Ion Geophysical Corp
Annual Report 2015

Plain-text annual report

Charged to innovate. Driven to solve.™ 2015 ANNUAL REPORT | NOTICE OF 2016 ANNUAL MEETING | PROXY STATEMENT VISION 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. CORE VALUES 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. CONTENTS About ION 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 CEO Letter to Shareholders and drive of some of the brightest minds Financial Highlights Notice of 2016 Annual Meeting Proxy Statement 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. Form 10-K Report Learn more at iongeo.com 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, Soft 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. Our E&P Advisors off er extensive global experience to deliver full-value-chain commercial and technical solutions to the oil industry worldwide, including basin-scale, regional geological analyses, prospectivity evaluation, portfolio management, conventional and unconventional development and production consulting, reservoir characterization and government and license round support and management. We have one of the most technologically advanced seismic imaging teams in the industry. They routinely tackle some of the most complex imaging projects, applying advanced techniques, including data conditioning, pre-stack depth migration (PreSDM), ray and wave-based model building, high frequency reverse time migration (RTM), Least Squares RTM, Kirchoff , Beam and Q migration, and more. SOFTWARE ION is a leading provider of navigation systems for off shore seismic acquisition through Gator® and ORCA® as well as survey design soft ware, through MESA®. We also off er seismic survey planning and optimization services for 2D, 3D and 4D surveys, for both towed streamer and ocean bottom environments. Our newest soft ware off ering, Marlin™, provides seismic contractors and E&P operators with situational awareness for 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 soft 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 our Calypso™ and VSO systems, marine acquisition soft ware, and data integration and quality assurance services. 1 1 Letter to Shareholders Dear Fellow Shareholders, R. Brian Hanson President and Chief Executive Officer For ION, our peers and our E&P company customers, 2015 was Through all of these cost reduction initiatives, we were able to an extraordinarily challenging year. A precipitous drop in crude oil appropriately scale our business to our lower revenue streams. prices sent oil & gas company revenues plummeting, aff ecting free Whereas we consumed $29 million in cash in the fi rst quarter of the cash fl ows and prompting across-the-board cost cutting, including year, by the fourth quarter, we were able to see the majority of the sharp reductions in exploration spending. Oil & gas service results of our cost reduction initiatives, generating a slight positive companies were particularly hard hit. In total, the industry lost net cash fl ow before fi nancing activities in the fourth quarter. We an estimated 250,000 jobs during the year. In early 2015, industry ended the year with a total liquidity of $125 million, consisting experts predicted a recovery might begin by the end of the year; of cash and cash equivalents, and the full availability under our but by December, “lower for longer” had become the prevailing recently amended and undrawn credit facility of $40 million. sentiment. In addition to improving our cash position, we also took measures For the full year, ION reported a net loss of $25 million on revenues to protect our listing on the New York Stock Exchange, eff ecting of $222 million, a loss of $2.29 a share. Excluding special items*, a one-for-15 reverse split of ION stock on February 5, 2016. In our full year adjusted net loss was $119 million or $10.83 per November 2015, in advance of the reverse split, we announced share, compared to an adjusted net loss of $34 million on revenues a stock repurchase program whereby our Board of Directors of $510 million, a loss of $3.12 a share, in 2014. authorized ION to repurchase, between November 10, 2015 and November 10, 2017, up to $25 million in shares of our outstanding Throughout 2015, we initiated and continued to implement several common stock. Our intention was to use this to guard against the cost reduction initiatives. During the fi rst quarter, we strategically risks of auto-delisting from the New York Stock Exchange prior to restructured our business to optimize performance and drive the reverse split. Between November 2015 and February 2016, we out non-essential costs, centralizing our global data processing purchased just over 450,000 shares, adjusted for our reverse split, capabilities into two global ‘Centers of Excellence’ in the US and at a total net cost of about $3 million, reducing our fl oat by about the UK and consolidating our marine equipment operations into 4%. two locations in the US and the UAE. In the second quarter, we minimized costs within our Ocean Bottom Services business Once we had addressed the risk of delisting, we turned our attention while maintaining our full capabilities by cold stacking our vessels to the nearing maturity of our debt instrument. In February 2016, and crews. Between December 2014 and third quarter 2015, we we announced our intent to launch an exchange off er to reduce the reduced our global workforce by 50% and implemented a 10% outstanding amount of our Senior Notes and extend their maturity salary reduction among our employees. to December 15, 2021, pursuant to a Support Agreement with key 2 holders. Upon the consummation of the Exchange Offer, and if Our Software and Systems segments were impacted by seismic the cash tender option is fully subscribed by our noteholders, we contractors taking vessels out of service, with year-over-year expect to successfully extend the maturity of a substantial portion revenues down 30% and 59%, respectively. Despite the decline of our outstanding debt for over three years and de-lever our in revenues, our Software segment generated positive gross and balance sheet by $25-$30 million. operating margins of 64% and 35%, respectively, during 2015. With respect to our ongoing lawsuit with WesternGeco, in October, At the beginning of 2015, we anticipated our ocean bottom crew the Court of Appeals ruled in ION’s favor, declining WesternGeco’s would be back at work during the year, as we had (and still have) request for a rehearing at the Court of Appeals level and affirming multiple tenders pending. But as the year progressed and the the reduction in the judgement to $22 million. WesternGeco has market worsened, we saw tenders, negotiations and contract appealed to the Supreme Court, and we expect to file a response awards get pushed back. We are still confident in the future of with the Supreme Court in April. the ocean bottom business, and our goal right now is to minimize our costs while maintaining our capabilities until the business The downturn in exploration spending affected all parts of our resumes. business. In our Solutions segment, we saw a dramatic shift from new venture underwriting to late sales of existing data library There is no doubt 2015 was a very tough year – for E&P companies programs. New venture revenues were down 51% from 2014, while and the contractors that serve them. But we went into it with a set data library revenues remained relatively stable, declining only 4%. of deliberate objectives, and they were more than to simply weather In July we began acquisition of the first phase of MexicoSPAN™, the storm. We went into the year determined to right size the an industry funded 2D program encompassing over 22,000 km of company, while maintaining our core capabilities and continuing to deep-imaged 2D data. We delivered fast track data to extremely strategically invest in R&D and commercial opportunities, so that favorable customer reviews in advance of Mexico’s licensing when the market comes back, we are ready to take full advantage. Round 1, and the program was a key revenue contributor in the We believe we have accomplished that. second half of the year. Thank you for your continued confidence in ION. Our data processing business remained under pressure, with revenues down 60% year over year. In the fourth quarter, we were Regards, awarded an extension to our existing multi-year data processing contract with Pemex, the national oil company of Mexico, under which we are providing a broad range of seismic data processing Brian Hanson services for multiple offshore and onshore surveys. The contract President & Chief Executive Officer was a solid vote of confidence in our ability to employ our differentiated technologies to deliver superior images within Pemex’s required timeframes. *A reconciliation of special items can be found in the tables to our 2015 and 2014 Year-end Results press release issued February 10, 2016. 3 Financial Highlights years ended December 31 2015 2014 2013 (in thousands, except per share data) STATEMENT OF OPERATIONS DATA Net revenues Gross profi t $ 221,513 $ 509,558 $ 549,167 8,003 62,223 159,313 Income (loss) from operations (100,632) (117,929) 16,396 Net income (loss) applicable to common shares(1) (25,122) (128,252) (251,874) Net income (loss) per basic share (1) Net income (loss) per diluted share (1) $ (2.29) $ (11.72) $ (23.84) $ (2.29) $ (11.72) $ (23.84) Weighted average number of common shares outstanding (1) 10,957 10,939 10,565 Weighted average number of diluted shares outstanding (1) 10,957 10,939 10,565 Balance Sheet Data (end of year) Working capital Total assets Long-term debt Total equity Other Data $ 93,160 $ 222,099 $ 248,857 438,416 617,257 864,671 186,320 190,594 220,152 112,040 135,712 257,885 Investment in multi-client library $ 45,558 $ 67,785 $ 114,582 Capital expenditures 19,241 8,264 16,914 Depreciation and amortization (other than multi-client library) 26,527 27,656 18,158 Amortization of multi-client library 35,784 64,374 86,716 (1) The per share calculations and share numbers set forth in the table above have been retroactively adjusted to refl ect the one-for-fi fteen reverse stock split completed on February 4, 2016. The selected consolidated fi nancial data set forth above with respect to our consolidated statements of operations for 2015, 2014 and 2013 and with respect to our consolidated balance sheets at December 31, 2015, 2014 and 2013 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 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, 2015. 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, 2015. 4 ANNUAL REVENUES 2011 2012 2013 2014 2015 Consolidated Revenues 454.6 526.3 549.2 509.6 221.5 Solutions Systems So(cid:31)ware Ocean Bottom Services 0 50 100 150 200 250 300 350 400 450 500 550 600 $ Millions SHAREHOLDER RETURNS ION Geophysical Corporation Dow Jones U.S. Oil Equipment & Services This graph compares our cumulative total stockholder S&P 500 $450 $400 $350 $300 $250 $200 $150 $100 $50 $0 2010 2011 2012 2013 100 100 100 72 77 102 102 88 88 39 157 113 2014 32 178 93 2015 6 181 72 return on our common stock for the fi ve years ending December 31, 2015, 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. 5 This graph compares our cumulative total stockholder return on our common stock for the five years ending December 31, 2011, 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, 2007. 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. 29APR201300073885 ION GEOPHYSICAL CORPORATION 2105 CityWest Boulevard, Suite 400 Houston, Texas 77042-2839 (281) 933-3339 NOTICE OF ANNUAL MEETING OF SHAREHOLDERS To Be Held May 18, 2016 To ION’s Shareholders: The 2016 Annual Meeting of Shareholders of ION Geophysical Corporation will be held in the offices of the company located at 2105 CityWest Boulevard, Houston, Texas, on Wednesday, May 18, 2016, 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, 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 2016; 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, 2016, 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, 2016 Houston, Texas Important Notice Regarding the Availability of Proxy Materials For the Annual Shareholders’ Meeting to be held on May 18, 2016 The Proxy Statement and our 2015 annual report to shareholders are available at www.iongeo.com under ‘‘Investor Relations—Investor Materials— Annual Report & Proxy Statement.’’ The Annual Meeting of Shareholders of ION Geophysical Corporation will be held on May 18, 2016, 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, 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 2016; 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 approval of the compensation of our named executive officers and the ratification of the appointment of Grant Thornton LLP. The Proxy Statement for the 2016 Annual Meeting of Shareholders and the 2015 annual report to shareholders 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 SHAREHOLDERS To Be Held May 18, 2016 April 14, 2016 Our Board of Directors (the ‘‘Board’’) is furnishing you this proxy statement (this ‘‘Proxy Statement’’) to solicit proxies on its behalf to be voted at the 2016 Annual Meeting of Shareholders (‘‘Annual Meeting’’) of ION Geophysical Corporation (‘‘ION’’). The Annual Meeting will be held at 2105 CityWest Boulevard, Houston, Texas, on May 18, 2016, at 10:30 a.m., local time. The proxies also may be voted at any adjournments or postponements of the Annual 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 shareholders beginning on or about April 14, 2016. All properly completed and returned proxies for the annual meeting will be voted at the Annual Meeting in accordance with the directions given in the proxy, unless the proxy is revoked before the Annual Meeting. Only owners of record of our outstanding shares of our Common Stock, par value $0.01 (‘‘Common Stock’’) on March 31, 2016 are entitled to vote at the Annual Meeting, or at adjournments or postponements of the Annual 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, 2016, there were 11,335,545 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. On February 4, 2016, we completed a one-for-15 reverse stock split, and our Common Stock began trading on a reverse-split adjusted basis on February 5, 2016. Unless otherwise specified in this Proxy Statement, all information presented in this Proxy Statement is presented on a post-reverse stock split basis. 1 TABLE OF CONTENTS 2016 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2015 GRANTS OF PLAN-BASED AWARDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . EMPLOYMENT AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END . . . . . . . . . . . . . . . . . . . . . . . . 2015 OPTION EXERCISES AND STOCK VESTED . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE OF CONTROL . . . . . . . . . . 2015 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 14 25 27 28 29 48 49 51 51 54 55 56 64 64 66 67 67 69 70 2 2016 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 David H. Barr . . . . . . . . . . . 66 2010 Former President and CEO, Franklin Myers . . . . . . . . . . 63 Logan International, Inc. 2001 Sr. Advisor, Quantum Energy Partners S. James Nelson, Jr. . . . . . . 74 2004 Former Vice Chairman, Cal * * * * * * * * * * Dive International, Inc. (now Helix Energy Solutions Group, Inc.) 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 shareholders by focusing our executive officers on total shareholder 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 our Common 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 2015 Oilfield Manufacturing and Services Industry Executive Compensation Survey. Total compensation for each executive officer varies with ION’s performance in achieving strategic and 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’ 2016 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 named executive officers in 2015, 2014 and 2013 (except for Mr. Bate and Ms. Seely, who did not become named executive officers until 2014 and 2015, respectively): Name and Principal Position Year Salary ($) Stock Bonus Awards ($) ($) Option Awards Compensation Compensation Incentive Plan Total Direct ($) ($) ($) Non-Equity R. Brian Hanson . . . . . . . . . . . . . . . . 2015 560,769 — 294,633 215,164 2014 550,000 — 287,700 248,050 2013 490,000 — 214,800 235,000 President, Chief Executive Officer and Director Steven A. Bate . . . . . . . . . . . . . . . . . . 2015 350,481 — 134,474 98,200 2014 316,616 — 114,050 211,169 Executive Vice President and Chief Financial Officer Kenneth G. Williamson . . . . . . . . . . . . 2015 361,895 — 159,611 116,565 2014 372,320 — 82,200 148,830 2013 358,000 — 71,600 141,000 Executive Vice President and Chief Operating Officer, E&P Technology & Services Christopher T. Usher . . . . . . . . . . . . . . 2015 353,808 — 64,501 47,119 2014 364,000 — 82,200 148,830 2013 350,000 — 71,600 141,000 Executive Vice President and Chief Operating Officer, E&P Operations Optimization 750,000 825,000 395,000 351,562 193,000 261,368 390,000 215,000 227,136 218,400 300,000 1,820,566 1,910,750 1,334,800 934,717 834,835 899,439 993,350 785,600 692,564 813,430 862,600 Jamey S. Seely . . . . . . . . . . . . . . . . . . 2015 327,115 — 73,359 53,579 262,500 716,553 Executive Vice President, General Counsel and Corporate Secretary 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 has designated R. Brian Hanson and James M. Lapeyre, Jr. as proxies for the 2016 Annual Meeting of Shareholders. 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 is soliciting proxies on its behalf to be voted at the 2016 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 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 are the voting rights of holders of Common Stock? Each outstanding share of Common Stock is entitled to one vote on each matter considered at the Annual Meeting. What is the difference between a ‘‘shareholder of record’’ and a shareholder who holds stock in ‘‘street name’’? If your shares are registered directly in your name, you are a shareholder 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 2016 Annual Meeting of Shareholders will be held on the 4th Floor of 2105 CityWest Boulevard in Houston, Texas. Directions: The site for the Annual 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. 5 What is the effect of not voting? It depends on how ownership of your shares is registered. If you are a shareholder of record, your unvoted shares will not be represented at the Annual 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 Annual Meeting for purposes of obtaining a quorum. As 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 2016 Annual Meeting of Shareholders is March 31, 2016. The record date is established by the Board 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 Annual Meeting and vote at the Annual Meeting and any adjournments or postponements of the Annual Meeting. How can I revoke a proxy? A shareholder 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 Annual 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 shareholders 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 Annual Meeting, without prior notice other than by announcement at the Annual Meeting, until the required quorum is present. As of the record date, 11,335,545 shares of Common Stock were outstanding. Thus, the presence of the holders of Common Stock representing at least 5,667,773 shares will be required to establish a quorum. 6 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 2019 Annual Meeting of Shareholders, shareholders 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. Directors will be elected by a plurality of the votes of the shares of Common Stock present or represented by proxy at the Annual 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 his resignation following certification of the results of the shareholder 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. Shareholders 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, shareholders 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 2016, shareholders 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 Annual Meeting. The Board recommends a vote ‘‘FOR’’ this proposal. 7 Will any other business be transacted at the Annual 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 our Amended and Restated Bylaws (our ‘‘Bylaws’’) for submitting proposals to be considered at the Annual Meeting have passed and no proposals were submitted. However, should any other matters properly come before the Annual Meeting, and any adjournments or postponements of the Annual 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 shareholder does not specify a choice for a matter when submitting their proxy? Shareholders 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 2016. 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 2017 proxy statement and for submitting a nomination for director of ION for consideration at the Annual Meeting of Shareholders in 2017? Shareholder proposals requested to be included in our 2017 proxy statement must be received by ION not later than December 15, 2016. A proper director nomination may be considered at ION’s 2017 Annual Meeting of Shareholders only if the proposal for nomination is received by ION not later than December 15, 2016. 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 2015 Annual Report to Shareholders are posted on ION’s Internet website at www.iongeo.com under ‘‘Investor Relations—Investor Materials— Annual Report & Proxy Statement’’. 8 How can I obtain a copy of ION’s Annual Report on Form 10-K? A copy of our 2015 Annual Report on Form 10-K (without schedules or exhibits) forms a part of our 2015 Annual Report to Shareholders, which is enclosed with our Proxy Statement. You may obtain an additional copy of our 2015 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. ITEM 1—ELECTION OF DIRECTORS Our Board 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 shareholders elect the directors in a designated class annually. Directors in Class II, which is the class of directors to be elected at the Annual Meeting, will serve on the Board until our annual meeting in 2019. The current Class II directors are David H. Barr, Franklin Myers, and S. James Nelson. Jr., and their terms will expire when their successors are elected and qualified at the 2016 Annual Meeting. At its meeting on February 9, 2016, the Board approved the recommendation of the Governance Committee that Messrs. Barr, Myers and Nelson be nominated to stand for reelection at the Annual Meeting to hold office until our 2019 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 our Board, or our Board may reduce the number of directors. The Board of Directors recommends a vote ‘‘FOR’’ the election of David H. Barr, Franklin Myers, and S. James Nelson, 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 our Board to determine that the person should serve as a director for the Company: Class II Director Nominees For Re-Election for Term Expiring In 2019 DAVID H. BARR Director since 2010 From May 2011 until December 2012, Mr. Barr, age 66, 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 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 9 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 and on the Compensation Committee of Enerplus Corporation (a NYSE- and TSX-listed independent oil and gas exploration and production (‘‘E&P’’) 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. 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 63, 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. 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. 10 S. JAMES NELSON, JR. Director since 2004 Mr. Nelson, age 74, joined our Board 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 E&P 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 E&P 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. 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 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. Class III Incumbent Directors—Term Expiring In 2017 MICHAEL C. JENNINGS Director since 2010 Mr. Jennings, age 50, is the Executive Chairman of the Board of Directors of HollyFrontier Corporation, a NYSE-listed independent oil refining and marketing company. He is also President and Chief Executive Officer, and on the Board of Directors of Holly Energy Partners, a NYSE-listed master limited partnership partially owned by HollyFrontier Corporation. Prior to joining HollyFrontier, Mr. Jennings was the President, Chief Executive Officer and 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 is a member of the Audit and Finance Committees of our Board. 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. 11 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 64, 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. 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 E&P 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 I Incumbent Directors—Term Expiring In 2018 R. BRIAN HANSON Director since 2012 Mr. Hanson, age 51, 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. 12 HAO HUIMIN Director since 2011 Mr. Hao, age 52, 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. 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 approximately 1,585,969 shares of our Common Stock (23,789,536 shares of our Common Stock on a pre-reverse stock split basis) 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 63, served as Chairman of our Board 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 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. 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 shareholder of our Company enables our Board to have direct access to the perspective of our shareholders and ensures that the Board will take into consideration the interests of our shareholders in all Board decisions. In addition, Mr. Lapeyre has extensive knowledge regarding the marine products and technology that we acquired from Laitram in 1998. 13 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. (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, 2015, 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 2015, 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. 14 (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 his resignation following certification of the shareholder 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 shareholder 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 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. 15 Lead Independent Director. James M. Lapeyre, Jr. serves as our Chairman of the Board. 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; (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. Shareholders 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 committees of the Board 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. 2015 Meetings of the Board and Shareholders. During 2015, the Board held ten meetings and the four standing committees of the Board held a total of 13 meetings. Overall, the rate of attendance by 16 our directors at such meetings was 97% and six 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 committees of the Board each director attended during 2015. No director attended less than 82% of these meetings. We do not require our Board members to attend our Annual Meeting of Shareholders; however, six of our directors were present at our Annual Meeting held in May 2015. 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 2015 100% 100% 100% 82% 100% 94% 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 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 17 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 7.5% of our outstanding Common Stock as of February 29, 2016. 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 2015 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 shareholder value. A fundamental part of risk 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. 18 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 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 2015, the Audit Committee met five times, the Compensation Committee met four times, the Governance Committee met two times, and the Finance Committee met two times. The current members of the four standing committees of the Board 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 shareholders and others, reviewing with management our system of internal controls and financial reporting processes, and monitoring our compliance program and system. The Board 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 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. 19 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 Compensation Committee’s independent compensation advisors as it deems necessary or appropriate. 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 shareholders. 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 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 Compensation Committee is, or was during 2015, 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 2015, we paid Laitram and its affiliates a total of approximately $0.8 million, which consisted of approximately $0.7 million for manufacturing services, and $0.1 million for reimbursement 20 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 2015: (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 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 has determined that each member of the Governance Committee satisfies the definition of ‘‘independent’’ as established under the NYSE corporate governance listing standards. 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 our 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 Governance 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 Governance 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 Governance Committee feels are reliable, and professional search firms. Our Bylaws permit shareholders to nominate individuals for director for consideration at an annual shareholders’ meeting. A proper director nomination may be considered at our 2017 Annual Meeting only if the proposal for nomination is received by ION not later than December 15, 2016. 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 shareholder 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, 21 (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 has determined that a majority of the members of the Finance 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 shareholders and further focus our emphasis on enhancing shareholder value. Under these requirements, each non-employee director is expected to own at least 2,400 shares of Common Stock, which, at the $7.50 closing price per share of our Common Stock on the NYSE on December 31, 2015, equates to almost 40% of 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 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, 22 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 7.5% of our outstanding Common Stock as of February 29, 2016. 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 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 2015. During 2015, we paid Laitram and its affiliates a total of approximately $0.8 million, which consisted of approximately $0.7 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 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, which has been a customer of our products and services for many years. For our fiscal years ended December 31, 2015 and 2014, BGP accounted for approximately 3% and 1% of our consolidated net sales, respectively. During 2015, we recorded revenues from sales to BGP of approximately $6.3 million. Trade receivables due from BGP at December 31, 2015 were $0.3 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 approximately 1,585,969 shares of our Common Stock (23,789,536 shares of our Common Stock on a pre-reverse stock split basis) to BGP for an effective purchase price of $42.00 per share ($2.80 per share on a pre-reverse stock split basis) 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 29, 2016, BGP held beneficial ownership of approximately 14.9% 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 23 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) contributing 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. 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 $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 533 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 $110,000, up to an annual grant of 2,500 shares per director. The following table summarizes the compensation earned by our non-employee directors in 2015: Name(1) David H. Barr . . . . . . . . . . . . Hao Huimin . . . . . . . . . . . . . . Michael C. Jennings . . . . . . . . James M. Lapeyre, Jr. . . . . . . Franklin Myers . . . . . . . . . . . . . . . . . . . . S. James Nelson, Jr. John N. Seitz . . . . . . . . . . . . . Fees Earned or Paid in Cash ($) 67,000 55,000 67,000 109,000 88,000 93,000 67,000 Stock Awards ($)(2) 56,977 56,977 56,977 56,977 56,977 56,977 56,977 Non-Equity Incentive Plan Compensation ($) Change in Pension Value and Nonqualified Deferred Compensation Earnings ($) — — — — — — — — — — — — — — All Other Compensation ($)(3) 24,750 24,750 24,750 24,750 24,750 24,750 24,750 Total ($) 148,727 136,727 148,727 190,727 169,727 174,727 148,727 (1) R. Brian Hanson, our President and Chief Executive Officer, is not included in this table because he was an employee of ION during 2015, and therefore received no compensation for his services 24 as director. The compensation received by Mr. Hanson as an employee of ION during 2015 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 2013 Long-Term Incentive Plan (the ‘‘2013 LTIP’’). On March 1, 2015, each of our non-employee directors was granted an award of 1,666 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. (3) On March 1, 2015, the value of the 1,666 shares received by each of our non-employee directors was only valued at $56,977 leaving a gap of $53,023 in the value of the equity awarded versus the $110,000 compensation target. As a result, the Governance Committee approved additional cash compensation to be provided to the Board in the amount of $33,000. The additional compensation, which is paid in quarterly increments, is approximately 20% less than the compensation target and 10% less than the total compensation paid to the Board in 2014. As of December 31, 2015, 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,666 1,666 1,666 1,666 1,666 1,666 1,666 — — — 1,666 1,666 1,666 1,666 OWNERSHIP OF EQUITY SECURITIES OF ION Except as otherwise set forth below, the following table sets forth information as of February 29, 2016, 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 2015 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. The share numbers in this table and the 25 footnotes below have been retroactively adjusted to reflect the one-for-15 reverse split completed on February 4, 2016. Common Stock(1) Rights to Acquire(2) Restricted Stock(3) Percent of Common Stock(4) Name of Owner Invesco Ltd.(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . BGP Inc., China National Petroleum Corporation(6) . . . . . . . . . . . . . . . . . . . . . . . . . James M. Lapeyre, Jr.(7) . . . . . . . . . . . . . . . . . . . . Laitram, L.L.C.(8) . . . . . . . . . . . . . . . . . . . . . . . . David H. Barr . . . . . . . . . . . . . . . . . . . . . . . . . . . R. Brian Hanson(9) . . . . . . . . . . . . . . . . . . . . . . . Hao Huimin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Michael C. Jennings . . . . . . . . . . . . . . . . . . . . . . . Franklin Myers . . . . . . . . . . . . . . . . . . . . . . . . . . . S. James Nelson, Jr. . . . . . . . . . . . . . . . . . . . . . . . John N. Seitz . . . . . . . . . . . . . . . . . . . . . . . . . . . . Steven A. Bate . . . . . . . . . . . . . . . . . . . . . . . . . . . Kenneth G. Williamson . . . . . . . . . . . . . . . . . . . . . Christopher T. Usher . . . . . . . . . . . . . . . . . . . . . . Jamey S. Seely . . . . . . . . . . . . . . . . . . . . . . . . . . . All directors and executive officers as a group 1,895,105 — 1,585,969 790,017 581,309 6,267 27,789 4,340 6,267 21,467 7,600 9,593 17,156 6,396 3,174 9,095 — 1,666 — — 41,811 — — 1,666 1,666 1,666 11,973 31,779 7,207 1,805 (14 Persons) . . . . . . . . . . . . . . . . . . . . . . . . . . . 912,548 112,357 * Less than 1% — — 1,666 — 1,666 13,059 1,666 1,666 1,666 1,666 1,666 6,263 5,999 3,218 3,033 46,206 17.8% 14.9% 7.5% 5.5% * * * * * * * * * * * 10.0% (1) Represents shares on a post-reverse stock split basis 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 29, 2016. (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, 2016, 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. (7) The shares of Common Stock held by Mr. Lapeyre include 99,402 shares that Mr. Lapeyre holds as a custodian or trustee for the benefit of his children, 581,309 shares owned by Laitram, and 699 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 8 below. Mr. Lapeyre has sole voting power over only 110,273 of these shares of Common Stock. (8) 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 7 above. Mr. Lapeyre disclaims beneficial ownership of any shares held by Laitram. (9) The shares of Common Stock held by Mr. Hanson include 666 shares owned by Mr. Hanson’s wife, in which Mr. Hanson disclaims any beneficial interest. 26 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, with three exceptions, during 2015 our directors, executive officers and shareholders 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. A Form 4 for Mr. Lapeyre was filed two days late when the Company was not timely notified of the execution of a buy order. On two separate occasions, Form 4s were filed for Ms. Seely that each inadvertently failed to report all of the reporting person’s shares purchased and therefore required amendment to reflect the full holdings. In each case, the amendment was filed to correct the numbers reported on the original Form 4. Our executive officers are as follows: EXECUTIVE OFFICERS Name Age Position with ION R. Brian Hanson . . . . . 51 President and Chief Executive Officer and Director Steven A. Bate . . . . . . . 53 Executive Vice President and Chief Financial Officer Kenneth G. Williamson . 51 Executive Vice President and Chief Operating Officer, E&P Technology & Services Christopher T. Usher Jamey S. Seely . . . . . . . 44 Executive Vice President, General Counsel and Corporate Secretary Colin T. Hulme . . . . . . 64 Executive Vice President, Ocean Bottom Services Scott P. Schwausch . . . . 41 Vice President and Corporate Controller . . 55 Executive Vice President and Chief Operating Officer, E&P Operations Optimization 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. 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 2014 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. Williamson is our Executive Vice President and Chief Operating Officer, E&P Technology & Services. 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. 27 Mr. Usher is our Executive Vice President and Chief Operating Officer, E&P Operations Optimization. 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 E&P 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 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. 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. 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, 28 2015. 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, 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 President and Chief Executive Officer (our principal executive officer) R. Brian Hanson . . . . . . . Steven A. Bate . . . . . . . . Executive Vice President and Chief Financial Officer (our principal financial officer) Kenneth G. Williamson . . Executive Vice President and Chief Operating Officer, E&P Technology & Services Christopher T. Usher . . . . Executive Vice President and Chief Operating Officer, E&P Operations Optimization Jamey S. Seely . . . . . . . . Executive Vice President, General Counsel and Corporate Secretary Executive Summary General. The objectives and major components of our executive compensation program remained consistent from 2015 to 2016. 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 shareholder 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 shareholders and to promote the creation of shareholder 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. Due to the difficulties the Company, its customers and industry have experienced, base salaries for all of our named executive officers were decreased by 10% on May 1, 2015 and the salary decreases were continued throughout the remainder of 2015. In addition, management recommended and the Compensation Committee has approved the continuation of the base salary reductions through June 30, 2016. No base salary increases were approved for executive officers in 2016. Payments under our annual bonus incentive plan for 2015 reflected our performance and the level of achievement of our 2015 plan performance goals. In light of the unprecedented business climate the Company faced in 2015, the Compensation Committee reduced the maximum award achievable by individual participants from 150% to 125%. This reduction is in addition to the reduction from 200% to 150% made by the Compensation Committee at the beginning of 2015. In 2015, the Compensation Committee determined that the bonus available for awards paid to our named executive officers under the 2015 plan should be based on a combination of long-term strategic initiatives and cash preservation goals. In early 2016, the Compensation Committee reviewed the Company’s progress towards the achievement of the strategic initiative and cash produced from operations and approved a reduced bonus pool and bonus for each named executive based on individual and company performance. In approving the individual awards to our named executive officers in February 2016, the Compensation Committee noted that our named executive officers’ efforts had enabled us to drive our cash preservation objectives during a challenging economic period for the seismic industry while, at the same time, positioning us to take advantage of the next upturn in 29 the energy cycle by pursuing the long term strategic initiatives. 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 performance for the year. The annual grants made to our named executive officers under our long-term stock incentive plan on March 1, 2015 were similar to grants made to named executive officers in previous years. However, a greater emphasis was placed on stock appreciation rights (‘‘SARs’’) than in previous years with a substantial portion of each executive’s compensation being in the form of performance-based, cash settled SARs instead of restricted stock or stock options. Consideration of Say-On-Pay Result. At our 2015 Annual Meeting of Shareholders held on May 20, 2015, our shareholders 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 76% of the votes cast on the proposal voted in favor of our executive compensation. Our general goal since our 2015 Annual Meeting has been to continue to act consistently with the established practices that were overwhelmingly approved by our shareholders. We believe that we have accomplished that goal. In addition, because our shareholders 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 shareholders at the next annual meeting of shareholders 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 Shareholders. Compensation Committee Corporate Governance The Compensation Committee of our Board 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 Compensation Committee is an employee of ION. The Board has determined that each member of the Compensation Committee satisfies the definition of ‘‘independent’’ as established in the NYSE corporate governance listing standards. In determining the independence of each member of the Compensation 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 Compensation 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 Compensation Committee, see ‘‘Item 1.—Election of Directors—Committees of the Board—Compensation Committee’’ above. 30 During 2015, the Compensation Committee met in person or by conference call four times. In addition, the Compensation Committee took action by unanimous written consent, as permitted under Delaware law and our Bylaws, one time during 2015, 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 Compensation 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 Compensation Committee evaluates the independence of such advisor and also evaluates whether such advisor has a conflict of interest. During 2011, the Compensation 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 Compensation Committee with analysis on the number of shares to propose to shareholders to add to our stock plan at our 2011 Annual Meeting for future grants to employees and directors. During 2011, the Compensation 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 Compensation Committee has approved and engaged Performensation Consulting to provide advisory services with regard to the preparation of our proxy statements. In 2015, the Compensation Committee engaged Aon Hewitt to provide advisory services with regard to the preparation of this proxy statement. 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 Aon Hewitt in light of SEC rules and NYSE listing standards. Among the factors considered by the Compensation Committee were the following: (cid:129) other services provided to our Company by Aon Hewitt; (cid:129) the amount of fees paid by us as a percentage of Aon Hewitt’s total revenues; (cid:129) policies or procedures maintained by Aon Hewitt 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 Compensation 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 Aon Hewitt or the individual consultants involved in the engagement. The Compensation Committee discussed these considerations and concluded that the work of Aon Hewitt 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 31 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 Compensation 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, establishes his compensation level. Where it deems appropriate, the Compensation Committee will also consider market compensation information 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 Executive Vice President, Global Human Resources, and our Executive Vice President, General Counsel & Corporate Secretary. However, no member of management votes on items being considered by the Compensation Committee. The Compensation Committee and Board 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 Compensation 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; 32 (cid:129) align the interests of our executives with those of our shareholders 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 shareholder 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 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 Compensation Committee determined that annual compensation amounts for our Chief Executive Officer and our other named executive officers remained generally consistent with the Compensation Committee’s expectations. However, the Compensation 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 Compensation 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 33 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 Compensation 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 2015, we utilized data primarily from Radford salary surveys, the Mercer U.S. Compensation Planning Survey, TowersWatson executive salary survey and Frost’s 2015 Oilfield Manufacturing and Services Industry Executive Compensation Survey (‘‘OFMS Survey’’). The survey information from most of these resources covered a broad range of industries and companies. However, the 2015 OFMS Survey compiled proxy compensation data from 53 oilfield services companies and survey results from the following 24 oilfield services companies: Aker Solutions ASA Baker Hughes, Inc. Bristow Group, Inc. C&J Energy Services, Inc. Cameron International Corp. Core Laboratories NV Ensco PLC Exterran Holdings, Inc. Forum Energy Technologies Frank’s International N.V. Helmerich & Payne, Inc. Hercules Offshore Services, Inc. ION Geophysical Corporation Jet Specialty National Oilwell Varco, Inc. Newpark Resources, Inc. Oil States International, Inc. Saulsbury Industries Shelf Drilling Offshore Holdings Ltd. Siemens 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 2015 OFMS Survey is slightly different from the list of companies included in the OFMS Survey for 2014 and previous years and will likely be different from the list of companies to be included in future OFMS Surveys. 34 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. 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 22MAR201613432207 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 35 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, 2015, our Chief Executive Officer’s annual base salary was 55% higher than the annual base salary for the next highest-paid named executive officer and 61% higher than the average annual base salary for all of our other named executive officers. The Compensation Committee does not intend for base salaries to be the vehicle for long-term capital and value accumulation for our executives. 2015 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. Base Salary Reduction Program. Commencing in late 2014, our business has experienced a significant decline due in large part to the historic decline in oil and gas prices, which has negatively impacted demand for our products and services and thus adversely affected our financial results. We have taken a number of actions to reduce our costs in our business and to improve our operating performance including substantial reductions in our work force. In mid-2015, we also implemented a base salary reduction program in a further effort to reduce our operating costs. Under the salary reduction program, base salaries for all employees were reduced by 10% for all employees earning above the designated minimum income threshold. Management has recommended and the Board has approved the continuation of the program until at least June 30, 2016. 36 Under the program, all of our named executive officers received a decrease in base salary on May 1, 2015, as described below: Named Executive Officer R. Brian Hanson . . . . . . . . . . . Steven A. Bate . . . . . . . . . . . . . Kenneth G. Williamson . . . . . . . Christopher T. Usher . . . . . . . . Jamey S. Seely . . . . . . . . . . . . . Action In recognition of the difficult financial times for the industry, Mr. Hanson’s salary was reduced by 10% from $600,000 to $540,000. The 2015 OFMS Survey indicated that the median for CEO base salary for surveyed companies having annual revenues of less than $1 billion was $705,926. In recognition of the difficult financial times for the industry, Mr. Bate’s salary was reduced by 10% from $375,000 to $337,500. The 2015 OFMS Survey indicated that the median of Chief Financial Officer base salary for surveyed companies having annual revenues of less than $1 billion was $400,000. In recognition of the difficult financial times for the industry, Mr. Williamson’s salary was reduced by 10% from $387,213 to $348,492. The 2015 OFMS Survey indicated that the median for Executive Vice President base salary for surveyed companies having annual revenues of less than $1 billion was $418,500. In recognition of the difficult financial times for the industry, Mr. Usher’s salary was reduced by 10% from $378,560 to $340,704. The 2015 OFMS Survey indicated that the median for Executive Vice President base salary for surveyed companies having annual revenues of less than $1 billion was $418,500. In recognition of the difficult financial times for the industry, Ms. Seely’s salary was reduced by 10% from $350,000 to $315,000. The 2015 OFMS Survey indicated that the median for General Counsel and Corporate Secretary base salary for surveyed companies having annual revenues of less than $1 billion was $375,000. 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. 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. 37 Our annual bonus incentive plan is usually consistent with our operating plan for the same year. In early 2015, we prepared a consolidated company operating budget for 2015 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 analyzed the proposed budgets with management extensively and, after analysis and consideration, the Board approved the consolidated 2015 operating plan. During early 2015, our Chief Executive Officer worked with our Human Resources department and members of senior management to formulate our 2015 bonus incentive plan, consistent with the 2015 operating plans approved by the Board. At the beginning of 2015, the Compensation Committee approved our 2015 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 Compensation Committee. In February 2016, the Compensation Committee reviewed the Company’s actual performance against each of the plan performance goals established at the beginning of 2015 and evaluated the individual performance of each participating named executive officer during 2015. The results of operations of our Company for 2015 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 Compensation 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 based on the Company’s and the employee’s performance, in each case measured against internal targets and plans. In most years when our 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 2015 bonus incentive plan and our Company performance criteria applicable to the plan. 2015 Bonus Incentive Plan. The purpose of the 2015 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 2015 strategic and financial goals. 38 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 two variable components (i) the achievement of certain long-term strategic initiatives, and (ii) the satisfaction of cash preservation criteria. 2. The total bonus pool is allocated among our business units based on satisfaction of both the strategic initiatives and the cash preservation objectives. 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 strategic initiatives and cash preservation target establishes 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 2015 bonus incentive plan. Under the 2015 plan, approximately 35% of the funds allocated for distribution were available for awards to eligible employees based on achievement of certain long term strategic initiatives in 2015 and approximately 65% of the funds allocated for distribution were available for distribution to eligible employees only to the extent we satisfied the designated 2015 cash preservation criteria. In addition, the 2015 plan was structured so that the total amount of funds available for distribution increased as our financial performance and cash preservation increased, up to a maximum funding level of 150% versus caps of 200% in prior years. 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 2015 bonus incentive plan established the achievement of long term strategic initiatives and cash preservation and cash from operations as the performance goals. The strategic initiatives were selected to ensure that the Company’s cash preservation and expense reduction efforts did not result in long-term harm to the company and appropriately balanced short term savings against ensuring the long term viability of our Company. For 2015, the Compensation Committee selected strategic initiatives focused on the achievement of certain objectives in the WesternGeco litigation, including but not limited to the successful reversal of damages related to lost profits at the Court of Appeals. The company also established certain objectives for maintaining Ocean Bottom Services capabilities through a time of few market opportunities. Several milestones were established for critical R&D projects. The company’s data process business established back log objectives. Finally, the company established six cultural initiatives and objectives designed the streamline the internal efficiency of the organization, promote better information sharing and consolidate certain activities. The company reported progress on all of the initiatives to the Board throughout the year. At the conclusion of 2015, the Compensation Committee determined that all strategic initiatives had been met and recommended funding of the 35% of the bonus pool tied to such objectives in the amount of $5.4 million. In addition to the strategic initiatives, the Compensation Committee also established a critical emphasis on metrics for cash preservation based on the cash generated from operations. Cash from operations is the net cash flow generation by ION excluding interest, severance expenses, cash from external funding arrangements, and other corporate expenses and is adjusted based on the timing of collection of customer payments. Cash from operations is offset by the payment of vendors, employee payroll, taxes, utilities, and similar matters. 39 Cash preservation was selected as the most appropriate performance goals for our 2015 plan because the Compensation Committee believed that cash from operations and preservation of the Company’s existing cash were the best indicators of our Company’s overall performance at that time and evidenced a direct correlation with the interests of our shareholders and the ability of our Company to survive the downturn. As a result, 65% of the bonus pool is tied to the achievement of these objectives as well all opportunities to achieve goals in excess of the plan. When determining whether financial targets have been achieved under the 2015 plan, the Compensation 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 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 prior plan, every participating named executive officer other than our Chief Executive Officer had the opportunity to earn up to 200% of such executive officers’ target depending on performance of our Company against the designated performance goals and performance of such executive officer against personal criteria determined at the beginning of 2015 by our Chief Executive Officer. However, when the 2015 bonus plan was adopted by the Compensation Committee, the maximum individual award for each participating named executive officer were reduced to 150% of such participating executive officer’s target. In addition, the Compensation Committee further reduced the maximum individual awards payable in February of 2016 to 125% in light of the difficult economic market for the Company’s products and services. 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 2015, participated in the plan with potential to earn a target incentive payment of 100% 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 2015, the Compensation Committee approved a plan that emphasized the critical importance placed on cash preservation as the criteria for consideration of bonus awards to the named executive officers and other covered employees under our 2015 bonus incentive plan: Threshold Adjusted Cash from Operations Target Adjusted Cash from Operations Maximum Adjusted Cash from Operations $(50.0) million $(25.0) million $0.0 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 2015 Summary Compensation Table below reflects the payments that our named executive officers earned and received under our 2015 bonus incentive plan, and the ‘‘Bonus’’ column of the same table reflects any discretionary cash bonus payments received by our named executive officers during 2015. Our 2015 cash from operations exceeded the threshold target performance criteria under our 2015 bonus incentive plan by $8 million. As a result, the Compensation Committee authorized the funding of approximately $0.8 million to bonus pool. When combined with the amounts approved in connection with the achievement of long-term strategic initiatives the total bonus pool available for distribution in 2015 was approximately $6.2 million. 40 In addition to overall company performance, when considering the 2015 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 Compensation Committee took into consideration was Mr. Hanson’s effective leadership in our achievement of several important strategic objectives during the year, including focusing the strategies of the Company on measures needed to sustain the business through this historic downturn in demand for its services and other challenges associated with low oil prices, such as maintaining our key core capabilities. When considering the bonus award paid to Mr. Bate, among the factors the Compensation Committee took into consideration were his leadership in reducing the company’s operating costs, the renegotiation of the credit agreement with PNC and his role in soliciting shareholders in connection with the reverse split and other votes required by the company as Chief Financial Officer. When considering the bonus award paid to Mr. Williamson, among the factors the Compensation Committee took into consideration were the 2015 financial performance of his GeoVentures Division, his efforts to reduce the costs associated with the division and the amount of risk associated with the business portfolio. When considering the bonus award paid to Mr. Usher, among the factors the Compensation Committee took into consideration were the 2015 financial results of his GeoScience Division, his role in appropriately sizing the organization, maintaining its key customers and managing the credit risk associated with the group. When considering the bonus award paid to Ms. Seely, among the factors the Compensation Committee took into consideration was her leadership and participation in pursuing a number of important projects during 2015 including the PNC amendment, the reverse split and relates shareholder initiatives, the WesternGeco litigation, and resolving NYSE non-compliance matters. 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 shareholders. 41 The below table illustrates the mix of total compensation received by Mr. Hanson, our CEO, and our other current named executive officers during 2015: 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Long-Term Equity Annual Incentive Base Salary CEO Other NEOs (average) 29MAR201613314602 For 2015, there were four forms of long-term equity incentives utilized for executive officers and key employees: stock options, restricted stock, SARs 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 2015, 61% were in the form of stock options and 39% 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 form of full-value awards, such as restricted stock and restricted stock units, to 86,667 shares, or less than 35% of the total shares authorized for grant under the plan, in the aggregate. On December 4, 2015, the Board adopted resolutions setting forth and declaring advisable certain amendments to the 2013 LTIP, and, at a special meeting of the shareholders of the Company held on February 1, 2016, the shareholders of the Company approved such amendments to the 2013 LTIP. The 2013 LTIP, as amended, became effective on February 4, 2016. The Company’s 2013 LTIP, as amended, increased (i) the total number of shares of our Common Stock we can grant under the plan to 1,248,667 and (ii) the number of awards we can grant under the plan in the form of full-value awards to 412,060 shares, which is than 35% of the total shares authorized for grant under the plan, in the aggregate. Reduction in Plan Participants. In 2015, the Compensation Committee decided to significantly decrease the number of executives eligible to participate in the Company’s long-term incentive plans. In 2014, approximately 147 employees participated in the Company’s long-term equity programs and the Company granted approximately 164,263 shares of restricted stock and options. In 2015, the Company substantially reduced the number of participants in the long-term equity grants to only 16 participants, excluding non-executive directors. In addition, the Compensation Committee dramatically reduced the equity grants available to only 98,980 grants of restrict stock and options. Currently, 100% of the restricted stock and options granted in 2015 are more than 500% underwater. 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 42 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 shareholders. 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 shareholder 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 shareholder 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 shareholder 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 2015, a total of 16 employees received option awards, covering 53,328 shares of Common Stock. In 2015, the named executive officers received option awards for a total of 31,870 shares, or approximately 60% of the total options awarded in 2015. 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 shareholder 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 2015, 16 employees received restricted stock or restricted stock unit awards, covering an aggregate of 33,990 shares of restricted stock and shares underlying restricted stock units. The named executive officers received awards totaling 21,245 shares of restricted stock in 2015, or approximately 63% of the total shares of restricted stock awarded to employees in 2015. 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. Stock Appreciation Rights. To enhance the performance-based focus of ION’s compensation programs, the Compensation Committee elected to have a substantial portion of the stock-based compensation paid in SARs instead of restricted stock or stock options. The SARs grants approved by the Compensation Committee are 100% cash-settled and were granted pursuant to our Stock Appreciation Rights Plan. The vesting of the SARs is achieved through both a market condition and a service condition. The market condition is achieved, in part or in full, in the event that during the four-year period beginning on the date of grant the 20-day trailing volume-weighted average price per share of Common Stock is (i) greater than 120% of the exercise price for the first 1/3 of the awards, (ii) greater than 125% of the exercise price for the second 1/3 of the awards and (iii) greater than 130% of the exercise price for the final 1/3 of the awards. The exercise condition restricts the ability of the holders to exercise awards until certain service milestones have been reached such that (i) no more 43 than 1/3 of the awards may be exercised, if vested, on and after the first anniversary of the date of grant, (ii) no more than 2/3 of the awards may be exercised, if vested, on and after the second anniversary of the date of grant and (iii) all of the awards may be exercised, if vested, on and after the third anniversary of the date of grant. 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 officers, the Compensation 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 Compensation 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 Compensation 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 SARs will be made in annual grants occurring on March 1 of each year. In 2015, the Company also awarded annual equity grants on March 1. Prior to 2015, annual equity awards were made on December 1 of each year. After review and careful consideration by the Compensation Committee, the Company decided to continue the practice that began in 2015 of making annual awards on March 1 of each year. This date was selected because (i) it enables the Board 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. 44 Beginning in 2015, and due in part to the steep decline in energy company equity prices, the Compensation 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 Compensation 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 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 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 shareholder value. The Compensation Committee has considered the concept of risk as it relates to our compensation programs and has concluded that our 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. 45 (cid:129) The financial metrics used to determine the amount of an executive’s bonus are measures the Compensation Committee believes contribute to long-term shareholder value and ensure the continued viability of the Company. Moreover, the Compensation 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 200% 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. (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 our Common 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. 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 46 Restated Certificate of Incorporation, as amended, and our 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 shareholder returns by increasing the alignment between the interests of our employees and our shareholders. 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 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 Compensation 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 Compensation 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 Compensation 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 Compensation 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 2015 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 2016 and subsequent years, we believe that we are better 47 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. 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 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, 2015. Franklin Myers, Chairman David H. Barr James M. Lapeyre, Jr. John N. Seitz 48 SUMMARY COMPENSATION TABLE The following table summarizes the compensation paid to or earned by our named executive officers at December 31, 2015. Non-Equity Incentive Plan Option Awards Compensation Compensation All Other ($) ($) Name and Principal Position Year Stock Salary Bonus Awards ($) ($) ($) R. Brian Hanson . . . . . . . . . . . . 2015 560,769 — 294,633 215,164 2014 550,000 — 287,700 248,050 2013 490,000 — 214,800 235,000 President, Chief Executive Officer and Director Steven A. Bate . . . . . . . . . . . . . 2015 350,481 — 134,474 98,200 2014 316,616 — 114,050 211,169 Executive Vice President and Chief Financial Officer Kenneth G. Williamson . . . . . . . 2015 361,895 — 159,611 116,565 2014 372,320 — 81,400 148,830 2013 358,000 — 71,600 141,000 Executive Vice President and Chief Operating Officer, E&P Technology & Services Christopher T. Usher . . . . . . . . . 2015 353,808 — 64,501 47,119 2014 364,000 — 82,200 148,830 2013 350,000 — 71,600 141,000 Executive Vice President and Chief Operating Officer, E&P Operation Optimization 750,000 825,000 395,000 351,562 193,000 261,368 390,000 215,000 227,136 218,400 300,000 ($) 11,861 6,326 5,813 10,471 7,800 10,857 7,800 7,650 10,614 6,850 6,202 Total ($) 1,832,427 1,917,076 1,340,613 945,188 842,635 910,296 1,000,350 793,250 703,178 820,280 868,802 Jamey S. Seely . . . . . . . . . . . . . . 2015 327,115 — 73,359 53,579 262,500 7,390 723,943 Executive Vice President, General Counsel and Corporate Secretary 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 2015 described in the ‘‘2015 Grants of Plan-Based Awards’’ table below: (cid:129) On December 1, 2013, Mr. Hanson received an award of 4,000 shares of restricted stock. (cid:129) On March 1, 2014, Mr. Hanson received an award of 4,666 shares of restricted stock. (cid:129) On March 1, 2014, Mr. Bate received an award of 1,000 shares of restricted stock. (cid:129) On December 1, 2014, Mr. Bate received an award of 1,333 shares of restricted stock. (cid:129) On December 1, 2013, Mr. Williamson received an award of 1,333 shares of restricted stock. (cid:129) On March 1, 2014, Mr. Williamson received an award of 1,333 shares of restricted stock. (cid:129) On December 1, 2013, Mr. Usher received an award of 1,333 shares of restricted stock. (cid:129) On March 1, 2014, Mr. Usher received an award of 1,333 shares of restricted stock. 49 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, Shareholders’ 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, 2015. 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 2015 described in the ‘‘2015 Grants of Plan-Based Awards’’ table below: (cid:129) On December 1, 2013, Mr. Hanson received an award of options to purchase 6,666 shares of our Common Stock for an exercise price of $57.90 per share. (cid:129) On March 1, 2014, Mr. Hanson received an award of options to purchase 6,666 shares of our Common Stock for an exercise price of $61.05 per share. (cid:129) On March 1, 2014, Mr. Bate received an award of options to purchase 3,333 shares of our Common Stock for an exercise price of $61.05 per share. (cid:129) On December 1, 2014, Mr. Bate received an award of options to purchase 4,000 shares of our Common Stock for an exercise price of $37.05 per share. (cid:129) On December 1, 2013, Mr. Williamson received an award of options to purchase 4,000 shares of our Common Stock for an exercise price of $57.90 per share. (cid:129) On March 1, 2014, Mr. Williamson received an award of options to purchase 4,000 shares of our Common Stock for an exercise price of $61.05 per share. (cid:129) On December 1, 2013, Mr. Usher received an award of options to purchase 4,000 shares of our Common Stock for an exercise price of $57.90 per share. (cid:129) On March 1, 2014, Mr. Usher received an award of options to purchase 4,000 shares of our Common Stock for an exercise price of $61.05 per share. Other Columns. All payments of non-equity incentive plan compensation reported for 2015 were made in February 2016 with regard to the 2015 fiscal year and were earned and paid pursuant to our 2015 incentive plan. We do not sponsor for our employees (i) any defined benefit or actuarial pension plans (including supplemental plans), (ii) any non-tax-qualified deferred compensation plans or arrangements or (iii) any nonqualified defined contribution plans. Our general policy is that our executive officers do not receive any executive ‘‘perquisites,’’ or any other similar personal benefits that are different from what our salaried employees are entitled to receive. We provide the named executive officers with certain group life, health, medical and other non-cash benefits generally available to all salaried employees, which are not included in the ‘‘All Other Compensation’’ column in the Summary Compensation Table pursuant to SEC rules. The amounts shown in the ‘‘All Other Compensation’’ column solely consist of employer matching contributions to ION’s 401(k) plan. 50 2015 GRANTS OF PLAN-BASED AWARDS Estimated Future Payouts Under Non-Equity Incentive Plan Awards(1)(2) Name Grant Threshold Target Maximum Date ($) ($) ($) All Other All Other Stock Awards: Option Awards: Number of Shares of Stock or Units (#)(3) Number of Securities Underlying Options (#)(4) Exercise or Base Price of Option Awards ($/Sh) Grant Date Fair Value of Stock and Option Awards ($)(5) R. Brian Hanson . . . . — 3/1/2015 — 560,769 — — Steven A. Bate . . . . . . Kenneth G. Williamson Christopher T. Usher . . Jamey S. Seely . . . . . . — 87,260 — 3/1/2014 — 90,474 — 3/1/2015 — 88,452 — 3/1/2015 — 81,779 — 3/1/2015 210,289 — 271,421 — 212,285 — 196,269 — 841,154 — 350,481 — 361,895 — 353,808 — 327,115 — — 8,615 — 3,932 — 4,667 — 1,886 — 2,145 — 12,923 — 5,898 — 7,001 — 2,830 — 3,218 — 34.20 — 34.20 — 34.20 — 34.20 — 34.20 — 509,797 — 232,674 — 276,176 — 111,620 — 126,938 (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 2015, 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 100% 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 150% 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 2015 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, 2015 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, 2015 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 prices for the options reflected in the above chart equal or exceed the fair market value per share of our Common Stock on the date of grant (on February 27, 2015, the last completed trading day prior to the March 1, 2015 grant date, the closing price per share on the NYSE was $34.20). (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, ‘‘Shareholders’ 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, 2015. 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 51 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 Restated Certificate of Incorporation, as amended, 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 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. 52 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 Restated Certificate of Incorporation, as amended, 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 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. 53 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, 2015: Option Awards(1) Stock Awards(2) Name R. Brian Hanson . . . . . . . . . . . . . . Steven A. Bate . . . . . . . . . . . . . . . . Kenneth G. Williamson . . . . . . . . . . Christopher T. Usher . . . . . . . . . . . . Jamey S. Seely . . . . . . . . . . . . . . . . Number of Securities Underlying Unexercised Options (#) Exercisable Number of Securities Underlying Unexercised Options (#) Unexercisable Option Exercise Price ($) 5,000 1,333 4,000 1,166 9,333(4) 16,666 3,750 3,333 1,666 — — 1,666 5,000 1,166 833 1,000 — — 4,666 1,066 2,333 3,333 1,466 5,000 2,333 3,333 2,499 2,000 1,000 — — 2,499 2,000 1,000 — — 1,000 — — — — — — — — 1,250 3,333 5,000 12,923 53,557(5) 1,667 — 1,167 2,500 3,000 5,898 24,444(5) — — — — — — — — 834 2,000 3,000 7,001 29,013(5) 834 2,000 3,000 2,830 11,728(5) 3,000 3,218 13,339(5) 130.95 149.55 231.45 45.00 45.00 106.05 89.40 57.90 61.05 34.20 34.20 95.85 95.85 57.90 61.05 37.05 34.20 34.20 162.75 231.45 45.00 42.45 81.60 68.70 107.85 87.15 89.40 57.90 61.05 34.20 34.20 89.40 57.90 61.05 34.20 34.20 37.05 34.20 34.20 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 3/1/2025 3/1/2025 6/1/2023 6/1/2023 12/1/2023 3/1/2024 12/1/2024 3/1/2025 3/1/2025 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 3/1/2025 3/1/2025 12/1/2022 12/1/2023 3/1/2024 3/1/2025 3/1/2025 12/1/2024 3/1/2025 3/1/2025 Number of Shares or Units of Stock That Have Not Vested (#) Market Value of Shares or Units of Stock That Have Not Vested ($)(3) 13,059 97,943 6,263 46,973 5,999 44,993 3,218 24,135 3,033 22,748 (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. 54 (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 $7.50 (the closing price per share of our Common Stock on the NYSE on December 31, 2015). (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. (5) The amounts shown reflect awards of cash-settled SARs granted on March 1, 2015 under our Stock Appreciation Rights Plan. The vesting of the SARs is achieved through both a market condition and a service condition. The market condition is achieved, in part or in full, in the event that during the four-year period beginning on the date of grant the 20-day trailing volume-weighted average price of a share of Common Stock is (i) greater than 120% of the exercise price for the first 1/3 of the awards, (ii) greater than 125% of the exercise price for the second 1/3 of the awards and (iii) greater than 130% of the exercise price for the final 1/3 of the awards. The exercise condition restricts the ability of the holders to exercise awards until certain service milestones have been reached such that (i) no more than 1/3 of the awards may be exercised, if vested, on and after the first anniversary of the date of grant, (ii) no more than 2/3 of the awards may be exercised, if vested, on and after the second anniversary of the date of grant and (iii) all of the awards may be exercised, if vested, on and after the third anniversary of the date of grant. (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 2015 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, 2015: 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) . . . . . . . . . . . . . . . . . . . . . . . . Steven A. Bate(3) . . . . . . . . . . . . . . . . . . . . . . . . . Kenneth G. Williamson(4) . . . . . . . . . . . . . . . . . . . Christopher T. Usher(5) . . . . . . . . . . . . . . . . . . . . . Jamey S. Seely(6) . . . . . . . . . . . . . . . . . . . . . . . . . . — — — — — — — — — — 3,889 1,557 1,224 2,001 445 72,086 28,168 21,529 27,823 3,605 (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) 1,555 shares by $34.20 (the closing price per share of our Common Stock on the NYSE on March 2, 2015, the first NYSE trading date after his March 1, 2015 vesting date) and (b) 2,334 shares by $8.10 (the closing price per share of our Common Stock on the NYSE on the December 1, 2015 vesting date). 55 (3) The value realized by Mr. Bate on the vesting of his restricted stock awards was calculated by multiplying (a) 334 shares by $34.20 (the closing price per share of our Common Stock on the NYSE on March 2, 2015, the first NYSE trading date after his March 1, 2015 vesting date); 556 shares by $20.40 (the closing price per share of our Common Stock on the NYSE on June 1, 2015) and (b) 667 shares by $8.10 (the closing price per share of our Common Stock on the NYSE on the December 1, 2015 vesting date). (4) The value realized by Mr. Williamson on the vesting of his restricted stock awards was calculated by multiplying (a) 445 shares by $34.20 (the closing price per share of our Common Stock on the NYSE on March 2, 2015, the first NYSE trading date after his March 1, 2015 vesting date) and (b) 779 shares by $8.10 (the closing price per share of our Common Stock on the NYSE on the December 1, 2015 vesting date). (5) The value realized by Mr. Usher on the vesting of his restricted stock awards was calculated by multiplying (a) 445 shares by $34.20 (the closing price per share of our Common Stock on the NYSE on March 2, 2015, the first NYSE trading date after his March 1, 2015 vesting date) and (b) 1,556 shares by $8.10 (the closing price per share of our Common Stock on the NYSE on the December 1, 2015 vesting date). (6) The value realized by Ms. Seely on the vesting of her restricted stock awards was calculated by multiplying 445 shares by $8.10 (the closing price per share of our Common Stock on the NYSE on the December 1, 2015 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, 2015, 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 Compensation 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 Compensation 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, 2015. 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, 2015, benefits paid to the named executive 56 officer in fiscal 2015 and stock and option holdings of the named executive officer as of December 31, 2015. The summaries assume a price per share of ION Common Stock of $7.50 per share, which was the closing price per share on December 31, 2015, as reported on the NYSE. The actual amounts to be 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 price of our Common Stock, 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 57 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 of directors 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. 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, all unvested restricted stock awards granted to him under the 2004 LTIP or the 2013 LTIP will automatically accelerate and become fully vested, and all unvested stock appreciation rights granted to him under the 2008 Stock Appreciations Rights Plan will become fully exercisable. 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. 58 We believe the double-trigger change-of-control benefit referenced above maximizes shareholder 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 unvested options, restricted stock and stock appreciation rights that Mr. Hanson holds would automatically accelerate and become fully vested. Upon his retirement, all unvested options and stock appreciation rights that Mr. Hanson holds would automatically accelerate and become fully vested. No unvested 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 stock appreciation rights 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, unvested restricted stock, and vested and unvested stock appreciation rights 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, 2015, 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 ($)(2) 1,121,538 1,121,538 1,121,538 1,121,538 — — — — — — Insurance Tax Continuation Gross-Ups ($)(3) 35,840 35,840 — — — ($) — — — — — Value of Accelerated Equity Awards ($)(4) — 97,943 97,943 — — (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 2015 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. 59 (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 insurance as in effect on December 31, 2015, less the amount of premiums to be paid by Mr. Hanson for such coverage. (4) As of December 31, 2015, Mr. Hanson held 13,059 unvested shares of restricted stock and unvested stock options to purchase 22,506 shares of Common Stock and 53,557 shares of cash-settled stock appreciation rights. The options and stock appreciation rights held by Mr. Hanson had an exercise price greater than $7.50, therefore, these options and rights 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 13,059 shares by $7.50. 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 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, all restricted stock awards granted to him under the 2004 LTIP or the 2013 LTIP will automatically accelerate and become fully vested, and all unvested stock appreciation rights granted to him under the 2008 Stock Appreciations Rights Plan will become fully exercisable. 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. 60 Upon his death or disability, all unvested options, restricted stock and stock appreciation rights that Mr. Bate holds would automatically accelerate and become fully vested. Upon his retirement, all unvested options and stock appreciation rights that Mr. Bate holds would automatically accelerate and become fully vested. No unvested 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 and stock appreciation rights 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, unvested restricted stock, and vested and unvested stock appreciation rights will be immediately forfeited. Assuming Mr. Bate employment was terminated under each of these circumstances or a change of control occurred on December 31, 2015, 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 ($)(2) Insurance Continuation ($)(3) 700,962 — 700,962 — 18,755 18,755 — — — — — — — — — Value of Accelerated Equity Awards ($)(4) — 46,973 46,973 — — (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, 2015, less the amount of premiums to be paid by Mr. Bate for such coverage. (4) As of December 31, 2015, Mr. Bate held 6,263 unvested shares of restricted stock and unvested stock options to purchase 14,232 shares of Common Stock and 24,444 unvested shares of cash-settled Stock Appreciation Rights (SARs). Options and stock appreciation rights held by him had an exercise price greater than $7.50 and 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 6,263 shares by $7.50. 61 Kenneth G. Williamson Mr. Williamson is not entitled to receive any contractual severance pay if we terminate his employment without cause. Upon a ‘‘Plan Change of Control’’ (see ‘‘—R. Brian Hanson—Change of Control Under Equity Compensation Plans’’ above), all of his unvested stock options granted to him under the 2004 LTIP or the 2013 LTIP will become fully exercisable, all unvested restricted stock awards granted to him under the 2004 LTIP or the 2013 LTIP will automatically accelerate and become fully vested, and all unvested stock appreciation rights granted to him under the 2008 Stock Appreciations Rights Plan will become fully exercisable. Upon his death or disability, all unvested options, restricted stock and stock appreciation rights that Mr. Williamson holds would automatically accelerate and become fully vested. Upon his retirement, all unvested options and stock appreciation rights that Mr. Williamson holds would automatically accelerate and become fully vested. No unvested shares of restricted stock held by Mr. Williamson would automatically accelerate and become fully vested upon his retirement. The vested stock options and stock appreciation rights held by Mr. Williamson will remain exercisable after his termination of employment, death, disability or retirement for periods of between three months and one year following such event, depending on the event and the terms of the applicable stock plan and grant agreement. If Mr. Williamson is terminated for cause, all of his vested and unvested stock options, unvested restricted stock, and vested and unvested stock appreciation rights will be immediately forfeited. Assuming his employment was terminated under each of these circumstances or a change of control occurred on December 31, 2015, his payments and benefits would have an estimated value as follows (less applicable withholding taxes): Scenario Cash Severance ($)(1) Value of Accelerated Equity Awards ($)(2) Without Cause . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Change of Control (regardless of termination), Death or Disability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Retirement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Voluntary Termination . . . . . . . . . . . . . . . . . . . . . . . . . — — — — — 44,993 — — (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, 2015, Mr. Williamson held 5,999 unvested shares of restricted stock and unvested stock options to purchase 12,835 shares of Common Stock and 29,013 unvested shares of cash-settled Stock Appreciation Rights (SARs). Options and SARs held by him had an exercise price greater than $7.50 and 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 5,999 shares by $7.50. Christopher T. Usher Mr. Usher is not entitled to receive any contractual severance pay if we terminate his employment without cause. Upon a ‘‘Plan Change of Control’’ (see ‘‘—R. Brian Hanson—Change of Control Under Equity Compensation Plans’’ above), all of his unvested stock options granted to him under the 2004 62 LTIP or the 2013 LTIP will become fully exercisable, all restricted stock awards granted to him under the 2004 LTIP or the 2013 LTIP will automatically accelerate and become fully vested, and all unvested stock appreciation rights granted to him under the 2008 Stock Appreciations Rights Plan will become fully exercisable. Upon his death or disability, all unvested options, restricted stock and stock appreciation rights that Mr. Usher holds would automatically accelerate and become fully vested. Upon his retirement, all unvested options and stock appreciation rights that Mr. Usher holds would automatically accelerate and become fully vested. No unvested shares of restricted stock held by Mr. Usher would automatically accelerate and become fully vested upon his retirement. The vested stock options and stock appreciation rights held by Mr. Usher will remain exercisable after his termination of employment, death, disability or retirement for periods of between three months and one year following such event, depending on the event and the terms of the applicable stock plan and grant agreement. If Mr. Usher is terminated for cause, all of his vested and unvested stock options, unvested restricted stock, and vested and unvested stock appreciation rights will be immediately forfeited. Assuming his employment was terminated under each of these circumstances or a change of control occurred on December 31, 2015, his payments and benefits would have an estimated value as follows (less applicable withholding taxes): Scenario Cash Severance ($)(1) Value of Accelerated Equity Awards ($)(2) Without Cause . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Change of Control (regardless of termination), Death or Disability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Retirement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Voluntary Termination . . . . . . . . . . . . . . . . . . . . . . . . . — — — — — 24,135 — — (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, 2015, Mr. Usher held 3,218 unvested shares of restricted stock and unvested stock options to purchase 8,664 shares of Common Stock and 11,728 shares of unvested cash-settled Stock Appreciation Rights (SARs). Options and stock appreciation rights held by him had an exercise price greater than $7.50 and 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 3,218 shares by $7.50. Jamey S. Seely Ms. Seely is not entitled to receive any contractual severance pay if we terminate her employment without cause. Upon a ‘‘Plan Change of Control’’ (see ‘‘—R. Brian Hanson—Change of Control Under Equity Compensation Plans’’ above), all of her unvested stock options granted to her under the 2013 LTIP will become fully exercisable, all unvested restricted stock awards granted to her under the 2013 LTIP will automatically accelerate and become fully vested, and all unvested stock appreciation rights granted to her under the 2008 Stock Appreciations Rights Plan will become fully exercisable. Upon her death or disability, all unvested options, restricted stock and stock appreciation rights that Ms. Seely holds would automatically accelerate and become fully vested. Upon her retirement, all unvested options and stock appreciation rights that Ms. Seely holds would automatically accelerate and become 63 fully vested. No shares of unvested restricted stock held by Ms. Seely would automatically accelerate and become fully vested upon her retirement. The vested stock options and stock appreciation rights held by Ms. Seely will remain exercisable after her termination of employment, death, disability or retirement for periods of between three months and one year following such event, depending on the event and the terms of the applicable stock plan and grant agreement. If Ms. Seely is terminated for cause, all of her vested and unvested stock options, unvested restricted stock, and vested and unvested stock appreciation rights will be immediately forfeited. Assuming her employment was terminated under each of these circumstances or a change of control occurred on December 31, 2015, her payments and benefits would have an estimated value as follows (less applicable withholding taxes): Scenario Cash Severance ($)(1) Value of Accelerated Equity Awards ($)(2) Without Cause . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Change of Control (regardless of termination), Death or Disability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Retirement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Voluntary Termination . . . . . . . . . . . . . . . . . . . . . . . . . — — — — — 22,748 — — (1) If Ms. Seely resigns or her employment is terminated for any reason, she may be paid for her unused vacation days. Ms. Seely 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, 2015, Ms. Seely held 3,033 unvested shares of restricted stock and unvested stock options to purchase 6,218 shares of Common Stock and 13,339 unvested cash-settled Stock Appreciation Rights (SARs). Options and SARs held by her had an exercise price greater than $7.50 and 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 3,033 shares by $7.50. 2015 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. Equity Compensation Plan Information (as of December 31, 2015) 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 64 previously approved by our shareholders and (ii) the equity compensation plans not previously approved by our shareholders: 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 Shareholders 2003 Stock Option Plan . . . . . . . . . . . . 2004 Long-Term Incentive Plan (‘‘2004 2,665 LTIP’’) . . . . . . . . . . . . . . . . . . . . . . 448,254 2013 Long-Term Incentive Plan (‘‘2013 LTIP’’) . . . . . . . . . . . . . . . . . . . . . . 2010 Employee Stock Purchase Plan . . Subtotal . . . . . . . . . . . . . . . . . . . . . . . Equity Compensation Plans Not Approved by Shareholders ARAM Systems Employee Inducement Stock Option Program . . . . . . . . . . . Subtotal . . . . . . . . . . . . . . . . . . . . . . . 102,354 — 553,273 7,524 7,524 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . 560,797 $194.95 $ 97.24 $ 45.22 — $211.50 — — 97,003 51,341 148,344 — — 148,344 Following is a brief description of the material terms of the equity compensation plan that was not approved by our shareholders: 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. 65 ITEM 2—ADVISORY (NON-BINDING) VOTE TO APPROVE EXECUTIVE COMPENSATION As required by Section 14A of the Exchange Act, we are asking our shareholders 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 2015 Annual Meeting, our shareholders approved our non-binding advisory vote to approve the compensation of our named executive officers, with more than 76% 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 shareholders’ 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 shareholder 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 shareholder 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 shareholder interests. We believe that our executive compensation program continues to drive and promote superior financial performance for our Company and our shareholders over the long term through a variety of business conditions. We have regularly sought approval from our shareholders regarding portions of our compensation program that we have used to motivate, retain and reward our executives. Since 2000, our shareholders have voted on and approved our equity compensation plans (and amendments to those plans) thirteen times, in addition to approving our overall executive compensation program for each of the last six 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 shareholder input. Because the vote is advisory, however, it will not be binding upon our Board 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 2016, our next say-on-pay vote will occur at our next Annual Meeting scheduled to be held in May 2017. 66 Accordingly, our Board strongly endorses the Company’s executive compensation program and recommends that shareholders vote in favor of the following advisory resolution: RESOLVED, that the shareholders 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 2016 Annual Meeting of Shareholders. We encourage our shareholders 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 to reach its decisions on the compensation of our named executive officers for 2016. 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 recommends that shareholders 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, 2016. Grant Thornton served as our independent auditors for 2015. The Board recommends that shareholders vote ‘‘FOR’’ ratification of the appointment of Grant Thornton as our independent auditors for 2016. In the event shareholders 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. 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 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. 67 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 2015, and early in 2016 in preparation for the filing with the SEC of ION’s Annual Report on Form 10-K for the year ended December 31, 2015, 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 the inclusion of the audited financial statements of ION and its subsidiaries in the 2015 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 five times during 2015. The Audit Committee schedules its meetings with a view to ensuring that it devotes appropriate attention to all of its tasks. The Audit 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 68 reporting principles or policies, or appropriate internal controls and procedures designed to assure compliance with accounting standards and applicable laws and regulations. Furthermore, the Audit 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. 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, 2015. 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 did not consult 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 69 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. PRINCIPAL AUDITOR FEES AND SERVICES In connection with the audit of the 2015 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 2015 and 2014: Fees 2015 2014 Audit Fees(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Audit-Related Fees(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . Tax Fees(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . All Other Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,049,200 — — — $ $1,299,709 — — 15,900 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,049,200 $1,315,609 (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 Audit Committee or a member of the Audit 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, 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 shareholders by its authority. 18MAR201500045204 Jamey S. Seely Executive Vice President, General Counsel and Corporate Secretary Houston, Texas April 14, 2016 The 2015 Annual Report to Shareholders includes our financial statements for the fiscal year ended December 31, 2015. We have mailed a notice of the 2015 Annual Report to Shareholders and this Proxy Statement to all of our shareholders of record. The 2015 Annual Report to Shareholders does not form any part of the material for the solicitation of proxies. 71 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 Form 10-K (Mark One) (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, 2015 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:3) Accelerated filer (cid:2) Non-accelerated filer (cid:3) (Do not check if a smaller reporting company) Smaller reporting company (cid:3) 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, 2015 (the last business day of the registrant’s second quarter of fiscal 2015), the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was $165.1 million based on the closing sale price per share ($16.05) on such date as reported on the New York Stock Exchange. On February 4, 2016, we completed a one-for-fifteen reverse stock split and our stock began trading on a reverse-split basis on February 5, 2016. The closing sale price has been retroactively adjusted to reflect the one-for-fifteen reverse stock split completed on February 4, 2016. As of February 5, 2016, the number of shares of common stock, $0.01 par value, outstanding was 10,567,558 shares. The number of shares has been retroactively adjusted to reflect the one-for-fifteen reverse stock split completed on February 5, 2016. DOCUMENTS INCORPORATED BY REFERENCE Document Parts Into Which Incorporated Portions of the registrant’s definitive Proxy Statement for its Annual Meeting of Stockholders scheduled to be held on May 18, 2016, to be filed pursuant to Regulation 14A . . . . . . . . . . . . . . Part III TABLE OF CONTENTS PART I Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 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. Item 11. Item 12. Item 13. Item 14. Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . . Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Certain Relationships and Related Transactions, and Director Independence . . . . . . . Principal Accounting Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . PART IV Page 3 17 39 39 39 41 42 43 45 68 69 69 69 72 72 72 72 72 72 Item 15. Exhibits and Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Index to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73 79 F-1 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 E&P operations to reduce their risk in exploration and reservoir development. We acquire, process and interpret 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 most major energy producing regions of the world from strategically located offices in 27 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 multicomponent imaging 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:4) 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 2015, we completed field testing of our 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 26% of our employees have advanced degrees. Solutions. Our Solutions business provides two distinct service activities that often work together. 3 Our Ventures group (formerly known as our GeoVentures(cid:4) group) provides services 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 Ventures 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 Imaging Services group (formerly known as 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. This group develops a series of subsurface images by applying its processing technology to data owned or licensed by its customers. We maintain more than 15 petabytes of seismic data digital information storage in 4 global data centers, including two core data centers located in Houston and in the U.K. 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 East and 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. Our E&P Advisors group partners with E&P operators, energy industries and capital institutions to capture and monetize E&P opportunities worldwide. This group provides technical, commercial and strategic advice across the exploration and production value chain, working at basin, prospect and field scales. Software. Our Software business provides command and control software systems, related software and services for towed marine streamer and ocean bottom seismic 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 ocean bottom seismic monitoring systems. In 2013, we introduced our Narwhal for ice management system, and in 2015, we completed field testing our 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 (for OceanGeo’s use in OBS data acquisition); (ii) marine towed streamer positioning and control systems; and (iii) geophone sensors. Ocean Bottom Services (‘‘OBS’’). 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 designed to maximize seismic image quality, operational efficiency and safety. The integrated OBS solution includes expert survey design, planning and optimization, superior data captured using multicomponent acquisition systems available exclusively to OceanGeo; data acquisition by the experienced team at OceanGeo; and data processing, interpretation and reservoir services, by our Imaging Services experts. For information regarding our acquisition of OceanGeo, see Footnote 14 ‘‘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 4 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. 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 15 ‘‘Equity 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 ocean bottom 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 ocean floor. 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 contractor 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 Imaging Services group 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 5 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 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 3-D 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 4-D 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, and into 2014 with oil prices exceeding $100 per barrel, and U.S. oil production surged far beyond what even the most optimistic forecasts predicted. 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. Between January 1, 2015 and December 31,2015, WTI and Brent crude oil prices dropped by approximately 30%. Throughout 2014, and 2015, and continuing into 2016, oil companies began prioritizing shareholder returns and cash flow generation over hydrocarbon resource growth, minimizing discretionary spending 6 and shifting their focus from exploration to production. This shift, which has been magnified by the effect of very low global oil prices in 2015 and 2016, is causing a contraction in E&P spending on seismic for exploration purposes. When spending on seismic for exploration purposes contracts, 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 our Company 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 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 internally developed technology, including CalypsoTM, our newest OBS data acquisition system. (cid:129) Expand and globalize our Solutions business. We seek to expand and grow our Solutions business into new regions, with new customers and new offerings, including proprietary services for E&P companies through our imaging services and Ventures multi-client businesses. Historically known for our 2-D programs, we entered the 3-D multi-client market in 2013 by acquiring and processing our first survey offshore Ireland. 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 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, our Narwhal ice management system, our Marlin simultaneous operations software, and derivative products, with the goal of obtaining technical and market leadership in what we continue to believe are important and expanding markets. In 2015, our total investment in research and development and engineering was equal to approximately 12% 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 7 regional organizations who understand the unique challenges in their areas. We formed an E&P Advisors group in 2015 designed to focus specifically on this element of our strategy. 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 for both towed streamer and ocean bottom seismic services, 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, as we have experienced in 2014 and 2015. 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 a vast majority of the total cost of each new project’s data acquisition to be underwritten by our customers. We believe this conservative approach to data library investment is the most prudent way to reduce the impact of any sudden reduction in the demand for seismic data giving us the flexibility to aggressively reduce cash outflows as we have successfully implemented in the current 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 2015 E&P companies accounted for approximately 70% 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 2013, 2014 or 2015. 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: Ventures—Our Ventures 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, we have 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 ION consists of ultra-deep 2-D seismic data that E&P companies use to evaluate petroleum reservoirs 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, and in 2013, we jointly acquired and processed our first 3-D survey offshore Ireland. 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 2014, 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 decline in crude oil prices to 12-year lows negatively impacted the economic outlook of our E&P customers. In response to the decline in crude oil prices, E&P companies 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 in 2014 and 2015. Sales of Arctic programs have been specifically impacted by events in Russia and the U.S. government canceling future license rounds 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, both contributed to the devaluation of the Russian ruble which placed significant pressure on our Russian-based customers and negatively impacted the appeal of seismic data located in Russia to potential non-Russian buyers. In 2015, further declines in oil prices caused in part by the oversupply of crude oil, including the Iran nuclear deal, which allows Iran to export more oil, has caused concerns about further increasing supply. These events have continued to impact North America. 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 62% since late November 2014. 9 Seismic Data Processing Services—Our Imaging Services group is a strong market participant in advanced marine, and land 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 Imaging team 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. In 2015, the focus of our Imaging team has been on the application of our differentiated technology, expertise and access to BasinSPAN data to work with key customers to deliver seismic velocity models and images consistent with geology. In 2015, we released our next generation data processing system, Perseus, which removes our dependence on third party software and has yielded improvements of over four times on our key processes. In a low oil price environment ION Imaging has increasingly adapted to meet the growing need to deliver high value information by reprocessing old data with the latest imaging technology. In addition to processing our own multi-client BasinSPAN 2-D programs and regionally calibrated 3-D programs, our proprietary processing and imaging business has been focused on key customers with complex 3-D imaging challenges predominantly in the marine environment—both towed streamer and seabed. Our focus on close collaboration with key customers has been rewarded by repeat business such as the recent award of a contract extension from PEMEX. Quantitative Interpretation—The Imaging Services 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, 2015, our Solutions segment backlog, which consists of commitments for (i) data processing work and (ii) both multi-client new venture and proprietary projects that have been underwritten, has declined to $19.2 million compared with $46.7 million at December 31, 2014. Our Solutions segment’s fiscal-year-end backlog includes signed contracts that we can usually fulfill within approximately six months. Investments in our multi-client data library are dependent upon the timing of our new ventures projects and the availability of underwriting by our customers. Our asset light strategy enables us to scale our business to avoid significant fixed costs and to remain financially flexible as we manage the timing and levels of our capital expenditures. E&P Advisory Services—Our E&P Advisors group partners with E&P operators, energy industries and capital institutions to capture and monetize E&P opportunities worldwide. This group provides technical, commercial and strategic advice across the exploration and production value chain, working at basin, prospect and field scales. E&P Advisors couple ION’s proven technical capabilities with the industry’s best commercial and strategic minds to deliver fit-for-purpose solutions, employing a variety of commercial models specific to our clients’ needs. 10 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 Software 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. Ocean Bottom Navigation System—Gator II is our integrated navigation and data management system for multi-vessel OBS, electromagnetic 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 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, and 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 and commercialize our 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 ocean bottom seismic imaging is growing. E&P companies have shown increased interest in ocean bottom seismic activities, consistent with their desire for higher-quality seismic imaging for complex geological formations and more detailed reservoir characteristics. Since introducing our first ocean bottom acquisition system, VSO, in 2004, we have continued to develop advanced ocean bottom 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 11 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 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. DigiBIRD II(cid:4) are designed to maintain streamers at pre-defined target depths more safely, efficiently, and cost effectively than ever before by eliminating workboat operations for battery changes on the majority of seismic surveys. 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 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 geophones are used in other industries as well. Ocean Bottom Services Segment ION offers a fully-integrated OBS solution that includes expert survey design, planning and optimization, to maximize seismic image quality, 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 through ION. 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. 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 15 ‘‘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 2015, our research and development 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 12 invested in Marlin, a 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 marine ocean bottom 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 Imaging Services group, multi-client seismic data programs from our Ventures group, and OBS data acquisition services through OceanGeo, as well as consulting services from our E&P Advisors and Software group. Secondarily, seismic contractors purchase our towed streamer 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. 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 2015, 2014 and 2013, sales to destinations outside of North America accounted for approximately 66%, 74% and 73% 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 3 ‘‘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 Imaging Services 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 13 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 libraries. BGP also competes in this space by primarily partnering with other competitors to develop and sell data libraries. In the OBS market, OceanGeo competes with a number of companies, including WesternGeco, Fairfield Nodal, Seabed GeoSolutions (a joint venture of Fugro and CGG), Magseis and BGP. The OBS market primarily addresses the production end of the E&P business. This market is primarily vertically integrated with a variety of proprietary technologies, comprising both cable and nodal systems. Most companies operate one to three crews, and there have been three new entrants in the last few years. 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 (a manufacturing subsidiary of CGG). Sercel has the advantage of being able to sell its products and services to its parent company that operates both land 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 a competitive advantage through products such as Geostreamer. 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, and ocean bottom 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 continued reductions 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 decrease by six, to approximately 88 vessels total. This 2017 projection has decreased by 30 vessels from the projection one year ago. 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 has resulted in 50% 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. In the land seismic equipment market, where INOVA competes, the principal competitors are Sercel 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. 14 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.’’ 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), ORCA(cid:4), REFLEX(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,’’ ‘‘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), 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. 15 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. 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, 2015, we had 560 regular, full-time employees, 362 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 3 ‘‘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. 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. 16 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 levels of capital expenditures of our customers for seismic activities; (cid:129) future oil and gas commodity prices; (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) future cash needs and future availability to fund our operations and pay our obligations; (cid:129) the effects of current and future unrest in the Middle East, North Africa and other regions; (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, pertaining to the oil and gas industry; (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 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; (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; 17 (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 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 June 2009, WesternGeco L.L.C. (‘‘WesternGeco’’) filed a lawsuit, styled WesternGeco L.L.C. v. ION Geophysical Corporation, against us in the United States District Court for the Southern District of Texas, Houston Division (for additional information, see Item 3. ‘‘Legal Proceedings’’ below). In the lawsuit, 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, 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 (the ‘‘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 against us in the amount of $123.8 million. The Final Judgment also included an injunction that enjoins us, our agents and anyone 18 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 district 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. We and WesternGeco each appealed the Final Judgment to the United States Court of Appeals for the Federal Circuit in Washington, D.C. On July 2, 2015, the Court of Appeals reversed in part the Final Judgment, holding the district court erred by including lost profits in the Final Judgment. Lost profits were $93.4 million and prejudgment interest on the lost profits was approximately $10.9 million of the $123.8 million Final Judgment award. Pre-judgment interest on the lost profits portion will be treated in the same way as the lost profits. Post-judgment interest will likewise be treated in the same fashion. On July 29, 2015, WesternGeco filed a petition for rehearing en banc before the Court of Appeals. On October 30, 2015, the Court of Appeals denied WesternGeco’s petition for rehearing en banc. WesternGeco has up to 90 days to determine whether or not it will file a writ of certiorari requesting that the U.S. Supreme Court review the Court of Appeals’ decision. On January 14, 2016, WesternGeco filed a motion to extend until February 26, 2016 the period of time it has to file a writ of certiorari requesting that the U.S. Supreme Court review the Court of Appeals’ decision. WesternGeco has also filed a motion requesting that the district court enforce the approximately $22.0 million in royalty damages without regard to whether or not WesternGeco files a writ of certiorari with the U.S. Supreme Court. We have opposed the motion and it has not yet been scheduled for a hearing. As previously disclosed, we had previously taken a loss contingency accrual of $123.8 million. As a result of the reversal by the Court of Appeals, as of June 30, 2015, we reduced our loss contingency accrual to its current amount of $22.0 million. 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. 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 on May 9, 2014. 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 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 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. On November 12, 2015, we have received a request for $11.0 million in collateral, and negotiations with the sureties regarding the request are ongoing. 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. 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 19 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 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. Since early 2014, crude oil prices have dropped by approximately 50%-70% 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. 20 The weakening economic outlook for non-U.S. oil demand, especially in China, 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 2015 compared to 2014. In 2013 continuing through 2015, 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. 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 leading up to the fourth quarter of 2014, many E&P companies turned their focus more to production activities and less on exploration of prospects during 2015 as the continued decline in oil and gas prices resulted in decreasing revenues and prompted cost reduction initiatives across the industry. The World Bank recently slashed its forecast for oil prices for 2016, indicating that the cost of a barrel of crude is expected to stay near its current lows for the rest of 2016. One recent survey indicated that upstream oil and gas companies plan to reduce spending by 15% globally in 2016, following a 23% decline in 2015, representing only the second time spending has declined in consecutive years since 1986 and 1987. As of December 31, 2015, our Solutions segment backlog, consisting of commitments for data processing work and for underwritten multi-client new venture and proprietary projects by our was 59% less than our backlog existing as of December 31, 2014. Our Solutions backlog consists of commitments for both (i) data processing work, and (ii) multi-client new venture and proprietary projects largely underwritten by our customers. The decline in our backlog was primarily due to (i) the softening of customer underwriting for new ventures projects, and (ii) the delay of certain processing projects by customers. We expect the recently awarded contract extension from PEMEX to contribute toward rebuilding our backlog as additional work orders under this contract extension are received. Our operating results are subject to fluctuations from period to period as a result of introducing new services and products, 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, 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, 21 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 imaging and multi-client 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 starting in 2014 and continuing through 2015 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. Our indebtedness could adversely affect our liquidity, financial condition and our ability to fulfill our obligations and operate our business. As of December 31, 2015, we had approximately $186.3 million of total outstanding indebtedness, including $9.8 million of capital leases. As of December 31, 2015, there was no outstanding indebtedness under our Credit Facility. Under our Credit Facility, as amended, the lender has committed $40.0 million of revolving credit, subject to a borrowing base. As of December 31, 2015, we have full availability under the 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 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 May 2015, Moody’s Investor Services (‘‘Moody’s’’) downgraded our company’s corporate and debt ratings to Caa3. According to Moody’s, this downgrade reflects their 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 Moody’s and S&P 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; 22 (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. If we cannot meet the continued listing requirements of the New York Stock Exchange (the ‘‘NYSE’’), the NYSE may delist our common shares, which would have an adverse impact on the trading volume, liquidity and market price of our common shares. On August 11, 2015, we were notified by the NYSE that the average closing price of our common shares had fallen below $1.00 per share over a period of 30 consecutive trading days, which is the minimum average share price required by the NYSE under Section 802.01C of the NYSE Listed Company Manual. The notice has no immediate impact on the listing of our common shares, which will continue to be listed and traded on the NYSE during the six-month period described below, subject to our compliance with other listing standards, under the symbol ‘‘IO.’’ We have six months following receipt of the NYSE’s notice to regain compliance with the NYSE’s minimum share price requirement. We can regain compliance at any time during the six-month cure period if on the last trading day of any calendar month during the cure period our common shares have a closing share price of at least $1.00 and an average closing share price of at least $1.00 over the 30 trading-day period ending on the last trading day of such month. Notwithstanding the foregoing, if we determine that we must cure the price condition by taking an action that will require approval of our stockholders, we may also regain compliance by: (i) obtaining the requisite stockholder approval by no later than our next annual meeting, (ii) implementing the action promptly thereafter and (iii) the price of our common shares promptly exceeding $1.00 per share, and the price remaining above that level for at least the following 30 trading days. A delisting of our common shares from the NYSE would negatively impact us because it would: (i) reduce the liquidity and market price of our common shares; (ii) reduce the number of investors willing to hold or acquire our common shares, which could negatively impact our ability to raise equity financing; (iii) limit our ability to use a registration statement to offer and sell freely tradable securities, thereby preventing us from accessing the public capital markets, and (iv) impair our ability to provide equity incentives to our employees. On February 4, 2016, we completed a one-for-fifteen reverse stock split, and our stock began trading on a reverse-split adjusted basis on February 5, 2016. On February 5, 2016, the closing sale price for our common stock was $6.21 on the NYSE. We can provide no assurances that the reverse 23 stock split will lead to a sustained increase in our share price or that it will allow us to regain compliance with the NYSE listing standards. Even if the reverse stock split does cause us to regain compliance, there can be no assurance that our share price will continue to remain in compliance with this standard. Our share price may be adversely affected due to, among other things, our financial results, market conditions and market perception of our business. We may take steps to reduce or refinance outstanding debt, including the Notes, which could impact the market for our securities and negatively affect our liquidity. We may from time to time take steps to reduce or refinance outstanding debt, including the Notes, or otherwise to reduce interest expense and other debt service obligations. These steps may include open market repurchases, redemptions, maturity extensions, exchange offers and other retirements, purchases or refinancing of outstanding debt, including the Notes, in whole or in part, in addition to making any required scheduled installment payments. The implementation of any such steps would depend on prevailing market conditions, liquidity requirements, contractual restrictions and other factors. Any such repurchases or redemptions could negatively affect our liquidity. 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 OceanGeo subsidiary involves numerous risks. Our OceanGeo subsidiary is focused on operating as a seismic acquisition contractor concentrating on ocean bottom seismic (OBS) data acquisition. Although OceanGeo is actively pursuing several tenders for long-term work in 2016, the vessel was idle during 2015. There can be no assurance that we will achieve the expected benefits from this 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 further difficulties in developing and expanding its business. 24 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 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 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 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. 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 25 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 Credit Facility. See Footnote 4 ‘‘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 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 26 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) further consolidation of the participants within this market; (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. 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 27 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 2015, we invested approximately $45.6 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. 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. 28 A substantial portion (approximately 86% in 2015) 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 66%, 74% and 73% of our consolidated net revenues for 2015, 2014 and 2013, 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 in the future 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 or the inability of our customers to meet their payment obligations to us 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 2015, 2014 and 2013, our top five customers together accounted for approximately 36%, 35% and 29%, 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. The loss of any of our significant customers to further consolidation could materially and adversely affect our results of operations and financial condition. 31 Our business is exposed to risks of loss resulting from nonpayment by our customers. Many of our customers finance their activities through cash flow from operations, the incurrence of debt or the issuance of equity. Declines in commodity prices, and the credit markets could cause the availability of credit could be constrained. The combination of lower cash flow due to commodity prices, a reduction in borrowing bases under reserve-based credit facilities and the lack of available debt or equity financing may result in a significant reduction in our customers’ liquidity and ability to pay their obligations to us. Furthermore, some of our customers may be highly leveraged and subject to their own operating and regulatory risks, which increases the risk that they may default on their obligations to us. The inability or failure of our significant customers to meet their obligations to us or their insolvency or liquidation may adversely affect our financial results. 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 the decline in crude oil prices and 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. On February 4, 2016, we completed a one-for-fifteen reverse stock split, and our stock began trading on a reverse-split adjusted basis on February 5, 2016. Goodwill, intangible assets and multi-client data library 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 32 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. In 2014, we recorded an impairment charge of $21.9 million related to our goodwill in our Marine Systems reporting unit. For goodwill testing purposes, the litigation contingency accrual of $123.8 million as of December 31, 2014 was assigned to this 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. We also recorded a $1.4 million impairment of certain intangible assets related to customer relationship, and we recorded a $100.1 million impairment of our multi-client data library 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, 2015, our remaining goodwill and other intangible asset balances were $26.3 million and $4.8 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. For the year ended December 31, 2015, the reserve for excess and obsolete inventory decreased primarily due to the disposal of reserved inventory. Due to the international scope of our business activities, our results of operations may be significantly affected by currency fluctuations. We derive approximately 66% 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. In 2015, the Russian ruble strengthened briefly during the first quarter of the year. However, it continued to decline sharply in both the third and fourth quarters and into January 2016, reaching its lowest level since the currency was redenominated in 1998. 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. 33 A majority of our foreign net working capital is within the United Kingdom. Our consolidated balance sheet at December 31, 2015 reflected approximately $21.8 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 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. We initiated workforce reductions in December 2014, combined with continued restructurings through 2015, we have reduced our full-time employee base by approximately 50%. In addition we reduced salaries by 10% for the majority of our employees for the foreseeable future. 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 February 5, 2016, we had 10,567,558 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 February 5, 2016, we had outstanding stock options to purchase up to 545,544 shares of our common stock at a weighted average exercise price of $89.74 per share. We also had, as of that date, 73,427 shares of common stock reserved for issuance under outstanding restricted 34 stock and restricted stock unit awards. The numbers of shares and option exercise price have been retroactively adjusted to reflect the one-for-fifteen reverse stock split completed on February 5, 2016. During 2009, we issued in a privately-negotiated transaction 1.23 million shares of our common stock to certain institutional investors. In March 2010, we issued 1.58 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. The numbers of shares have been retroactively adjusted to reflect the one-for-fifteen reverse stock split completed on February 4, 2016. 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. 35 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 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 in particular are subject to extensive and evolving trade regulations. Certain countries are subject to restrictions, including most recently Russia, sanctions and embargoes imposed by the United States government. These restrictions, sanctions and embargoes also prohibit or limit us from participating in certain business activities in those countries. In addition 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 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. Offshore oil and gas exploration and development recently has been a regulatory focus. Future changes in laws or regulations regarding such activities, and decisions by customers, governmental agencies or other industry participants in response, could reduce demand for our services and products, which could have a negative impact on our financial position, results of operations or cash flows. New emissions standards or other environmental regulations imposed on off-shore vessels, for example, could increase our cost of procuring seismic acquisition vessels, cause unexpected downtime or decrease vessel availability. 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 about the effect of greenhouse gases (including carbon dioxide and methane) (‘‘GHGs’’) on global climate change, legislative and regulatory measures to address GHG emissions are in various phases of discussion or implementation at the local, state, national and international levels. The Obama Administration, for example, has launched a number of climate change initiatives, including the development of standards restricting GHG emissions from vehicles and a Strategy to Reduce Methane Emissions from the oil and gas industry by 40-45% by 2025 as compared to 2012 levels. 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, GHG cap and trade programs or incentives to use renewable energy. Regulations and laws relating to GHGs and climate change that are still more stringent may be adopted in the future. Any additional operating restrictions associated with legislation or regulations regarding GHG emissions could increase our costs and downtime and reduce the 36 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. Increased regulation of onshore 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. More than 90% of all onshore oil and natural gas wells drilled in the U.S. employ hydraulic fracturing techniques. The fracturing process involves the injection of water, sand or 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, especially low permeability formations such as shales, without extensive hydraulic fracturing. Due to public concerns about hydraulic fracturing, 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. In certain areas of the country, new drilling permits for hydraulic fracturing even have been put on hold. Ongoing studies of hydraulic fracturing, such as the U.S. Environmental Protection Agency’s ongoing assessment of potential impacts on drinking water resources, may lead to further regulations. In the event additional hydraulic fracturing 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 us to purchase quality components. In addition, we use contract manufacturers as an alternative to our own manufacturing of products. We have outsourced the manufacturing of our products, including our towed marine streamers, geophone manufacturing and ocean bottom cables. Certain components used in our towed marine manufacturing operations are currently provided by a single supplier. Without these sole suppliers, we would be required to find other suppliers who could build these components for us, or set up to make these parts internally. 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, the more we come to rely on contract manufacturers, we may have fewer personnel resources with expertise to manage problems that may arise from these third-party arrangements. 37 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. 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. 38 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 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, 2015 were as follows: Operating Facilities Square Footage Segment Houston, Texas . . . . . . . . . . . . . . . . . . . . . . 210,000 Global Headquarters, Solutions and Ocean Harahan, Louisiana . . . . . . . . . . . . . . . . . . . Edinburgh, Scotland . . . . . . . . . . . . . . . . . . Chertsey, England . . . . . . . . . . . . . . . . . . . . Jebel Ali, Dubai, United Arab Emirates . . . . Bottom Services Systems Software Solutions International Sales Headquarters 150,000 23,000 19,000 2,000 404,000 Each of these operating facilities is leased by us under long-term lease agreements. These lease agreements have terms that expire ranging from 2016 to 2025. See Footnote 13 ‘‘Operating Leases’’ of Footnotes to Consolidated Financial Statements. In addition, we lease offices in 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 Port Harcourt, Nigeria; Luanda, Angola; Moscow, Russia; Cairo, Egypt; Villahermosa, Mexico; Rio de Janeiro, Brazil; and Port of Spain, Trinidad. We also lease other facilities in Stafford, Texas; 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 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. 39 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 against us in the amount of $123.8 million. The Final Judgment also 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 district 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. We and WesternGeco each appealed the Final Judgment to the United States Court of Appeals for the Federal Circuit in Washington, D.C. On July 2, 2015, the Court of Appeals reversed in part the Final Judgment, holding the district court erred by including lost profits in the Final Judgment. Lost profits were $93.4 million and prejudgment interest on the lost profits was approximately $10.9 million of the $123.8 million Final Judgment award. Pre-judgment interest on the lost profits portion will be treated in the same way as the lost profits. Post-judgment interest will likewise be treated in the same fashion. On July 29, 2015, WesternGeco filed a petition for rehearing en banc before the Court of Appeals. On October 30, 2015, the Court of Appeals denied WesternGeco’s petition for rehearing en banc. WesternGeco has up to 90 days to determine whether or not it will file a writ of certiorari requesting that the U.S. Supreme Court review the Court of Appeals’ decision. On January 14, 2016, WesternGeco filed a motion to extend until February 26, 2016 the period of time it has to file a writ of certiorari requesting that the U.S. Supreme Court review the Court of Appeals’ decision. WesternGeco has also filed a motion requesting that the district court enforce the approximately $22.0 million in royalty damages without regard to whether or not WesternGeco files a writ of certiorari with the U.S. Supreme Court. We have opposed the motion and it has not yet been scheduled for a hearing. As previously disclosed, we had previously taken a loss contingency accrual of $123.8 million. As a result of the reversal by the Court of Appeals, as of June 30, 2015, we reduced our loss contingency accrual to its current amount of $22.0 million. 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. 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 40 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 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 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. We have received a request for $11.0 million in collateral, and negotiations with the sureties regarding the request are ongoing. 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. 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 as adjusted for the one-for-fifteen reverse stock split completed on February 4, 2016. Period Year ended December 31, 2015: Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . First Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Year ended December 31, 2014: Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . First Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Price Range High(1) Low(1) $12.15 21.75 37.20 43.05 $45.30 65.40 70.95 68.10 $ 3.90 5.55 15.60 31.50 $34.35 41.85 57.75 42.30 (1) The high and low sales prices set forth in the table above have been retroactively adjusted to reflect the one-for-fifteen reverse stock split completed on February 4, 2016. 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 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 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 Credit Facility, (ii) there is excess availability under the Credit Facility greater than $20.0 million (or, at the time that the borrowing base formula amount is less than $20.0 million, the borrowers’ level of liquidity (as defined in the revolving credit and security agreement) is greater than $20.0 million) and (iii) the agent receives satisfactory projections showing that excess availability under the Credit Facility for the immediately following period of ninety (90) consecutive days will not be less than $20.0 million (or, at the time that the borrowing base formula amount is less than $20.0 million, the borrowers’ level of liquidity is greater than $20.0 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 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 42 sales of equity or assets, certain conversions or exchanges of debt for equity and certain other reductions in our indebtedness and in aggregate not to exceed at any one time $25.0 million. On December 31, 2015, there were 763 holders of record of our common stock. On November 4, 2015, our board of directors approved a stock repurchase program authorizing us to repurchase, from time to time from November 10, 2015 through November 10, 2017, up to $25 million in shares of our outstanding common stock. The stock repurchase program may be implemented through open market repurchases or privately negotiated transactions, at management’s discretion. The actual timing, number and value of shares repurchased under the program will be determined by management at its discretion and will depend on a number of factors including the market price of the shares of our common stock and general market and economic conditions, applicable legal requirements and compliance with the terms of our outstanding indebtedness. The repurchase program does not obligate us to acquire any particular amount of common stock and may be modified or suspended at any time and could be terminated prior to completion. Since the program’s inception on November 10, 2015 through February 5, 2016, we had repurchased 435,792 shares our common stock under the repurchase program at an average price per share of $6.45. The number of shares repurchased and the average price per repurchased share has been retroactively adjusted to reflect the one-for-fifteen reverse stock split completed on February 4, 2016. On February 5, 2016, the closing sale price for our common stock was $6.21 on the NYSE. During the three months ended December 31, 2015, 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(1) Paid Per Share(2) (b) Average Price (d) Maximum Number (or Approximate (c) Dollar Value) of Total Number of Shares Purchased Shares That May as Part of Publicly Yet Be Purchased Announced Plans or Program Under the Plans or Program October 1, 2015 to October 31, 2015 . . November 1, 2015 to November 30, 2015 . . . . . . . . . . . . . . . . . . . . . . . . December 1, 2015 to December 31, 2015 . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . — — 2,705 2,705 $ — Not applicable Not applicable $ — Not applicable Not applicable $8.40 $8.40 Not applicable Not applicable (1) The numbers of shares set forth in the table above have been retroactively adjusted to reflect the one-for-fifteen reverse stock split completed on February 4, 2016. (2) The average prices paid per share set forth in the table above have been retroactively adjusted to reflect the one-for-fifteen reverse stock split completed on February 4, 2016. 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 2015, 2014, 2013, 2012 and 2011, and with respect to our consolidated balance sheets at December 31, 2015, 2014, 2013, 2012 and 2011, have been derived from our audited consolidated financial statements. 43 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. In particular, our results of operations for the years in the 2011 - 2015 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 inventory . . . . . . . . . . . . . . . . . . . . . . . . Operating expenses: Impairment of goodwill and intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . Write-down of receivables . . . . . . . . . . . . . Write-down of marine equipment . . . . . . . . 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 . . . Conversion payment of preferred stock . . . . . Years Ended December 31, 2015 2014 2013 2012 2011 (In thousands) (399) $(100,100) $ (5,461) $ — $ (151) $ (6,952) $ (21,197) $ (1,326) $ — $ (23,284) $ (8,214) $ — $ — $ — $ — $ — $ (9,157) $ (5,640) $ — $ (5,928) $ — — — — — $ $ $ $ $ $101,978 $ $ $ $ $ $ 69,557 6,522 5,463 — $(183,327) $(10,000) $ — — $ $ — $ — — $ $ — $ $ — $ — — $ $(22,862) — $ (49,485) $ (42,320) $ — (5,000) $ — $ — $ — $ $ — $ 30,895 297 — $ 3,591 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(1) . . . . . . . . . . . . . . . . . . . . . . . . . Net income (loss) per basic share(1) . . . . . . . Net income (loss) per diluted share(1) . . . . . Weighted average number of common shares outstanding(2) . . . . . . . . . . . . . . . . Weighted average number of diluted shares outstanding(2) . . . . . . . . . . . . . . . . . . . . . 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 . . . . . . . Years Ended December 31, 2015 2014 2013 2012 2011 (In thousands, except for per share data) $ 221,513 8,003 (100,632) $ 509,558 62,223 (117,929) $ 549,167 159,313 16,396 $526,317 215,801 74,527 $454,621 173,445 66,795 (25,122) (128,252) (251,874) $ $ (2.29) $ (2.29) $ (11.72) $ (11.72) $ (23.84) $ (23.84) $ 61,963 5.97 5.71 23,422 2.27 2.25 $ $ 10,957 10,939 10,567 10,387 10,321 10,957 10,939 10,567 10,851 10,406 $ 93,160 438,416 186,320 112,040 $ 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 $ 45,558 19,241 $ 67,785 8,264 $ 114,582 16,914 $145,627 16,650 $143,782 11,060 26,527 35,784 27,656 64,374 18,158 86,716 16,202 89,080 13,917 77,317 (1) The per share calculations set forth in the table above have been retroactively adjusted to reflect the one-for-fifteen reverse stock split completed on February 4, 2016. (2) The share numbers set forth in the table above have been retroactively adjusted to reflect the one-for-fifteen reverse stock split completed on February 4, 2016. 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. 45 For a full discussion of our business, see Part I, Item 1. ‘‘Business.’’ 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. As a result, demand for our services and products is largely sensitive to expected commodity prices, principally related to crude oil and natural gas. In 2013 continuing through 2015 we started seeing decreased spending on exploration by E&P companies, which were 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 continuing to be paid 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. After a period of exploration-focused activities by E&P companies leading up to the fourth quarter of 2014, many E&P companies turned their focus more to production activities and less on exploration of prospects during 2015 as the continued decline in oil and gas prices resulted in decreasing revenues and prompted cost reduction initiatives across the industry. The World Bank recently lowered its 2016 forecast for crude oil prices to $37 per barrel from its previous expectation of $51 per barrel. One recent survey indicated that upstream oil and gas companies plan to reduce spending by 15% globally in 2016, following a 23% decline in 2015, representing only the second time spending has declined in consecutive years since 1986 and 1987. As of December 31, 2015, our Solutions segment backlog, consisting of commitments for data processing work and for underwritten multi-client new venture and proprietary projects by our Ventures group, was 59% less than our backlog existing as of December 31, 2014. Investments in our multi-client data library are dependent upon the timing of our new ventures projects and the availability of underwriting by our customers. Our asset light strategy enables us to scale our business to avoid significant fixed costs and to remain financially flexible as we manage the timing and levels of our capital expenditures. 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 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. 46 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 12/31/2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9/30/2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6/30/2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3/31/2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12/31/2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9/30/2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6/30/2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3/31/2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 52.13 $ 61.73 $ 66.33 $ 61.89 $ 94.57 $110.84 $115.19 $111.26 $ 35.26 $ 41.59 $ 55.73 $ 45.13 $ 55.27 $ 94.53 $103.37 $105.73 $ 49.67 $ 56.94 $ 61.36 $ 53.56 $ 91.01 $105.34 $107.26 $104.92 $34.55 $38.22 $49.13 $43.39 $53.27 $91.16 $99.42 $91.66 $2.54 $2.93 $3.04 $3.32 $4.49 $4.46 $4.83 $6.15 $1.63 $2.47 $2.50 $2.62 $2.89 $3.75 $4.28 $4.01 Source: U.S. Energy Information Administration (EIA). In the past few years, crude oil prices have been volatile due to global economic uncertainties. Significant downward crude oil price volatility began in the fourth quarter of 2014 and prices continued to drop throughout the remainder of 2014 and into 2015, with a brief, partial recovery during the second quarter of 2015 followed by a continued decline in oil prices during the third and fourth quarters. The material decrease in crude oil prices can be attributed principally to significant production growth in the U.S. shale plays, strengthening of the U.S. dollar relative to other foreign currencies, the increase in production by Organization of Petroleum Exporting Countries (‘‘OPEC’’) and its indication not to cut production, offset somewhat by modest increases in global oil demand. During the fourth quarter of 2015, crude oil prices continued to decline due to ongoing concerns about the Chinese economy as well as the potential supply increases related to the lifting of sanctions against Iran. In addition, the U.S. Congress recently lifted the 40-year-old ban on the export of crude oil. These events have created concern in the marketplace that crude oil prices will trade in a relatively low-priced range for the foreseeable future. The average prices for West Texas Intermediate (‘‘WTI’’) and Intercontinental Exchange Brent (‘‘Brent’’) crude oil decreased from an average of $72 per barrel and $75 per barrel, respectively, in the fourth quarter of 2014 to an average of $42 per barrel and $44 per barrel, respectively, in the fourth quarter of 2015. These data points compare to an average price of $100 per barrel and $107 per barrel, respectively, in the first nine months of 2014. Given the historical volatility of crude prices, there remains a risk that prices could continue to deteriorate due to high levels of domestic and OPEC crude oil production, slowing growth rates in various global regions and/or the potential for ongoing supply/demand imbalances. Alternatively, if the global supply of oil were to decrease due to reduced capital investment by our E&P customers or government instability in a major oil-producing nation and energy demand continues to increase in the U.S. and countries such as China and India, a recovery in WTI and Brent crude oil prices could occur. Regardless of the driver, crude oil price improvements will not occur without a rebalancing of global supply and demand, the timing of which is difficult to predict. If commodity prices do not improve or if they decline further, demand for our services and products could continue to decline. Prices for natural gas in the U.S. averaged $2.09 per mmBtu in the fourth quarter of 2015 compared to $3.69 per mmBtu in the fourth quarter of 2014 and $4.57 per mmBtu in the first nine months of 2014. Natural gas prices declined due to strong production and the recent mild winter this year as compared to last year resulting in significant increases in natural gas inventories in the U.S. during 2015, from 1% below the five-year average as of the end of 2014 to 14% above the five year average this year. 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 47 prices experienced from 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 remain constrained for an extended period. Impact to Our Business The reductions in exploration spending have had a significant impact on our results of operations for 2015 with total revenues falling versus prior year by 57%. We have seen a continued 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 2015. We invested approximately $22 million less in our multi-client data library during 2015, compared to 2014. We saw a significant slowdown in our data processing business during 2015. During the second quarter, various customers delayed processing projects and this trend has continued, which negatively affected our backlog. Data processing revenues were down significantly in 2015 compared to 2014, and we expect our data processing business to remain soft into 2016. During 2014 and 2015, 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, 2015, our Solutions segment backlog, which consists of commitments for (i) data processing work and (ii) both multi-client new venture projects and proprietary projects underwritten by our customers, was $19.2 million, compared with $46.7 million at December 31, 2014. The decline in backlog was primarily due to (i) the softening of customer 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 2016. We also expect the recently awarded contract extension from PEMEX to contribute toward rebuilding our backlog as additional work orders under this contract extension are received. Our Software segment revenues decreased for 2015 compared to the same period of 2014. This decline is a result of reduced activity by seismic contractors that have taken vessels out of service. 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 a decrease in repair and replacement marine positioning equipment revenues due to vessels having been taken out of service. In 2014, we increased our ownership in OceanGeo, our ocean bottom seismic data acquisition joint venture, from 30% to 100%. During 2015, OceanGeo’s vessels were idle, causing us to cold stack the vessels and crew. OceanGeo is pursuing several tenders for long-term work in 2016. 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. 48 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, Narwhal, and Marlin, will continue to attract customer interest, because those technologies are designed to deliver improvements in image quality within more productive delivery systems. Cost Reduction Initiatives Due to the current economic conditions described above, including significant reductions in E&P capital expenditures, in 2015, we continued to implement cost cutting initiatives by (i) centralizing our global data processing capabilities to two core geographical hubs in the U.S. and the U.K., (ii) reducing our marine repair facilities to two locations in the U.S. and U.A.E., (iii) making further reductions in personnel across all of our segments that combined with reductions starting in December 2014, and continuing through 2015 have reduced our full-time employee base by approximately 50% and (iv) reducing salaries by 10% for the majority of our employees during 2015. Including actions we began taking in December 2014, we expect that these cost reduction actions will result in annualized savings of approximately $80 million. We now believe these initiatives have rightsized cost structure to reflect current revenue levels. See Footnote 2 ‘‘Impairments, Restructurings and Other Charges’’ of Footnotes to Consolidated Financial Statements. Reverse Stock Split and Increase in Authorized Shares On February 1, 2016, our stockholders approved a reverse stock split at a ratio to be selected by our Board of Directors (or any authorized committee of the Board of Directors) from within a range of between one-for-five and one-for-fifteen, inclusive, and a proportionate reduction in the number of authorized shares of our common stock by the selected reverse split ratio. On February 4, 2016, we completed a one-for-fifteen reverse stock split, and our stock began trading on a reverse-split adjusted basis on February 5, 2016. As a result of the reverse stock split, the number of issued and outstanding shares was adjusted and the number of shares underlying outstanding stock options and the related exercise prices were adjusted. Following the effective date of the reverse stock split, the par value of our common stock remained at $0.01 per share, and the number of authorized shares was reduced from 400,000,000 to 26,666,667, adjusted to reflect a one-for-fifteen reverse stock split. On February 1, 2016, our stockholders approved an increase in the number of authorized shares of common stock from 200 million to 400 million, or 13.3 million to 26.7 million retroactively adjusted to reflect the one-for-fifteen reverse stock split. Key Financial Metrics Our results of operations have been materially affected by the impairments, restructuring charges 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 2015, 2014 and 2013, 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 2015, 2014 and 2013, as 49 reported and as adjusted in all three years for the restructuring and other charges recorded for those years. Years Ended December 31, 2015 2014 2013 (In thousands) Net revenues: Solutions: New Venture . . . . . . . . . . . . . . . . . . . . . . . . . Data Library . . . . . . . . . . . . . . . . . . . . . . . . . Total multi-client revenues . . . . . . . . . . . . . Data Processing . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 48,294 63,326 111,620 45,630 $157,250 $ 98,649 66,180 164,829 113,075 $277,904 $154,578 111,998 266,576 120,808 $387,384 Systems: Towed Streamer . . . . . . . . . . . . . . . . . . . . . . . Ocean Bottom Equipment . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 15,016 — 21,253 $ 43,995 — 44,422 $ 66,991 7,307 48,134 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 36,269 $ 88,417 $122,432 Software: Software Systems . . . . . . . . . . . . . . . . . . . . . . Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 24,764 3,230 $ 36,203 3,790 $ 35,418 3,933 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 27,994 $ 39,993 $ 39,351 Ocean Bottom Services . . . . . . . . . . . . . . . . . . . $ — $103,244 $ — Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $221,513 $509,558 $549,167 50 Year Ended December 31, 2015 Year Ended December 31, 2014 Year Ended December 31, 2013 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) $ 13,508 10,829 17,937 $ 3,193 311 225 $ 16,701 11,140 18,162 $ (24,345) 29,829 28,835 $100,825(c) 7,580(d) 137 $ 76,480 37,409 28,972 $ 111,108 19,999 28,206 $ 5,461(c) 25,688(h) — $116,569 45,687 28,206 (34,271) 252 (34,019) 27,904 — 27,904 — — — $ 8,003 $ 3,981(a) $ 11,984 $ 62,223 $108,542 $170,765 $ 159,313 $ 31,149 $190,462 9% 30% 64% —% 4% 2% 1% 1% —% 1% 11% 31% 65% —% 5% (9)% 34% 72% 27% 12% 37% 8% —% —% 22% 28% 42% 72% 27% 34% 29% 16% 72% —% 29% 1% 21% —% —% 6% 30% 37% 72% —% 35% $ (28,916) (2,735) 9,748 $ 4,295 1,342 448 $ (24,621) (1,393) 10,196 $ (80,653) (23,521) 20,212 $102,740(c) 32,492(d) 223(e) $ 22,087 8,971 20,435 $ 61,146 (9,957) 23,602 $ 5,461(c) 28,050(h) — $ 66,607 18,093 23,602 (40,756) (37,973) 252 877 (40,504) 19,070 — 19,070 — — — (37,096) (53,037) 6,487(f) (46,550) (58,395) 9,157(i) (49,238) $(100,632) $ 7,214(a) $ (93,418) $(117,929) $141,942 $ 24,013 $ 16,396 $ 42,668 $ 59,064 (18)% (8)% 35% —% (17)% (45)% 2% 4% 1% —% —% 3% (16)% (4)% 36% (29)% (27)% 51% —% 18% (17)% (42)% (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% $ (25,122) $(93,587)(b) $(118,709) $(128,252) $ 94,143(g) $ (34,109) $(251,874) $271,208(j) $ 19,334 $ (2.29) $ (8.54)(k) $ (10.83) $ (11.72) $ 8.60(k) $ (3.12) $ (23.84) $ 25.67(k) $ 1.83 . . . . . . . . . . . . . . . . . . . . . . . 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(1) . . . . . . . (a) (b) (c) (d) (e) (f) (g) (h) (i) (j) Represents severance and facility charges related to the Company’s 2015 restructuring. In addition to item (a), also impacting net income (loss) applicable to common shares was a reduction in the WesternGeco legal contingency by $102.0 million. Primarily relates to the write-down of our multi-client data library in 2014 and 2013 within the Solutions segment. Also, 2014 and 2015 were 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. Primarily relates to severance-related charges within the Software segment. Represents the write-down of receivables from INOVA Geophysical, in addition to severance related charges. In addition to items (c), (d), (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). Represents excess and obsolete inventory and severance-related charges within the Systems segment in 2013. Represents the write-down of the carrying value of all receivables due from OceanGeo in 2013. In addition to items (c),(h) and (i), 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 51 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. (k) The per share calculations in the table above have been retroactively adjusted to reflect the one-for-fifteen reverse stock split completed on February 4, 2016. 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. During 2014, we wrote our in investment in INOVA Geophysical down to zero, and therefore we ceased recording losses in 2015. For, 2014 and 2013, we recognized in our consolidated results of operations our share of earnings (losses) in INOVA Geophysical of approximately $(19.5) million and (excluding the write-down of our investment in INOVA), $(22.5) 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, 2015 (As Adjusted) Compared to Year Ended December 31, 2014 (As Adjusted) Our total net revenues of $221.5 million for 2015 decreased $288.1 million, or 57%, compared to total net revenues for 2014. Our overall gross profit percentage for 2015 was 5%, as adjusted, compared to 2014’s gross profit percentage of 34%, as adjusted. Total operating expenses, as adjusted, as a percentage of net revenues for 2015 and 2014 were 48% and 29%, respectively. During 2015, loss from operations of $93.4 million, as adjusted, compared to income of $24.0 million, as adjusted, for 2014. Our net loss for 2015 was $118.7 million, as adjusted, or $(10.83) per share, compared to net loss of $34.1 million, as adjusted, or $(3.12) per share for 2014. As noted above, net loss for 2015 and 2014 included restructuring and other credits (charges) totaling $93.6 million and ($94.1) million, respectively, impacting our earnings per share by $(8.54) and $8.60, respectively. The per share calculations have been retroactively adjusted to reflect the one-for-fifteen reverse stock split completed on February 4,2016. Net Revenues, Gross Profits and Gross Margins (As Adjusted) Solutions—Net revenues for 2015 decreased by $120.6 million, or 43%, to $157.3 million, compared to $277.9 million for 2014. Revenues for our multi-client businesses within Solutions decreased due to the continued softness of exploration spending. Gross profit decreased by $59.8 million to $16.7 million, as adjusted, representing a 11% gross margin, compared to $76.5 million, as adjusted, or a 28% gross margin, for 2014. This decrease was attributable to the significant revenue decline in our multi-client and data processing businesses in 2015. 52 Systems—Net revenues for 2015 decreased by $52.1 million, or 59%, to $36.3 million, compared to $88.4 million for 2014. This decrease in revenues was principally due to (i) lower sales of new marine positioning products; (ii) lower marine and replacement revenues on existing equipment; and (iii) lower geophone string sales. Gross profit for 2015 decreased by $26.3 million to $11.1 million, as adjusted, representing a 31% gross margin, compared to $37.4 million, as adjusted, or a 42% gross margin, for 2014. Gross profit and gross margin decreased due to the significant reduction in revenues in 2015 compared to 2014. Software—Net revenues for 2015 decreased by $12.0 million, or 30%, to $28.0 million, compared to $40.0 million for 2014. This decrease in revenues was due to record revenue quarters in the first half of 2014 followed by a reduction in Orca licensing revenues during 2015, due to reduced activity by seismic contractors that have taken vessels out of service. Gross profit for 2015 decreased by $10.8 million to $18.2 million, as adjusted, representing a 65% gross margin, compared to $29.0 million, for 2014, which represented a 72% gross margin. Gross margin decreased due to the decline in revenues in 2015. Ocean Bottom Services—There were no net revenues or gross margin for 2015, compared to net revenues of $103.2 million and gross margins 27% for 2014, due to OceanGeo’s crew being idle during 2015. Operating Expenses (As Adjusted) The following table presents the ‘‘As Adjusted’’ in both 2015 and 2014, excluding special charges that resulted from both the 2015 and 2014 restructurings and other write-downs (in thousands): Year Ended December 31, 2015 Year Ended December 31, 2014 As Reported Special Items(a) As Adjusted As Reported Special Items(b) As Adjusted Operating expenses: Research, development and engineering . . . . . . . . . . . . . $ 26,445 30,493 Marketing and sales . . . . . . . . . General, administrative and $ (603) (304) $ 25,842 30,189 $ 41,009 39,682 $ (572) (326) $ 40,437 39,356 other operating expenses . . . . 51,697 (2,326) 49,371 76,177 (9,218) 66,959 Impairment of goodwill and intangible assets . . . . . . . . . . — — — 23,284 (23,284) — Total operating expenses . . . . . $ 108,635 $(3,233) $105,402 $ 180,152 $ (33,400) $146,752 Income (loss) from operations . . . . $(100,632) $ 7,214 $ (93,418) $(117,929) $141,942 $ 24,013 (a) (b) Includes severance affecting operating expenses and facility abandonment charges. 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. Research, Development and Engineering—Research, development and engineering expense decreased $14.6 million, or 36%, to $25.8 million, as adjusted, for 2015, compared to $40.4 million, as adjusted, for 2014. This decrease was primarily due to cost cutting measures in order to right-size the business to current revenue levels. Marketing and Sales—Marketing and sales expense decreased $9.2 million, or 23%, to $30.2 million, as adjusted, for 2015, compared to $39.4 million, as adjusted, for 2014. This decrease was primarily due to cost cutting measures in order to right-size the business to current revenue levels. 53 General, Administrative and Other Operating Expenses—General, administrative and other operating expenses decreased $17.6 million, or 23%, to $49.4 million, as adjusted, for 2015 compared to $67.0 million, as adjusted, for 2014. This decrease was primarily due to cost cutting measures in order to right-size the business to current revenue levels. Other Items Interest Expense, net—Interest expense, net, of $18.8 million for 2015 decreased compared to $19.4 million for 2014. 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. On December 31, 2014 we wrote down our investment in INOVA Geophysical to zero, therefore we ceased recording losses in 2015. Other Income (Expense)—Other income for 2015 was $98.3 million compared to other income of $79.9 million for 2014. The difference primarily relates to changes in our accrual for loss contingency related to a legal matter. See further discussion at Footnote 7 ‘‘Legal Matters’’ and in Part 1, Item 3, ‘‘Legal Proceedings.’’ The following table reflects the significant items of other income (expense) (in thousands): Years Ended December 31, 2015 2014 Reduction of loss contingency related to legal proceedings (Footnote 7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gain on sale of a product line(1) . . . . . . . . . . . . . . . . . . . . . . . Gain on sale of a cost method investment(2) . . . . . . . . . . . . . . . Other expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $101,978 — — (3,703) $69,557 6,522 5,463 (1,682) Total other income (expense) . . . . . . . . . . . . . . . . . . . . . . . . $ 98,275 $79,860 (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 2015 was $4.0 million compared to $20.6 million for 2014. Our effective tax rates for 2015 and 2014 were (19.2)% and (19.2)%, respectively. Our effective tax rate for 2015 was negatively impacted by the establishment of a valuation allowance related to our U.S. losses incurred in 2015. See further discussion of establishment of the deferred tax valuation allowance at Footnote 6 ‘‘Income Taxes’’ of Footnotes to Consolidated Financial Statements. Our income tax expense for 2015 relates to income from our non-U.S. businesses. 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. 54 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 a gross profit percentage of 35% for 2013, 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 $(3.12) per share, compared to net income of $19.3 million, as adjusted, or $1.83 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 $8.60 and $25.67, respectively. The per share calculations above have been retroactively adjusted to reflect the one-for-fifteen reverse stock split completed on February 4, 2016. 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 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 upon acquiring a 55 controlling interest 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 39,682 Marketing and sales . . . . . . . . . General, administrative and $ (572) (326) $ 40,437 39,356 $ 37,742 38,583 $ (1,388) (277) $ 36,354 38,306 other 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 increased $4.0 million, or 11%, to $40.4 million, as adjusted, for 2014, compared to $36.4 million, as adjusted, 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 increased $1.1 million, or 3%, to $39.4 million, as adjusted, for 2014, compared to $38.3 million, as adjusted, 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 increased $10.3 million, or 18%, to $67.0 million, as adjusted, for 2014, compared to $56.7 million, 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 compared to a full year of interest on the Notes in 2014. 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. 56 Prior to 2015, we recorded 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): Fiscal 2014 Fiscal 2013 Total net revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gross profit (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income (loss) from operations . . . . . . . . . . . . . . . . . . . . . . Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 247(1) $183,619 $ (1,988)(2) $ 89,975 $ $(34,540)(1) $(44,463) $(40,087) $(46,149)(2) (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. 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 Footnote 7 ‘‘Legal Matters’’ and in Part 1, Item 3, ‘‘Legal Proceedings.’’ 57 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 7) . . . . . . . . . . . . . . . . . . . . . . . . . . Gain on sale of a product line(1) . . . . . . . . . . . . . . . . . . . . . . . Gain on sale of a cost method investment(2) . . . . . . . . . . . . . . Other 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 approximately 404,338 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. Shares of common stock have been retroactively adjusted to reflect the one-for-fifteen reverse stock split completed on February 4, 2016. Liquidity and Capital Resources Sources of Capital As of December 31, 2015, we had $84.9 million in cash on hand and an undrawn Credit Facility (as defined below) with a borrowing base of $40.0 million. 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, 2015, we had working capital of $93.2 million. Working capital requirements are primarily driven by our continued investment in our multi-client data library ($45.6 million in 2015) and, to a lesser extent, our inventory and other purchase obligations. At December 31, 2015, our outstanding inventory and other purchase obligations were $3.7 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 58 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. Revolving Credit Facility,—In August 2014, ION and its material U.S. subsidiaries, ION Exploration Products (U.S.A.), Inc., I/O Marine Systems, Inc. and GX Technology Corporation (collectively, the ‘‘Subsidiary Borrowers’’), entered into a credit facility (the ‘‘Credit Facility’’). For a complete discussion of the terms, available credit and security of this Credit Facility, see Footnote 4 ‘‘Long-Term Debt and Lease Obligations’’ of Footnotes to Consolidated Financial Statements. On August 4, 2015, the Company and the Subsidiary Borrowers amended the terms of the Credit Facility pursuant to a First Amendment to Revolving Credit and Security Agreement dated effective as of August 4, 2015 (the ‘‘First Amendment’’). The First Amendment contemplated, among other things, (i) PNC Bank, National Association (‘‘PNC’’) becoming the sole lender under the Credit Facility, (ii) the reduction of the maximum amount of the revolving line of credit under the Credit Facility from $80.0 million to $40.0 million, (iii) the elimination of the requirement that the Company not exceed a maximum senior secured leverage ratio, (iv) the amendment of the borrowing base formula under the Credit Facility and (v) the removal of the accordion features under the Credit Facility. The borrowing base under the First Amendment will increase or decrease monthly using an amended formula based on certain eligible receivables, eligible inventory and other amounts, including a percentage of the net orderly liquidation value of the Company’s multi-client data library (not to exceed $15.0 million for the multi-client data library data component). At December 31, 2015, the borrowing base under the Credit Facility was $40.0 million, and there was no outstanding indebtedness under the Credit Facility. The Credit Facility, as amended, 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 Credit Facility, as amended, requires that ION and the Subsidiary Borrowers maintain a minimum fixed charge coverage ratio of 1.1 to 1.0 as of the end of each fiscal quarter during the existence of a covenant testing trigger event. 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. A covenant testing trigger event occurs upon (a) the occurrence and continuance of an event of default under the Credit Facility or (b) the failure to maintain a measure of liquidity greater than (i) $5.0 million for five consecutive business days or (ii) $4.0 million on any given business day. Liquidity, as defined in the Credit Facility, is the Company’s excess availability to borrow ($40.0 million at December 31, 2015) plus the aggregate amount of unrestricted cash held by ION, the Subsidiary Borrowers and their domestic subsidiaries. 59 At December 31, 2015, we were in compliance with all of the covenants under the Credit Facility. The Credit Facility, as amended, contains customary event of default provisions (including a ‘‘change of control’’ event affecting us), the occurrence of which could lead to an acceleration of the Company’s obligations under the Credit Facility as amended. see Footnote 4 ‘‘Long-term Debt and Lease Obligations’’ of Footnotes to Consolidated Financial Statements. 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, 2015, we were in compliance with all of the covenants under the Indenture. For further information regarding the Notes, see Footnote 4 ‘‘Long-term Debt and Lease Obligations’’ of Footnotes to Consolidated Financial Statements. Meeting our Liquidity Requirements As of December 31, 2015, our total outstanding indebtedness (including capital lease obligations) was approximately $186.3 million, consisting primarily of approximately $175.0 million outstanding Notes (maturing in May 2018) and $9.8 million of capital leases. As of December 31, 2015, there was no outstanding indebtedness under our Credit Facility and the borrowing base was $40 million. For 2015, total capital expenditures, including investments in our multi-client data library, were $64.8 million. We currently expect that our capital expenditures, including investments in our multi- client data library, will be reduced in 2016 to a range of $15 million to $35 million. Investments in our multi-client data library are dependent upon the timing of our new ventures projects and the availability of underwriting by our customers. Our OBS business will require $12 million to $15 million of capital resources to remain intact during 2016, as we work with potential customers to obtain sales. Our asset light strategy enables us to scale our business to avoid significant fixed costs and to remain financially flexible as we manage the timing and levels of our capital expenditures. In addition, we are authorized to spend the remaining $23 million for the repurchase of shares of our common through November 2017. 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 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 60 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. Loss Contingency—WesternGeco Lawsuit As of December 31, 2015, we have a loss contingency of $22.0 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. 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 Credit Facility. We have received a request for $11.0 million in collateral and are in negotiations with the sureties regarding the request. Any requirements that we collateralize the appeal bond will reduce our liquidity and may reduce the amount otherwise available to be borrowed under our 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 a material adverse effect on our company and impact our ability to execute our business plan. 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 used in operating activities was $16.5 million for 2015, compared to net cash provided by operating activities of $129.8 million for 2014. The decrease in our cash flows from operations was primarily due to lower revenues in 2015 compared to 2014, from the slowdown in exploration spending as well as decreases in accounts payable accrued expenses and accrued royalties. 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. Cash Flow Used In Investing Activities Net cash flow used in investing activities was $63.5 million for 2015, compared to $48.8 million for 2014. The principal uses of cash in our investing activities during 2015 were $45.6 million of continued 61 investments in our multi-client data library, $19.2 million of investments in property, plant and equipment. 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. Cash Flow from Financing Activities Net cash flow used in financing activities was $9.5 million for 2015, compared to $56.0 million of net cash flow provided by financing activities for 2014. The net cash flow used in financing activities during 2015 was primarily related to $7.5 million of payments on long-term debt related to equipment capital leases and $2.0 million to repurchase of common stock. 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 senior secured credit facility, $13.0 million of payments on long-term debt, and $6.0 million to purchase the remaining interest in OceanGeo. 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 2015 driven by increased capital expenditures from our E&P customers, consistent with our historical seasonality. However, sales in 2015 have been negatively impacted by reduced exploration spending by our E&P customers. Future Contractual Obligations The following table sets forth estimates of future payments of our consolidated contractual obligations, as of December 31, 2015 (in thousands): Contractual Obligations Long-term debt . . . . . . . . . . . . . . . . . . . . . . . Interest on long-term debt obligations . . . . . . . Equipment capital lease obligations . . . . . . . . Operating leases . . . . . . . . . . . . . . . . . . . . . . Purchase obligations . . . . . . . . . . . . . . . . . . . Total $175,000 44,457 9,762 83,925 3,712 Less Than 1 Year 1 - 3 Years 3 - 5 Years More Than 5 Years $ — $175,000 29,638 3,408 27,134 — 14,819 6,354 12,154 3,712 $ — $ — — — 17,419 — — — 27,218 — Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $316,856 $37,039 $235,180 $27,218 $17,419 The long-term debt at December 31, 2015 included $175.0 million of principal amount of indebtedness outstanding under our Notes issued in May 2013. The $9.8 million of equipment capital lease obligations relates to Imaging’s financing of computer and other equipment purchases. The operating lease commitments at December 31, 2015 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 2016. 62 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 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 63 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 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’). 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 64 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 2015, 2014 and 2013, we capitalized, as part of our multi-client data library, $6.1 million, $8.3 million and $2.1 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. 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 2015, an increase of 10% in the sales forecasts of all surveys would have decreased our amortization expense by approximately $1.6 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 65 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 2013. 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, 2015 was $24.5 million compared to $29.8 million at December 31, 2014, a decrease of $5.3 million of scrapped obsolete inventory previously reserved in our Systems business. 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 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, 2015 and concluded no impairment was required. The goodwill balance as of December 31, 2015 was comprised of $23.3 million in our Software and $2.9 million in our Solutions reporting units. In 2014, we recorded an impairment charge of $21.9 million related to our goodwill in our Marine Systems reporting unit. For goodwill testing purposes, the litigation contingency accrual of $123.8 million as of December 31, 2014 was assigned to this reporting unit. Based on this accrual and 66 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. We also recorded a $1.4 million impairment of certain intangible assets related to customer relationship within our Solutions segment at December 31, 2014. Our 2015 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. 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 2015, we recognized $16.4 million of sales to customers in Latin American countries, $72.6 million of sales to customers in Europe, $19.1 million of sales to customers in Asia Pacific, $13.2 million of sales to customers in Africa, $14.6 million of sales to customers in the Middle East and $11.0 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 2015, 2014 and 2013, international sales comprised 66%, 74% and 73%, respectively, of total net revenues. Since 2008, global economic problems and uncertainties have generally increased in scope and nature. Since early 67 2014, crude oil prices dropped by approximately 50%—70% 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. In 2015, the Russian ruble strengthened briefly during the first quarter of the year. However, it continued to decline sharply in both the third and fourth quarters and into January 2016, reaching its lowest level since the currency was redenominated in 1998. 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, 2015, 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 1 ‘‘Summary of Significant Accounting Policies-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 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, 2015, we had outstanding total indebtedness of approximately $186.3 million, including capital lease obligations. As of December 31, 2015, all of this indebtedness accrues interest at fixed interest rates. As our borrowings under the Credit Facility are subject to variable interest rates, we are subject to interest rate risk to the extent we have outstanding balances under the 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 68 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, 2015 reflected approximately $21.8 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, 2015, we recorded net foreign currency losses of approximately $2.1 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. 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, 2015. 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, 2015. (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 69 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, 2015 based upon criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). 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, 2015, which has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. 70 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, 2015, 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. 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, 2015, based on criteria established in the 2013 Internal Control— Integrated Framework issued by COSO. 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, 2015, and our report dated February 11, 2016 expressed an unqualified opinion on those financial statements. /s/ GRANT THORNTON LLP Houston, Texas February 11, 2016 71 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 18, 2016 (the ‘‘2016 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 2016 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 2016 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 2016 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 2016 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. 72 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 — Certificate of Amendment to the Restated Certificate of Incorporation of ION Geophysical Corporation dated February 2, 2016. *3.3 — Certificate of Amendment to the Restated Certificate of Incorporation of ION Geophysical Corporation dated February 4, 2016. 3.4 — 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. 3.5 — 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. 73 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. 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. 74 **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. 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. 75 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. 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. 76 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. 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 — Amended and Restated 2013 Long-Term Incentive Plan. 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 77 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. **10.45 — Form of Rights Agreement dated March 1, 2015 issued under the ION Stock Appreciation Rights Plan dated November 17, 2008, filed on May 7, 2015 as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2015, and incorporated herein by reference. 10.46 — First Amendment to Revolving Credit and Security Agreement dated as of August 4, 2015 among PNC Bank, National Association, as lender and agent, the lenders from time to time party thereto, as lenders, with ION Geophysical Corporation, ION Exploration Products (U.S.A.), Inc., I/O Marine Systems, Inc. and GX Technology Corporation, as borrowers, filed on August 6, 2015 as Exhibit 10.1 to the Company’s Current Report on Form 8-K, and incorporated herein by reference. *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. *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, 2015 and 2014, (ii) Consolidated Statements of Operations for the years ended December 31, 2015, 2014 and 2013, (iii) Comprehensive Income (Loss) for the years ended December 31, 2015, 2014 and 2013, (iv) Consolidated Statements of Cash Flows for the years ended December 31, 2015, 2014 and 2013, (v) Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2015, 2014 and 2013, (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. 78 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 11, 2016. 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, 2015, 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 11, 2016 /s/ STEVEN A. BATE Steven A. Bate Executive Vice President and Chief Financial Officer (Principal Financial Officer) February 11, 2016 /s/ SCOTT SCHWAUSCH Scott Schwausch Vice President and Corporate Controller (Principal Accounting Officer) February 11, 2016 /s/ JAMES M. LAPEYRE, JR. James M. Lapeyre, Jr. Chairman of the Board of Directors and Director February 11, 2016 79 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 11, 2016 Director February 11, 2016 Director February 11, 2016 Director February 11, 2016 Director February 11, 2016 Director February 11, 2016 80 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, 2015 and 2014 . . . . . . . . . . . . . . . . . . . . . . . . . Consolidated Statements of Operations—Years ended December 31, 2015, 2014 and 2013 . . . . Consolidated Statements of Comprehensive Income (Loss)—Years ended December 31, 2015, 2014 and 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Consolidated Statements of Cash Flows—Years ended December 31, 2015, 2014 and 2013 . . . Consolidated Statements of Stockholders’ Equity—Years ended December 31, 2015, 2014 and 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 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 Board of Directors and Shareholders ION Geophysical Corporation We have audited the accompanying consolidated balance sheets of ION Geophysical Corporation (a Delaware corporation) and subsidiaries (the ‘‘Company’’) as of December 31, 2015 and 2014, and the related consolidated statements of operations, comprehensive income (loss), shareholders’ equity, and cash flows for the years then ended. Our audits 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 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 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, 2015 and 2014, and the results of their operations and their cash flows for the years ended December 31, 2015 and 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 the adjustments described in Note 11 to the financial statements that were applied to the 2013 financial statements to retrospectively apply the reverse stock split. In our opinion, such adjustments are appropriate and have been properly applied. We were not engaged to audit, review, or apply any procedures to the 2013 financial statements of the Company other than with respect to such adjustments and, accordingly, we do not express an opinion or any other form of assurance on the 2013 financial statements taken as a whole. As discussed in Note 20 to the consolidated financial statements, the Company changed its method of presentation for deferred income taxes in 2015 due to the adoption of FASB Accounting Standards Update No. 2015-17—Balance Sheet Classification of Deferred Income Taxes. 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, 2015, 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 11, 2016 expressed an unqualified opinion thereon. /s/ GRANT THORNTON LLP Houston, Texas February 11, 2016 F-2 Report of Independent Registered Public Accounting Firm The Board of Directors and Stockholders of ION Geophysical Corporation and Subsidiaries We have audited, before the effects of the adjustments to retrospectively apply the change in accounting related to the reverse stock split described in Note 11, the accompanying consolidated statements of operations, comprehensive loss, cash flows, and stockholders’ equity of ION Geophysical Corporation and subsidiaries as of December 31, 2013 (the 2013 financial statements before the effects of the adjustments related to the reverse stock split discussed in Note 11 are not presented herein). Our audit also included the financial statement schedule for the year ended December 31, 2013 listed in the Index at Item 15(a). The 2013 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 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 provided a reasonable basis for our opinion. In our opinion, the 2013 financial statements, before the effects of the adjustments related to the reverse stock split to retrospectively apply the change in accounting described in Note 11, present fairly, in all material respects, the consolidated results of operations and cash flows of ION Geophysical Corporation and subsidiaries for the year 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. We were not engaged to audit, review, or apply any procedures to the adjustments related to the adjustments to retrospectively apply the change in accounting described in Note 11 and, accordingly, we do not express an opinion or any other form of assurance about whether such adjustments are appropriate and have been properly applied. Those adjustments were audited by Grant Thornton LLP. /s/ Ernst & Young LLP Houston, Texas February 24, 2014 F-3 ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, 2015 2014 (In thousands, except share data) Current assets: ASSETS Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accounts receivable, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unbilled receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . $ 84,933 44,365 19,937 32,721 14,807 $ 173,608 114,325 22,599 51,162 13,662 Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred income tax asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Property, plant, equipment and seismic rental equipment, net Multi-client data library, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Intangible assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 196,763 — 72,027 132,237 26,274 4,810 6,305 375,356 8,604 69,840 118,669 27,388 6,788 10,612 Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 438,416 $ 617,257 LIABILITIES AND STOCKHOLDERS’ 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 . . . . . . . . . . . . . . . . . . . . . . . . . . Other long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Redeemable noncontrolling interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Commitments and contingencies Equity: Common stock, $0.01 par value; authorized 26,666,667 shares; outstanding 10,702,689 and 10,965,606 shares at December 31, 2015 and 2014, respectively, net of treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accumulated other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . Treasury stock, at cost, 353,124 and 56,636 shares at December 31, 2015 and 2014 respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,912 29,799 34,287 25,045 6,560 103,603 178,408 44,365 326,376 — $ 7,649 36,863 65,264 35,219 8,262 153,257 182,945 143,804 480,006 1,539 107 894,715 (759,531) (14,781) 110 889,284 (734,409) (12,807) (8,551) (6,565) 111,959 81 112,040 135,613 99 135,712 Total liabilities and equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 438,416 $ 617,257 See accompanying Footnotes to Consolidated Financial Statements. F-4 ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS Years Ended December 31, 2015 2014 2013 Service revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Product revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total net revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cost of services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cost of products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Impairment of multi-client data library . . . . . . . . . . . . . . . . . . . . . Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating expenses: Research, development and engineering . . . . . . . . . . . . . . . . . . Marketing and sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . General, administrative and other operating expenses . . . . . . . . . Impairment of goodwill and intangible assets . . . . . . . . . . . . . . . (In thousands, except per share data) $ 384,938 124,620 $ 391,317 157,850 $ 160,480 61,033 221,513 179,816 33,295 399 8,003 26,445 30,493 51,697 — 509,558 278,627 68,608 100,100 62,223 41,009 39,682 76,177 23,284 549,167 272,047 112,346 5,461 159,313 37,742 38,583 66,592 — Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108,635 180,152 142,917 Income (loss) from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Equity in losses of investments . . . . . . . . . . . . . . . . . . . . . . . . . . . Other income (expense) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Loss before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net (income) loss attributable to noncontrolling interests . . . . . . . . Net loss attributable to ION . . . . . . . . . . . . . . . . . . . . . . . . . . . Preferred stock dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Conversion payment of preferred stock . . . . . . . . . . . . . . . . . . . . . (100,632) (18,753) — 98,275 (21,110) 4,044 (25,154) 32 (25,122) — — (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 Net loss applicable to common shares . . . . . . . . . . . . . . . . . . . . $ (25,122) $(128,252) $(251,874) Net loss per share: Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ $ (2.29) $ (2.29) $ (11.72) $ (11.72) $ (23.84) (23.84) Weighted average number of common shares outstanding: Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,957 10,957 10,939 10,939 10,567 10,567 See accompanying Footnotes to Consolidated Financial Statements. F-5 ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other comprehensive income (loss), net of taxes, as appropriate: Foreign currency translation adjustments . . . . . . . . . . . . . . . . . . . Equity interest in investee’s other comprehensive loss . . . . . . . . . Unrealized gain on available-for-sale securities . . . . . . . . . . . . . . Other changes in other comprehensive income . . . . . . . . . . . . . . Total other comprehensive income (loss), net of taxes . . . . . . . . Years Ended December 31, 2015 2014 2013 (In thousands) $(25,154) $(127,518) $(246,518) (1,974) — — — (1,974) (882) (841) 28 26 (1,669) 713 (373) 277 131 748 Comprehensive net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (27,128) (129,187) (245,770) Comprehensive (income) loss attributable to noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 (734) 658 Comprehensive net loss attributable to ION . . . . . . . . . . . . . . . . . . $(27,096) $(129,921) $(245,112) 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 loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization (other than multi-client library) . . . . . . . . . . . . . . . Amortization of multi-client data library . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Stock-based compensation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accrual for (reduction of) loss contingency related to legal proceedings . . . . . . . . . . Equity in losses of investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gain on sale of Source product line . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gain on sale of cost method investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 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, 2015 2014 2013 (In thousands) $ (25,154) $(127,518) $(246,518) 26,527 35,784 5,486 (101,978) — — — — 399 151 — — 7,444 69,491 1,630 2,251 (30,264) (1,571) (6,720) 27,656 64,374 8,707 (69,557) 49,485 (6,522) (5,463) 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 7,476 183,327 42,320 — (3,591) — 5,461 21,197 — 9,157 4,844 (27,571) 40,211 (8,906) 8,482 (6,253) 13,077 Net cash provided by (used in) operating activities . . . . . . . . . . . . . . . . . . . . . . (16,524) 129,780 147,587 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 . . . . . . . . . . . . . . . . . . . . . . . . . Investment in convertible notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (45,558) (19,241) — — — — — 1,263 (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 Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (63,536) (48,750) (158,973) 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Repurchase of common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 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 . . . . . . — — — (7,452) (145) — (1,989) — — 73 — (9,513) 898 Net increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . Cash and cash equivalents at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . (88,675) 173,608 — 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 98,702 (231) 87,085 60,971 Cash and cash equivalents at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 84,933 $ 173,608 $ 148,056 See accompanying Footnotes to Consolidated Financial Statements. F-7 ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY 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 — — 10,423,797 — — $104 — — $850,129 — — $(360,297) (245,860) — $(11,886) — 713 $(6,565) — — $ 534 (339) (56) $ 499,019 (246,199) 657 . . . (In thousands, except shares) 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) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . securities . Unrealized gain (loss) on available-for-sale . . . . 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 . noncontrolling interest . minimum income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Balance at December 31, 2014 . . . . . . Net loss(a) . . . . . Translation adjustment . . Stock-based compensation expense . Vesting of restricted stock units/awards Purchase of treasury shares . . Restricted stock cancelled for employee . . . Issuance of stock for the ESPP . Purchase of subsidiary shares from . noncontrolling interest . minimum income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — (27,000) — — — — — (27,000) — — — — — — — — — — 404,338 — 47,172 38,558 (7,672) 9,658 — — — — — 5 — — — — — — — — — (1,014) 21,995 7,476 2,527 — (483) 780 87 — — — — — — — — — — — — 10,915,851 — — — — 109 — — 881,497 — — (606,157) (128,252) — — — — — — — — — — — — — — 1,900 44,162 (9,075) 12,768 — — 10,965,606 — — — — — — — 29,191 — (296,488) — — — (6,208) 10,588 — — — — — — 1 — — — 110 — — — — (3) — — — — — — 8,707 95 (1) (350) 482 (1,146) 889,284 — — 5,486 — — (126) 215 (144) — — — — — — — — — (734,409) (25,122) — — — — — — — 131 (373) 277 — — — — — — — — (11,138) — (882) 26 (841) 28 — — — — — — (12,807) — (1,974) — — — — — — — — — — — — — — — — — — — — — — — — — — — — 131 (373) 277 (1,014) (5,000) 7,476 2,527 — (483) 780 87 (6,565) — — 139 18 (58) 257,885 (128,234) (940) — — — — — — — — — (6,565) — — — — (1,986) — — — — — — — — — — — — 99 4 (22) — — — — — — 26 (841) 28 8,707 95 — (350) 482 (1,146) 135,712 (25,118) (1,996) 5,486 — (1,989) (126) 215 (144) Balance at December 31, 2015 . . . — $ — 10,702,689 $107 $894,715 $(759,531) $(14,781) $(8,551) $ 81 $ 112,040 (a) (b) Net income attributable to noncontrolling interests for 2015, 2014 and 2013 excludes less than $(0.1) million, $0.7 million and $(0.3) million, respectively, related to the redeemable noncontrolling interests, which is reported in the mezzanine equity section of the Consolidated Balance Sheet. The figures set forth in the tables above have been retroactively adjusted to reflect the one-for-fifteen reverse stock split completed on February 4,2016. 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, 2015 and 2014, there was $0.5 million and $0.4 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 2015, 2014 and 2013, the Company capitalized, as part of its multi-client data library, $6.1 million, $8.3 million and $2.1 million, respectively, of direct internal processing costs. At December 31, 2015 and 2014, 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 . . . . . . . . . . . . $ 899,273 (647,435) (119,601) $ 849,522 (611,651) (119,202) Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 132,237 $ 118,669 December 31, 2015 2014 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.’’ 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 accounted 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 full write-down of its investment in 2014, in INOVA Geophysical at Footnote 15 ‘‘Equity Method Investments.’’ Noncontrolling Interests The Company has 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 loss in the Consolidated Statements of Operations is attributable to both controlling and noncontrolling interests. F-11 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, Ocean Bottom Services 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 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 10 ‘‘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 9 ‘‘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. F-12 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 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) collectability 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 F-13 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 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’’). 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, F-14 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 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 6 ‘‘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 Loss Comprehensive net loss as shown in the Consolidated Statements of Comprehensive Loss and the balance in Accumulated Other Comprehensive Loss as shown in the Consolidated Balance Sheets as of December 31, 2015 and 2014, consist of foreign currency translation adjustments, equity interest in INOVA Geophysical’s accumulated other comprehensive 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 $2.1 million, $1.8 million and $1.1 million for 2015, 2014 and 2013, respectively. F-15 Concentration of Foreign Sales Risk The majority of the Company’s foreign sales are denominated in U.S. dollars. For 2015, 2014 and 2013, international sales comprised 66%, 74% and 73%, respectively, of total net revenues. In the fourth quarter of 2015, crude oil prices dropped by approximately 50% - 70% 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. During 2015, the Russian ruble continued to decline sharply in the back half of the year and into January 2016, reaching its lowest level since the currency was redenominated in 1998. 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. Retroactive Reverse Stock Split All numbers of shares of common stock and per share common stock data in the accompanying consolidated financial statements and related notes have been retroactively adjusted to reflect a one-for-fifteen reverse stock split for all periods presented. See further discussion below at Footnote 11 ‘‘Stockholders’ Equity and Stock-based Compensation—Reverse Stock Split and Increase in Authorized Shares.’’ (2) Cost Reduction Initiatives, Impairments, Restructurings and Other Charges The continuing decline in oil prices and the depressed level of natural gas prices have negatively impacted the economic outlook of the Company’s exploration and production (‘‘E&P’’) company 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 reduced their capital expenditures and shifted their spending from exploration to production-related activities on existing assets. Seismic spending is discretionary; therefore, E&P companies have disproportionately cut their spending on seismic-related services and products. 2015 Cost Reduction Initiatives During 2015, the Company continued its cost reduction initiatives by (i) centralizing the Company’s global data processing capabilities to two core geographical hubs in the U.S. and the U.K., (ii) reducing the Company’s marine repair infrastructure to two locations in the U.S. and U.A.E., (iii) making further reductions in personnel across all of the Company’s segments primarily in the third quarter 2015 that, combined with reductions starting in December 2014 and continuing through the first nine months of 2015, have reduced the Company’s full-time employee base by approximately 50% and F-16 (iv) reducing salaries by 10% for the majority of the Company’s employees during 2015. During 2015, the Company recognized the following pre-tax charges and credits (in thousands): severance charges(a) Facility charges(b) Total Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . Other (income) expense . . . . . . . . . . . . . . . . . . . . . . . Income tax benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net income attributable to noncontrolling interest $3,981 1,910 — (119) (172) $ — $3,981 3,233 1,618 (269) (172) 1,323 1,618 (150) — Consolidated total . . . . . . . . . . . . . . . . . . . . . . . . . . $5,600 $2,791 $8,391 (a) Represents severance charges related to 2015 restructurings, a portion of which relates to a noncontrolling interest. (b) Represents facility charges related to 2015 restructurings. 2014 Restructuring In the fourth quarter of 2014, the Company initiated restructurings across all of its segments, except for its Ocean Bottom Services segment. This restructuring involved the reduction of headcount in all those segments by approximately 10%. The Company incurred a total of $2.3 million of severance charges, paid out in 2015. During 2014, 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. During 2015, the Company recognized the following pre-tax charges and credits (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 15 ‘‘Equity Method Investments’’ of the Footnotes to Consolidated Financial Statements contained elsewhere in this Annual Report on Form 10-K. (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 10 ‘‘Goodwill.’’ For a discussion of the impairment of the intangible asset, see Footnote 9 ‘‘Details of Selected Balance Sheet Accounts.’’ Includes outstanding receivables from INOVA Geophysical of $5.5 million. F-17 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 Impairment of Multi-client Data Library During 2014, 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 then 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 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. F-18 (3) 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 15 ‘‘Equity Method Investments’’ for the summarized financial information for INOVA Geophysical. A summary of segment information follows (in thousands): Years Ended December 31, 2015 2014 2013 Net revenues: Solutions: New Venture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Data Library . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 48,294 63,326 $ 98,649 66,180 $ 154,578 111,998 Total multi-client revenues . . . . . . . . . . . . . . . . . . . . . . . Data Processing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111,620 45,630 164,829 113,075 266,576 120,808 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 157,250 $ 277,904 $ 387,384 Systems: Towed Streamer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Ocean Bottom Equipment . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 15,016 — 21,253 $ 43,995 — 44,422 $ 66,991 7,307 48,134 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 36,269 $ 88,417 $ 122,432 Software: Software Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 24,764 3,230 $ 36,203 3,790 $ 35,418 3,933 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 27,994 $ 39,993 $ 39,351 Ocean Bottom Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ — $ 103,244 $ — Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 221,513 $ 509,558 $ 549,167 Gross profit (loss): . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Solutions Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Ocean Bottom Services . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 13,508 10,829 17,937 (34,271) $ (24,345)(a) $ 111,108 19,999 28,206 — 29,829(b) 28,835 27,904 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,003 $ 62,223 $ 159,313 Gross margin: Solutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Ocean Bottom Services . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income (loss) from operations: 9% 30% 64% —% 4% (9)% 34% 72% 27% 12% 29% 16% 72% —% 29% Solutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Ocean Bottom Services . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (28,916) (2,735) 9,748 (40,756) $ (80,653)(a) $ 61,146 (9,957) 23,602 — (23,521)(b) 20,212 19,070 F-19 Years Ended December 31, 2015 2014 2013 Corporate and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (37,973) (53,037) (58,395) Income (loss) from operations . . . . . . . . . . . . . . . . . . . . . . Interest expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Equity in losses of investments . . . . . . . . . . . . . . . . . . . . . . Other income (expense) . . . . . . . . . . . . . . . . . . . . . . . . . . . (100,632) (18,753) — 98,275 (117,929) (19,382) (49,485) 79,860 16,396 (12,344) (42,320) (182,530) Loss before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . $ (21,110) $(106,936) $(220,798) (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. Years Ended December 31, 2015 2014 2013 Depreciation and amortization (including multi-client data library): Solutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Ocean Bottom Services . . . . . . . . . . . . . . . . . . . . . Corporate and other . . . . . . . . . . . . . . . . . . . . . . . $51,014 1,678 1,191 6,158 2,270 $80,138 1,860 989 6,517 2,526 $ 99,774 2,665 699 — 1,736 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $62,311 $92,030 $104,874 December 31, 2015 2014 Total assets: Solutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Ocean Bottom Services . . . . . . . . . . . . . . . . . . . . . . . . . . . Corporate and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $243,067 60,064 38,097 35,792 61,396 $265,505 84,465 38,479 56,637 172,171 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $438,416 $617,257 F-20 A summary of total assets by geographic area follows (in thousands): December 31, 2015 2014 Total assets by geographic area: North America . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Middle East . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Latin America . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $229,175 84,392 75,390 35,349 14,110 $347,419 117,622 96,532 36,529 19,155 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $438,416 $617,257 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. Depreciation and amortization expense is allocated to segments based upon use of the underlying assets. A summary of net revenues by geographic area follows (in thousands): Years Ended December 31, 2015 2014 2013 Net revenues by geographic area: North America . . . . . . . . . . . . . . . . . . . . . . . . . Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Asia Pacific . . . . . . . . . . . . . . . . . . . . . . . . . . . . Latin America . . . . . . . . . . . . . . . . . . . . . . . . . Middle East . . . . . . . . . . . . . . . . . . . . . . . . . . . Africa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Commonwealth of Independent States . . . . . . . . $ 74,634 72,577 19,135 16,406 14,571 13,182 11,008 $130,224 100,188 49,881 111,078 39,142 75,507 3,538 $150,160 198,977 52,672 54,008 63,157 16,474 13,719 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $221,513 $509,558 $549,167 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. (4) Long-term Debt and Lease Obligations Obligations (in thousands) December 31, 2015 2014 Senior secured second-priority notes . . . . . . . . . . . . . . . . . . . Equipment capital leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other debt obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 175,000 9,762 1,558 175,000 15,059 535 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Current portion of long-term debt and lease obligations . . . . . 186,320 (7,912) 190,594 (7,649) Non-current portion of long-term debt and lease obligations $178,408 $182,945 F-21 Revolving Credit Facility In August 2014, ION and its material U.S. subsidiaries, ION Exploration Products (U.S.A.), Inc., I/O Marine Systems, Inc. and GX Technology Corporation (collectively, the ‘‘Subsidiary Borrowers’’), entered into a credit facility (the ‘‘Credit Facility’’). The terms of the 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 Credit Facility provided a maximum amount of revolving line of credit of $80.0 million, subject to a borrowing base for revolving credit borrowings, calculated using a formula based on eligible receivables, eligible inventory and other amounts. The obligations of the Company under the 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. On August 4, 2015, the Company and the Subsidiary Borrowers amended the terms of the Credit Facility pursuant to a First Amendment to Revolving Credit and Security Agreement dated effective as of August 4, 2015 (the ‘‘First Amendment’’). The First Amendment contemplated, among other things, (i) PNC becoming the sole lender under the Credit Facility, (ii) the reduction of the maximum amount of the revolving line of credit under the Credit Facility from $80.0 million to $40.0 million, (iii) the elimination of the requirement that the Company not exceed a maximum senior secured leverage ratio, (iv) the amendment of the borrowing base formula under the Credit Facility and (v) the removal of the accordion features under the Credit Facility. Prior to the First Amendment, the revolving credit and security agreement contemplated 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 had 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 was 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. The borrowing base under the First Amendment will increase or decrease monthly using an amended formula based on certain eligible receivables, eligible inventory and other amounts, including a percentage of the net orderly liquidation value of the Company’s multi-client data library (not to exceed $15.0 million for the multi-client data library data component). At December 31, 2015, the borrowing base under the Credit Facility was $40.0 million, and there was no outstanding indebtedness under the Credit Facility. The Credit Facility, as amended, contains covenants that, among other things, restrict the Company, subject to certain exceptions, from incurring additional indebtedness (including capital lease obligations), 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. In addition, the terms of our Credit Facility contain covenants that restrict the Company from paying cash dividends on it’s common stock, or repurchasing or acquiring shares of it’s common stock, unless (i) there is no event of default under the Credit Facility, (ii) there is excess availability under the Credit Facility greater than $20.0 million (or, at the time that the borrowing base formula amount is less than $20.0 million, the borrowers’ level of liquidity (as defined in the revolving credit and security agreement) is greater than $20.0 million) and (iii) the agent receives satisfactory projections showing that excess availability under the Credit Facility for the immediately following period of ninety (90) F-22 consecutive days will not be less than $20.0 million (or, at the time that the borrowing base formula amount is less than $20.0 million, the borrowers’ level of liquidity is greater than $20.0 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 Credit Facility. The Credit Facility, as amended, requires that ION and the Subsidiary Borrowers maintain a minimum fixed charge coverage ratio of 1.1 to 1.0 as of the end of each fiscal quarter during the existence of a covenant testing trigger event. 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. A covenant testing trigger event occurs upon (a) the occurrence and continuance of an event of default under the Credit Facility or (b) the failure to maintain a measure of liquidity greater than (i) $5.0 million for five consecutive business days or (ii) $4.0 million on any given business day. Liquidity, as defined in the Credit Facility, is the Company’s excess availability to borrow ($40.0 million at December 31, 2015) plus the aggregate amount of unrestricted cash held by ION, the Subsidiary Borrowers and their domestic subsidiaries. At December 31, 2015 the Company was in compliance with all of the covenants under the Credit Facility. The Credit Facility, as amended, 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 Credit Facility as amended. 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 Credit Facility, as amended (see ‘‘—Revolving Credit Facility’’ above). The indebtedness under the Notes is effectively junior to the Company’s obligations under the Credit Facility to the extent of the value of the collateral securing the 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. F-23 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, incurring additional indebtedness, creating liens, paying dividends and making other distributions in respect of the Company’s capital stock, redeeming the Company’s capital stock, making investments or certain other restricted payments, selling certain kinds of assets, entering into transactions with affiliates, and effecting mergers or consolidations, in aggregate not to exceed at any one time $25.0 million. These and other restrictive covenants contained in the Indenture are subject to certain exceptions and qualifications. 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, 2015, 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 2019. Interest accrues under these leases at rates of up to 9.4% 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 Other Financing 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . Thereafter . . . . . . . . . . . . . . . . . . . . . . $ — — 175,000 — — — Total . . . . . . . . . . . . . . . . . . . . . . . . $175,000 $6,354 3,129 250 29 — — $9,762 $1,558 — — — — — $1,558 (5) Net Income (Loss) per Common Share Basic net income (loss) per common share is computed by dividing net (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, 2015, 2014 and 2013 were 560,797, 599,068 and 550,567, respectively. All outstanding stock options for the twelve months ended December 31, 2015, 2014 and 2013 were anti-dilutive. The total number of shares issuable under anti-dilutive options above have been retroactively adjusted to reflect the one-for-fifteen reverse stock split completed on February 4, 2016. 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 404,338 shares of common stock. The number of shares of common stock received as a result of the conversion of the Series D Cumulative Convertible Preferred Stock has been retroactively adjusted to reflect the F-24 one-for-fifteen reverse stock split completed on February 4, 2016. The effects of the outstanding shares of all Series D Preferred Stock were anti-dilutive for the year ended December 31, 2013. (6) Income Taxes The sources of income (loss) before income taxes are as follows (in thousands): Years Ended December 31, 2015 2014 2013 Domestic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 21,065 (42,175) $(162,151) $(221,185) 387 55,215 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(21,110) $(106,936) $(220,798) Components of income taxes are as follows (in thousands): Years Ended December 31, 2015 2014 2013 Current: Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . State and local . . . . . . . . . . . . . . . . . . . . . . . . . . . . Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred: Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(4,715) $ (678) $ 4,113 485 16,278 (42) 21,722 41 1,274 2,726 4,718 1,004 (1,424) 4,012 832 Total income tax expense . . . . . . . . . . . . . . . . . . . . . . $ 4,044 $20,582 $25,720 A reconciliation of the expected income tax expense on income (loss) before income taxes using the statutory federal income tax rate of 35% for 2015, 2014 and 2013 to income tax expense follows (in thousands): Expected income tax expense at 35% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Foreign tax rate differential Foreign tax differences . . . . . . . . . . . . . . . . . . . . . . State and local taxes . . . . . . . . . . . . . . . . . . . . . . . Nondeductible expenses . . . . . . . . . . . . . . . . . . . . . Goodwill impairment . . . . . . . . . . . . . . . . . . . . . . . Expired Capital Loss . . . . . . . . . . . . . . . . . . . . . . . Valuation allowance: Geophysical Valuation allowance on equity in losses of INOVA . . . . . . . . . . . . . . . . . . . . . . . . . . Valuation allowance on expiring capital losses . . . Valuation allowance on operations . . . . . . . . . . . . Years Ended December 31, 2015 2014 2013 $ (7,389) $(37,428) $(77,279) (2,348) (10,481) 16,808 6,444 485 (42) (58) (1,584) — 9,444 1,769 4,104 41 578 — 15,950 — (15,950) 4,941 17,644 — 36,585 7,871 — 80,241 Total income tax expense . . . . . . . . . . . . . . . . . . . . $ 4,044 $ 20,582 $ 25,720 The company has adopted ASU 2015-17 on a prospective basis as of December 31, 2015. Prior year amounts have not been retrospectively adjusted. See Footnote 20 ‘‘Recent Accounting Pronouncement’’ of Footnotes to the Consolidated Financial Statements. F-25 The tax effects of the cumulative temporary differences resulting in the net deferred income tax asset (liability) are as follows (in thousands): December 31, 2015 2014 Current deferred: Deferred income tax assets: Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . Allowance accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . Total current deferred income tax asset $ Net current deferred income tax asset . . . . . . . . . . . . . . . Deferred income tax liabilities: Unbilled receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . — $ — — — 6,495 7,076 13,571 (12,612) — — 959 (6,865) Total net current deferred income tax liability . . . . . . . . . . $ — $ (5,906) Non-current deferred: Deferred income tax assets: Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . Allowance Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . 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 . . . . . . . . . . . . . . . . $ 2,976 6,739 95,640 2,434 58,820 5,978 7,051 7,700 12,138 $ — — 61,227 18,385 58,820 9,263 3,819 43,319 11,515 Total non-current deferred income tax asset . . . . . . . . . . . Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . 199,476 (194,255) 206,348 (192,652) Net non-current deferred income tax asset . . . . . . . . . . . . 5,221 13,696 Deferred income tax liabilities: Unbilled receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . Basis in property, plant and equipment . . . . . . . . . . . . . (6,516) (3,439) — (5,082) Total net non-current deferred income tax liability . . . . . . $ (4,734) $ 8,614 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, 2015, the Company has a full valuation allowance on all net U.S. deferred tax assets. 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. At December 31, 2015, the Company had U.S. net operating loss carryforwards of approximately $204.9 million, expiring in 2034, and net operating loss carryforwards outside of the U.S. of approximately $90.1 million, the majority of which expires beyond 2027. At December 31, 2015, the Company also had $5.8 million of U.S. capital loss carryforwards. The majority of these capital loss carryforwards expire in 2017. F-26 As of December 31, 2015, the Company has approximately $1.3 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 2015, 2014 and 2013, the aggregate changes in the Company’s total gross amount of unrecognized tax benefits are summarized as follows (in thousands): Years Ended December 31, 2015 2014 2013 Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,957 $2,219 $1,834 Increases in unrecognized tax benefits—prior year positions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Increases in unrecognized tax benefits—current year positions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Decreases in unrecognized tax benefits—prior year — 75 — — 263 385 position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (782) (525) — Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,250 $1,957 $2,219 The Company’s U.S. federal tax returns for 2012 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 2010 and subsequent years generally remain open to examination As of December 31, 2015, the Company considered the outside book-over-tax basis difference in its foreign subsidiaries to be in the amount of approximately $72.2 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. (7) 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:4) 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, denying the Company’s post-verdict motions that challenged the jury’s infringement findings and 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 F-27 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 district 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. The Company and WesternGeco each appealed the Final Judgment to the United States Court of Appeals for the Federal Circuit in Washington, D.C. On July 2, 2015, the Court of Appeals reversed in part the Final Judgment, holding the district court erred by including lost profits in the Final Judgment. Lost profits were $93.4 million and prejudgment interest on the lost profits was approximately $10.9 million of the $123.8 million Final Judgment. Pre-judgment interest on the lost profits portion will be treated in the same way as the lost profits. Post-judgment interest will likewise be treated in the same fashion. On July 29, 2015, WesternGeco filed a petition for rehearing en banc before the Court of Appeals. On October 30, 2015, the Court of Appeals denied WesternGeco’s petition for rehearing en banc. WesternGeco has up to 90 days to determine whether or not it will file a writ of certiorari requesting that the U.S. Supreme Court review the Court of Appeals’ decision. On January 14, 2016, WesternGeco filed a motion to extend until February 26, 2016 the period of time it has to file a writ of certiorari requesting that the U.S. Supreme Court review the Court of Appeals’ decision. WesternGeco has also filed a motion requesting that the district court enforce the approximately $22.0 million in royalty damages without regard to whether or not WesternGeco files a writ of certiorari with the U.S. Supreme Court. The Company has opposed the motion and it has not yet been scheduled for a hearing. As previously disclosed, the Company had taken a loss contingency accrual of $123.8 million. As a result of the reversal by the Court of Appeals, as of June 30, 2015, the Company reduced the loss contingency accrual to its current amount of $22.0 million. 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. Prior to the reduction in damages by the Court of Appeals, the Company arranged with sureties to post an appeal bond at the trial court. The appeal bond is uncollateralized, but 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. The Company has received a request for $11 million in collateral, and is in negotiations with the sureties regarding the request. The appeal bond will remain outstanding during the pendency of appeals. F-28 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. (8) Other Income (Expense) A summary of other income (expense) follows (in thousands): Years Ended December 31, 2015 2014 2013 Reduction of (accrual for) loss contingency related to legal proceedings (Footnote 7) . . . . . . . . . . . . Gain on sale of a product line(1) . . . . . . . . . . . . . . Gain on sale of cost method investments(2) . . . . . . . Other income (expense) . . . . . . . . . . . . . . . . . . . . $101,978 — — (3,703) $69,557 6,522 5,463 (1,682) $(183,327) — 3,591 (2,794) Total other income (expense) . . . . . . . . . . . . . . . $ 98,275 $79,860 $(182,530) (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. (9) 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 . . . . . . . . . . . . . . . . . . . . $49,284 (4,919) $121,957 (7,632) Accounts receivable, net . . . . . . . . . . . . . . . . . . . . . . . . . . . $44,365 $114,325 December 31, 2015 2014 F-29 Inventories A summary of inventories follows (in thousands): Raw materials and purchased subassemblies . . . . . . . . . . . . . . Work-in-process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Finished goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Reserve for excess and obsolete inventories . . . . . . . . . . . . . . . $ 34,949 8,478 13,769 (24,475) $ 41,461 18,221 21,284 (29,804) Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 32,721 $ 51,162 December 31, 2015 2014 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 and risk of obsolescence. For 2015, the reserve for excess and obsolete inventories decreased primarily due to the disposal of reserved inventory partially offset by the increase in the Company’s reserve for excess and obsolete inventories by less than $0.1 million. Property, Plant, Equipment and Seismic Rental Equipment A summary of property, plant, equipment and seismic rental equipment follows (in thousands): December 31, 2015 2014 Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Machinery and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . Seismic rental equipment . . . . . . . . . . . . . . . . . . . . . . . . . . Furniture and fixtures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 24,181 152,358 1,904 4,334 31,821 $ 25,343 144,864 2,166 4,064 16,481 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Less accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . 214,598 (142,571) 192,918 (123,078) Property, plant, equipment and seismic rental equipment, net $ 72,027 $ 69,840 Total depreciation expense, including amortization of assets recorded under capital leases, for 2015, 2014 and 2013 was $24.6 million, $25.1 million and $14.8 million, respectively. Intangible Assets A summary of intangible assets, net, follows (in thousands): Customer relationships . . . . . . . . . . . . . . . . . . . . . . $37,469 $(32,659) $4,810 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $37,469 $(32,659) $4,810 December 31, 2015 Gross Amount Accumulated Amortization Net F-30 December 31, 2014 Gross Amount Accumulated Amortization Net Customer relationships . . . . . . . . . . . . . . . . . . . . . . Intellectual property rights . . . . . . . . . . . . . . . . . . . $40,234 3,350 $(33,446) (3,350) $6,788 — Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $43,584 $(36,796) $6,788 In 2014, 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 2015, 2014 and 2013 was $1.9 million, $2.5 million and $3.8 million, respectively. A summary of the estimated amortization expense for the next five years follows (in thousands): Years Ended December 31, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,675 $1,452 $1,225 $ 458 Accrued Expenses A summary of accrued expenses follows (in thousands): December 31, 2015 2014 Compensation, including compensation-related taxes and commissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accrued multi-client data library acquisition costs . . . . . . . . . . . . Deferred income tax liability . . . . . . . . . . . . . . . . . . . . . . . . . . . Income tax payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $19,126 1,600 — — 13,561 $33,386 6,458 5,900 8,865 10,655 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $34,287 $65,264 Other Long-term Liabilities A summary of other long-term liabilities follows (in thousands): December 31, 2015 2014 Accrual for loss contingency related to legal proceedings (Footnote 7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Facility restructuring accrual Deferred income tax liability . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $22,000 13,394 3,006 4,734 1,231 $123,770 13,416 4,667 — 1,951 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $44,365 $143,804 (10) Goodwill On December 31, 2015, the Company completed the annual reviews of the carrying value of goodwill in its Solutions and Software reporting units and noted no impairments. The quantitative F-31 assessment indicated that the fair values of its Solutions and Software reporting units exceeded their carrying values. In 2014, the Company recorded an impairment charge of $21.9 million related to its goodwill in its Marine Systems reporting unit. For goodwill testing purposes, the litigation contingency accrual of $123.8 million as of December 31, 2014 was assigned to this 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 negative as of December 31, 2014. The negative carrying value required the Company 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. The Company also recorded a $1.4 million impairment of certain intangible assets related to customer relationship within the Solutions segment at December 31, 2014. The following is a summary of the changes in the carrying amount of goodwill for the years ended December 31, 2015 and 2014 (in thousands): Solutions Software Marine Systems Total Balance at January 1, 2014 . . . . . . . . . . . . . . . . . . . . . . Reduction due to sale of product line(1) . . . . . . . . . . . Impairment of goodwill . . . . . . . . . . . . . . . . . . . . . . . Impact of foreign currency translation adjustments . . . Balance at December 31, 2014 . . . . . . . . . . . . . . . . . . . Impact of foreign currency translation adjustments . . . $2,943 — — — 2,943 — $25,949 — — (1,504) 24,445 (1,114) Balance at December 31, 2015 . . . . . . . . . . . . . . . . . . . $2,943 $23,331 $ $ 26,984 (5,100) (21,884) — — — — $ 55,876 (5,100) (21,884) (1,504) 27,388 (1,114) $ 26,274 (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. (11) 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, 2015, there were 560,797 outstanding options under the Company’s stock option plans, and 97,003 shares available for future grant and issuance. The option and share numbers have been retroactively adjusted to reflect the one-for-fifteen reverse stock split completed on February 4, 2016. 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. Stock Repurchase Program On November 4, 2015, the Company’s board of directors approved a stock repurchase program authorizing a Company stock repurchase, from time to time from November 10, 2015 through November 10, 2017, up to $25 million in shares of the Company’s outstanding common stock. The stock repurchase program may be implemented through open market repurchases or privately negotiated transactions, at management’s discretion. The actual timing, number and value of shares repurchased under the program will be determined by management at its discretion and will depend on a number of factors including the market price of the shares of our common stock and general market F-32 and economic conditions, applicable legal requirements and compliance with the terms of our outstanding indebtedness. The repurchase program does not obligate us to acquire any particular amount of common stock and may be modified or suspended at any time and could be terminated prior to completion. Since the program’s inception on November 10, 2015 through February 5, 2016, the Company had repurchased 435,792 shares it’s common stock under the repurchase program at an average price per share of $6.45. The number of shares repurchased and the average price per repurchased share has been retroactively adjusted to reflect the one-for-fifteen reverse stock split completed on February 4, 2016. On February 5, 2016, the closing sale price for our common stock was $6.21 on the NYSE. Reverse Stock Split and Increase in Authorized Shares On February 1, 2016, the Company’s stockholders approved an increase in the number of authorized shares of common stock from 200 million to 400 million, or 13.3 million to 26.7 million retroactively adjusted to reflect the one-for-fifteen reverse stock split. On February 4, 2016, the Company completed a one-for-fifteen reverse stock split, and the Company’s common stock began trading on a reverse-split adjusted basis on February 5, 2016. On February 5, 2016, the closing sale price for the Company’s common stock was $6.21 on the NYSE. All numbers of shares of common stock and per share common stock data in the accompanying consolidated financial statements and related notes have been retroactively adjusted to reflect this stock split for all periods presented. Unless otherwise noted, all numbers of shares of preferred stock and per share preferred stock data in the accompanying consolidated financial statements and related notes are not adjusted to reflect the stock split of our common stock. As a result of the reverse stock split, the number of issued and outstanding shares was adjusted and the number of shares underlying outstanding stock options and the related exercise prices were adjusted. Following the effective date of the reverse stock split, the par value of the Company’s common stock remained at $0.01 per share, and the number of authorized shares was reduced from 400,000,000 to 26,666,667, adjusted to reflect a one-for-fifteen reverse stock split. The prices and share, restricted and option figures presented in the table below have been retroactively adjusted to reflect the one-for-fifteen reverse stock split completed on February 4, 2016. F-33 Transactions under the stock option plans are summarized as follows: 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 . . . . . . . . . . . . . . . . . . . . . . . . . December 31, 2013 . . . . . . . . . . . . . . . . . . . . . . . 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 . . . . . . . . . . . . . . . . . . . . . . . . . December 31, 2014 . . . . . . . . . . . . . . . . . . . . . . . Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 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 $42.00 - $245.85 — — 57.90 - 99.60 — 42.00 - 87.15 45.00 - 231.45 — Outstanding Vested Available for Grant 528,556 — — 119,220 — (47,171) (50,038) — 306,082 195,928 — 248,666 — (5,283) — (119,220) — — 46,821 — (47,663) 70,360 (47,171) (23,573) — — — 15,513 42.45 - 245.85 — 37.05 - 62.55 — 45.00 45.00 - 231.45 — 550,567 — 115,760 — (1,900) (65,358) — 334,762 305,698 (4,452) — — (115,760) — — 14,453 — (48,503) 92,750 (1,900) (38,158) — — — 2,968 37.05 - 245.85 34.2 — 37.05 - 231.45 — 599,069 53,328 — (91,600) — 358,390 183,468 — (53,328) — 12,358 — (45,652) 79,779 (53,864) — — — 157 December 31, 2015 . . . . . . . . . . . . . . . . . . . . . . . $34.2 - $245.85 560,797 384,305 97,003 Stock options outstanding at December 31, 2015 are summarized as follows: Option Price per Share Outstanding $34.20 - $57.90 . . . . . . . . . . . . . . . $61.05 - $95.85 . . . . . . . . . . . . . . . $97.95 - $149.55 . . . . . . . . . . . . . . $151.35 - $245.85 . . . . . . . . . . . . . 171,479 237,647 90,148 61,523 Totals . . . . . . . . . . . . . . . . . . . . 560,797 Weighted Average Exercise Price of Outstanding Options Weighted Average Remaining Contract Life $ 47.10 $ 77.85 $116.40 $215.48 $ 89.74 6.2 years 6.4 years 5.1 years 2.8 years 6.2 years Weighted Average Exercise Price of Vested Options $ 51.81 $ 82.85 $116.78 $215.48 $105.80 Vested 75,914 158,587 88,281 61,523 384,305 F-34 Additional information related to the Company’s stock options follows: Number of Shares Weighted Average Exercise Price Weighted Average Grant Date Fair Value Weighted Average Remaining Contractual Life Aggregate Intrinsic Value (000’s) Total outstanding at January 1, 2015 . . . . Options granted . . . . . . . . . . . . . . . . . Options exercised . . . . . . . . . . . . . . . . Options cancelled . . . . . . . . . . . . . . . . Options forfeited . . . . . . . . . . . . . . . . 599,069 53,328 $ 94.50 $ 34.20 — $ — $ 68.88 $102.79 (37,736) (53,864) 6.7 years $16.65 Total outstanding at December 31, 2015 . 560,797 $ 89.74 6.0 years $— Options exercisable and vested at December 31, 2015 . . . . . . . . . . . . . . . 384,305 $105.80 5.0 years $— The total intrinsic value of options exercised during 2015, 2014 and 2013 was less than $0.1 million, $0.1 million and $2.0 million, respectively. During 2015 there was no cash received from option exercises under all share-based payment arrangements, and the Company received $0.1 million and $2.5 million, in 2014 and 2013 respectively. The weighted average grant date fair value for stock option awards granted during 2015, 2014 and 2013 was $16.65, $36.15 and $37.80 per share, respectively. The figures presented in this paragraph and two tables above have been retroactively adjusted to reflect the one-for-fifteen reverse stock split completed on February 4, 2016. 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 2015 follows: Total nonvested at January 1, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Number of Shares/Units 66,447 45,652 (29,287) (9,185) Total nonvested at December 31, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . 73,627 At December 31, 2015, the intrinsic value of restricted stock and restricted stock unit awards was approximately $0.6 million. The weighted average grant date fair value for restricted stock and restricted stock unit awards granted during 2015, 2014 and 2013 was $34.20, $59.70 and $61.20 per share, respectively. The total fair value of shares vested during 2015, 2014 and 2013 was $0.6 million, $2.1 million and $2.4 million, respectively. The restricted stock unit and weighted average grant date fair value calculations presented in this paragraph have been retroactively adjusted to reflect the one-for-fifteen reverse stock split completed on February 4, 2016. F-35 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 period) for the purchase of the Company’s common stock. Each participant is limited to purchase no more than 33 shares per offering period or 66 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 $0.1 million, $0.2 million and $0.2 million during 2015, 2014 and 2013, 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 51,341. The maximum number of shares of common stock that may be purchased for each offering period is 6,667 (13,333 annually). The share numbers in this paragraph have been retroactively adjusted to reflect the one-for-fifteen reverse stock split completed on February 4, 2016. 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. On March 1, 2015, the Company issued 207,207 SAR awards to 16 individuals with an exercise price of $34.20. The SAR awards number and exercise price have been retroactively adjusted to reflect the one-for-fifteen reverse stock split completed on February 4, 2016. The vesting of these SARs is achieved through both a market condition and a service condition. The market condition is achieved, in part or in full, in the event that during the four-year period beginning on the date of grant the 20-day trailing volume-weighted average price of a share of common stock is (i) greater than 120% of the exercise price for the first 1/3 of the awards, (ii) greater than 125% of the exercise price for the second 1/3 of the awards and (iii) greater than 130% of the exercise price for the final 1/3 of the awards. The exercise condition restricts the ability of the holders to exercise awards until certain service milestones have been reached such that (i) no more than 1/3 of the awards may be exercised, if vested, on and after the first anniversary of the date of grant, (ii) no more than 2/3 of the awards may be exercised, if vested, on and after the second anniversary of the date of grant and (iii) all of the awards may be exercised, if vested, on and after the third anniversary of the date of grant. Pursuant to ASC 718, ‘‘Compensation—Stock Compensation,’’ the stock appreciation rights are considered liability awards and as such, these amounts are accrued in the liability section of the balance F-36 sheet. The Company calculated the fair value of each SAR award on the date of grant using a Monte Carlo simulation model. The following assumptions were used: Risk-free interest rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Expected lives (in years) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Expected dividend yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Expected volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . December 31, 2015 2.19% 3.3 —% 69.38% Additionally, as of December 31, 2015, the Company had outstanding 9,333 SAR awards to one individual with an exercise price of $45.00 The Company recorded less than $0.1 million, annually, of share-based compensation expense during 2015, 2014 and 2013, 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, 2015 2014 2013 Risk-free interest rates . . . . . . . . . . . . . . . Expected lives (in years) . . . . . . . . . . . . . . Expected dividend yield . . . . . . . . . . . . . . Expected volatility . . . . . . . . . . . . . . . . . . 0.9% - 1.8% 1.38% 1.6% - 1.7% 5.5 5.5 4.5 —% —% —% 59.32% 65.9% - 70.5% 62.1% - 70.6% The computation of expected volatility during 2015, 2014 and 2013 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 2015, 2014 and 2013 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. 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, 2015, 2014 and 2013 as follows (in thousands): Stock-based compensation expense . . . . . . . . . . . . . . . Tax benefit related thereto . . . . . . . . . . . . . . . . . . . . . $ 5,486 (1,826) $ 8,707 (2,908) $ 7,476 (2,469) Stock-based compensation expense, net of tax . . . . . . $ 3,660 $ 5,799 $ 5,007 Years Ended December 31, 2015 2014 2013 F-37 (12) Supplemental Cash Flow Information and Non-cash Activity Supplemental disclosure of cash flow information follows (in thousands): Years Ended December 31, 2015 2014 2013 Cash paid during the period for: Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $15,441 8,163 $16,582 16,124 $ 9,576 15,872 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 . . . . . . . . . . . . Investment in multi-client data library financed through trade payables Purchases of property, plant, and equipment and seismic rental equipment financed through accounts payable . . . . . . . . . . . . . . . . . Sale of rental equipment financed with a note receivable . . . . . . . . . . . 1,178 — 12,153 — — 3,151 15,936(a) 10,149 — 8,939 — — 472 — 6,455 5,000 6,765 1,422 — 909 3,636 (a) This transfer of inventory to property, plant, equipment and seismic rental equipment relates to ocean bottom seismic equipment manufactured by the Company to be deployed in the acquisition of ocean bottom seismic data. During the twelve months ended December 31, 2015, the Company purchased approximately $19.2 million of property, plant, equipment and seismic rental equipment, including approximately $15.3 million related to the manufacture of ocean bottom seismic equipment that will be used by the Ocean Bottom Services segment. (13) Operating Leases Lessee. The Company leases certain equipment, offices and warehouse space under non-cancelable operating leases. Rental expense was $11.8 million, $12.9 million and $12.4 million for 2015, 2014 and 2013, respectively. A summary of future rental commitments over the next five years under non-cancelable operating leases follows (in thousands): Years Ending December 31, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $12,154(a) 9,156 9,005 8,973 9,209 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $48,497 (a) Includes $2.7 million of vessel leases for 2016. (14) 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. F-38 To further assist OceanGeo in acquiring backlog, in October 2013, the Company also agreed to loan OceanGeo additional funds for working capital, as necessary, up to a maximum of $25.0 million. Prior to obtaining 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:4) ocean bottom seismic acquisition technology to work in a service model to meet the growing demand for ocean bottom 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. 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. The following table summarizes the fair value assigned to the assets acquired and liabilities assumed, as well as the noncontrolling interest, at the acquisition date (in thousands): During 2015, OceanGeo crew remained idle, resulting in a lack of revenue generation in fourth quarter 2015. OceanGeo is actively pursuing several tenders for long-term work in 2016. 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total identifiable assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accounts payable and accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . Bank loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Noncontrolling interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . January 29, 2014 $ 609 9,247 1,433 18,474 2,227 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 F-39 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(a) . . . . . . . . . . $ 518,742 $ 580,834 $(114,346) $ (19,300) $(126,492) $(262,974) $(127,226) $(268,330) (25.39) $ (11.70) $ Years Ended December 31, (a) The basic and diluted net loss per common share calculations have been retroactively adjusted to reflect the one-for-fifteen reverse stock split completed on February 4, 2016. (15) Equity Method Investments 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 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. At December 31, 2014, the Company fully impaired its investment in INOVA 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 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. 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 accounts for its 49% interest in INOVA Geophysical as an equity method investment. As of December 31, 2015, the carrying value of this investment remains zero. The Company no longer records it’s equity in losses or earnings and has no obligation, implicit or explicit, to fund any expenses of INOVA Geophysical. (16) 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. Due to their highly liquid nature, the amount of the Company’s other financial instruments, including cash and cash equivalents, accounts and unbilled receivables, short term investments, 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, 2015 and 2014 were $186.3 million and $190.6 million, respectively, compared to its fair values of $107.6 million and $162.6 million as of December 31, 2015 and 2014, respectively. The fair value of the long-term debt was calculated using Level 1 inputs, including an active market price. F-40 (17) 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 $1.4 million, $1.8 million and $1.7 million, during 2015, 2014 and 2013, respectively. (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, 2015 March 31 June 30 September 30 December 31 Service revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . Product revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 20,080 20,498 $ 23,323 13,472 $ 53,515 13,159 $63,562 13,904 Total net revenues . . . . . . . . . . . . . . . . . . . . . . . . . Gross profit (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . Income (loss) from operations . . . . . . . . . . . . . . . . . . Interest expense, net . . . . . . . . . . . . . . . . . . . . . . . . . Other income (expense) . . . . . . . . . . . . . . . . . . . . . . Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . Net (income) loss attributable to noncontrolling 40,578 (15,788) (46,689) (4,625) (3,219) 983 36,795 (10,135) (40,689) (4,607) 101,600 532 66,674 11,108 (12,874) (4,854) (346) 2,082 77,466 22,818 (380) (4,667) 240 447 interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 252 297 (227) (290) Net income (loss) applicable to ION . . . . . . . . . . . . $(55,264) $ 56,069 $(20,383) $ (5,544) Net income (loss) per share: Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (5.04) $ $ (5.04) $ 5.11 5.11 $ $ (1.86) (1.86) $ (0.51) $ (0.51) 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 ION . . . . . . . . . . . $ 75,979 Net income (loss) per share: Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ $ 6.96 6.95 $ $ $ 1,188 $ (24,541) $(180,878) 0.11 0.11 $ $ (2.24) (2.24) $ $ (16.51) (16.51) F-41 (19) Certain Relationships and Related Party Transactions For 2015, 2014 and 2013, the Company recorded revenues from BGP of $6.3 million, $6.5 million and $8.0 million, respectively. Receivables due from BGP were $0.3 million and $1.1 million at December 31, 2015 and 2014, respectively. BGP owned approximately 14.8% of the Company’s outstanding common stock as of December 31, 2015. 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 7.4% of the Company’s outstanding common stock as of December 31, 2015. 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. During 2015, the Company paid Laitram and its affiliates a total of approximately $0.8 million, which consisted of approximately $0.7 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 2014 and 2013 fiscal years, the Company paid Laitram and its affiliates a total of approximately $2.4 million and $4.2 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 or 15%, in the event of a default. 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, 2015. The term of the note has not been extended past December 31, 2014, when the note went into default and INOVA has advised the Company that it is not currently able to repay the outstanding amount. In December 2014 the Company, wrote down the book value of this receivable to zero. (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 F-42 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. Balance Sheet Classification of Deferred Taxes—In November 2015, the FASB issued amendments to guidance for reporting deferred tax assets and liabilities in ASU 2015-17. The amended guidance requires the Company to classify all deferred tax assets and liabilities as noncurrent on the balance sheet instead of separating deferred taxes into current and noncurrent amounts. Also, companies will no longer allocate valuation allowances between current and noncurrent deferred tax assets because those allowances also will be classified as noncurrent. As of December 31, 2015 the Company elected to early adopt on a prospective basis as permitted within the guidance. Prior year amounts have not been retrospectively adjusted. Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern—In August 2014, the FASB issued ASU No. 2014-15 that requires management to evaluate whether there are conditions and events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the financial statements are issued and, if so, to disclose that fact. The ASU requires management to make this evaluation for both the annual and interim reporting periods, if applicable. Management is also required to evaluate and disclose whether its plans alleviate that doubt. The ASU is effective for annual periods ending after December 15, 2016 and interim periods within annual periods beginning after December 15, 2016. Disclosure of Presentation of Debt Issuance Costs—In April 2015, the FASB issued Accounting Standards Update No. 2015-03, Interest—Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs, or ASU 2015-03. ASU 2015-03 amends current presentation guidance by requiring that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. Prior to the issuance of ASU 2015-03, debt issuance costs were required to be presented as an asset in the balance sheet. Therefore, when the Company issues its financial statements on Forms 10-Q and 10-K for periods included in its year ended December 31, 2016, must be presented in compliance with this new guidance. (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 F-43 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 ASSETS Current 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, 2015 ION Geophysical Corporation Guarantors The All Other Subsidiaries Consolidating Adjustments Total Consolidated (In thousands) $ 33,734 — — — $ — $ 51,199 9,232 891 21,782 35,133 19,046 10,939 $ 5,435 39,169 — 4,521 — 680,508 — — 75,641 5,052 1,458 66,576 — 21,072 120,550 243,319 — 4,523 — 146 7,914 91,018 — 46,434 11,687 — 26,274 287 — 1,107 — — (923,827) — — (75,641) — Total assets . . . . . . . . . . . . . . . . . . . $ 804,891 $ 456,186 $176,807 $(999,468) $ 438,416 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 $ $ 486 2,086 11,199 — — 13,771 175,000 503,621 540 692,932 — 107 894,715 (759,531) 6,856 19,839 16,200 25,045 5,071 73,011 3,408 68,286 33,305 178,010 — 290,460 180,700 231,208 $ $ 570 7,874 6,888 — 1,489 16,821 — 7,355 10,520 34,696 — 19,138 234,234 (21,729) — — (579,262) — (579,262) — (309,598) (414,934) (209,479) income (loss) . . . . . . . . . . . . . . . . . (14,781) 4,420 (14,604) 10,184 (14,781) Due from ION Geophysical Corporation . . . . . . . . . . . . . . . . . . Treasury stock . . . . . . . . . . . . . . . . . . — (428,612) — (8,551) Total stockholders’ equity . . . . . . . . . Noncontrolling interests . . . . . . . . . . . Total equity . . . . . . . . . . . . . . . . . . 111,959 — 111,959 278,176 — 278,176 (75,009) — 142,030 81 142,111 503,621 — (420,206) — (420,206) — (8,551) 111,959 81 112,040 Total liabilities and equity . . . . . . . . $ 804,891 $ 456,186 $176,807 $(999,468) $ 438,416 F-45 — — — — — — — — — — — — $ 84,933 44,365 19,937 32,721 14,807 196,763 — 72,027 132,237 — 26,274 4,810 — 6,305 $ 7,912 29,799 34,287 25,045 6,560 103,603 178,408 — 44,365 326,376 — 107 894,715 (759,531) Balance Sheet ASSETS Current 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 — — $ — $ 64,094 64,310 4,051 47,149 49,892 18,548 4,013 $ — — — — $ 173,608 114,325 22,599 51,162 6,692 116,329 (7,852) 6,412 — 675,499 — — 29,979 10,191 2,697 75,150 6,675 33,065 96,423 278,294 — 6,254 — 147 8,769 188,373 749 30,363 22,246 — 27,388 534 — 274 (4,496) (4,496) 9,032 — — (953,793) — — (29,979) — 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 interests . . . . Equity: Common stock . . . . . . . . . . . . . . . . . . Additional paid-in capital . . . . . . . . . . Accumulated earnings (deficit) . . . . . . . Accumulated other comprehensive $ — $ 4,308 3,904 — — 8,212 175,000 509,124 2,609 694,945 — 110 889,284 (734,409) 6,965 12,028 34,738 $ 684 20,527 21,807 $ 34,624 5,263 93,618 7,839 8,892 130,985 241,334 — 290,460 180,700 208,846 595 2,999 46,612 106 21,087 10,489 78,294 1,539 19,138 234,234 26,981 — — 4,815 — — 4,815 — (539,103) (279) (534,567) — (309,598) (414,934) (235,827) $ 7,649 36,863 65,264 35,219 8,262 153,257 182,945 — 143,804 480,006 1,539 110 889,284 (734,409) income (loss) . . . . . . . . . . . . . . . . . (12,807) 6,229 (12,795) 6,566 (12,807) Due from ION Geophysical Corporation . . . . . . . . . . . . . . . . . . Treasury stock . . . . . . . . . . . . . . . . . . — (431,561) — (6,565) Total stockholders’ equity . . . . . . . . . Noncontrolling interests . . . . . . . . . . . Total equity . . . . . . . . . . . . . . . . . . 135,613 — 135,613 254,674 — 254,674 (77,563) — 189,995 99 190,094 509,124 — (444,669) — (444,669) — (6,565) 135,613 99 135,712 Total liabilities and equity . . . . . . . . $ 830,558 $ 496,008 $269,927 $(979,236) $ 617,257 F-46 Income Statement Year Ended December 31, 2015 ION Geophysical Corporation Guarantors The Total net revenues . . . . . . . . . . . . . . . . Cost of goods sold . . . . . . . . . . . . . . . . $ — $145,615 126,176 — All Other Subsidiaries Consolidating Adjustments Total Consolidated (In thousands) $ 76,954 88,390 $ (1,056) (1,056) $ 221,513 213,510 Gross profit (loss) . . . . . . . . . . . . . . Total operating expenses . . . . . . . . . . . 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) . . . . . . . . — 26,091 (26,091) (18,434) 697 16,604 192 (27,032) (1,910) Net income (loss) . . . . . . . . . . . . . . . (25,122) Net loss attributable to noncontrolling 19,439 47,579 (28,140) (351) (3,140) (42,953) 101,978 27,394 5,031 22,363 (11,436) 34,965 (46,401) 32 2,443 — (3,895) (47,821) 923 (48,744) — — — — — 26,349 — 26,349 — 26,349 8,003 108,635 (100,632) (18,753) — — 98,275 (21,110) 4,044 (25,154) interests . . . . . . . . . . . . . . . . . . . . . . — — 32 — 32 Net income (loss) attributable to ION $(25,122) $ 22,363 $(48,712) $26,349 $ (25,122) Comprehensive net income (loss) . . . . . Comprehensive loss attributable to $(27,096) $ 20,553 $(50,551) $29,966 $ (27,128) noncontrolling interest . . . . . . . . . — — 32 — 32 Comprehensive net income (loss) attributable to ION . . . . . . . . . . . . . $(27,096) $ 20,553 $(50,519) $29,966 $ (27,096) F-47 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) attributable to ION . . . . . . . . . . . . . . . . . . . . . . $(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-48 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 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-49 Statement of Cash Flows Year Ended December 31, 2015 ION Geophysical Corporation The Guarantors All Other Subsidiaries Total Consolidated (In thousands) Cash flows from operating activities: Net cash provided by (used in) operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(425,310) $ 225,581 $ 183,205 $ (16,524) Cash flows from investing activities: Investment in multi-client data library . . . . . . . . . . Purchase of property, plant, equipment and seismic . . . . . . . . . . . . . . . . . . . . . . . Other investing activities . . . . . . . . . . . . . . . . . . . rental equipment Net cash used in investing activities . . . . . . . . . . Cash flows from financing activities: Payments on notes payable and long-term debt . . . Cost associated with issuance of debt . . . . . . . . . . Repurchase of common stock . . . . . . . . . . . . . . . . Intercompany lending . . . . . . . . . . . . . . . . . . . . . . Proceeds from employee stock purchases and — (44,687) (871) (45,558) (347) — (347) (3,945) 1,263 (14,949) — (19,241) 1,263 (47,369) (15,820) (63,536) (153) (145) (1,989) 352,091 (6,467) — — (171,745) (832) — — (180,346) (7,452) (145) (1,989) — exercise of stock options . . . . . . . . . . . . . . . . . . 73 — — 73 Net cash provided by (used in) financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 349,877 (178,212) (181,178) (9,513) 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 . . (75,780) 109,514 — — — 898 898 (12,895) 64,094 (88,675) 173,608 Cash and cash equivalents at end of period . . . . . . $ 33,734 $ — $ 51,199 $ 84,933 F-50 Statement of Cash Flows Year Ended December 31, 2014 ION Geophysical Corporation Guarantors The All Other Subsidiaries Total Consolidated (In thousands) Cash flows from operating activities: Net cash provided by (used in) operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (53,925) $107,590 $ 76,115 $129,780 Cash flows from investing activities: rental equipment Investment in multi-client data library . . . . . . . . . . Purchase of property, plant, equipment and seismic . . . . . . . . . . . . . . . . . . . . . . . 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 a cost-method investment . . . Other investing activities . . . . . . . . . . . . . . . . . . . . Net cash provided by (used in) investing — (67,552) (233) (67,785) (1,240) 1,000 (4,530) — — — 14,051 579 — 9,881 — 26 (2,494) — (3,074) 4,513 — 323 (8,264) 1,000 (3,074) 14,394 14,051 928 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 . . . . . . . . . . . . . . . . . . . Net cash provided by (used in) financing (50,000) 15,000 — (2,194) 61,324 — 577 (359) — — (5,384) — (40,031) — — — (7,614) — (21,293) (6,000) — — — — (50,000) 15,000 (12,998) (2,194) — (6,000) 577 (359) 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 — — — 496 496 40,739 23,355 25,552 148,056 Cash and cash equivalents at end of period . . . . . . $109,514 $ — $ 64,094 $173,608 F-51 Statement of Cash Flows Year Ended December 31, 2013 ION Geophysical Corporation Guarantors Subsidiaries Adjustments Consolidated All Other Consolidating Total The (In thousands) 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 and equipment . . . . . . Net advances to INOVA Geophysical Investment in and advances to — (111,689) (10,171) — (2,075) (5,000) (2,893) (4,668) — — (114,582) (16,914) — (5,000) — OceanGeo B.V. . . . . . . . . . . . . . . . . . . . — — (24,755) — (24,755) Proceeds from sale of a cost-method investment . . . . . . . . . . . . . . . . . . . . . . . Investment in convertible notes . . . . . . . . . . Capital contribution to affiliate . . . . . . . . . . Other investing activities . . . . . . . . . . . . . . 4,150 (2,000) (5,695) — — — (7,897) 128 — — — — Net cash used in investing activities . . . . . (10,620) (129,629) (32,316) — — 13,592 — 13,592 4,150 (2,000) — 128 (158,973) 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 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 activities . . . . . . . . . . . . . . . . . . . . . . . 155,709 (37,209) (6,206) (13,592) 98,702 Effect of change in foreign currency exchange rates on cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . Net increase (decrease) in cash and cash — — (231) equivalents . . . . . . . . . . . . . . . . . . . . . 94,358 — (7,273) Cash and cash equivalents at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . 30,343 — 30,628 — — — (231) 87,085 60,971 Cash and cash equivalents at end of period . $124,701 $ — $ 23,355 $ — $ 148,056 F-52 SCHEDULE II ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS Year Ended December 31, 2013 Balance at Beginning of Year Charged (Credited) to Costs and Expenses Deductions Balance at End of Year Allowances for doubtful accounts . . . . . . . . . . . . . . . Warranty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Valuation allowance on deferred tax assets . . . . . . . . Excess and obsolete inventory . . . . . . . . . . . . . . . . . . $ 6,711 1,041 63,261 14,239 (In thousands) $12,040 538 88,112 18,644 $(11,529) (936) (338) (328) $ 7,222 643 151,035 32,555 Year Ended December 31, 2014 Balance at Beginning of Year Charged (Credited) to Costs and Expenses Deductions Balance at End of Year (In thousands) Allowances for doubtful accounts . . . . . . . . . . . . . . . Allowances for doubtful notes receivable . . . . . . . . . . Warranty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Valuation allowance on deferred tax assets . . . . . . . . Excess and obsolete inventory . . . . . . . . . . . . . . . . . . $ 7,222 — 643 151,035 32,555 $ 7,275 4,000 381 54,229 6,952 $(6,864) — (625) — (9,703) $ 7,633 4,000 399 205,264 29,804 Year Ended December 31, 2015 Balance at Beginning of Year Charged (Credited) to Costs and Expenses Deductions Balance at End of Year Allowances for doubtful accounts . . . . . . . . . . . . . . . Allowances for doubtful notes receivable . . . . . . . . . . Warranty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Valuation allowance on deferred tax assets . . . . . . . . Excess and obsolete inventory . . . . . . . . . . . . . . . . . . $ 7,633 4,000 399 205,264 29,804 (In thousands) $ 1,841 — 13 (11,009) 151 $(4,555) — (288) — (5,480) $ 4,919 4,000 124 194,255 24,475 S-1 CORE VALUES CORPORATE INFORMATION EXECUTIVE OFFICERS R. Brian Hanson President and Chief Executive Offi cer Christopher T. Usher Executive Vice President and Chief Operating Offi cer, E&P Operations Optimization Kenneth G. Williamson Executive Vice President and Chief Operating Offi cer, E&P Technology & Services Steven A. Bate Executive Vice President and Chief Financial Offi cer 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 Corporate 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 Offi cer, Logan International Inc. R. Brian Hanson President and Chief Executive Offi cer, ION Geophysical Corporation Hao Huimin Chief Geophysicist, BGP Inc., China National Petroleum Corporation Michael C. Jennings Executive 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 Offi cer, GulfSlope Energy, Inc. INVESTOR RELATIONS Shareholders, 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, fi nancial information, and SEC fi lings can be downloaded from the Company’s website at iongeo.com. ANNUAL REPORT ON FORM 10-K ION Geophysical Corporation’s Annual Report on Form 10-K for the fi scal year ended December 31, 2015, 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 Shareholders of ION Geophysical Corporation will be held at the offi ces of the Company located at 2105 CityWest Blvd., Suite 400, Houston, Texas, on May 18, 2016, at 10:30 AM CDT. STOCK TRANSFER AGENT Computershare Investor Services 211 Quality Circle, Suite 210 College Station, TX 77845 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 fi scal year ended December 31, 2015, fi led with the Securities and Exchange Commission, certifi cates of the Chief Executive Offi cer and Chief Financial Offi cer of the Company certifying the quality of the Company’s public disclosure and the Company has submitted to the New York Stock Exchange a certifi cate of the Chief Executive Offi cer 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 This Annual Report to Shareholders 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, and Section 21E of the Securities Exchange Act of 1934, as amended. 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 diff erent 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 Annual Report to Shareholders include statements regarding: the expected outcome of the WesternGeco litigation and future potential adverse eff ects 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; future levels of capital expenditures of our customers for seismic activities; future oil and gas commodity prices; the eff ects of current and future worldwide economic conditions (particularly in developing countries) and demand for oil and natural gas and seismic equipment and services; future cash needs and future availability to fund our operations and pay our obligations; the eff ects of current and future unrest in the Middle East, North Africa and other regions; the timing of anticipated revenues and the recognition of those revenues for fi nancial accounting purposes; the eff ects of ongoing and future industry consolidation, including, in particular, the eff ects of consolidation and vertical integration in the towed marine seismic streamer market; the timing of future revenue realization of anticipated orders for multi-client survey projects and data processing work in our Solutions segment; future levels of our capital expenditures; future government regulations, pertaining to the oil and gas industry; expected net revenues, income from operations and net income; expected gross margins for our services and products; future benefi ts to be derived from our OceanGeo subsidiary; future seismic industry fundamentals, including future demand for seismic services and equipment; future benefi ts to our customers to be derived from new services and products; future benefi ts to be derived from our investments in technologies, joint ventures and acquired companies; future growth rates for our services and products; the degree and rate of future market acceptance of our new services and products; expectations regarding E&P companies and seismic contractor end-users purchasing our more technologically-advanced services and products; anticipated timing and success of commercialization and capabilities of services and products under development and start-up costs associated with their development; future opportunities for new products and projected research and development expenses; expected continued compliance with our debt fi nancial covenants; expectations regarding realization of deferred tax assets; and anticipated results with respect to certain estimates we make for fi nancial accounting purposes. These forward-looking statements refl ect our best judgment about future events and trends based on the information currently available to us. Our results of operations can be aff ected 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. Information regarding factors that may cause actual results to vary from our expectations, referred to as “risk factors,” appears in our Annual Report on Form 10-K for the fi scal year ended December 31, 2015 in Part I, Item 1A. “Risk Factors” and in other documents that we fi le from time to time with the Securities and Exchange Commission. Results of operations may vary materially from our current expectations and assumptions. Information regarding factors that may cause actual results to vary from our expectations, referred to as “risk factors,” appears in our Annual Report on Form 10-K for the fi scal year ended December 31, 2015 in Part I, Item 1A. “Risk Factors” and in other documents that we fi le from time to time with the Securities and Exchange Commission. Charged to innovate. Driven to solve.™ ION Geophysical Corporation 2105 CityWest Blvd., Suite 400 Houston, TX 77042 USA +1 281 933 3339 iongeo.com 

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