multi-client data library royalties
Deferred revenue . . . . . . . . . . . . . . . . .
Total current liabilities . . . . . . . . . . . .
Long-term debt, net of current maturities . .
Intercompany payables . . . . . . . . . . . . . . .
Other long-term liabilities . . . . . . . . . . . . .
Total liabilities
. . . . . . . . . . . . . . . . .
Redeemable noncontrolling interest . . . . . .
Equity:
Common stock . . . . . . . . . . . . . . . . . . .
Additional paid-in capital . . . . . . . . . . . .
Accumulated earnings (deficit) . . . . . . . .
Accumulated other comprehensive income
(loss) . . . . . . . . . . . . . . . . . . . . . . . .
Due from ION Geophysical Corporation .
Treasury stock . . . . . . . . . . . . . . . . . . .
Total stockholders’ equity . . . . . . . . . .
Noncontrolling interests . . . . . . . . . . . . .
Total equity . . . . . . . . . . . . . . . . . . .
$
— $
4,308
3,904
—
—
8,212
175,000
509,124
2,609
694,945
—
1,645
887,749
(734,409)
(12,807)
—
(6,565)
135,613
—
135,613
6,965
12,028
34,738
34,624
5,263
93,618
7,839
8,892
130,985
241,334
—
290,460
180,700
208,846
6,229
(431,561)
—
254,674
—
254,674
$
684
20,527
21,807
595
2,999
46,612
106
21,087
10,489
78,294
1,539
19,138
234,234
26,981
(12,795)
(77,563)
—
189,995
99
190,094
$
—
—
4,815
—
—
4,815
—
(539,103)
(279)
(534,567)
—
(309,598)
(414,934)
(235,827)
6,566
509,124
—
(444,669)
—
(444,669)
$
7,649
36,863
65,264
35,219
8,262
153,257
182,945
—
143,804
480,006
1,539
1,645
887,749
(734,409)
(12,807)
—
(6,565)
135,613
99
135,712
Total liabilities and equity . . . . . . . . . .
$ 830,558
$ 496,008
$269,927
$(979,236)
$ 617,257
F-45
Balance Sheet
December 31, 2013
ION
Geophysical
Corporation Guarantors
The
All Other
Subsidiaries
Consolidating
Adjustments
Total
Consolidated
(In thousands)
Current assets:
ASSETS
Cash and cash equivalents . . . . . . . . . . .
. . . . . . . . . . . .
Accounts receivable, net
Unbilled receivables . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets
$ 124,701
1,874
—
—
12,888
$
Total current assets . . . . . . . . . . . . . .
Deferred income tax asset . . . . . . . . . . . . .
Property, plant, equipment and seismic
rental equipment, net . . . . . . . . . . . . . .
Multi-client data library, net . . . . . . . . . . .
Equity method investments . . . . . . . . . . . .
Investment in subsidiaries . . . . . . . . . . . . .
Goodwill
. . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets, net . . . . . . . . . . . . . . . .
Intercompany receivables . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . .
139,463
6,513
6,440
—
51,065
699,695
—
—
8,313
14,315
—
99,547
33,490
6,595
5,030
144,662
6,960
29,845
212,572
—
248,482
26,984
8,246
13,419
56
$ 23,355
48,027
15,978
50,578
7,438
145,376
489
10,399
26,212
2,800
—
28,892
3,001
—
24,262
$
—
—
—
—
(584)
(584)
688
—
—
—
(948,177)
—
—
(21,732)
(23,985)
$ 148,056
149,448
49,468
57,173
24,772
428,917
14,650
46,684
238,784
53,865
—
55,876
11,247
—
14,648
Total assets . . . . . . . . . . . . . . . . . . . .
$ 925,804
$ 691,226
$241,431
$(993,790)
$ 864,671
LIABILITIES AND EQUITY
Current liabilities:
Current maturities of long-term debt . . . .
Accounts payable . . . . . . . . . . . . . . . . .
Accrued expenses . . . . . . . . . . . . . . . . .
Accrued multi-client data library royalties
Deferred revenue . . . . . . . . . . . . . . . . .
Total current liabilities . . . . . . . . . . . .
Long-term debt, net of current maturities . .
Intercompany payables . . . . . . . . . . . . . . .
Other long-term liabilities . . . . . . . . . . . . .
Total liabilities
. . . . . . . . . . . . . . . . .
Redeemable noncontrolling interests . . . . . .
Equity:
Common stock . . . . . . . . . . . . . . . . . . .
Additional paid-in capital . . . . . . . . . . . .
Accumulated earnings (deficit) . . . . . . . .
Accumulated other comprehensive income
(loss) . . . . . . . . . . . . . . . . . . . . . . . .
Due from ION Geophysical Corporation .
Treasury stock . . . . . . . . . . . . . . . . . . .
Total stockholders’ equity . . . . . . . . . .
Noncontrolling interests . . . . . . . . . . . . .
Total equity . . . . . . . . . . . . . . . . . . .
$
— $
3,515
16,652
—
—
20,167
210,000
426,134
11,757
668,058
—
1,637
879,969
(606,157)
(11,138)
—
(6,565)
257,746
—
257,746
4,716
11,741
54,250
45,921
16,387
133,015
3,655
—
214,211
350,881
—
290,460
180,700
232,186
6,218
(369,219)
—
340,345
—
340,345
$
1,190
7,364
13,392
539
4,295
26,780
591
21,732
8,637
57,740
1,878
19,138
235,381
(4,010)
(11,920)
(56,915)
—
181,674
139
181,813
$
—
34
64
—
—
98
—
(447,866)
(24,003)
(471,771)
—
(309,598)
(416,081)
(228,176)
5,702
426,134
—
(522,019)
—
(522,019)
$
5,906
22,654
84,358
46,460
20,682
180,060
214,246
—
210,602
604,908
1,878
1,637
879,969
(606,157)
(11,138)
—
(6,565)
257,746
139
257,885
Total liabilities and equity . . . . . . . . . .
$ 925,804
$ 691,226
$241,431
$(993,790)
$ 864,671
F-46
Income Statement
Year Ended December 31, 2014
ION
Geophysical
Corporation
The
Guarantors
All Other
Subsidiaries
Consolidating
Adjustments
Total
Consolidated
Total net revenues . . . . . . . . . . . . . . . .
Cost of goods sold . . . . . . . . . . . . . . .
$
— $ 221,008
262,829
—
(In thousands)
$291,302
187,258
$(2,752)
(2,752)
$ 509,558
447,335
(41,821)
88,481
104,044
52,710
Gross profit (loss) . . . . . . . . . . . . . .
Total operating expenses . . . . . . . . . . .
Income (loss) from operations . . . . . . .
Interest expense, net . . . . . . . . . . . . . .
Intercompany interest, net . . . . . . . . . .
Equity in earnings (losses) of
investments . . . . . . . . . . . . . . . . . . .
Other income . . . . . . . . . . . . . . . . . . .
Income (loss) before income taxes . .
Income tax expense . . . . . . . . . . . . . . .
—
38,961
(38,961)
(18,537)
(340)
(74,615)
4,536
(127,917)
335
(130,302)
(245)
2,146
32,043
74,295
(22,063)
1,277
Net income (loss) . . . . . . . . . . . . . .
(128,252)
(23,340)
Net income attributable to
—
—
—
—
—
(7,651)
—
(7,651)
—
(7,651)
62,223
180,152
(117,929)
(19,382)
—
(49,485)
79,860
(106,936)
20,582
(127,518)
51,334
(600)
(1,806)
738
1,029
50,695
18,970
31,725
noncontrolling interests . . . . . . . . . .
—
—
(734)
—
(734)
Net income (loss) applicable to
common shares . . . . . . . . . . . . . .
$(128,252) $ (23,340)
$ 30,991
$(7,651)
$(128,252)
Comprehensive net income (loss) . . . . .
Comprehensive income attributable
$(129,921) $ (23,329)
$ 30,850
$(6,787)
$(129,187)
to noncontrolling interest . . . . . . .
—
—
(734)
—
(734)
Comprehensive net income (loss)
attributable to ION . . . . . . . . . . . . .
$(129,921) $ (23,329)
$ 30,116
$(6,787)
$(129,921)
F-47
Income Statement
Year Ended December 31, 2013
ION
Geophysical
Corporation
The
Guarantors
All Other
Subsidiaries
Consolidating
Adjustments
Total
Consolidated
Total net revenues . . . . . . . . . . . . . . . .
Cost of goods sold . . . . . . . . . . . . . . .
$
— $ 337,570
240,704
—
(In thousands)
$213,826
151,379
$ (2,229)
(2,229)
$ 549,167
389,854
Gross profit . . . . . . . . . . . . . . . . . . .
Total operating expenses . . . . . . . . . . .
Income (loss) from operations . . . . . . .
Interest expense, net . . . . . . . . . . . . . .
Intercompany interest, net . . . . . . . . . .
Equity in earnings (losses) of
investments . . . . . . . . . . . . . . . . . . .
Other income (expense) . . . . . . . . . . .
Income (loss) before income taxes . .
Income tax expense (benefit) . . . . . . . .
—
35,054
(35,054)
(12,102)
411
96,866
62,028
34,838
(49)
(1,374)
(192,220)
12,166
(226,799)
19,061
(19,755)
(193,289)
(179,629)
(10,883)
62,447
45,835
16,612
(193)
963
(19,833)
(1,407)
(3,858)
17,542
Net income (loss) . . . . . . . . . . . . . .
(245,860)
(168,746)
(21,400)
Net loss attributable to noncontrolling
—
—
—
—
—
189,488
—
189,488
—
189,488
159,313
142,917
16,396
(12,344)
—
(42,320)
(182,530)
(220,798)
25,720
(246,518)
interests . . . . . . . . . . . . . . . . . . . . .
—
—
658
—
658
Net income (loss) attributable to
ION . . . . . . . . . . . . . . . . . . . . . .
(245,860)
(168,746)
(20,742)
189,488
(245,860)
Payment of preferred dividends and
conversion payment . . . . . . . . . . . . .
6,014
—
—
—
6,014
Net income (loss) applicable to
common shares . . . . . . . . . . . . . .
$(251,874) $(168,746)
$ (20,742)
$189,488
$(251,874)
Comprehensive net income (loss) . . . . .
Comprehensive loss attributable to
$(245,112) $(168,167)
$ (20,779)
$188,288
$(245,770)
noncontrolling interest . . . . . . . . .
—
—
658
—
658
Comprehensive net income (loss)
attributable to ION . . . . . . . . . . . . .
$(245,112) $(168,167)
$ (20,121)
$188,288
$(245,112)
F-48
Income Statement
Year Ended December 31, 2012
ION
Geophysical
Corporation Guarantors
The
All Other
Subsidiaries
Consolidating
Adjustments
Total
Consolidated
Total net revenues . . . . . . . . . . . . . . . .
Cost of goods sold . . . . . . . . . . . . . . . .
$
— $311,758
192,639
—
(In thousands)
$214,939
118,257
$
(380)
(380)
Gross profit . . . . . . . . . . . . . . . . . . .
Total operating expenses . . . . . . . . . . .
Income (loss) from operations . . . . . . .
Interest expense, net . . . . . . . . . . . . . .
Intercompany interest, net . . . . . . . . . .
Equity in earnings (losses) of
investments . . . . . . . . . . . . . . . . . . .
Other income (expense) . . . . . . . . . . . .
Income (loss) before income taxes . . .
Income tax expense (benefit) . . . . . . . .
—
35,982
(35,982)
(5,137)
232
58,162
29,447
46,722
(16,593)
Net income (loss) . . . . . . . . . . . . . . .
63,315
Net loss attributable to noncontrolling
interests . . . . . . . . . . . . . . . . . . . . . .
Net income (loss) attributable to ION
Preferred stock dividends . . . . . . . . . . .
Net income (loss) applicable to
—
63,315
1,352
119,119
61,315
57,804
198
(629)
33,958
(10,334)
80,997
21,771
59,226
—
59,226
—
96,682
43,977
52,705
(326)
397
—
(1,989)
50,787
18,679
32,108
489
32,597
—
—
—
—
—
—
(91,823)
—
(91,823)
—
(91,823)
—
(91,823)
—
$526,317
310,516
215,801
141,274
74,527
(5,265)
—
297
17,124
86,683
23,857
62,826
489
63,315
1,352
common shares . . . . . . . . . . . . . . .
$ 61,963
$ 59,226
$ 32,597
$(91,823)
$ 61,963
Comprehensive net income (loss) . . . . .
Comprehensive loss attributable to
$ 67,622
$ 62,085
$ 34,967
$(97,541)
$ 67,133
noncontrolling interest
. . . . . . . . .
—
—
489
—
489
Comprehensive net income (loss)
attributable to ION . . . . . . . . . . . . .
$ 67,622
$ 62,085
$ 35,456
$(97,541)
$ 67,622
F-49
Statement of Cash Flows
Year Ended December 31, 2014
ION
Geophysical
Corporation Guarantors Subsidiaries Consolidated
All Other
Total
The
Cash flows from operating activities:
Net cash provided by (used in) operating activities . .
$ (53,925) $107,590
$ 76,115
$129,780
(In thousands)
Cash flows from investing activities:
Investment in multi-client data library . . . . . . . . . . . . .
Purchase of property, plant, equipment and seismic
rental equipment
. . . . . . . . . . . . . . . . . . . . . . . . . .
Repayment of advances by INOVA Geophysical . . . . . .
Net investment in and advances to OceanGeo B.V.
prior to its consolidation . . . . . . . . . . . . . . . . . . . . .
Net proceeds from sale of Source product line . . . . . . .
Proceeds from sale of cost method investments . . . . . .
Other investing activities . . . . . . . . . . . . . . . . . . . . . . .
— (67,552)
(233)
(67,785)
(1,240)
1,000
(4,530)
—
(2,494)
—
(8,264)
1,000
—
—
14,051
579
—
9,881
—
26
(3,074)
4,513
—
323
(3,074)
14,394
14,051
928
Net cash provided by (used in) investing activities . . .
14,390
(62,175)
(965)
(48,750)
Cash flows from financing activities:
Payments under revolving line of credit . . . . . . . . . . . .
Borrowings under revolving line of credit . . . . . . . . . . .
Payments on notes payable and long-term debt
. . . . . .
Cost associated with issuance of debt . . . . . . . . . . . . . .
Intercompany lending . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition of noncontrolling interest
. . . . . . . . . . . . .
Proceeds from employee stock purchases and exercise
of stock options . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other financing activities . . . . . . . . . . . . . . . . . . . . . .
(50,000)
15,000
—
(2,194)
61,324
—
—
—
(5,384)
—
(40,031)
—
— (50,000)
15,000
—
(12,998)
(7,614)
(2,194)
—
—
(21,293)
(6,000)
(6,000)
577
(359)
—
—
—
—
577
(359)
Net cash provided by (used in) financing activities . .
24,348
(45,415)
(34,907)
(55,974)
Effect of change in foreign currency exchange rates on
cash and cash equivalents . . . . . . . . . . . . . . . . . . . .
—
Net increase (decrease) in cash and cash equivalents .
Cash and cash equivalents at beginning of period . . . . .
(15,187)
124,701
—
496
— 40,739
— 23,355
496
25,552
148,056
Cash and cash equivalents at end of period . . . . . . . . .
$109,514 $
— $ 64,094
$173,608
F-50
Statement of Cash Flows
Year Ended December 31, 2013
ION
Geophysical
Corporation Guarantors Subsidiaries Adjustments Consolidated
All Other Consolidating
Total
The
Cash flows from operating activities:
Net cash provided by (used in)
operating activities . . . . . . . . . . . . . .
$ (50,731) $ 166,838 $ 31,480
$
— $ 147,587
Cash flows from investing activities:
Investment in multi-client data library . . . .
Purchase of property, plant, equipment
— (111,689)
(2,893)
— (114,582)
(In thousands)
and seismic rental equipment
Net advances to INOVA Geophysical
Investment in and advances to
. . . . . . . .
. . . .
(2,075)
(5,000)
(10,171)
—
(4,668)
—
OceanGeo B.V.
. . . . . . . . . . . . . . . . . .
—
— (24,755)
—
—
—
Proceeds from sale of cost method
investments . . . . . . . . . . . . . . . . . . . . .
Investment in convertible notes . . . . . . . . .
Capital contribution to affiliate . . . . . . . . .
Other investing activities . . . . . . . . . . . . .
Net cash provided by (used in) investing
activities . . . . . . . . . . . . . . . . . . . . . .
Cash flows from financing activities:
Proceeds from issuance of notes . . . . . . . .
Payments under revolving line of credit . . .
Borrowings under revolving line of credit
.
Payments on notes payable and long-term
debt . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost associated with issuance of debt
. . . .
Capital contribution from affiliate . . . . . . .
Intercompany lending . . . . . . . . . . . . . . . .
Payment of preferred dividends . . . . . . . .
Proceeds from employee stock purchases
and exercise of stock options . . . . . . . . .
Other financing activities . . . . . . . . . . . . .
Net cash provided by (used in) financing
activities . . . . . . . . . . . . . . . . . . . . . .
Effect of change in foreign currency
exchange rates on cash and cash
equivalents . . . . . . . . . . . . . . . . . . . . . .
Net increase (decrease) in cash and cash
equivalents . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at beginning of
(16,914)
(5,000)
(24,755)
4,150
(2,000)
—
128
4,150
(2,000)
(5,695)
—
—
—
(7,897)
128
—
—
—
—
—
—
13,592
—
(10,620)
(129,629)
(32,316)
13,592
(158,973)
175,000
(97,250)
35,000
—
(6,773)
—
52,646
(6,014)
2,527
573
—
—
—
—
—
—
—
—
—
175,000
(97,250)
35,000
(3,249)
—
5,695
(39,655)
—
(1,112)
—
7,897
(12,991)
—
—
—
(13,592)
—
—
—
—
—
—
—
—
(4,361)
(6,773)
—
—
(6,014)
2,527
573
155,709
(37,209)
(6,206)
(13,592)
98,702
—
—
(231)
94,358
— (7,273)
—
—
—
(231)
87,085
60,971
period . . . . . . . . . . . . . . . . . . . . . . . . .
30,343
— 30,628
Cash and cash equivalents at end of period
$124,701 $
— $ 23,355
$
— $ 148,056
F-51
Statement of Cash Flows
Year Ended December 31, 2012
ION
Geophysical
Corporation
The
Guarantors
All Other
Subsidiaries
Total
Consolidated
(In thousands)
Cash flows from operating activities:
Net cash provided by operating activities . . . . . .
$ 19,362
$ 105,768
$ 43,951
$ 169,081
Cash flows from investing activities:
Investment in multi-client data library . . . . . . . . . .
Purchase of property, plant, equipment and seismic
. . . . . . . . . . . . . . . . . . . . . . .
Maturity of short-term investments . . . . . . . . . . . .
Investment in convertible notes . . . . . . . . . . . . . . .
rental equipment
Net cash provided by (used in) investing
— (121,424)
(24,203)
(145,627)
(2,485)
20,000
(2,000)
(9,947)
—
—
(4,218)
—
—
(16,650)
20,000
(2,000)
activities . . . . . . . . . . . . . . . . . . . . . . . . . . . .
15,515
(131,371)
(28,421)
(144,277)
Cash flows from financing activities:
Payments under revolving line of credit . . . . . . . . .
Borrowings under revolving line of credit
. . . . . . .
Payments on notes payable and long-term debt . . .
Intercompany lending . . . . . . . . . . . . . . . . . . . . . .
Payment of preferred dividends . . . . . . . . . . . . . . .
Proceeds from employee stock purchases and
exercise of stock options . . . . . . . . . . . . . . . . . .
Other financing activities . . . . . . . . . . . . . . . . . . .
Net cash provided by (used in) financing
(51,000)
148,250
(99,270)
(21,699)
(1,352)
807
(1,669)
—
—
(1,626)
27,229
—
—
—
(806)
(5,530)
—
(51,000)
148,250
(101,702)
—
(1,352)
—
—
—
212
807
(1,457)
activities . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(25,933)
25,603
(6,124)
(6,454)
Effect of change in foreign currency exchange rates
on cash and cash equivalents . . . . . . . . . . . . . . .
Net increase in cash and cash equivalents
. . . . .
Cash and cash equivalents at beginning of period . .
2
8,946
21,397
—
—
—
217
9,623
21,005
219
18,569
42,402
Cash and cash equivalents at end of period . . . . . .
$ 30,343
$
— $ 30,628
$ 60,971
F-52
SCHEDULE II
ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
Year Ended December 31, 2012
Balance at
Beginning
of Year
Charged
(Credited) to
Costs and
Expenses
Deductions
Balance at
End of Year
(In thousands)
Allowances for doubtful accounts . . . . . . . . . . . . . . . .
Warranty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Valuation allowance on deferred tax assets . . . . . . . . . .
Excess and obsolete inventory . . . . . . . . . . . . . . . . . . .
$ 1,198
715
69,475
13,037
$ 5,811
1,258
(6,214)
1,326
$(298)
(932)
—
(124)
$ 6,711
1,041
63,261
14,239
Year Ended December 31, 2013
Balance at
Beginning
of Year
Charged
(Credited) to
Costs and
Expenses
Deductions
Balance at
End of Year
(In thousands)
Allowances for doubtful accounts . . . . . . . . . . . . . . . .
Warranty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Valuation allowance on deferred tax assets . . . . . . . . . .
Excess and obsolete inventory . . . . . . . . . . . . . . . . . . .
$ 6,711
1,041
63,261
14,239
$12,040
538
88,112
18,644
$(11,529)
(936)
(338)
(328)
$
7,222
643
151,035
32,555
Year Ended December 31, 2014
Allowances for doubtful accounts . . . . . . . . . . . . . . . .
Allowances for doubtful notes receivable . . . . . . . . . . .
Warranty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Valuation allowance on deferred tax assets . . . . . . . . . .
Excess and obsolete inventory . . . . . . . . . . . . . . . . . . .
Balance at
Beginning
of Year
$
7,222
—
643
151,035
32,555
Charged
(Credited) to
Costs and
Expenses
Deductions
Balance at
End of Year
(In thousands)
$ 7,275
4,000
381
54,229
6,952
$(6,864)
—
(625)
—
(9,703)
$
7,633
4,000
399
205,264
29,804
S-1
VISION
CORE VALUES
CORPORATE INFORMATION
Our vision is to be the leading innovator
in geoscience and engineering, creating
value for our customers, shareholders and
employees.
STRATEGY
Our strategy is to develop and
leverage innovative technologies to
deliver solutions that address oil & gas
companies’ most challenging problems,
throughout the E&P lifecycle.
Underlying everything we do
PEOPLE Our people fuel our innovation. We strive to
attract and develop the best talent in the business and to
support and inspire them to achieve their personal best.
COLLABORATION Delivering leading technologies
requires collaboration and honest, open communication
among employees, customers and partners.
QHSE Quality, health, safety and environmental
stewardship are at the forefront of everything we do.
INNOVATION We continuously push the boundaries
of geoscience and engineering to solve the toughest
E&P challenges.
RESULTS We strive to deliver true value to our
stakeholders, including our shareholders, customers,
employees, partners and communities.
integrated solutions
one strategy
common goal
streamlined
alignment
collaboration
one company
working together
cohesive
one vision
Word picture based on ION employee survey responses about the company.
EXECUTIVE OFFICERS
R. Brian Hanson
President and Chief Executive Officer
Christopher T. Usher
Executive Vice President and Chief Innovation
Officer, Innovation Division
Kenneth G. Williamson
Executive Vice President and Chief Operating
Officer, Commercialization Division
INVESTOR RELATIONS
Stockholders, securities analysts, portfolio
managers, or brokers seeking information
about the Company are welcome to call Investor
Relations at +1 281 933 3339. If you prefer, you
may send your requests to the Investor Relations
e-mail address: ir@iongeo.com. Recent news
releases, financial information, and SEC filings can
be downloaded from the Company’s website at
iongeo.com.
Steven A. Bate
Executive Vice President
and Chief Financial Officer
Lawrence T. Burke
Executive Vice President,
Global Human Resources
Colin T. Hulme
Executive Vice President,
Ocean Bottom Services
Jacques P. Leveille
Executive Vice President,
Technology
Jamey S. Seely
Executive Vice President, General Counsel
and Corporate Secretary
Scott P. Schwausch
Vice President and Controller
BOARD OF DIRECTORS
James M. (Jay) Lapeyre, Jr.
Chairman of the Board
President, Laitram, L.L.C.
David H. Barr
Former President and Chief Executive Officer,
Logan International Inc.
R. Brian Hanson
President and Chief Executive Officer,
ION Geophysical Corporation
Hao Huimin
Chief Geophysicist, BGP Inc.,
China National Petroleum Corporation
Michael C. Jennings
President, Chief Executive Officer,
and Chairman of the Board
HollyFrontier Corporation
Franklin Myers
Senior Advisor, Quantum Energy Partners
S. James Nelson, Jr.
Former Vice Chairman,
Cal Dive International, Inc.
(now Helix Energy Solutions Group, Inc.)
John N. Seitz
Chairman and Chief Executive Officer,
GulfSlope Energy, Inc.
ANNUAL REPORT ON FORM 10-K
ION Geophysical Corporation’s Annual Report on
Form 10-K for the fiscal year ended December
31, 2014, which is furnished as part of this Annual
Report to Shareholders, is also available upon
request without charge from: ION Geophysical
Corporation, Attn: Investor Relations, 2105 CityWest
Blvd., Suite 400, Houston, Texas 77042-2839.
ANNUAL MEETING
The Annual Meeting of Stockholders of ION
Geophysical Corporation will be held at the offices
of the Company located at 2105 CityWest Blvd.,
Suite 400, Houston, Texas, on May 20, 2015, at
10:30 AM CDT.
STOCK TRANSFER AGENT
Computershare Investor Service
2 North LaSalle St.
Chicago, Illinois 60602
INDEPENDENT AUDITORS
Grant Thornton LLP
700 Milam St., Suite 300
Houston, TX 77002
832 476 3600
CEO AND CFO CERTIFICATES
The Company has included as Exhibit 31 to its
Annual Report on Form 10-K for the fiscal year
ended December 31, 2014, filed with the Securities
and Exchange Commission, certificates of the
Chief Executive Officer and Chief Financial Officer
of the Company certifying the quality of the
Company’s public disclosure and the Company
has submitted to the New York Stock Exchange
a certificate of the Chief Executive Officer of the
Company certifying that he is not aware of any
violation by the Company of the New York Stock
Exchange corporate governance listing standards.
FORWARD-LOOKING STATEMENTS
The information included herein contains certain
forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section
21E of the Securities Exchange Act of 1934. These
forward-looking statements include statements
concerning expected future financial positions,
sales, results of operations, cash flows, funds
from operations, financing plans, gross margins,
business strategy, budgets, projected costs and
expenses, capital expenditures, competitive position,
product offerings, technology developments, access
to capital and growth opportunities, results of
litigation, cash needs and sources of cash, including
availability under the Company’s revolving line
of credit facility, compliance with debt financial
covenants, sales and market growth, benefits to
be obtained by the Company from the INOVA joint
venture and OceanGeo, and other statements that
are not of historical fact. Actual results may vary
materially from those described in these forward-
looking statements. All forward-looking statements
reflect numerous assumptions and involve a
number of risks and uncertainties. These risks and
uncertainties include risks related to pending and
future litigation, including the risk that the Company
does not prevail in its appeal of the judgment in the
lawsuit with WesternGeco and that the ultimate
outcome of the lawsuit could have a materially
adverse effect on the Company’s financial results
and liquidity; risks of audit adjustments and other
modifications to the Company’s financial statements
not currently foreseen; risks of unanticipated delays
in the timing and development of the Company’s
products and services and market acceptance of
the Company’s new and revised product offerings;
risks associated with economic downturns and
volatile credit environments; risks associated with
the performance of INOVA and OceanGeo; risks
associated with the Company’s level of indebtedness,
including compliance with debt covenants; risks
associated with competitors’ product offerings
and pricing pressures resulting therefrom; risks
associated with the fact that a significant portion
of the Company’s revenues is derived from foreign
sales; risks regarding international, political, and
economic events and turmoil; risks that sources of
capital may not prove adequate; risks regarding the
Company’s inability to produce products to preserve
and increase market share; risks associated with
future oil and gas commodity prices; risks related to
future spending by customers and their ability to pay
Company invoices; the risk of industry consolidation;
risks related to collection of receivables; and risks
related to technological and marketplace changes
affecting the Company’s product line. Additional
risk factors, which could affect actual results,
are disclosed by the Company from time to time
in its filings with the Securities and Exchange
Commission, including its Annual Report on Form
10-K for the year ended December 31, 2014.
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ION Geophysical Corporation
2105 CityWest Blvd., Suite 400
Houston, TX 77042 USA
+1 281 933 3339
iongeo.com
ANNUAL REPORT
NOTICE OF 2015
ANNUAL MEETING
PROXY STATEMENT