2017
Annual Report
Notice of 2018 Annual Meeting
Proxy Statement
CO NTENTS
About ION
CEO Letter to Shareholders
Financial Highlights
Notice of 2018 Annual Meeting
Proxy Statement
Around the globe, ION delivers the power
of data-driven decision-making. Decisions
today are
increasingly complex with
huge amounts of data to comprehend.
Leveraging
innovative
technologies,
ION translates raw data into actionable
insights to enhance companies’ critical
decision-making abilities and returns.
ION is focused on improving E&P decision-
making, enhancing reservoir management
and optimizing offshore operations.
Form 10-K Report
Learn more at iongeo.com
VISION
Our vision is to be the leading innovator in decision
optimization, creating value for our customers,
shareholders and employees.
STRATEGY
Our strategy is to develop and leverage innovative
technologies, creating value through data capture,
analysis and optimization to enhance critical
decision-making, enabling superior returns.
VALUES
People Collaboration Innovation
QHSE
Results
About ION
Leveraging innovative technologies, ION creates value through data capture, analysis and optimization to enhance companies’
critical decision-making abilities and returns. ION off erings are focused on improving E&P decision-making, enhancing reservoir
management and optimizing off shore operations. The business is comprised of three reporting segments: E&P Technology &
Services, Ocean Bottom Seismic Services and Operations Optimization.
E&P TECHNOLOGY & SERVICES
The E&P Technology & Services segment creates digital data assets and delivers services that improve decision-making,
mitigate risk and maximize portfolio value for E&P companies. The segment consists of three synergistic activities that are
oft en integrated to deliver value to clients: Imaging Services, E&P Advisors and Ventures.
ION has one of the most technologically advanced imaging teams in the industry. Imaging Services combines leading
technologies and experience to maximize image quality, delivering enhanced subsurface characterization. Raw data is
transformed into subsurface images by applying a series of complex proprietary algorithms through ION’s highly effi cient
imaging platform.
E&P Advisors help host governments, E&P companies and private equity fi rms make optimal decisions throughout the E&P lifecycle. The experienced staff provides
technical, commercial and strategic advice to evaluate and market oil and gas opportunities and assets world-wide, sharing in the value we create.
Ventures leverages the world-class geoscience skills of both the Imaging Services and E&P Advisors groups to create global digital data assets that are licensed to
multiple E&P companies to optimize their investment decisions. The global data library consists of over 550,000 km of 2D and over 165,000 sq km of 3D multi-client
seismic data in virtually all major off shore petroleum provinces.
OCEAN BOTTOM SEISMIC SERVICES
The use of ocean bottom seismic (OBS) continues to expand, driven by the need for higher quality data to make better
reservoir development decisions. ION provides a full suite of OBS services, including survey design and planning, data
acquisition, data processing, interpretation and reservoir services.
4Sea®, ION’s next generation fully integrated ocean bottom nodal system, is designed to deliver a step change in economics,
image quality, QHSE and fi nal data delivery time, delivering superior OBS data faster for enhanced reservoir understanding
and improved returns.
OPERATIONS OPTIMIZATION
Operations Optimization develops mission-critical subscription off erings and engineering services that enable operational
control and optimization off shore. ION provides cutting-edge soft ware, systems and services for both towed streamer and
ocean bottom seismic surveys.
ION soft ware off erings leverage a leading data integration platform to control and optimize operations in real time. ION is
a leading provider of off shore seismic navigation systems, Orca® and Gator®, as well as survey design soft ware, MESA®.
The newest soft ware off ering, Marlin™, supports a step change off shore as companies shift from traditional manual processes to digital solutions that enable
better, safer decisions. Similar to air traffi c control, Marlin is designed to maximize the safety and effi ciency of off shore operations by integrating a variety of data
sources (AIS, GIS, GPS, radar, satellite, MetOcean) with operational plans, creating an unparalleled picture of off shore operations to enhance decision-making.
Devices develops intelligent equipment controlled by our soft ware to optimize operations such as our industry-leading positioning solution. Engineering
Services experts help plan and optimize off shore projects and provide equipment maintenance and training to maximize value from our off erings.
1
1
Letter to Shareholders
Dear Fellow Shareholders,
R. Brian Hanson
President and Chief Executive Officer
We have been on a tough journey over the last three years,
time since 2013 that we have reported six consecutive quarters
coming back strong from one of the worst downturns on record.
of break-even or better Adjusted EBITDA. Net cash fl ow from
We were one of the fi rst to make deep, necessary cuts when the
operations was $28 million, compared to $2 million in 2016. Our
downturn hit and we have been leading the recovery, actively
net loss was $30 million, or $(2.55) per share, compared to a net
positioning our business to be more relevant to where capital
loss of $65 million, or $(5.71) per share in 2016. The business
was fl owing and, as a result, far outperforming our peers.
generated break-even cash fl ows, demonstrating that we have
I am pleased with our performance for every quarter throughout
balance, excluding borrowings under our credit facility, was $42
rightsized our business to refl ect market conditions. Our cash
2017. Although the market recovery has been slow for many,
million as of December 31, 2017.
our eff orts over the last two years to focus on select segments
that attract capital spending, along with our asset light strategy,
We achieved the major strategic objectives we set for ourselves
has paid off . As a niche business in the larger E&P market,
in 2017, which enabled our successful fi nancial performance.
we surgically targeted select geographic areas and production
First, we purposefully shift ed our business away from exploration
optimization opportunities less dependent on cycle recovery and
and closer to the reservoir. Our 3D reimaging programs
where our diff erentiated technologies delivered signifi cant value.
off shore Mexico and Brazil have been extremely successful and
we developed cutting-edge full waveform inversion imaging
In 2017,
ION made substantial year-on-year fi nancial
algorithms to produce sharper, more detailed
images to
improvements, driven by continued strong sales of our 3D multi-
identify new reservoirs and bypassed pay. We also launched
client reimaging programs as well as new 2D programs we
our next generation ocean bottom nodal system, 4Sea, aimed
launched in 2017. 2017 revenues of $198 million were up 14%
at the production market. Instead of commercializing 4Sea in
compared to last year. In 2017, we did not recognize any revenue
a commoditized, asset-heavy way as a crew, we are taking a
from Ocean Bottom Seismic Services so a better year-over-year
smarter, asset light approach to off er it more broadly to all OBS
comparison would exclude Ocean Bottom revenues from 2016.
service providers, sharing in the value we are enabling.
Excluded, our revenues of $198 million are up 45% from last year.
Adjusted EBITDA* for the full year was $64 million, a six fold
adjacent markets. The E&P industry is extremely cyclical and
increase in what we generated the prior year. This is the fi rst
we already have leading market share in the areas where we
Our second goal was to broaden and diversify our off erings into
2
*Adjusted EBITDA is a non-GAAP fi nancial measure. See our 2017 Year-end Results press release issued on February 7, 2018 for reconciliation to its
comparable GAAP measure.
participate in the seismic market, putting us at risk and limiting
the transaction. The combination of the capital we raised plus
our growth potential. Over the last few years, we transformed
the potential exercise of the warrants in the next 12 months,
our core command and control platform to more broadly
along with our current liquidity and free cash flow throughout
optimize a wide variety of offshore operations. We have also
2018, should position us with excess cash by early 2019 well in
already solved a lot of tough marine sensing, positioning and
advance of the second lien indentures coming due in 2021.
communications challenges with our Devices technology and
have started exploring relevant adjacent markets for it. For
In our E&P Technology and Services group, we continued to
example, we recently evolved our industry-leading compass
benefit from our investment in multi-client data, generating
from our positioning solution to help navigate underwater diver
solid growth in new venture revenues throughout the year. We
propulsion devices in GPS-deprived environments. There’s a lot
had tremendous success with our 3D reimaging programs,
more potential to diversify as we strategically evaluate where to
expanding our 3D data library from 8,000 sq km to over 165,000
focus our efforts.
sq km in just two years. In addition, after two years of very little
new venture activity, we launched five new programs in 2017,
The third key objective was to meet our bond obligations and
and already secured underwriting for new programs in 2018.
reduce our debt. The successful public equity offering in February
Our data library is exceptionally well positioned for upcoming
2018 enables us to begin de-levering our business. ION issued
license round activity and 2018 is looking even better with more
and sold 1,820,000 shares of common stock at a public offering
diverse interest in programs across the globe.
price of $27.50 per share, and warrants to purchase an additional
1,820,000 shares of ION’s common stock. The net proceeds from
In our Operations Optimization segment, we maintained our core
this offering were $47.5 million, excluding transaction expenses.
seismic software and equipment businesses while pursuing
A portion of the proceeds were used to retire ION’s third lien
additional opportunities for our technology in adjacent markets.
indentures of $28.5 million on March 26, 2018, well before their
For example, we made significant headway in both executing
May 15, 2018 maturity date. The warrants have an exercise price
deployments and developing the shrink-wrapped version of
of $33.60 per share, are immediately exercisable and expire on
Marlin, our operations optimization platform. In 2017, Marlin
March 21, 2019. If the warrants are exercised in full prior to their
deployments more than doubled with 39 new deployments
expiration, ION will receive additional proceeds of $61.2 million.
across 19 projects, vastly improving the situational awareness,
safety and efficiency for a wide array of offshore operational
The successful public equity offering is not only an endorsement
challenges. In addition, we offset some of the decline in seismic
of our asset light strategy, but also a recognition of the velocity
equipment revenues by selling existing technology to new
in our business and our underlying value. While we had
customers in scientific, military and academic industries.
sufficient liquidity to retire the third lien bond maturing this
May, these additional funds will further strengthen our balance
In our Ocean Bottom Seismic Services segment, we introduced
sheet and enable us to be opportunistic and support continued
our new fully integrated nodal system, 4Sea, in 2017. 4Sea is
diversification into adjacent markets. I’m really pleased with
differentiated in its ability to deliver a step change in economics,
3
QHSE performance and final image delivery time. The OBS
of the oil and gas sector, especially in new acquisition, where
market is growing, projected to be at pre-downturn levels of $1
asset heavy players are still struggling and restructuring.
billion in 2018 with significant growth anticipated in the following
years, due to improved economics of next generation systems
In my twelve years at ION, I have never been more optimistic
and growing adoption by E&P companies as the technology of
about our future. We are confident about our niche, asset light
choice to manage reservoirs. However, there is increased risk in
approach and have significant runway to continue growing our
the conventional supply side model of operating a crew, which is
business.
asset heavy with large amounts of capital required.
Thank you for your continued confidence in ION.
We evaluated numerous possible commercialization paths
for 4Sea and settled on two asset light business models that
Regards,
we believe will deliver a higher, more sustainable return over
the long-term for our shareholders. The first is making the
individual components of 4Sea available more broadly to all OBS
service providers on a value-based pricing model, allowing us
Brian Hanson
to participate in the success we enable. The second approach is
President & Chief Executive Officer
to license the right to manufacture and use the fully integrated
system to a service provider on a value-based pricing model,
such as a royalty stream.
Looking forward to 2018, we are seeing increasingly positive
signs of growth and recovery in the oil and gas industry. There
is a growing consensus that the E&P market is in balance due to
healthy global demand and continued production cuts. Inventory
levels are declining and Brent crude oil hit $70 in January for the
first time in three years.
As a result, market analysts are projecting E&P spending to
increase 8% in 2018, following 4% growth in 2017 and preceded
by consecutive years of double-digit declines. This is the first
time in three years that international spending is expected to
increase, where our offerings are more relevant. However, we
expect growth in seismic spending to lag behind some segments
4
Financial Highlights
years ended December 31
2017
2016
2015
(in thousands, except per share data)
STATEMENT OF OPERATIONS DATA
Net revenues
Gross profi t
Loss from operations
$ 197,554
$ 172,808
$ 221,513
75,639
36,032
8,003
(8,699)
(43,171)
(100,632)
Net loss per basic and diluted share
(30,242)
(65,148)
(25,122)
Net loss per diluted share
$ (2.55)
$ (5.71)
$ (2.29)
Weighted average number of common and diluted shares outstanding
11,876
11,400
10,957
Balance Sheet Data (end of year)
Working capital
Total assets
Long-term debt
Total equity
Other Data
$ (8,628) (1)
$ 16,555
$ 93,160
301,069
313,216
435,088
156,744
158,790
182,992
30,806
53,398
112,040
Investment in multi-client library
$ 23,710
$ 14,884
$ 45,558
Capital expenditures
1,063
1,488
19,241
Depreciation and amortization (other than multi-client library)
16,592
21,975
26,527
Amortization of multi-client library
47,102
33,335
35,784
(1) Working Capital at December 31, 2017 is negative due to $28.5 million of Third Lien Notes (maturing May 15, 2018). In the fi rst quarter of 2018, the
Company issued and sold 1,820,000 shares of common stock, receiving proceeds of $47.5 million, excluding transaction expenses. A portion of these
proceeds were used to retire the Third Lien Notes early in March 2018.
The selected consolidated fi nancial data set forth above with respect to our consolidated statements of operations for 2017, 2016 and 2015 and with respect to our consolidated
balance sheets at December 31, 2017, 2016 and 2015 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, debt refi nancing, 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, as amended, for the year ended December 31, 2017. 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, as amended, for the year ended December 31, 2017.
5
ANNUAL REVENUES
2013
2014
2015
2016
2017
Consolidated
Revenues
549.2
509.6
221.5
172.8
197.6
E&P Technology & Services
Operations Optimization
Ocean Bottom Seismic 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
2012
100.00
100.00
100.00
2013
50.69
132.39
128.41
2014
42.24
150.51
106.29
2015
7.73
152.59
82.40
2016
6.14
170.84
104.91
2017
20.23
208.14
87.38
return on our common stock for the fi ve years ending
December 31, 2017, 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,
2012. 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.
6
ION GEOPHYSICAL CORPORATION
2105 CityWest Boulevard, Suite 100
Houston, Texas 77042-2855
(281) 933-3339
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held May 16, 2018
To ION’s Shareholders:
The 2018 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 16,
2018, 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 2018; 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 29, 2018, 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
3APR201819024815
Matthew Powers
Executive Vice President, General Counsel and
Corporate Secretary
April 13, 2018
Houston, Texas
ION GEOPHYSICAL CORPORATION
2105 CityWest Boulevard, Suite 100
Houston, Texas 77042-2855
(281) 933-3339
PROXY STATEMENT
FOR ANNUAL MEETING OF SHAREHOLDERS
To Be Held May 16, 2018
April 13, 2018
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 2018 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 16, 2018, at 10:30 a.m., local time. Directions to the
annual meeting are also provided in this Proxy Statement under ‘‘About the Meeting—Where will the
Annual Meeting be held?’’
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 2018; 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 mailing address of our principal executive offices is 2105 CityWest Boulevard, Suite 100,
Houston, Texas 77042-2855. We are mailing the proxy materials to our shareholders beginning on or
about April 13, 2018. 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. The proxies also may be voted at any adjournments or postponements of
the Annual Meeting.
Only owners of record of our outstanding shares of our Common Stock, par value $0.01
(‘‘Common Stock’’) on March 29, 2018 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 29, 2018, there were 14,077,730 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.
Important Notice Regarding the Availability of Proxy Materials
For the Annual Shareholders’ Meeting to be held on May 16, 2018
The Proxy Statement and our 2017 annual report to shareholders
are available at www.iongeo.com under ‘‘Investor Relations—Investor Materials—
Annual Report & Proxy Statement.’’
1
TABLE OF CONTENTS
2018 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 GRANTS OF PLAN-BASED AWARDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
EMPLOYMENT AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END . . . . . . . . . . . . . . . . . . . . . . . .
2017 OPTION EXERCISES AND STOCK VESTED . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE OF CONTROL . . . . . . . . . .
2017 PENSION BENEFITS AND NONQUALIFIED DEFERRED COMPENSATION . . . . . . . .
EQUITY COMPENSATION PLAN INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CEO PAY RATIO DISCLOSURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 2—ADVISORY (NON-BINDING) VOTE TO APPROVE EXECUTIVE
COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 3—RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS . . . . . . . . . .
REPORT OF THE AUDIT COMMITTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PRINCIPAL AUDITOR FEES AND SERVICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3
5
10
14
27
29
31
32
51
52
54
54
57
59
59
69
70
71
72
74
75
77
2
2018 PROXY STATEMENT HIGHLIGHTS
This summary highlights information contained elsewhere in our Proxy Statement. This summary does
not contain all of the information that you should consider. You should read the entire Proxy Statement
carefully before voting.
Board Nominees
Name
Director
Since
Age
Occupation
Independent Audit Comp Gov Fin
Committee
Memberships
R. Brian Hanson . . . . . . . . . . 53
2012 President, Chief Executive
Zheng HuaSheng . . . . . . . . . 51
Officer and Director of ION
2018 Executive Vice President of
BGP Inc., China National
Petroleum Corporation
James M. Lapeyre, Jr.
. . . . . 65
1998 Chairman of the Board of
ION and President of
Laitram L.L.C.
Executive Compensation Highlights
*
*
*
*
*
ION is committed to paying for performance. We provide the majority of compensation to our
executives 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. Payment under our annual incentive cash plan is based on company performance relative to
financial goals and on individual performance. Under our annual incentive cash plan, cash
compensation reflects near-term (annual) business performance of the Company.
Awards of stock appreciation rights (‘‘SARs’’) and equity awards (consisting of stock options,
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 and SARs
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 the 2017 Mercer Total
Compensation Survey for the Energy Sector.
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’ 2018 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. The following table shows the total direct
3
compensation granted by the Compensation Committee to our named executive officers in 2017, 2016
and 2015 (except for Mr. Powers, who did not become a named executive officer until 2017):
Name and Principal Position
Stock
Option
Non-Equity
Incentive
Plan
Total Direct
Salary Bonus Awards Awards Compensation Compensation
Year
($)
($)
($)
($)
($)
($)
R. Brian Hanson . . . . . . . . . . . . . . . . . . . . . 2017 558,689 —
—
Steven A. Bate . . . . . . . . . . . . . . . . . . . . . . 2017 350,484 —
President, Chief Executive Officer
and Director
2016 540,000 — 341,900 203,817
2015 560,769 — 294,633 215,164
—
2016 337,500 — 170,950 101,909
98,200
2015 350,481 — 134,474
Matthew R. Powers . . . . . . . . . . . . . . . . . . . 2017 220,664 — 168,600 291,540
Executive Vice President and
Chief Financial Officer
—
— 1,200,000
720,000
750,000
450,000
337,500
351,562
165,000
Executive Vice President, General
Counsel and Corporate Secretary
Christopher T. Usher . . . . . . . . . . . . . . . . . . 2017 353,808 —
Executive Vice President and Chief
Operating Officer, Operations Optimization
Kenneth G. Williamson . . . . . . . . . . . . . . . . 2017 361,905 —
—
—
50,954
2016 340,704 — 59,686
47,119
2015 353,808 — 64,501
—
—
2016 348,492 — 70,875
71,336
2015 361,895 — 159,611 116,565
347,000
272,500
227,136
508,000
260,000
261,368
Executive Vice President and Chief
Operating Officer, E&P Technology &
Services
1,758,689
1,805,717
1,820,566
800,484
947,859
934,717
845,804
700,808
723,844
692,564
869,905
750,703
899,439
4
What is a proxy, a proxy solicitation and a 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 also referred to as a ‘‘proxy.’’ A proxy solicitation is a request that a corporate
shareholder authorize another person to cast the shareholder’s vote at a corporate meeting. Our Board
has designated R. Brian Hanson and James M. Lapeyre, Jr. as proxies for the 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 an informational document that the regulations of the Securities and Exchange
Commission (‘‘SEC’’) require us to give you when we ask you, in a proxy solicitation, 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 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 LLP to
assist with the solicitation of proxies from banks, brokers, nominees and other holders, for a fee not to
exceed $11,500 plus reimbursement for out-of-pocket 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 2018 Annual Meeting of Shareholders will be held on the 1st 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 at the security desk where you will then be directed to the first floor receptionist.
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 Annual Meeting of Shareholders is March 29, 2018. 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. Written notice to the Corporate Secretary should be sent to Corporate Secretary,
ION Geophysical Corporation, 2105 CityWest Boulevard, Suite 100, Houston, Texas 77042-2855. 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, 14,077,730 shares of Common Stock were outstanding. Thus, the presence of the holders of
Common Stock representing at least 7,038,866 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 the director nominees to serve until the 2021 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.
If you vote, 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 2018,
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.
7
The Board recommends a vote ‘‘FOR’’ this proposal.
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 should any adjournments or postponements of the Annual Meeting be proposed, shares
with respect to which voting authority has been granted to the proxies will be voted by the proxies in
accordance with the proxies’ respective judgment.
What if I do not specify a choice for a matter when submitting my proxy?
Shareholders should specify their choice for each matter on their proxy. If no instructions are
given, in a proxy that is properly submitted, that proxy 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 2018.
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 2019 proxy
statement and for submitting a nomination for director of ION for consideration at the Annual
Meeting of Shareholders in 2019?
Shareholder proposals requested to be included in our 2019 proxy statement must be received by
ION no later than December 14, 2018. A proper director nomination may be considered at ION’s 2019
Annual Meeting of Shareholders only if the proposal for nomination is received by ION not later than
December 14, 2018. Proposals and nominations should be directed to Corporate Secretary, ION
Geophysical Corporation, 2105 CityWest Boulevard, Suite 100, Houston, Texas 77042-2855.
Will I have electronic access to the proxy materials and Annual Report?
The notice of Annual Meeting, Proxy Statement and 2017 Annual Report to Shareholders are
posted on ION’s Internet website at www.iongeo.com under ‘‘Investor Relations—Investor Materials—
Annual Report & Proxy Statement’’.
How can I obtain a copy of ION’s Annual Report on Form 10-K?
A copy of our 2017 Annual Report on Form 10-K, as amended (without schedules or exhibits)
forms a part of our 2017 Annual Report to Shareholders, which is enclosed with this Proxy Statement.
You may obtain an additional copy of our 2017 Form 10-K, as amended, at no charge by sending a
8
written request to Corporate Secretary, ION Geophysical Corporation, 2105 CityWest Boulevard,
Suite 100, Houston, Texas 77042-2855. Our Forms 10-K and 10-K/A are 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.
9
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 I, which is the class of directors to be
elected at the Annual Meeting, will serve on the Board until our annual meeting in 2021 (except in the
case of any earlier death, resignation, retirement, disqualification or removal).
The current Class I directors are R. Brian Hanson, Zheng HuaSheng and James M. Lapeyre, Jr.
and their current terms will expire when their successors are elected and qualified at the Annual
Meeting. At its meeting on February 6, 2018, the Board approved the recommendation of the
Governance Committee that Messrs. Hanson, Hao Huimin and Lapeyre be nominated to stand for
reelection at the Annual Meeting to hold office until our 2021 Annual Meeting and until their
successors are elected and qualified.
In April 2018, Mr. Hao stepped down from his role as director. BGP, pursuant to their rights
under the Investor Rights Agreement (further described under ‘‘—Certain Transactions and
Relationships’’ below), had nominated Mr. Zheng HuaSheng to replace Mr. Hao. In April 2018, the
Board unanimously approved Mr. Zheng’s appointment to the Board and resolved that Mr. Zheng be
nominated to stand for reelection at the upcoming Annual Meeting, to hold office until our 2021
Annual Meeting and until his successor is elected and qualified.
We have no reason to believe that any 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 R. Brian Hanson, Zheng
HuaSheng and James M. Lapeyre, Jr.
The biographies of each of the nominees and continuing directors below contains information
regarding the person’s service as a director, business experience, education, director positions and the
experiences, qualifications, attributes or skills that caused the Governance Committee and our Board to
determine that the person should serve as a director for the Company:
Class I Director Nominees for Re-Election for Term Expiring In 2021
R. BRIAN HANSON
Director since 2012
Mr. Hanson, age 53, 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.
10
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.
ZHENG HUASHENG
Director since 2018
Mr. Zheng, age 51, has been employed by China National Petroleum Corporation (‘‘CNPC’’),
China’s largest oil company, and its affiliates in various positions of increasing responsibility since 1994.
Since 2018, he has been Executive Vice President of BGP Inc., China National Petroleum Corporation
(‘‘BGP’’). BGP is a subsidiary of CNPC and is the world’s largest land seismic contractor. From 1994 to
1997, Mr. Zheng was Legal Representative & Financial Supervisor, Ecuador Branch. From 1997 to
1998, he was Representative of the Sudan Office of BGP International. From 1998 to 1999, Mr. Zheng
was Manager of Strategy & Planning Department, BGP International. From 1999 to 2003, Mr. Zheng
was Vice President of BGP International. From 2005 to 2009, Mr. Zheng was President of BGP
International and Assistant President of BGP. From 2010 to 2018, Mr. Zheng was Vice President of
BGP. He holds a Masters of Business Administration degree from the University of Calgary, Haskayne
School of Business.
Mr. Zheng has over 20 years of experience in geophysical program management, particularly in
international business. Mr. Zheng’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. Zheng’s insights with
regard to issues relating to China provide our Board with a valuable resource.
Mr. Zheng was appointed to our Board of Directors under the terms of the Company’s Investor
Rights Agreement with BGP. 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
April of 2018, Mr. Zheng replaced Hao Huimin, BGP’s most recent appointee to our Board.
JAMES M. LAPEYRE, JR.
Director since 1998
Mr. Lapeyre, age 65, 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.
11
Class II Director—Term Expiring In 2019
DAVID H. BARR
Director since 2010
From May 2011 until December 2012, Mr. Barr, age 68, 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
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. Since 2011, he has
also been serving on the Board of Directors, Compensation Committee, and as, Chairman of the Safety
and Social Responsibility 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 Compensation Committee of Logan International Inc., and 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 65, 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 NCS Multistage (a manufacturer of down-hole tubular equipment). From September 2010 until
March 15, 2018, Mr. Myers served on the Board of Directors of 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
12
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.
S. JAMES NELSON, JR.
Director since 2004
Mr. Nelson, age 76, 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), where he was appointed to the
Governance Committee in late 2016. 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 Director—Term Expiring In 2020
MICHAEL C. JENNINGS
Director since 2010
Mr. Jennings, age 52, is Chairman of the Board of Directors of HollyFrontier Corporation, a
NYSE-listed independent oil refining and marketing company and served as the Company’s
President & Chief Executive Officer from 2011 to 2016. 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
13
Frontier Oil merged with Holly Corporation to form HollyFrontier. Prior to his appointment to
President and Chief Executive Officer of Frontier in January 2009, Mr. Jennings served as Frontier’s
Executive Vice President and Chief Financial Officer. From 2000 until joining Frontier in 2005,
Mr. Jennings was employed by Cameron International Corporation as Vice President and Treasurer.
From 1998 until 2000, he was Vice President Finance & Corporate Development of Unimin
Corporation, a producer of industrial minerals. From 1995 to 1998, Mr. Jennings was employed by
Cameron International Corporation as Director, Acquisitions and Corporate Finance. Mr. Jennings also
serves as Chairman of the Board of Directors of Holly Energy Partners, a NYSE-listed master limited
partnership partially owned by HollyFrontier Corporation. Mr. Jennings is a member of the Audit and
Finance Committees of our Board of Directors. He holds a Bachelor of Arts degree in economics and
government from Dartmouth College and a Master of Business Administration degree in finance and
accounting from the University of Chicago.
Mr. Jennings’ experience in the global oil refining, marketing and oilfield services businesses
enables him to advise the Board on customer and industry issues and perspectives. Given his extensive
experience in executive, financial, treasury and corporate development matters, Mr. Jennings is able to
provide the Board with expertise in corporate leadership, financial management, corporate planning
and strategic development, thereby supporting the Board’s efforts in overseeing and advising on
strategic and financial matters.
JOHN N. SEITZ
Director since 2003
Mr. Seitz, age 66, has been 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, since
2013. 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 currently serves on the
Investment Committee for Sheridan Production Company, LLC, a privately held oil & gas company
with interests in Texas, Oklahoma and Wyoming. He formerly serviced on the Board of Directors for
Endeavor International, Inc., Constellation Energy Partners LLC, and Gulf United Energy, Inc.
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 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.
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.
14
(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 Director 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/A for the fiscal
year ended December 31, 2017, 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 2017, we submitted to the NYSE a certificate of our Chief Executive Officer
certifying that he is not aware of any violation by ION of the NYSE corporate governance listing
standards.
(cid:129) Our internal audit controls function maintains critical oversight over the key areas of our
business and financial processes and controls, and provides reports directly to the Audit
Committee.
(cid:129) We have a compensation recoupment (clawback) policy that applies to our current and former
executive officers. The policy is available on our website at http://ir.iongeo.com/
phoenix.zhtml?c=101545&p=irol-govhighlights.
(cid:129) We have stock ownership guidelines for our non-employee directors and senior management.
15
(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
acknowledge receipt and compliance with Company policies through an online onboarding portal, after
the employment offer has been accepted.
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: Corporate Secretary, 2105 CityWest
Boulevard, Suite 100, Houston, Texas 77042-2855. Amendments to, or waivers from, our Code of Ethics
will also be available on our website and reported as may be required under SEC rules; however, any
technical, administrative or other non-substantive amendments to our Code of Ethics may not be
posted.
Please note that the preceding Internet address and all other Internet addresses referenced in this
Proxy Statement are for information purposes only and are not intended to be a hyperlink. Accordingly,
no information found or provided at such Internet addresses or at our website in general is intended or
deemed to be incorporated by reference herein.
Lead Independent Director.
James M. Lapeyre, Jr. serves as our Chairman of the Board. 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
16
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 100,
Houston, Texas 77042-2855. 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.
2017 Meetings of the Board and Shareholders. During 2017, the Board held six meetings and the
four standing committees of the Board held a total of 12 meetings. The rate of attendance by our
directors at such meetings was 100%. We do not require our Board members to attend our Annual
Meeting of Shareholders; however, seven of our directors were present at our Annual Meeting held in
May 2017.
17
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 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 8.8% of our outstanding Common Stock as of
February 28, 2018. 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 2017 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. Zheng, is employed as Executive Vice President of BGP. For an explanation of
the relationships between BGP and ION, please see ‘‘—Certain Transactions and Relationships’’ below.
18
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.
The Audit Committee is also responsible for overseeing cybersecurity-related risks. In addition, in
setting compensation, the Compensation Committee strives to create incentives that encourage a level
of risk-taking behavior consistent with ION’s business strategies. While each committee is responsible
for evaluating certain risks and overseeing the management of such risks, the entire Board is regularly
informed through committee reports about such risks.
Board Leadership. Our current Board leadership structure consists of a Chairman of the Board
(who is not our current CEO), a Lead Independent Director (who is also our Chairman of the Board)
and strong independent committee chairs. The Board believes this structure provides independent
Board leadership and engagement and strong independent oversight of management while providing
the benefit of having our Chairman and Lead Independent Director lead regular Board meetings as we
discuss key business and strategic issues. Mr. Lapeyre, a non-employee independent director, serves as
our Chairman of the Board and Lead Independent Director. Mr. Hanson has served as our CEO since
January 1, 2012. We separate the roles of CEO and Chairman of the Board in recognition of the
differences between the two roles. The CEO is responsible for setting the strategic direction for the
Company and the day-to-day leadership and performance of the Company, while the Chairman
provides guidance to the CEO and sets the agenda for Board meetings and presides over the meetings
of the full Board. Separating these positions allows our CEO to focus on our day-to-day business, while
allowing the Chairman to lead the Board in its fundamental role of providing advice to, and
independent oversight of, management. The Board recognizes the time, effort and energy that the CEO
is required to devote to his position, as well as the commitment required to serve as our Chairman.
The Board believes that having separate positions is the appropriate leadership structure for our
Company at this time and demonstrates our commitment to good corporate governance.
Political Contributions and Lobbying. Our Code of Ethics prohibits company contributions to
political candidates or parties. In addition, we do not advertise in or purchase political publications,
allow company assets to be used by political parties or candidates, use corporate funds to purchase
seats at political fund raising events, or allow company trademarks to be used in political or campaign
literature. ION is a member of certain trade associations that may use a portion of their membership
dues for lobbying and/or political expenditures.
Committees of the Board
The Board 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
19
us at ION Geophysical Corporation, Attention: Corporate Secretary, 2105 CityWest Boulevard,
Suite 100, Houston, Texas 77042-2855. 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 2017,
the Audit Committee met five times, the Compensation Committee met four times, and the
Governance Committee met three times. The Finance Committee did not meet.
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 . . . . . . . . . . . . . . . . . . . . . . . . . . .
Zheng HuaSheng . . . . . . . . . . . . . . . . . . . . . . . . . . .
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.
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 named 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
20
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 a corporate human resources officer or other Company 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 with current or former elected officers of the corporation. In connection with the
review of any such 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 2017, 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 2017, the Company paid Laitram and its affiliates $0.2 million, which consisted of
manufacturing services and reimbursement of costs and less than $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. In addition, the Company is currently subleasing
approximately 4,100 square feet of office space to Laitram. See ‘‘—Certain Transactions and
Relationships’’ below.
During 2017:
(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
21
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. This year, our Governance Committee
recommended, and the Board approved, that our Corporate Governance Guidelines be amended in an
effort to put a greater emphasis on the diversity of our Board when identifying new potential
candidates.
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 2019 Annual Meeting
only if the proposal for nomination is received by ION no later than December 14, 2018. All
nominations should be directed to Corporate Secretary, ION Geophysical Corporation, 2105 CityWest
Boulevard, Suite 100, Houston, Texas 77042-2855.
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,
(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.
22
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 $19.75 closing price per share of our Common Stock on the NYSE on December 29,
2017, the last business day of 2017, equates to approximately 103% 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,
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
23
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. (‘‘Laitram’’) 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 8.8% of our
outstanding Common Stock as of February 28, 2018.
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 2017, the Company paid Laitram and its affiliates
$0.2 million which consisted of manufacturing services and reimbursement of costs. During 2016 and
2015, the Company paid less than $0.1 million in each year for reimbursement for costs related to
providing administrative and other back-office support services in connection with the Company’s
Louisiana marine operations. In addition, the Company is currently subleasing approximately 4,100
square feet of office space to Laitram. 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.
Mr. Zheng is Executive Vice President of BGP, which has been a customer of our products and
services for many years. For 2017 and 2016, the Company recorded revenues from BGP of $4.4 million
and $3.6 million, respectively. Receivables due from BGP were $0.6 million and $0.4 million at
December 31, 2017 and 2016, respectively.
In March 2010, prior to Mr. Zheng 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 to BGP for an
effective purchase price of $42.00 per share pursuant to (i) a Stock Purchase Agreement we
entered into with BGP and (ii) the conversion of the principal balance of indebtedness
outstanding under a Convertible Promissory Note dated as of October 23, 2009. As of
February 28, 2018, BGP held beneficial ownership of approximately 11.3% 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. Zheng to our Board was
made pursuant to this agreement. The Investor Rights Agreement also provides that whenever
we may issue shares of our Common Stock or other securities convertible into, exercisable or
exchangeable for our Common Stock, BGP will have certain pre-emptive rights to subscribe for
24
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 $110,000, up to an annual grant of
2,500 shares per director.
The following table summarizes the compensation earned by our non-employee directors in 2017:
Name(1)
David H. Barr . . . . . . . . . . .
Hao Huimin . . . . . . . . . . . . .
Michael C. Jennings . . . . . . .
James M. Lapeyre, Jr.
. . . . .
Franklin Myers . . . . . . . . . . .
S. James Nelson, Jr. . . . . . . .
John N. Seitz . . . . . . . . . . . .
Fees Earned
or Paid in
Cash ($)
63,000
54,000
62,000
103,000
83,000
87,000
63,000
Stock
Awards
($)(2)
12,250
12,250
12,250
12,250
12,250
12,250
12,250
Non-Equity
Incentive
Plan
Compensation
($)
Change in
Pension Value
and
Nonqualified
Deferred
Compensation
Earnings ($)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
All Other
Compensation
($)(3)
98,875
98,875
98,875
98,875
98,875
98,875
98,875
Total
($)
174,125
165,125
173,125
214,125
194,125
198,125
174,125
(1) R. Brian Hanson, our President and Chief Executive Officer, is not included in this table because
he was an employee of ION during 2017, and therefore received no compensation for his services
as director. The compensation received by Mr. Hanson as an employee of ION during 2017 is
shown in the Summary Compensation Table contained in ‘‘—Executive Compensation’’ below.
25
(2) All of the amounts shown represent the value of Common Stock granted under our Second
Amended and Restated 2013 Long-Term Incentive Plan (the ‘‘2013 LTIP’’). On March 1, 2017,
each of our non-employee directors was granted an award of 2,500 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, 2017, the value of the 2,500 shares received by each of our non-employee directors
was only $12,250 (using the closing price on the NYSE of $4.90 per share on the March 1, 2017
grant date) leaving a gap of $97,750 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 $97,750. The additional compensation
is paid in quarterly increments.
As of December 31, 2017, 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,500
2,500
2,500
2,500
2,500
2,500
2,500
—
—
—
—
—
—
—
26
OWNERSHIP OF EQUITY SECURITIES OF ION
Except as otherwise set forth below, the following table sets forth information as of February 28,
2018, 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 2017 Summary Compensation Table included in this Proxy
Statement and (iv) all of our directors and executive officers as a group. Except where information was
otherwise known by us, we have relied solely upon filings of Schedules 13D and 13G to determine the
number of shares of our Common Stock owned by each person known to us to be the beneficial owner
of more than 5% of our Common Stock as of such date.
Name of Owner
Common
Stock(1)
Rights to
Acquire(2)
Restricted
Stock(3)
Percent of
Common
Stock(4)
BGP Inc., China National Petroleum Corporation(5) . . . . .
James M. Lapeyre, Jr.(6) . . . . . . . . . . . . . . . . . . . . . . . . .
Laitram, L.L.C.(7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Invesco Ltd.(8) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Empery Asset Management, LP(9) . . . . . . . . . . . . . . . . . .
Footprints Asset Management & Research, Inc.(10)
. . . . .
R. Brian Hanson(11) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Steven A. Bate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
David H. Barr . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Hao Huimin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Michael C. Jennings . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Franklin Myers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
S. James Nelson, Jr.
John N. Seitz . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Matthew R. Powers . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Christopher T. Usher . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Kenneth G. Williamson . . . . . . . . . . . . . . . . . . . . . . . . . .
All directors and executive officers as a group (14 Persons)
1,585,969
1,237,690
979,816
924,292
727,250
722,398
105,455
97,287
20,433
7,256
10,433
25,633
11,766
13,759
2,162
42,390
60,727
1,695,807
2,500
49,536
16,308
2,500
2,500
2,500
2,500
2,500
2,500
13,332
9,827
13,222
133,936
95,857
46,422
3,666
25,957
51,880
256,866
11.3%
8.8%
7.0%
6.6%
5.2%
5.1%
1.8%
1.1%
*
*
*
*
*
*
*
*
*
14.6%
*
Less than 1%
(1) Represents shares for which the named person (a) has sole voting and investment power or (b) has
shared voting and investment power. Excluded are shares that (i) are unvested restricted stock
holdings or (ii) may be acquired through stock option exercises.
(2) Represents shares of Common Stock that may be acquired upon the exercise of stock options held
by our officers and directors that are currently exercisable or will be exercisable on or before
April 29, 2018.
(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, 2018, are outstanding.
(5) The address for BGP Inc., China National Petroleum Corporation is No. 189 Fanyang Middle
Road, ZhuoZhou City, HeBei Province 072750 P.R. China.
(6) 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, 979,816 shares owned by Laitram, and 699
27
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 7 below. Mr. Lapeyre has
sole voting power over only 157,773 of these shares of Common Stock.
(7) 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 6 above. Mr. Lapeyre
disclaims beneficial ownership of any shares held by Laitram.
(8) The address for Invesco Ltd. is 1555 Peachtree Street NE, Atlanta, Georgia 30309.
(9) The address for Empery Asset Management, LP is 1 Rockefeller Plaza, Suite 1205, New York,
New York 10020.
(10) The address for Footprints Asset Management & Research, Inc. is 11422 Miracle Hills Drive,
Suite 208, Omaha, NE 68154.
(11) 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.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires directors and certain officers of ION, and persons who
own more than 10% of ION’s Common Stock, to file with the SEC and the NYSE initial statements of
beneficial ownership on Form 3 and changes in such ownership on Forms 4 and 5. Based on our review
of the copies of such reports, we believe that during 2017 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.
28
Our executive officers are as follows:
EXECUTIVE OFFICERS
Name
Age
Position with ION
R. Brian Hanson . . . . .
Steven A. Bate . . . . . .
Colin T. Hulme . . . . . .
53
President, Chief Executive Officer and Director
55 Executive Vice President and Chief Financial Officer
66 Executive Vice President, Strategic Marketing and New Technologies
and CEO OceanGeo
Matthew R. Powers . . .
Scott P. Schwausch . . .
Christopher T. Usher . .
42 Executive Vice President, General Counsel and Corporate Secretary
43 Vice President and Corporate Controller
57 Executive Vice President and Chief Operating Officer, Operations
Optimization
Kenneth G. Williamson
53 Executive Vice President and Chief Operating Officer, E&P
Technology & Services
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. Hulme is currently our Executive Vice President, Strategic Marketing and New Technologies
and Chief Executive Officer of OceanGeo. 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, became our Executive Vice President, Ocean Bottom Services in February
2015 and was named Executive Vice President, Strategic Marketing and New Technologies in February
2018. 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. Powers joined ION in 2013 as Senior Legal Counsel and held that position until February
2016 when he was promoted to Deputy General Counsel. In September 2017, he was promoted to
General Counsel and Corporate Secretary, and was further promoted to Executive Vice President in
October 2017. Prior to joining ION, Mr. Powers held a variety of positions in the Houston offices of
Mayer Brown LLP (beginning in 2005 and ending in 2012) and Sidley Austin LLP (beginning in 2012
and ending in 2013). Mr. Powers holds a Juris Doctor from the University of Chicago Law School and
29
a Bachelor’s degree in Economics, summa cum laude, from the University of Colorado—Denver. He is
licensed to practice in Texas.
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.
Mr. Usher is our Executive Vice President and Chief Operating Officer, 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.
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 of E&P Technology & Services 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.
30
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, as amended, for the year ended
December 31, 2017. 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.
31
Compensation Discussion and Analysis
This Compensation Discussion and Analysis provides an overview of the Compensation Committee
of the Company’s Board of Directors, a discussion of the background and objectives of our
compensation programs for our senior executives, and a discussion of all material elements of the
compensation of each of the executive officers identified in the following table, whom we refer to as
our named executive officers (‘‘NEOs’’):
Name
Title
R. Brian Hanson . . . . . . . . . . . . President, Chief Executive Officer and Director
Steven A. Bate . . . . . . . . . . . . . Executive Vice President and Chief Financial Officer
Matthew R. Powers . . . . . . . . . . Executive Vice President, General Counsel and Corporate Secretary
Christopher T. Usher . . . . . . . . . Executive Vice President and Chief Operating Officer, Operations
Kenneth G. Williamson . . . . . . . Executive Vice President and Chief Operating Officer, E&P
Technology & Services
Optimization
Executive Summary
General. Our executive compensation program provides our NEOs with total annual
compensation that includes three principal elements: base salary, performance-based annual non-equity
incentive plan compensation (annual cash bonuses), and long-term equity-based incentive awards. (For
the purposes of this Compensation Discussion and Analysis, our stock appreciation rights awards
(‘‘SARs’’) are categorized as long-term equity-based incentive awards because, while they are
cash-settled, their value is determined by the spread between the price of the Company’s common stock
on the date they are granted and the price of the Company’s common stock on date they are
exercised). A significant portion of each NEOs’ total annual compensation is performance based and is
at risk and dependent upon our Company’s achievement of specific, measurable performance goals.
Our performance-based pay closely aligns our NEOs’ interests with those of our shareholders and
promotes 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 and encourage investment in the Company.
Restoration of Base Salaries. Due to the difficulties the Company, its customers, and the industry
experienced in the recent downturn, base salaries for all of our NEOs were decreased by 10% on
April 27, 2015. This decrease remained in effect throughout 2016 and most of 2017. In consultation
with the Compensation Committee, the Company restored base salaries of our NEOs to their April 26,
2015 levels in August 2017. In total, base salary reductions remained in place for approximately
27 months.
Annual Bonus Incentive Plan. Payments under our annual cash bonus incentive plan for 2017
(which were made in February 2018) reflected the Company’s performance and the level of
achievement of our 2017 plan performance goals. NEOs’ bonus targets range from 60% to 100% of
their annual base salaries. In 2014, NEOs (other than the CEO) could earn up to 200% of their bonus
targets in a given year, depending on their individual performance and the performance of the
Company. Commencing in 2015, in view of the extremely challenging business climate that the
Company faced, the Compensation Committee reduced the maximum amount earnable by these NEOs
to 125% of their respective targets. This cap was continued through 2016 but lifted in 2017 in view of
the improved performance of the Company and improved business climate. The total dollars that could
have been achieved under the bonus plan pool were increased from $9.2 million in 2016 to a maximum
of $14 million in 2017.
32
The Compensation Committee determined that the bonus available for awards paid to our NEOs
under the 2017 plan should be based on a combination of long-term strategic initiatives and cash
generation goals. In early 2018, the Compensation Committee reviewed the Company’s progress
towards the achievement of the strategic initiatives and cash generated from operations, and approved
a bonus for each NEO based on each individual’s achievement of key objectives and company
performance. In approving the individual awards to our NEOs in February 2018, the Compensation
Committee noted that our NEOs’ efforts had helped to drive our cash generation objectives during the
most challenging economic period for our industry in several decades, helped position us to take
advantage of the next upturn in the energy cycle by pursuing the long-term strategic initiatives, and
helped us to achieve substantial year-over-year improvements from 2016.
Equity Investment Program and Early Exercise of SARs.
In 2016, the Compensation Committee
awarded SARs to several of its key employees, including all of the NEOs, with the intent of keeping
the management team highly focused on executing the Company’s strategy to drive recovery in the
Company’s stock price. These SARs were scheduled to vest in three equal tranches—on March 1 of
2017, 2018 and 2019, respectively—and had a ceiling of $22.50 a share. Because of the significant
upward movement in the Company’s stock price in 2017, the Compensation Committee perceived a
real possibility of the stock price hitting or exceeding $22.50 per share in the first quarter of 2018,
which would have resulted in the automatic exercise of the SARs and a cash obligation to the Company
of approximately $13 million. In order to minimize the potential cash flow impact of such an
auto-exercise of the SARs in the first quarter of 2018, to mitigate the ongoing mark to market
accounting requirements for cash-settled SARs, and to afford the SARs participants liquidity to invest
in common stock of the Company in connection with an equity investment program (described below),
the Compensation Committee accelerated the vesting of the second tranche of these SARs awards from
March 1, 2018 to December 13, 2017. Additionally, in order to encourage the Company’s executive
officers and other key employees to purchase common stock of the Company and further align their
interests with those of the Company’s stockholders, the Board authorized and approved an equity
investment program (the ‘‘EIP’’), pursuant to which all of the NEOs, and certain other key employees
of the Company, were permitted, but not obligated, to purchase unregistered shares of common stock
of the Company directly from the Company at market prices. In connection with any such purchases,
the Compensation Committee authorized and approved a grant, by the Company, to such purchasing
NEOs and other key employees, of a certain number of shares of restricted stock. The Compensation
Committee also authorized and approved to grant the EIP participants a certain number of shares of
restricted stock in connection with certain purchases of shares of the Company’s common stock in the
open market. Specifically, for each five (5) shares directly purchased from the Company or in the open
market between December 13, 2017 and December 31, 2017, the Company agreed to issue one
(1) share of restricted stock, subject to certain limitations as to the total number of restricted shares to
be issued by the Company. Grants of the restricted stock occurred on March 1, 2018, and will vest
ninety days thereafter, subject to the other terms and conditions of the Company’s form of restricted
stock agreement and the Company’s long-term incentive plan. All of the NEOs, and many additional
key employees, elected to exercise their first two tranches of SARs on December 15, 2017, and elected
to participate in the EIP. Based on the continued rise in our stock price, the early exercise of these
SARs by our NEOs and several other employees saved the Company about $7 million of cash in 2018.
Except for the award of restricted stock in connection with the EIP, the Compensation Committee
approved equity compensation for only one NEO in 2017: Mr. Powers, who was awarded restricted
stock and stock options in connection with his promotion to General Counsel, Corporate Secretary and
Executive Vice President in 2017.
33
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 NEOs 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.
During 2017, the Compensation Committee met four times.
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 evaluates whether such advisor has a conflict of interest. In 2015
and 2016, the Compensation Committee engaged Aon Hewitt to provide advisory services with regard
to the preparation of the proxy statement. No advisory services were utilized for this year’s proxy
statement.
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 NEOs other than himself. No NEO is involved in determining his
own salary increase, bonus payment or equity award. When making officer compensation
recommendations, our Chief Executive Officer takes into consideration compensation benchmarks,
which include industry standards for similar sized organizations serving similar markets, as well as
comparable positions, the level of inherent importance and risk associated with the position and
function, and the executive’s job performance over the previous year. See ‘‘—Objectives of Our
Executive Compensation Programs—Benchmarking’’ and ‘‘—Elements of Compensation—Base Salary’’
below.
34
Our Chief Executive Officer, with the assistance of our Human Resources department and input
from our 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 NEOs and all
bonus incentive plans. With respect to equity compensation awarded to employees other than NEOs,
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-NEOs of up to 5,000 shares.
Of 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 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 NEOs and the other members of senior management reporting to the Chief Executive Officer.
The Compensation Committee often conducts an executive session during meetings, during which
members of management are not present.
Objectives of Our Executive Compensation Programs
General Compensation Philosophy and Policy
Through our compensation programs, we seek to:
(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 industrial sector;
(cid:129) encourage our executives and key employees to drive the Company’s financial and operational
performance;
(cid:129) structure compensation to create meaningful links between corporate performance, individual
performance and financial rewards;
(cid:129) align the interests of our executives with those of our shareholders by providing a significant
portion of total pay in the form of equity-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.
35
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 bonuses is independent of stock
performance. However, overall competitiveness of total compensation is generally contingent on
long-term, equity-based compensation programs. Base salary, annual bonuses and employee benefits
should be close to competitive levels when compared to similarly situated companies.
Focus on Total Compensation.
In making decisions with respect to any element of an NEO’s
compensation, the Compensation Committee considers the total compensation that may be awarded to
the NEO, including salary, annual cash bonus and long-term equity-based incentive compensation. The
Compensation Committee analyzes all of these 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, the Compensation Committee determined that annual compensation
amounts for our Chief Executive Officer and our other NEOs 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 NEOs 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 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. Over time,
there have been variations in the comparative levels of compensation of NEOs and changes in the
overall composition of the management team and the overall accountabilities of the individual NEOs;
however, we and the Compensation Committee are satisfied that total compensation received by NEOs
reflects an appropriate differential for executive compensation.
These principles apply to compensation policies for all of our NEOs and key employees. We do
not follow the principles in a mechanistic fashion; rather, we apply experience and judgment in
determining the appropriate mix of compensation for each individual. This judgment also involves
periodic review of discernible measures to determine the progress each individual is making toward
agreed-upon goals and objectives.
Benchmarking
When making compensation decisions, we also look at the compensation of our Chief Executive
Officer and other NEOs 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 NEOs 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 not to use the comparative compensation
information at all in the course of making compensation decisions.
36
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 bonuses and long-term
incentive compensation. When reviewing compensation data in October 2017, we utilized data primarily
from the 2017 Radford salary surveys, the 2017 Towers Watson surveys and the 2017 Mercer Total
Compensation Survey for the Energy Sector (‘‘2017 MTCS’’).
The overall results of the compensation surveys provide a 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 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 NEOs, 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
Stock Appreciation
Rights (SARS)
Equity Investment
Program
Restricted Stock/
Units
3APR201819493556
Below is a summary of each component:
Base Salary
General. The general purpose of base salary for our NEOs 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 and experience of the
individual employee and the competitiveness of the market for the employee’s services. Base salaries of
37
executives other than our Chief Executive Officer may also reflect our Chief Executive Officer’s
evaluation of the individual NEO’s job performance. As a result, the base salary level for each
individual may be above or below the target market value for the position. The Compensation
Committee also recognizes that the Chief Executive Officer’s compensation should reflect the greater
policy-and decision-making authority that he holds and the higher level of responsibility he has with
respect to our strategic direction and our financial and operating results. As of December 31, 2017, our
Chief Executive Officer’s annual base salary was 55% higher than the annual base salary for the next
highest-paid NEO and 70% higher than the average annual base salary for all of our other NEOs. The
Compensation Committee does not intend for base salaries to be the vehicle for long-term capital and
value accumulation for our executives.
2017 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.
Restoration of 2015 Level Base Salaries; No Annual Raises. Commencing in late 2014, our business
experienced a significant decline due in large part to the historic decline in oil and gas prices, which
negatively impacted demand for our products and services and thus adversely affected our financial
results. We took a number of actions to reduce 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 in the United States and United Kingdom who
earned more than a certain designated annual threshold (which included all NEOs) were reduced by
10%. In consultation with the Compensation Committee, the Company discontinued the salary
reduction program effective August 15, 2017. Aside from the restoring of base salaries to their
38
pre-reduction levels, no increases in base salary were approved for any NEO except for Mr. Powers, as
described below:
Named Executive Officer
Action
R. Brian Hanson . . . . . . . . . . . . Mr. Hanson’s salary was reduced by 10% from $600,000 to
$540,000 in 2015 and remained at that level through mid-August
2017. At that time, his base salary returned to $600,000. The 2017
MTCS Survey indicated that the mean CEO base salary for
surveyed companies in the Services and Drilling sector was
$603,000.
Steven A. Bate . . . . . . . . . . . . . Mr. Bate’s salary was reduced by 10% from $375,000 to $337,500
in 2015 and remained at that level through mid-August 2017. At
that time, his base salary returned to $375,000. The 2017 MTCS
Survey indicated that the mean of CFO base salary for surveyed
companies in the Services and Drilling sector was $445,700.
Matthew R. Powers . . . . . . . . . . Mr. Powers was promoted from Deputy General Counsel to
General Counsel and Corporate Secretary in September 2017. His
salary was set at $250,000. In October 2017, Mr. Powers was
further promoted to Executive Vice President and his salary was
increased to $275,000. The 2017 MTCS Survey indicated that the
mean Top Legal Executive base salary for surveyed companies in
the Services and Drilling sector was $398,500.
Christopher T. Usher . . . . . . . . . Mr. Usher’s salary was reduced by 10% from $378,560 to $340,704
in 2015 and remained at that level through mid-August 2017. At
that time, his base salary was returned to $378,560. The 2017
MTCS Survey indicated that the mean Chief Operating
Officer—Subsidiary/Group/Division base salary for surveyed
companies in the Services and Drilling sectors was $426,600.
Kenneth G. Williamson . . . . . . . Mr. Williamson’s salary was reduced by 10% from $387,213 to
$348,492 in 2015 and remained at that level through mid-August
2017. At that time, his base salary was returned to $387,213. The
2017 MTCS Survey indicated that the mean Chief Operating
Officer—Subsidiary/Group/Division base salary for surveyed
companies in the Services and Drilling sectors was $426,600.
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.
For several consecutive years, the Compensation Committee has approved an annual bonus
incentive plan. 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
39
approved by the Compensation Committee and are ordinarily made in the first quarter following the
completion of a fiscal year, after the financial results for that year have been determined.
Our annual bonus incentive plan is usually consistent with our operating plan for the same year. In
early 2017, we prepared a consolidated-company operating budget for 2017 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 2017 operating plan. During early 2017, our Chief
Executive Officer worked with our Human Resources department and members of senior management
to formulate our 2017 bonus incentive plan, consistent with the 2017 operating plans approved by the
Board.
At the beginning of 2017, the Compensation Committee approved our 2017 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 2018, the
Compensation Committee reviewed the Company’s actual performance against each of the plan
performance goals established at the beginning of 2017 and evaluated the individual performance of
each NEO during 2017. The results of operations of our Company for 2017 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, SARs, or a combination thereof. Any stock options,
restricted stock, restricted stock units or SARs awarded would be granted under one of our existing
long-term equity compensation plans or stock appreciation rights 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.
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 NEOs
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 NEO
bonus incentive compensation and our performance.
Below are general descriptions of our 2017 bonus incentive plan and our Company performance
criteria applicable to the plan.
2017 Bonus Incentive Plan. The purpose of the 2017 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
2017 strategic and financial goals.
40
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 generation criteria.
2. The total bonus pool is allocated among our business units based on satisfaction of both the
strategic initiatives and the cash generation 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.
Achievement of our strategic initiatives and cash generation target establishes a guideline funding
level of the bonus pool available to our NEOs. The final actual amount paid to our NEOs are at the
discretion of the Compensation Committee based on its overall assessment of other qualitative and
quantitative corporate and individual criteria in accordance with the compensation philosophy and
policy described above.
Designated employees, including our NEOs, were eligible to participate in our 2017 bonus
incentive plan. Under the 2017 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 2017 and approximately 65% of the funds allocated for distribution were available for
distribution to eligible employees only to the extent we satisfied the designated 2017 cash generation
criteria. In addition, the 2017 plan was structured to be capped at 165% achievement, with the 65%
upside being fundable based on over-achieving the cash generation target. This was in contrast to no
upside for over performance in 2016 (that is, the maximum funding opportunity was 100%); 150% in
2015; and 200% in 2014. The amount of total dollars available for distribution under the bonus
incentive plan was directly tied to the Company’s achievement of financial objectives.
Our 2017 bonus incentive plan established the achievement of long-term strategic initiatives and
cash generation as the performance goals. The strategic initiatives were selected to ensure that the
Company’s cash generation 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 2017, the Compensation Committee selected strategic initiatives focused on achieving
break-even cash flow; developing a commercialization strategy for our next generation ocean bottom
seismic acquisition system that would position us to launch it in 2018; protecting and expanding our
software business; fostering the long-term integrity of our multi-client business by growing our data
library; and implementing several cultural initiatives and objectives designed to foster a ‘‘customer first’’
culture of continuous improvement and technical innovation. The Company reported progress on all of
the initiatives to the Board throughout the year. At the conclusion of 2017, the Compensation
Committee determined that five out of the five strategic objectives had been met or exceeded and
recommended funding 100% of the 35% target or $3.0 million dollars related to the strategic initiatives.
In addition to the strategic initiatives, the Compensation Committee also established a critical
emphasis on metrics for cash generated from operations. Cash from operations was the cash ION
recorded in its bank accounts globally, based on collection of customer payments, offset by the payment
of vendors, employee payroll taxes, utilities, and similar matters, and excluding cash from external
funding arrangements, interest payments and any other special items or modifications as approved by
the Compensation Committee from time to time.
Cash generation was selected as the most appropriate performance goal for our 2017 plan because
the Compensation Committee believed that cash from operations was the best indicator of our
41
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 persevere through the recent industry downturn. As a
result, 65% of the bonus pool was tied to the achievement of these objectives. When determining
whether financial targets had been achieved under the 2017 plan, the Compensation Committee had
the discretion to modify or revise the targets as necessary to reflect any significant beneficial or adverse
change that resulted 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.
NEO’s bonus targets range from 60% to 100% of their respective annual base salaries. In years
prior to 2015, every participating NEO other than our Chief Executive Officer could earn up to 200%
of their bonus targets in a given year, depending on their individual performance and the performance
of the Company. Commencing in 2015, in view of the extremely challenging business climate that the
Company faced, the Compensation Committee reduced the maximum amount earnable by these NEO’s
to 125% of their respective targets. This cap was continued through 2016 but lifted in 2017 in view of
the improved performance of the Company and improved business climate. In 2017, each NEO,
including our Chief Executive Officer, was eligible to receive up to 200% of his bonus target. The
Compensation Committee has the discretion to determine the amounts of individual bonus awards.
Performance Criteria.
In 2017, the Compensation Committee approved a plan that emphasized the
critical importance placed on cash generation as the criteria for consideration of bonus awards to the
NEOs and other covered employees under our 2017 bonus incentive plan:
Threshold Adjusted
Cash from Operations
$0.0 million
Target Adjusted
Cash from Operations
$15.0 million
Maximum Adjusted
Cash from Operations
$37.0 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 2017 Summary Compensation Table below reflects the payments
that our NEOs earned and received under our 2017 bonus incentive plan, and the ‘‘Bonus’’ column of
the same table reflects any discretionary cash bonus payments received by our NEOs during 2017. Our
2017 cash from operations exceeded the threshold target performance criteria under our 2017 bonus
incentive plan by $6.1 million. However, given the difficult business climate of the past several years,
the Compensation Committee authorized only $4.2 million for the portion of the bonus pool
determined by cash generation. This amount was 60% of what was authorized under the plan as
adopted in early 2017. When combined with the amounts approved in connection with the achievement
of long-term strategic initiatives ($3.0 million) the total bonus pool available for distribution in 2017
was approximately $7.2 million.
In addition to overall company performance, when considering the 2017 bonus incentive plan
awards paid to our NEOs, the Compensation Committee also considered the individual performances
and accomplishments of each officer. In considering the bonus award paid to Mr. Hanson, the
Compensation Committee considered Mr. Hanson’s achievement of each of the five key strategic
objectives for the Company as well as the Company’s achievement of its cash target. As previously
stated, the five strategic objectives were (i) achieving break-even cash flow; (ii) developing a
commercialization strategy for our next generation ocean bottom seismic acquisition system that would
position us to launch it in 2018; (iii) protecting and expanding our software business; (iv) to foster the
long-term integrity of our multi-client business by growing our data library; and (v) implementing
several cultural initiatives and objectives designed to foster a ‘‘customer first’’ culture of continuous
improvement and technical innovation. The Compensation Committee also evaluated Mr. Hanson
42
against the Company’s achievement of the cash targets established for 2017. Finally, the Compensation
Committee took into consideration Mr. Hanson’s effective leadership in our achievement of several
important strategic objectives during the year and substantial year-over-year improvements from 2016.
Like the pool established for the Company, the bonus awarded by the Compensation Committee to
Mr. Hanson reflects the substantial achievement of his five objectives and the Company exceeding its
cash target.
When considering the bonus award paid to Mr. Bate, the Compensation Committee took into
consideration his performance against the objectives set for Mr. Bate. Mr. Bate’s objectives included
(i) achieving break-even cash flow; (ii) establishing a project funding mechanism for significant strategic
initiatives; (iii) addressing and finalizing a plan to deal with the 2018 bond maturity through capital
structure management; and (iv) increasing marketing efforts for the Company’s shares to position the
Company for increased analyst coverage in 2018. In addition to his objectives, the Compensation
Committee also considered his leadership in reducing the Company’s operating costs and his leadership
and engagement with shareholders that helped to drive the Company’s improved performance when
coming out of a difficult and critical time for the Company and the industry. In the bonus awarded to
Mr. Bate, the Compensation Committee determined that Mr. Bate achieved four of the four objectives.
In addition, Mr. Bate successfully oversaw the execution of the EIP and the related early retirement of
the first two tranches of the 2016 SARs noted in the Executive Summary of this Compensation
Discussion and Analysis.
The annual performance objectives for NEOs that report to our Chief Executive Officer are
typically determined by our Chief Executive Officer, in collaboration with the NEO, in January or
February. Because Mr. Powers was promoted to the role of General Counsel in September of 2017, he
and Mr. Hanson did not set performance objectives for Mr. Powers in that role for 2017. When
considering the bonus award paid to Mr. Powers, the Compensation Committee took into consideration
his performance in 2017 against the objectives set for the Company.
When considering the bonus award paid to Mr. Usher, the Compensation Committee took into
consideration his performance against the objectives set for Mr. Usher. Mr. Usher’s objectives included
(i) protecting and expanding the Company’s command and control software business; (ii) expanding the
Company’s software business into new markets: (iii) driving the commercial launch of the Company’s
Devices segment’s incremental offerings; and (iv) crafting and implementing a medium-term strategy
for the Company’s Devices segment. In the bonus awarded to Mr. Usher, the Compensation
Committee determined that Mr. Usher achieved four of the four objectives. In addition, the
Compensation Committee determined that Mr. Usher successfully led strategic efforts to expand
Company offerings to alternative markets.
When considering the bonus award paid to Mr. Williamson, the Compensation Committee took
into consideration his performance against the objectives set for Mr. Williamson. Mr. Williamson’s
objectives included (i) commencing two new multiclient programs in 2017 that involved large scale 3D
reprocessing or new acquisitions, with prefunding or financing vehicles in place to maintain the
Company’s exposure to program cost at predetermined levels; (ii) establishing a master services
partnership agreement with a 3D seismic services provider to provide an integrated proprietary services
offering and engage in a qualification process with two E&P companies that the provider was not
previously qualified to operate with; developing and entering into at least one large scale E&P Advisory
services agreement with a combination of fee for service and a material upside potential with a host
government or other E&P focused entity; and (iv) obtaining more than $4 million of commitments to
new data processing proprietary business models using the Company’s accelerated workflow or Galaxy
portal. In the bonus awarded to Mr. Williamson, the Compensation Committee determined that
Mr. Williamson achieved four of the four objectives. In addition, the Compensation Committee
determined that Mr. Williamson successfully integrated several vertical subgroups within his segment to
drive integrated offerings and oversaw one of our most successful multiclient offerings.
The total compensation paid to each NEO 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.
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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 focus increasingly 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.
The below table illustrates the mix of total compensation received by Mr. Hanson, our CEO, and
our other current NEOs during 2017:
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Long-Term Equity
Annual Incentive
Base Salary
CEO
Other NEOs (average)
3APR201819493431
The Compensation Committee noted in last year’s proxy that they would not approve any equity
compensation in 2017. However, circumstances evolved in 2017 that led the Compensation Committee
to revise this decision.
First, our former General Counsel, Executive Vice President and Corporate Secretary, Ms. Jamey
Seely, left the Company in September of 2017. Mr. Powers was promoted to General Counsel and
Corporate Secretary in September 2017, and promoted to Executive Vice President in October 2017. In
connection with his promotion to Executive Vice President, Mr. Powers was granted stock options and
restricted stock. He was the only NEO who was granted any such awards in 2017.
Second, seven high-performing employees were promoted or transitioned to new roles in 2017. In
connection with their promotion and retention, the Compensation Committee approved a grant of
120,000 stock options and 30,000 shares of restricted stock or restricted stock units amongst these seven
employees. Of the total stock options and restricted stock employee awards made by ION during 2017,
79% were in the form of stock options and 21% were in the form of restricted stock or restricted stock
units.
44
Lastly, the Compensation Committee approved the granting of restricted stock to the NEOs and
other key employees who elected to participate in the EIP described above. Those grants, however,
were made effective March 1, 2018.
Our long-term incentive plans, and, in 2017, the EIP, have provided the principal method for our
NEOs to acquire equity or equity-linked interests in our Company.
Stock Options. Under our equity plans, stock options may be granted having exercise prices equal
to the closing price of our stock on the date before the date of grant. In any event, all awards of stock
options are made at or above the market price at the time of the award. The Compensation Committee
will not grant stock options having exercise prices below the market price of our stock on the date of
grant, and will not reduce the exercise price of stock options (except in connection with adjustments to
reflect recapitalizations, stock or extraordinary dividends, stock splits, mergers, spin-offs and similar
events, as required by the relevant plan) without the consent of our 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 NEOs 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 2017, eight employees received option
awards, covering 156,000 shares of Common Stock. In 2017, only one NEO received an option award of
36,000 shares of Common Stock, which was approximately 23% of the total options awarded. The total
number of options awarded in 2017 represent a 62% reduction when compared to 2016.
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 2017, eight employees received awards of restricted stock and shares underlying restricted
stock units for a total of 42,000 shares. Only one NEO received an award of 12,000 shares of restricted
stock, which was approximately 29% of the total shares of restricted stock awarded.
Awards of restricted stock units have been made to certain of our foreign employees in lieu of
awards of restricted stock. Restricted stock units provide certain tax benefits to our foreign employees
as the result of foreign law considerations, so we expect to continue to award restricted stock units to
designated foreign employees for the foreseeable future.
The total number of shared of restricted stock and shares underlying restricted stock units awarded
in 2017 represent a 78% reduction when compared to 2016.
45
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 equity-based
compensation paid in SARs instead of restricted stock or stock options in 2016. The SARs grants
approved by the Compensation Committee are 100% cash-settled and were granted pursuant to our
2008 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 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. In 2015, the Company granted 3,108,107 SARs (on a pre-split
basis). In 2016, the Company granted 1,210,100 SARs, or 61% less than similar compensation issued in
2015. No SARs were granted in 2017.
Approval and Granting Process. As described above, the Compensation Committee reviews and
approves all stock appreciation rights, stock option, restricted stock and restricted stock unit awards
made to NEOs, regardless of amount. With respect to equity compensation awarded to employees
other than NEOs, the Compensation Committee reviews and approves all grants of stock appreciation
rights, restricted stock, stock options and restricted stock units above 5,000 shares, generally based upon
the recommendation of our Chief Executive Officer. The Compensation Committee has granted to our
Chief Executive Officer the authority to approve grants to any employee other than an NEO 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 stock appreciation rights, 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 would be made in annual grants occurring on March 1 of each year. In 2016,
the Company also awarded annual equity grants on March 1. This date was selected because (i) it
enables the Board and Compensation Committee to consider individual performance after the full year
46
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 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.
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 equity-based incentive awards, paid
to current or former NEOs 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 NEOs 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.
(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
47
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 NEO
other than our Chief Executive Officer is not expected to exceed 150% 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 NEOs, 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 NEOs 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 cash bonuses and long-term equity-based incentive
awards, paid to current or former NEOs 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.
Consideration of Say-On-Pay Result. At our 2017 Annual Meeting of Shareholders held on
May 17, 2016, our shareholders approved all of our director nominees and proposals, including a
non-binding advisory vote to approve the compensation of our NEOs (‘‘say-on-pay’’). In the advisory
executive compensation vote, over 70% of the votes cast on the proposal voted in favor of our
executive compensation. Our general goal since our 2016 Annual Meeting has been to continue to act
consistently with the established practices that were approved by our shareholders. We believe that we
have accomplished that goal. At our 2017 Annual Meeting, our shareholders also voted on a
non-binding advisory vote on the frequency of advisory votes on executive compensation
(‘‘say-on-frequency’’) and approved ‘‘every year’’. The Board intends to hold advisory votes on executive
compensation within the time frame approved by the shareholders. 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 2023 Annual Meeting of Shareholders.
48
Indemnification of Directors and Executive Officers
Our Bylaws provide certain rights of indemnification to our directors and employees (including our
NEOs) 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 NEOs
that provide for us to indemnify the executive to the fullest extent permitted by our 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 NEOs) 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 guidelines
applicable to each of our senior executives, including our NEOs. 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
The Compensation Committee and our Chief Executive Officer may, in their discretion, grant
temporary exemptions from the guidelines to prevent severe hardships to senior executives. 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 NEOs 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 three other most highly compensated NEOs, other than our Chief Financial
Officer—unless that compensation qualifies as ‘‘performance-based’’ compensation. Pursuant to the
2017 Tax Cuts and Jobs Act, signed into law on December 22, 2017 (the ‘‘Tax Act’’), for fiscal years
beginning after December 31, 2017, the compensation of our Chief Financial Officer is also subject to
the deduction limitation. Overall, the Compensation Committee seeks to balance its objective of
ensuring an effective compensation package for the NEOs 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.
49
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, for periods prior to January 1, 2018, the Compensation Committee
has designed much of the total compensation packages for the NEOs 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.
As a result, certain payments to our NEOs under our 2017 annual bonus 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.
Pursuant to the Tax Act, subject to certain transition rules, for fiscal years beginning after
December 31, 2017, the performance-based compensation exception to the deduction limitations under
Section 162(m) will no longer be available. As a result, for fiscal years beginning after December 31,
2017, any compensation in excess of $1 million paid to our executive officers may not be deductible.
The Compensation Committee believes that the potential deductibility of the compensation payable
under the annual bonus plan and the Company’s other incentive compensation plans and arrangements
should be only one of a number of relevant factors taken into consideration in establishing those plans
and arrangements for our executive officers and not the sole governing factor. For that reason, for the
2018 fiscal year, the Compensation Committee intends to structure our annual bonus plan and the
Company’s other incentive compensation plans and arrangements in a manner similar to the 2017 fiscal
year, acknowledging that a portion of those compensation payments may not be deductible under
Section 162(m), in order to assure appropriate levels of total compensation for our executive officers
based on the Company’s performance.
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 NEO’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 NEO 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.
50
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, as amended, for the year ended
December 31, 2017.
Franklin Myers, Chairman
David H. Barr
James M. Lapeyre, Jr.
John N. Seitz
51
SUMMARY COMPENSATION TABLE
The following table summarizes the compensation paid to or earned by our named executive
officers at December 31, 2017.
Non-Equity
Incentive
Plan
Option
Awards Compensation Compensation
($)
($)
Name and Principal Position
Year
Salary
($)
Stock
Bonus Awards
($)
($)
R. Brian Hanson . . . . . . . . . 2017 558,689 —
—
President, Chief Executive
Officer and Director
2016 540,000 — 341,900 203,817
2015 560,769 — 294,633 215,164
Steven A. Bate . . . . . . . . . . 2017 350,484 —
—
Executive Vice President
and Chief Financial
Officer
2016 337,500 — 170,950 101,909
98,200
2015 350,481 — 134,474
— 1,200,000
720,000
750,000
— 450,000
337,500
351,562
Matthew R. Powers . . . . . . . 2017 220,664 — 168,600 291,540
165,000
5,423
851,227
Executive Vice President,
General Counsel and
Corporate Secretary
Christopher T. Usher . . . . . . 2017 353,808 —
—
2016 340,704 — 59,686
2015 353,808 — 64,501
— 347,000
272,500
227,136
50,954
47,119
All
Other
($)
7,950
7,950
11,861
7,950
7,950
10,471
Total
($)
1,766,639
1,813,667
1,832,427
808,434
955,809
945,188
5,504
5,504
10,614
7,950
7,950
10,857
706,312
729,348
703,178
877,855
758,653
910,296
Kenneth G. Williamson . . . . 2017 361,905 —
—
2016 348,492 — 70,875
71,336
2015 361,895 — 159,611 116,565
— 508,000
260,000
261,368
Executive Vice President
and Chief Operating
Officer, Operations
Optimization
Executive Vice President
and Chief Operating
Officer, E&P
Technology & Services
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 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, 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 2017 described in the ‘‘—2017 Grants of Plan-Based
Awards’’ table below:
(cid:129) On March 1, 2015, Mr. Hanson received an award of 8,615 shares of restricted stock.
(cid:129) On March 1, 2016, Mr. Hanson received an award of 50,000 shares of restricted stock.
(cid:129) On June 1, 2016, Mr. Hanson received an award of 20,000 shares of restricted stock.
(cid:129) On March 1, 2015, Mr. Bate received an award of 3,932 shares of restricted stock.
(cid:129) On March 1, 2016, Mr. Bate received an award of 25,000 shares of restricted stock.
(cid:129) On June 1, 2016, Mr. Bate received an award of 10,000 shares of restricted stock
(cid:129) On March 1, 2015, Mr. Usher received an award of 1,886 shares of restricted stock.
52
(cid:129) On March 1, 2016, Mr. Usher received an award of 12,500 shares of restricted stock.
(cid:129) On June 1, 2016, Mr. Usher received an award of 1,300 shares of restricted stock.
(cid:129) On March 1, 2015, Mr. Williamson received an award of 4,667 of restricted stock.
(cid:129) On March 1, 2016, Mr. Williamson received an award of 17,500 shares of restricted stock.
Option Awards Column. All of the amounts shown in the ‘‘Option Awards’’ column reflect stock
options granted under our 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 10, Shareholders’ Equity and Stock-Based Compensation—Valuation Assumptions, in our Notes to
Consolidated Financial Statements included in our Annual Report on Form 10-K, as amended, for the
year ended December 31, 2017. 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 2017 described in the ‘‘2017 Grants of Plan-Based Awards’’ table below:
(cid:129) On March 1, 2015, Mr. Hanson received an award of options to purchase 12,923 shares of our
Common Stock for an exercise price of $34.20 per share.
(cid:129) On March 1, 2016, Mr. Hanson received an award of options to purchase 100,000 shares of our
Common Stock for an exercise price of $3.10 per share.
(cid:129) On March 1, 2015, Mr. Bate received an award of options to purchase 5,898 shares of our
Common Stock for an exercise price of $34.20 per share.
(cid:129) On March 1, 2016, Mr. Bate received an award of options to purchase 50,000 shares of our
Common Stock for an exercise price of $3.10 per share.
(cid:129) On March 1, 2015, Mr. Usher received an award of options to purchase 2,830 shares of our
Common Stock for an exercise price of $34.20 per share.
(cid:129) On March 1, 2016, Mr. Usher received an award of options to purchase 25,000 shares of our
Common Stock for an exercise price of $3.10 per share.
(cid:129) On March 1, 2015, Mr. Williamson received an award of options to purchase 7,001 shares of our
Common Stock for an exercise price of $34.20 per share.
(cid:129) On March 1, 2016, Mr. Williamson received an award of options to purchase 35,000 shares of
our Common Stock for an exercise price of $3.10 per share.
Other Columns.
All payments of non-equity incentive plan compensation reported for 2017 were made in February
2018 with regard to the 2017 fiscal year and were earned and paid pursuant to our 2017 incentive plan.
We do not sponsor for our employees (i) any defined benefit or actuarial pension plans (including
supplemental plans), (ii) any non-tax-qualified deferred compensation plans or arrangements or
(iii) any nonqualified defined contribution plans.
Our general policy is that our executive officers do not receive any executive ‘‘perquisites,’’ or any
other similar personal benefits that are different from what our salaried employees are entitled to
receive. We provide the named executive officers with certain group life, health, medical and other
non-cash benefits generally available to all salaried employees, which are not included in the ‘‘All Other
Compensation’’ column in the Summary Compensation Table pursuant to SEC rules. The amounts
shown in the ‘‘All Other Compensation’’ column solely consist of employer matching contributions to
ION’s 401(k) plan.
53
2017 GRANTS OF PLAN-BASED AWARDS
Estimated Future Payouts
Under Non-Equity Incentive
Plan Awards(1)
Name
R. Brian Hanson . . . .
Steven A. Bate . . . . .
. .
Matthew R. Powers
Christopher T. Usher . .
Kenneth G. Williamson
Grant
Date
Threshold Target Maximum
($)
($)
($)
—
— 93,750
— 68,750
—
— 94,640
— 96,803
— 600,000 1,200,000
562,500
330,000
—
454,272
580,820
281,250
165,000
—
227,136
290,410
12/1/2017
All Other
All Other
Stock Awards: Option Awards:
Number of
Shares of
Stock or
Units
(#)(2)
Number of
Securities
Underlying
Options
(#)(3)
Exercise or
Base Price
of Option
Awards
($/Sh)
Grant Date
Fair Value
of Stock and
Option Awards
($)(4)
—
—
—
12,000
—
—
—
—
—
36,000
—
—
—
—
—
13.15
—
—
—
—
—
449,340
—
—
(1) Reflects the estimated threshold, target and maximum award amounts for payouts under our 2017 incentive plan to our
NEOs. Under the plan, every participating NEO 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. 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 2017
bonus incentive plan, see the ‘‘Non-Equity Incentive Plan Compensation’’ column in the ‘‘Summary Compensation Table’’
above.
(2) All stock awards granted 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. The shares vest
ratably over a three-year period.
(3) All stock option awards granted 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.
(4) 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 10, ‘‘Shareholders’ Equity and Stock-Based Compensation—Valuation Assumptions’’, in our
Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K, as amended, for the year ended
December 31, 2017.
Employment Agreements
In recent years, we have not entered into employment agreements with employees other than our
Chief Executive Officer and Chief Financial Officer. We have generally entered into employment
agreements with employees only when the employee holds an executive officer position and we believe
that an employment agreement is desirable for us to obtain a measure of assurance as to the
executive’s continued employment in light of prevailing market competition for the particular position
held by the executive officer, or where we determine that an employment agreement is necessary and
appropriate to attract an executive in light of market conditions, the prior experience of the executive
or practices at ION with respect to other similarly situated employees.
The following discussion describes the material terms of our existing executive employment
agreements with our 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 adjust automatically to a term of three
years, which will commence on the effective date of the change of control.
54
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.
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 adjust
automatically 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
55
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.
56
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, 2017:
Option Awards(1)
Stock Awards(2)
Name
R. Brian Hanson . . . . . . . . . . . . .
Steven A. Bate . . . . . . . . . . . . . . .
Matthew R. Powers . . . . . . . . . . . .
Christopher T. Usher . . . . . . . . . . .
Kenneth G. Williamson . . . . . . . . .
Number of
Shares or
Units of
Stock That
Have Not
Vested
(#)
Market
Value of
Shares or
Units of
Stock That
Have Not
Vested
($)(3)
49,536
978,336
24,643
486,699
13,332
263,307
9,827
194,083
13,222
261,135
Number of
Securities
Underlying
Unexercised
Options
(#)
Exercisable
Number of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable
Option
Exercise
Price
($)
Option
Expiration
Date
1,166
9,333(4)
16,666
5,000
6,666
5,000
6,461
—
25,000
—
5,000
3,333
2,333
2,499
3,000
2,949
—
12,500
—
333
333
375
1,250
—
—
3,333
4,000
3,000
1,415
—
6,250
—
2,333
3,333
1,466
5,000
2,333
3,333
3,333
4,000
3,000
3,500
—
8,750
—
—
—
—
—
—
1,666
6,462
53,557(5)
75,000
100,000(5)
—
—
—
834
1,000
2,949
24,444(5)
37,500
50,000(5)
—
—
125
3,750
3,334(5)
36,000
—
—
1,000
1,415
11,728(5)
18,750
50,000(5)
—
—
—
—
—
—
—
—
1,000
3,501
29,013(5)
26,250
50,000(5)
45.00
45.00
106.05
89.40
57.90
61.05
34.20
34.20
3.10
3.10
95.85
95.85
57.90
61.05
37.05
34.20
34.20
3.10
3.10
71.85
57.90
61.05
3.10
3.10
13.15
89.40
57.90
61.05
34.20
34.20
3.10
3.10
45.00
42.45
81.60
68.70
107.85
87.15
89.40
57.90
61.05
34.20
34.20
3.10
3.10
12/1/2018
12/1/2018
9/1/2021
12/1/2022
12/1/2023
3/1/2024
3/1/2025
3/1/2025
3/1/2026
3/1/2026
6/1/2023
6/1/2023
12/1/2023
3/1/2024
12/1/2024
3/1/2025
3/1/2025
3/1/2026
3/1/2026
9/1/2023
12/1/2023
3/1/2024
3/1/2026
3/1/2026
12/1/2027
12/1/2022
12/1/2023
3/1/2024
3/1/2025
3/1/2025
3/1/2026
3/1/2026
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
3/1/2026
3/1/2026
(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.
57
(2) The amounts shown represent shares of restricted stock granted under our 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 $19.75 (the closing price per share of our Common Stock on the NYSE on
December 29, 2017, the last business day of 2017).
(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 and March 1, 2016 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 (except with respect to the March 1, 2016 SARs, the vesting dates of which were
accelerated as set forth in the ‘‘—Compensation Discussion and Analysis’’ above) 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
58
2017 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, 2017:
Name
Option Awards
Stock Awards
Number of
Shares
Acquired on
Exercise (#)
Value
Realized on
Exercise ($)(1)
Number of
Shares
Acquired on
Vesting (#)
Value
Realized on
Vesting ($)(2)
R. Brian Hanson(3) . . . . . . . . . . . . . . . . . . . . . .
Steven A. Bate(4) . . . . . . . . . . . . . . . . . . . . . . . .
Matthew R. Powers(5) . . . . . . . . . . . . . . . . . . . .
Christopher T. Usher(6) . . . . . . . . . . . . . . . . . . .
Ken Williamson(7) . . . . . . . . . . . . . . . . . . . . . . .
200,000
100,000
6,666
100,000
100,000
2,060,000
1,030,000
68,660
1,030,000
1,030,000
27,763
13,756
723
5,675
7,834
132,705
69,801
3,543
27,591
38,387
(1) The value realized upon the exercise of the cash-settled stock appreciation rights is calculated by
(a) subtracting $3.10 (the cash-settled stock appreciation rights exercise price) from $13.40 (the
closing price per share of our Common Stock on the NYSE on December 15, 2017 exercise date)
to get the realized value per share, and (b) multiplying the realized value per share by the number
of shares underlying cash-settled stock appreciation rights exercised.
(2) 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.
(3) The value realized by Mr. Hanson on the vesting of his restricted stock awards was calculated by
multiplying (a) 21,095 shares by $4.90 (the closing price per share of our Common Stock on the
NYSE on March 1, 2017) and (b) 6,668 shares by $4.40 (the closing price per share of our
Common Stock on the NYSE on the June 1, 2017 vesting date).
(4) The value realized by Mr. Bate on the vesting of his restricted stock awards was calculated by
multiplying (a) 9,978 shares by $4.90 (the closing price per share of our Common Stock on the
NYSE on March 1, 2017); (b) 3,334 shares by $4.40 (the closing price per share of our Common
Stock on the NYSE on June 1, 2017) and (c) 444 shares by $14.05 (the closing price per share of
our Common Stock on the NYSE on the December 1, 2017 vesting date).
(5) The value realized by Mr. Powers on the vesting of his restricted stock awards was calculated by
multiplying 723 shares by $4.90 (the closing price per share of our Common Stock on the NYSE
on March 1, 2017).
(6) The value realized by Mr. Usher on the vesting of his restricted stock awards was calculated by
multiplying (a) 5,241 shares by $4.90 (the closing price per share of our Common Stock on the
NYSE on March 1, 2017) and (b) 434 shares by $4.40 (the closing price per share of our Common
Stock on the NYSE on the June 1, 2017 vesting date).
(7) The value realized by Mr. Williamson on the vesting of his restricted stock awards was calculated
by multiplying 7,834 shares by $4.90 (the closing price per share of our Common Stock on the
NYSE on March 1, 2017).
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
59
triggered as of December 31, 2017, 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, 2017. 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, 2017, benefits paid to the named executive
officer in fiscal 2017 and stock and option holdings of the named executive officer as of December 31,
2017. The summaries assume a price per share of ION Common Stock of $19.75 per share, which was
the closing price per share on December 29, 2017, the last business day of 2017, 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
60
employment agreement, (iii) become a privately-owned company as a result of a transaction in
which Mr. Hanson does not participate within the acquiring group, (iv) are rendered a subsidiary
or division or other unit of another company; or (v) take any action that would constitute ‘‘good
reason’’ under his employment agreement.
Under Mr. Hanson’s employment agreement, a ‘‘change in control’’ occurs upon any of the
following (which we refer to in this section as an ‘‘Employment Agreement Change of Control’’):
(1) the acquisition by a person or group of beneficial ownership of 40% or more of our
outstanding shares of Common Stock other than any acquisitions directly from ION,
acquisitions by ION or an employee benefit plan maintained by ION, or certain permitted
acquisitions in connection with a ‘‘Merger’’ (as defined in sub-paragraph (3) below);
(2) changes in directors on our board of directors such that the individuals that constitute the
entire board cease to constitute at least a majority of directors of the board, other than new
directors whose appointment or nomination for election was approved by a vote of at least a
majority of the directors then constituting the entire board of directors (except in the case of
election contests);
(3) consummation of a ‘‘Merger’’—that is, a reorganization, merger, consolidation or similar
business combination involving ION—unless (i) owners of ION Common Stock immediately
following such business combination together own more than 50% of the total outstanding
stock or voting power of the entity resulting from the business combination in substantially the
same proportion as their ownership of ION voting securities immediately prior to such Merger
and (ii) at least a majority of the members of the board of directors of the corporation
resulting from such Merger (or its parent corporation) were members of our board 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
61
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 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 adjust automatically to two years, commencing on the
effective date of the change of control.
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
62
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, 2017, 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
($)(2)
1,200,000
1,200,000
1,200,000
1,200,000
—
—
—
—
—
—
Insurance
Tax
Continuation Gross-Ups
($)(3)
38,665
38,665
—
—
—
($)
—
—
—
—
—
Value of
Accelerated
Equity Awards
($)(4)
—
3,892,086
3,892,086
2,913,750
—
(1) Payable over a two-year period. In addition to the listed amounts, if Mr. Hanson resigns or his
employment is terminated for any reason, he may be paid for his unused vacation days.
Mr. Hanson is currently entitled to 20 vacation days per year. The above table assumes that there
is no earned but unpaid base salary as of the time of termination.
(2) Represents two times the estimate of the target bonus payment Mr. Hanson would be entitled to
receive pursuant to our 2017 bonus incentive plan. The actual bonus payment he would be entitled
to receive upon his termination may be different from the estimated amount, depending on the
achievement of payment criteria under the bonus plan.
(3) The value of insurance continuation contained in the above table is the total cost of COBRA
continuation coverage for Mr. Hanson, maintaining his same levels of medical, dental and other
insurance as in effect on December 31, 2017, less the amount of premiums to be paid by
Mr. Hanson for such coverage.
(4) As of December 31, 2017, Mr. Hanson held 49,536 unvested shares of restricted stock, unvested
stock options to purchase 83,128 shares of Common Stock and 153,557 unvested cash-settled stock
appreciation rights. The value of accelerated unvested options was calculated by multiplying 75,000
shares underlying Mr. Hanson’s unvested options by $19.75 (the closing price per share on
December 29, 2017, the last business day of 2017) and then deducting the aggregate exercise price
for those shares (equal to $3.10 per share for those 75,000 options). The options having an
exercise price greater than $19.75 per share were calculated as having a zero value. The value of
the restricted stock that would accelerate and fully vest in the event of a Change in Control, death
or disability was calculated by multiplying 49,536 shares by $19.75. The value of accelerated
unvested stock appreciation rights was calculated by multiplying 100,000 shares by $19.75 and then
deducting the settlement price of $3.10. Stock appreciation rights having an exercise price greater
than $19.75 were calculated as having a zero value.
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;
63
(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 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 adjust automatically to
two years, commencing on the effective date of the change of control.
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.
64
Assuming Mr. Bate employment was terminated under each of these circumstances or a change of
control occurred on December 31, 2017, 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)
750,000 —
750,000 —
20,208
20,208
— —
— —
— —
—
—
—
Value of
Accelerated
Equity Awards
($)(4)
—
1,943,574
1,943,574
1,456,875
—
(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, 2017, less the amount of premiums to be paid by Mr. Bate
for such coverage.
(4) As of December 31, 2017, Mr. Bate held 24,643 unvested shares of restricted stock, unvested stock
options to purchase 42,283 shares of Common Stock and 74,444 unvested cash-settled stock
appreciation rights. The value of accelerated unvested options was calculated by multiplying 37,500
shares underlying Mr. Bate’s unvested options by $19.75 (the closing price per share on
December 29, 2017, the last business day of 2017) and then deducting the aggregate exercise price
for those shares (equal to $3.10 per share for those 37,500 options). The options having an
exercise price greater than $19.75 per share 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 24,643 shares by $19.75. The value of accelerated
unvested stock appreciation rights was calculated by multiplying 50,000 shares by $19.75 and then
deducting the settlement price of $3.10. Stock appreciation rights having an exercise price greater
than $19.75 per share were calculated as having a zero value.
Matthew R. Powers
Mr. Powers is not entitled to receive any contractual severance pay if we terminate his employment
without cause. Upon a ‘‘Plan Change of Control’’ (see ‘‘—R. Brian Hanson—Change of Control Under
Equity Compensation Plans’’ above), all of his unvested stock options granted to him under the 2013
LTIP will become fully exercisable, all unvested restricted stock awards granted to him under the 2013
LTIP will automatically accelerate and become fully vested, and all unvested stock appreciation rights
granted to him under the 2008 Stock Appreciations Rights Plan will become fully exercisable. Upon his
death or disability, all unvested options, restricted stock and stock appreciation rights that Mr. Powers
holds would automatically accelerate and become fully vested. Upon his retirement, all unvested
options and stock appreciation rights that Mr. Powers holds would automatically accelerate and become
65
fully vested. No shares of unvested restricted stock held by Mr. Powers would automatically accelerate
and become fully vested upon his retirement.
The vested stock options and stock appreciation rights held by Mr. Powers will remain exercisable
after his termination of employment, death, disability or retirement for periods of between three
months and one year following such event, depending on the event and the terms of the applicable
stock plan and grant agreement. If Mr. Powers is terminated for cause, all of his vested and unvested
stock options, unvested restricted stock, and vested and unvested stock appreciation rights will be
immediately forfeited.
Assuming his employment was terminated under each of these circumstances or a change of
control occurred on December 31, 2017, his payments and benefits would have an estimated value as
follows (less applicable withholding taxes):
Scenario
Cash
Severance
($)(1)
Value of
Accelerated
Equity Awards
($)(2)
Without Cause . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change of Control (regardless of termination), Death or Disability . . . . . . . . .
Retirement
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Voluntary Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
—
—
—
618,856
355,549
—
(1) If Mr. Powers resigns or his employment is terminated for any reason, he may be paid for his
unused vacation days. Mr. Powers 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, 2017, Mr. Powers held 13,332 unvested shares of restricted stock, unvested
stock options to purchase 39,875 shares of Common Stock and 3,334 unvested cash-settled stock
appreciation rights. The value of accelerated unvested options was calculated by multiplying 39,750
shares underlying Mr. Powers’ unvested options by $19.75 (the closing price per share on
December 29, 2017, the last business day of 2017) and then deducting the aggregate exercise price
for those shares (equal to $3.10 per share for 3,750 options and $13.15 per share for 36,000
options). The options having an exercise price greater than $19.75 per share 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 13,332 shares by
$19.75. The value of accelerated unvested stock appreciation rights was calculated by multiplying
3,334 shares by $19.75 and then deducting the settlement price of $3.10.
Christopher T. Usher
Mr. Usher is not entitled to receive any contractual severance pay if we terminate his employment
without cause. Upon a ‘‘Plan Change of Control’’ (see ‘‘—R. Brian Hanson—Change of Control Under
Equity Compensation Plans’’ above), all of his unvested stock options granted to him under the 2004
LTIP or the 2013 LTIP will become fully exercisable, all restricted stock awards granted to him under
the 2013 LTIP will automatically accelerate and become fully vested, and all unvested stock
appreciation rights granted to him under the 2008 Stock Appreciations Rights Plan will become fully
exercisable. Upon his death or disability, all unvested options, restricted stock and stock appreciation
rights that Mr. Usher holds would automatically accelerate and become fully vested. Upon his
retirement, all unvested options and stock appreciation rights that Mr. Usher holds would automatically
accelerate and become fully vested. No unvested shares of restricted stock held by Mr. Usher would
automatically accelerate and become fully vested upon his retirement.
66
The vested stock options and stock appreciation rights held by Mr. Usher will remain exercisable
after his termination of employment, death, disability or retirement for periods of between three
months and one year following such event, depending on the event and the terms of the applicable
stock plan and grant agreement. If Mr. Usher is terminated for cause, all of his vested and unvested
stock options, unvested restricted stock, and vested and unvested stock appreciation rights will be
immediately forfeited.
Assuming his employment was terminated under each of these circumstances or a change of
control occurred on December 31, 2017, his payments and benefits would have an estimated value as
follows (less applicable withholding taxes):
Scenario
Cash
Severance
($)(1)
Value of
Accelerated
Equity Awards
($)(2)
Without Cause . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change of Control (regardless of termination), Death or Disability . . . . . . . . .
Retirement
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Voluntary Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
—
—
—
1,338,771
1,144,688
—
(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, 2017, Mr. Usher held 9,827 unvested shares of restricted stock, unvested stock
options to purchase 21,165 shares of Common Stock and 61,728 unvested cash-settled stock
appreciation rights. The value of accelerated unvested options was calculated by multiplying 18,750
shares underlying Mr. Usher’s unvested options by $19.75 (the closing price per share on
December 29, 2017, the last business day of 2017) and then deducting the aggregate exercise price
for those shares (equal to $3.10 per share for those 18,750 options). The options having an
exercise price greater than $19.75 per share 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 9,827 shares by $19.75. The value of accelerated
unvested stock appreciation rights was calculated by multiplying 50,000 shares by $19.75 and then
deducting the settlement price of $3.10. Stock appreciation rights having an exercise price greater
than $19.75 per share were calculated as having a zero value.
Kenneth G. Williamson
Mr. Williamson is not entitled to receive any contractual severance pay if we terminate his
employment without cause. Upon a ‘‘Plan Change of Control’’ (see ‘‘—R. Brian Hanson—Change of
Control Under Equity Compensation Plans’’ above), all of his unvested stock options granted to him
under the 2004 LTIP or the 2013 LTIP will become fully exercisable, all unvested restricted stock
awards granted to him under the 2013 LTIP will automatically accelerate and become fully vested, and
all unvested stock appreciation rights granted to him under the 2008 Stock Appreciations Rights Plan
will become fully exercisable. Upon his death or disability, all unvested options, restricted stock and
stock appreciation rights that Mr. Williamson holds would automatically accelerate and become fully
vested. Upon his retirement, all unvested options and stock appreciation rights that Mr. Williamson
holds would automatically accelerate and become fully vested. No unvested shares of restricted stock
held by Mr. Williamson would automatically accelerate and become fully vested upon his retirement.
The vested stock options and stock appreciation rights held by Mr. Williamson will remain
exercisable after his termination of employment, death, disability or retirement for periods of between
three months and one year following such event, depending on the event and the terms of the
67
applicable stock plan and grant agreement. If Mr. Williamson is terminated for cause, all of his vested
and unvested stock options, unvested restricted stock, and vested and unvested stock appreciation rights
will be immediately forfeited.
Assuming his employment was terminated under each of these circumstances or a change of
control occurred on December 31, 2017, his payments and benefits would have an estimated value as
follows (less applicable withholding taxes):
Scenario
Cash
Severance
($)(1)
Value of
Accelerated
Equity Awards
($)(2)
Without Cause . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change of Control (regardless of termination), Death or Disability . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retirement
Voluntary Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
—
—
—
1,530,698
1,269,563
—
(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, 2017, Mr. Williamson held 13,222 unvested shares of restricted stock, unvested
stock options to purchase 30,751 shares of Common Stock and 79,013 unvested cash-settled stock
appreciation rights. The value of accelerated unvested options was calculated by multiplying 26,250
shares underlying Mr. Williamson’s unvested options by $19.75 (the closing price per share on
December 29, 2017, the last business day of 2017) and then deducting the aggregate exercise price
for those shares (equal to $3.10 per share for those 26,250 options). The options having an
exercise price greater than $19.75 per share 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 13,222 shares by $19.75. The value of accelerated
unvested stock appreciation rights was calculated by multiplying 50,000 shares by $19.75 and then
deducting the settlement price of $3.10. Stock appreciation rights having an exercise price greater
than $19.75 per share were calculated as having a zero value.
68
2017 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.
69
Equity Compensation Plan Information
(as of December 31, 2017)
The following table provides certain information regarding our equity compensation plans under
which equity securities are authorized for issuance, categorized by (i) the equity compensation plans
previously approved by our 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
333
LTIP’’) . . . . . . . . . . . . . . . . . . . . . . .
297,614
Second Amended and Restated 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
. . . . . . . . . . . . . . . . . . . . . . .
584,870
—
882,817
7,524
7,524
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . .
890,341
$243.90
$ 79.44
$ 11.78
—
$211.50
—
—
488,403
47,241
535,644
—
—
535,644
Following is a brief description of the material terms of the equity compensation plan that was not
approved by our shareholders:
In
ION Geophysical Corporation—ARAM Systems Employee Inducement Stock Option Program.
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.
70
CEO PAY RATIO DISCLOSURE
As required by Item 402(u) of Regulation S-K, we are providing the following information about
the relationship of the median of the annual total compensation of our employees and the annual total
compensation of Mr. R. Brian Hanson, our Chief Executive Officer (our ‘‘CEO’’):
For 2017, our last completed fiscal year:
(cid:129) the median of the annual total compensation of all employees of our company (other than our
CEO), was $95,487; and
(cid:129) the annual total compensation of our CEO was $1,766,639.
Based on this information, for 2017, the ratio of the annual total compensation of Mr. R. Brian
Hanson, our Chief Executive Officer, to the median of the annual total compensation of all employees
was 19 to 1.
We selected December 29, 2017 as the date upon which we would identify the ‘‘median employee’’.
As of December 29, 2017, we had 469 employees worldwide. Relying upon the ‘‘de minimis exemption’’
in Item 402(u) of Regulation S-K (and using the total number of employees referenced in the
preceding sentence for our de minimis calculation), we excluded 22 employees from eight countries (in
each case, excluding all employees in the jurisdiction) as follows:
Jurisdiction
Australia
Brazil
Egypt
Malaysia
No. of
Employees
Jurisdiction
1
3
5
1
Netherlands
People’s Republic of China
Russia
United Arab Emirates
No. of
Employees
1
4
4
3
Our employee population, after taking into consideration the de minimis exemption, consisted of
447 individuals. We used total compensation as calculated in accordance with Item 402(c)(2)(x) as our
compensation measure and calculated it for each of the 447 employees. We annualized for any full-time
employee that was not employed for all of calendar year 2017. We applied a British Pound Sterling
(‘‘GBP’’) to U.S. dollar and Canadian Dollar (‘‘CAD’’) to U.S. dollar exchange rates as of
December 29, 2017 to the compensation elements paid in the respective currencies.
71
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 2017 Annual Meeting, our shareholders approved our non-binding advisory vote to approve the
compensation of our named executive officers, with approximately 71% 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 and in 2015 we reduced base salaries for most company employees, with the largest
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 seven
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 2018, our next say-on-pay
vote will occur at our next Annual Meeting scheduled to be held in May 2019.
72
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 2018 Annual Meeting of
Shareholders.
We encourage our shareholders to review closely 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 2017. 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.
73
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, 2017. Grant Thornton
served as our independent auditors for 2017.
The Board recommends that shareholders vote ‘‘FOR’’ ratification of the appointment of Grant
Thornton as our independent auditors for 2018.
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.
74
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.
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 2017, and
early in 2018 in preparation for the filing with the SEC of ION’s Annual Report on Form 10-K, as
amended, for the year ended December 31, 2017, 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’’) AS No. 1301, ‘‘Communications with Audit
Committees’’;
75
(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 2017 Form 10-K, as
amended, 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, 2018; 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 2017. 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
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.
76
PRINCIPAL AUDITOR FEES AND SERVICES
In connection with the audit of the 2017 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 2017 and 2016:
Fees
2017
2016
Audit Fees(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
All Other Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,110,900
—
$1,279,600
—
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,110,900
$1,279,600
(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.
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.
This Proxy Statement has been approved by the Board of Directors and is being made available to
shareholders by its authority.
3APR201819024815
Matthew Powers
Executive Vice President, General Counsel and
Corporate Secretary
Houston, Texas
April 13, 2018
The 2017 Annual Report to Shareholders includes our financial statements for the fiscal year
ended December 31, 2017. We have mailed a notice of the 2017 Annual Report to Shareholders and
this Proxy Statement to all of our shareholders of record. The 2017 Annual Report to Shareholders
does not form any part of the material for the solicitation of proxies.
77
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, 2017
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 100
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:3)
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a
smaller reporting company, or an emerging growth company. See the definitions of ‘‘large accelerated filer,’’ ‘‘accelerated filer’’,
‘‘smaller reporting company’’ and ‘‘emerging growth company’’ in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer (cid:3)
Accelerated filer (cid:3)
Non-accelerated filer (cid:3)
(Do not check if a
smaller reporting company)
Smaller reporting company (cid:2)
Emerging growth company (cid:3)
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition
period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange
Act. (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, 2017 (the last business day of the registrant’s second quarter of fiscal 2017), the aggregate market value of
the registrant’s common stock held by non-affiliates of the registrant was $45.3 million based on the closing sale price per share
($4.35) on such date as reported on the New York Stock Exchange.
As of February 6, 2018, the number of shares of common stock, $0.01 par value, outstanding was 12,022,201 shares.
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 17, 2018, 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. Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . .
Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 11.
Security Ownership of Certain Beneficial Owners and Management and Related
Item 12.
Item 13.
Item 14.
Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Certain Relationships and Related Transactions, and Director Independence . . . . . . .
Principal Accounting Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART IV
Page
3
16
36
36
36
39
40
41
42
61
61
61
61
64
64
64
64
64
64
Item 15.
Exhibits and Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Index to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
65
69
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
We are a global, technology-focused company that provides geoscience products, 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 to
reduce their risk in hydrocarbon exploration and development. We acquire, process and interpret
seismic data from seismic surveys on a multi-client or proprietary basis. Seismic surveys for our multi-
client 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 services company, OceanGeo B.V.
(‘‘OceanGeo’’), we contract with third party seismic data acquisition companies to 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 23 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 hydrocarbons and pinpoint drilling locations for wells.
We provide our services and products through three business segments—E&P Technology &
Services, E&P Operations Optimization, and Ocean Bottom Seismic Services. In addition, we have a
49% ownership interest in our INOVA Geophysical Equipment Limited joint venture (‘‘INOVA
Geophysical,’’ or ‘‘INOVA’’).
For decades, we have provided innovative seismic data acquisition technology, such as
multicomponent imaging with VectorSeis(cid:4) products, technology to record seismic data below ice, and
cableless seismic acquisition technology. The advanced technologies we currently offer include our
Orca(cid:4) and Gator(cid:5) command and control software systems, WiBand(cid:4) broadband data processing
technology, 4Sea(cid:4) OBS acquisition system, Marlin(cid:5) operations optimization solution and other
technologies, each of which is designed to deliver improvements in image quality, productivity and/or
safety. We have approximately 500 patents and pending patent applications in various countries around
the world. Approximately 48% of our employees are involved in technical roles and over 24% of our
employees have advanced degrees.
E&P Technology & Services. Our E&P Technology & Services business provides three distinct
service activities that often work together.
Our E&P Technology & Services business focuses on providing products and services that help
E&P companies, National Oil Companies (‘‘NOCs’’) and private equity firms maximize the value of
their assets throughout the E&P lifecycle.
3
Our Ventures group provides full-scope two-dimensional (‘‘2-D’’) and three-dimensional (‘‘3-D’’)
multi-client and proprietary programs, including survey design and planning, data acquisition, project
management, advanced processing and imaging services, reservoir characterization, and interpretation.
Our Ventures group focuses on the geologically 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 global data library consists of over 550,000 km of 2-D and over 150,000 sq km of 3-D
multi-client seismic data in virtually all major offshore petroleum provinces. In addition, we have 3-D
ResSCAN onshore imaging, characterization and microseismic monitoring programs.
Our Imaging Services 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. We have more than 24 petabytes of digital seismic data storage in 4 global data centers,
including two core data centers located in Houston and in the U.K.
Our E&P Advisors group partners with E&P operators, energy industry regulators and capital
institutions to capture and monetize E&P opportunities worldwide. This group provides technical,
commercial and strategic advice across the E&P value chain, working at basin, prospect and field
scales.
E&P Operations Optimization. Our E&P Operations Optimization business combines our
Optimization Software & Services and Devices offerings.
Our Optimization Software & Services business provides command and control software systems,
related software and services for marine towed streamer and ocean bottom seismic operations, as well
as survey design. Our Orca software system is installed on towed streamer vessels worldwide, and our
Gator software is utilized on many ocean bottom seismic surveys.
Our Marlin solution is designed to optimize operations for a variety of offshore industries with
simultaneous operations challenges such as seismic data acquisition, E&P assets, supply vessel
management, offshore wind farm management, and others.
Our 4-D (time lapse) and wide-azimuth survey operations is designed to offer consulting services
for planning and supervising complex surveys.
Our Devices business is engaged in the manufacture and repair of marine towed streamer
acquisition and positioning systems and analog geophone sensors.
Ocean Bottom Seismic (‘‘OBS’’) Services. We offer 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.
In addition, OceanGeo is engaged in the manufacture of redeployable ocean bottom cable seismic data
acquisition systems.
INOVA Geophysical. We conduct our land seismic equipment business through INOVA
Geophysical, a joint venture with BGP Inc., a subsidiary of China National Petroleum Corporation
(‘‘CNPC’’). BGP is generally regarded as the world’s largest land geophysical service contractor. BGP
owns a 51% equity interest in INOVA Geophysical, and we own the remaining 49% interest. INOVA
manufactures land seismic data acquisition systems, digital sensors, vibroseis vehicles (i.e., vibrator
trucks), and energy source controllers. We wrote our investment in INOVA down to zero as of
December 31, 2014.
4
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, 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 source arrays 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 and economic
decisions relating to drilling risk and reserves in place.
Typically, an E&P company engages the services of a geophysical acquisition contractor to develop
a seismic survey design, secure permits, coordinate logistics, and acquire seismic data in a selected area.
The E&P company generally relies on 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, 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 of
the subsurface 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 2-D. 2-D
seismic data is recorded using a single line of receivers. Once processed, 2-D seismic data allows
geoscientists to see only a thin vertical slice of the Earth, and that image may be distorted by
reflections originating out of the place of the receiver line. A geoscientist using 2-D seismic technology
must speculate on the characteristics of the Earth between the slices and attempt to visualize the true
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 slowed its widespread adoption. Today’s 3-D seismic techniques record the
reflected energy across a patch of receivers that collectively provide a more holistic, spatially-sampled
depiction of geological horizons and, in some cases, rock and fluid properties, within the Earth.
5
3-D seismic data and the associated computer-based processing platforms enable geoscientists to
generate more accurate subsurface maps than could be constructed from 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 enabled 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 data libraries in the hopes of selling it later to E&P
companies. There became an abundance of speculative multi-client 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 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 a
map 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 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 extract oil from and gas from 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, reducing exploration activities in North America and in many parts of the world.
However, crude oil prices rebounded and were fairly consistent from 2011-2014 exceeding $100 per
barrel, and U.S. oil production exceeded even the most optimistic forecasts. In late 2014, however, oil
prices began to decline significantly, dropping by approximately half and continued into 2015 and 2016
as signs emerged that non-U.S. demand was weakening.
Throughout 2014-2017, oil companies prioritized shareholder returns and cash flow generation over
hydrocarbon resource growth, minimizing discretionary spending and shifting their focus from
exploration to production. This shift caused a contraction in E&P spending, especially on seismic data
and services for exploration. In addition, oil and gas companies have tended to shift toward
reprocessing existing seismic data as a more cost-effective alternative to acquiring new data where
possible.
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 E&P Technology & Services business over the past decade is a
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testament to our steadfast execution of this strategy. Whereas our E&P Technology & Services
offerings, including our BasinSPAN(cid:5) 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, production phase of the E&P lifecycle leveraging our internally developed
technology, including 4Sea(cid:4), our newest OBS data acquisition system.
(cid:129) Expand and globalize our E&P Technology & Services business. We seek to expand and grow our
E&P Technology & Services business into new regions, with new customers and new offerings,
including data processing services through our Imaging Services group and our Ventures multi-
client and proprietary programs. 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. Since
then, we have expanded our 3-D seismic data library considerably by purchasing existing seismic
data and reimaging the data by using new data processing techniques and algorithms. For the
foreseeable future, we expect the majority of our near-term 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 technology, our Marlin operations optimization 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 2017, our total investment in research and development
and engineering was equal to approximately 8% of our total net revenue for the year.
(cid:129) Collaborate with our customers to provide products and solutions designed to meet their needs. A key
element of our business strategy has been to understand the challenges faced by E&P companies
in seismic survey planning, 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 around the world. We have found collaborating with E&P companies to
better understand their imaging challenges and working with them to ensure the right
technologies are properly applied, is the most effective method for meeting their needs. Our
goal of being a full solutions provider to solve the most difficult challenges for our customers is
an important element of our long-term business strategy, and we are implementing this
partnership approach globally through local personnel in our regional organizations who
understand the unique challenges in their areas. 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 solution provider for both towed streamer and ocean bottom seismic
services.
(cid:129) We are a broad-based seismic solutions provider, with offerings spanning the entire geophysical
workflow. We are a technology-focused 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
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control software, value-added services associated with seismic survey design, seismic data
processing and interpretation, and multi-client 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 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 vessels and
equipment. Doing so enables us to avoid 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 experienced from 2014-2016.
Similar to our asset light strategy, Schlumberger recently announced their plans to exit the land
and marine acquisition business. 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 and diversified portfolio approach has been helpful in minimizing the impact of any
regional or country-specific slowdown for short or extended periods of time.
(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 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 the early 2000s were derived principally from seismic service
providers, in 2017, E&P companies accounted for approximately 73% of our total revenues.
Although we provide services and products to some of the largest E&P companies in the world,
no single customer accounted for more than 10% of our total revenue in 2016 and 2015; in
2017, we had one multi-national oil customer that exceeded 10% of our total revenue.
Services and Products
E&P Technology & Services Segment
Our E&P Technology & Services 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 survey costs. The period during which
our multi-client surveys are being designed, acquired or processed is referred to as the ‘‘New Venture’’
phase. For proprietary services, the customer has exclusive ownership of the data. For multi-client
surveys, we generally retain ownership of or long-term exclusive marketing rights to 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
8
by ION consists of ultra-deep 2-D seismic data that E&P companies use to evaluate petroleum systems
at the basin level, including insights into the character of source rocks and sediments, migration
pathways, and reservoir trapping mechanisms. In some 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 continue to build on them. In addition to our 2-D multi-client
programs, in 2013, we acquired our first 3-D marine proprietary program, then in 2014, in collaboration
with Polarcus Limited, a marine geophysical company, we jointly acquired and processed our first 3-D
survey offshore Ireland.
In 2016, in collaboration with Schlumberger we began a 3-D multi-client broadband reimaging
program offshore Mexico, leveraging Mexico’s National Hydrocarbons Commission (CNH) data library.
The successful Campeche program has since expanded due to customer demand and now consists of
approximately 94,000 km2 offshore southern Mexico. Since 2016, we have added an additional
70,000 km2 of 3-D data offshore Mexico (in continued collaboration with Schlumberger) and in Brazil.
These programs make up a significant portion of our backlog at December 31, 2017.
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.
Imaging Services—Our Imaging Services group provides advanced marine and land seismic data
processing and imaging. In addition to applying processing and imaging technologies to data we own or
data licensed by our 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 Services team has pioneered several differentiated processing and imaging solutions
for both offshore and onshore environments including: Reverse Time Migration (RTM), Surface
Related Multiple Elimination (SRME), and WiBand broadband deghosting. In 2013, we commercially
released our 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, we released our next generation data processing system,
Perseus, which removes our dependence on third party software and yielded turnaround improvements
of over four times on our key processes. In addition to processing our own 2-D and 3-D multi-client
programs, our proprietary processing and imaging business has been focused on key customers with
complex 3-D imaging challenges predominantly in the marine environment for both towed streamer
and seabed.
At December 31, 2017, our E&P Technology & Services 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 increased to $39.2 million compared with $33.9 million at
December 31, 2016. The majority of the increase in backlog is attributable to our 3-D imaging
programs. Our E&P Technology & Services 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 Venture projects and the availability of underwriting by our
9
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 Advisors—Our E&P Advisors group partners with E&P operators, energy industry regulators
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.
E&P Operations Optimization Segment
Our E&P Operations Optimization segment combines our Optimization Software & Services and
Devices offerings.
Through this segment, we supply command and control software systems and related services for
marine towed streamer and ocean bottom seismic operations. Software developed by our Optimizations
Software & Services group is installed on marine towed streamer vessels and used by many ocean
bottom survey crews. In addition we, recently began selling existing technology to new customers in
scientific, military and academic industries. 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. Marlin, our
newest software solution for optimizing offshore operations is an example where we leveraged the
underlying software platform to quickly develop a new offering.
Products and services for our Optimizations Software & Services group include the following:
Towed Streamer Command & Control 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 Command & Control System—Gator 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 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. Orca and Gator both have modules that enable
in-field survey optimization. These modules are designed to enable improved, safer acquisition through
analysis and prediction of sea currents and integration of the information into the acquisition plan.
Products of our Devices group include the following:
Marine Positioning Systems—Our marine towed 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:5) is 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(cid:4) 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
10
data and improved subsurface images. We believe DIGIFIN(cid:4) also enables faster line changes and
minimizes the requirements for in-fill seismic work. In addition to manufacturing new marine
positioning system devices, the Devices group also repairs its positioning equipment previously sold to
its customers.
Analog Geophones—Analog geophones are sensors 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 Seismic 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 acquisition systems; and data
processing, interpretation and reservoir services through ION.
We believe the market for ocean bottom seismic imaging is growing. OBS provides more detailed
reservoir imaging typically used for development rather than exploration objectives, leading E&P
companies to prioritize 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.
INOVA Geophysical Products
INOVA manufactures land acquisition systems, including the G3i(cid:4) HD, ARIES(cid:4) and Hawk(cid:4)
recording platforms, land source products, including the AHV-IV series, UNIVIB(cid:4), and UNIVIB 2
vibroseis vehicles, and source controllers and multicomponent sensors, including the ground-breaking
VectorSeis(cid:4) digital 3C receivers.
Product Research and Development
Our ability to compete effectively in the seismic market depends principally upon continued
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, efficiency and quality of the seismic data. In particular, we have concentrated on enhancing
the nature and quality of the information that can be extracted from the subsurface images.
Research and development efforts in 2017 targeted the consolidation of key technologies across
ION, together with the expansion of our portfolio of product offerings. A range of new technologies
have been developed, with an over-arching focus on Ocean Bottom Seismic Services, including new and
flexible seismic acquisition optimization and processing tools, as well as in-water control devices which
improve the operational efficiency of marine sources.
The Optimization Software & Services group continued development of survey optimization and
integration capabilities across the software portfolio as well as with products from the Devices group.
Investment continued in the Marlin simultaneous operations tool including the aim of addressing
alternative market opportunities.
Development within the Devices group was focused on the new in-water control device,
SailWing(cid:5), including sea trials and integration with the Orca and Gator software products, as well as
further development of the successful Digi family of products, including the automatic Streamer
11
Recovery Device and rechargeable battery option. We continue to invest in the development of new
sensors with applicability both within and outside the seismic business.
The seismic data processing group continued to invest in production efficiencies, leading-edge
technologies and OBS capabilities. Research continued into advanced imaging techniques such as the
extension of Full Waveform Imaging to allow the use of reflection data as well as high-frequency FWI.
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
multi-client seismic data programs from our Ventures group, imaging-related processing services from
our Imaging Services group, and OBS data acquisition services through OceanGeo, as well as
consulting services from our E&P Advisors and Optimization Software & Services 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 portion 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 2017, 2016 and 2015, sales to destinations outside
of North America accounted for approximately 76%, 78% and 66% 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 second half of
our fiscal year.
For information concerning the geographic breakdown of our net revenues, see Footnote 2
‘‘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 E&P Technology & Services segment competes with more
than a dozen companies that provide data processing services to E&P companies. See ‘‘Services and
Products—E&P Technology & Services 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 E&P Technology & Services segment’s two primary competitors for
advanced imaging services. However, Schlumberger has recently announced its plan to exit the land and
marine seismic acquisition business. Both of these companies are significantly larger than ION in terms
12
of revenue, processing locations and sales, marketing and financial resources. In addition, both CGG
and Schlumberger possess an advantage in the data processing arena, as part of more vertically
integrated seismic contractor companies; for example, when these companies acquire large 3-D multi-
client surveys, the internal data processing organization will usually be awarded the data processing
without any requirement to compete with external vendors. CGG and Schlumberger, along with other
competitors, TGS-NOPEC Geophysical Company ASA and Spectrum ASA, also develop and sell multi-
client data that compete with our data library. BGP also competes in this space by primarily partnering
with other competitors to develop and sell multi-client data.
In the OBS market, OceanGeo competes with a number of companies, including 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 four 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 towed 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. During
2017, the number of 2-D and 3-D marine streamer vessels, including those in operation, under
construction, or announced additions to capacity, decreased by nine, to approximately 80 vessels total.
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. The majority of the high-end 3-D seismic capacity is 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 competing land equipment suppliers.
13
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 approximately
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 ‘‘VectorSeis,’’ ‘‘ARIES II,’’ ‘‘DigiFIN,’’
‘‘DigiCOURSE,’’ ‘‘Hawk,’’ ‘‘Orca,’’ ‘‘G3i,’’ ‘‘WiBand,’’, ‘‘4Sea,’’, ‘‘UNIVIB’’, ‘‘VectorSeis’’ and ‘‘MESA’’
refer to the VECTORSEIS(cid:4), ARIES(cid:4) II, DIGIFIN(cid:4), DIGICOURSE(cid:4), HAWK(cid:4), ORCA(cid:4), G3I(cid:4),
WiBand(cid:4), 4Sea(cid:4), UNIVIB(cid:4), VectorSeis(cid:4) and MESA(cid:4) registered marks owned by ION or INOVA
Geophysical or their affiliates, and the terms ‘‘BasinSPAN,’’ ‘‘Calypso,’’ ‘‘DigiSTREAMER,’’ ‘‘Gator,’’
‘‘AHV-IV,’’ ‘‘Vib Pro,’’ ‘‘Shot Pro,’’ ‘‘Optimiser,’’ ‘‘Reflex,’’ ‘‘ResSCAN,’’ ‘‘PrecisION’’, ‘‘Calypso,’’
‘‘SailWing’’ and ‘‘Marlin’’ refer to the BasinSPAN(cid:5), Calypso(cid:5), DigiSTREAMER(cid:5), GATOR(cid:5),
AHV-IV(cid:5), Vib Pro(cid:5), Shot Pro(cid:5), Optimiser(cid:5), Reflex(cid:5), ResSCAN(cid:5), PrecisION(cid:5), Calypso(cid:5),
SailWing(cid:5) and Marlin(cid:5) trademarks and service marks owned by ION or INOVA Geophysical or their
affiliates.
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
14
restrictions, embargoes and sanctions imposed by the U.S. government. These restrictions and sanctions
prohibit or limit us from participating in certain business activities in those countries.
Our operations are also subject to numerous local, state and federal laws and regulations in the
United States and in foreign jurisdictions concerning the containment and disposal of hazardous
materials, the remediation of contaminated properties and the protection of the environment. While
the industry has experienced an increase in general environmental regulation worldwide and laws and
regulations protecting the environment have generally become more stringent, we do not believe
compliance with these regulations has resulted in a material adverse effect on our business or results of
operations, and we do not currently foresee the need for significant expenditures in order to be able to
remain compliant in all material respects with current environmental protection laws. Regulations in
this area are subject to change, and there can be no assurance that future laws or regulations will not
have a material adverse effect on us.
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, 2017, we had 478 regular, full-time employees, 280 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 2
‘‘Segment and Geographic Information’’ of Footnotes to Consolidated Financial Statements.
Available Information
Our executive headquarters are located at 2105 CityWest Boulevard, Suite 100, Houston,
Texas 77042-2839. 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.
15
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) any additional damages or adverse rulings in the WesternGeco litigation and future potential
adverse effects on our financial results and liquidity;
(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 availability of cash to fund our operations and pay our obligations;
(cid:129) facing a significant debt maturity in 2018;
(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 E&P Technology & Services 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;
16
(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;
(cid:129) expectations regarding the impact of the U.S. Tax Cuts and Jobs Act;
(cid:129) anticipated results with respect to certain estimates we make for financial accounting purposes;
and
(cid:129) compliance with the U.S. Foreign Corrupt Practices Act and other applicable U.S. and foreign
laws prohibiting corrupt payments to government officials and other third parties.
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 against us in the United States
District Court for the Southern District of Texas, Houston Division. In the lawsuit, styled WesternGeco
L.L.C. v. ION Geophysical Corporation, WesternGeco alleged that we had infringed several method and
apparatus claims contained in four of its United States patents regarding marine seismic streamer
steering devices.
The trial began in July 2012. A verdict was returned by the jury in August 2012, finding that we
infringed the claims contained in the four patents by supplying our DigiFIN, lateral streamer control
units and the related software from the United States and awarded WesternGeco the sum of
$105.9 million in damages, consisting of $12.5 million in reasonable royalty and $93.4 million in lost
profits.
In June 2013, the presiding judge entered a Memorandum and Order, 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 was 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 were subject to
supplemental damages and also ruling that the supplemental damages applicable to the additional units
were to 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 awarded in the case by $3.0 million to reflect a settlement
17
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. (the ‘‘Court of Appeals’’). On July 2, 2015, the Court of
Appeals reversed in part the Final Judgment of the District Court, 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.
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 $22.0 million.
On February 26, 2016, WesternGeco filed a petition for writ of certiorari by the Supreme Court.
We filed our response on April 27, 2016. Subsequently, on June 20, 2016, the Supreme Court vacated
the Court of Appeals’ ruling although it did not address the lost profits question at that time. Rather,
in light of the changes in case law regarding the standard of proof for willfulness in the Halo and
Stryker cases, the Supreme Court indicated that the case should be remanded to the Court of Appeals
for a determination of whether or not the willfulness determination by the District Court was
appropriate.
On October 14, 2016, the Court of Appeals issued a mandate returning the case to the District
Court for consideration of whether or not additional damages for willfulness were appropriate.
On March 14, 2017, the District Court held a hearing on whether or not additional damages for
willfulness would be payable. The Judge found that ION’s infringement was willful, based on his
perception that ION did not adequately investigate the scope of the patent, and ION’s conduct during
trial. However, in his ruling at the hearing, he limited enhanced damages to $5.0 million because it was
a ‘‘close case,’’ there was no evidence of copying, and ION was simply acting as a competitor in a
capitalist marketplace. The District Court also ordered the appeal bond to be released and discharged.
The Court’s findings and ruling were memorialized in an order issued on May 16, 2017. On June 30,
2017, WesternGeco and we jointly agreed that neither party would appeal the District Court’s award of
$5.0 million in enhanced damages. The parties also agreed that the $5.0 million would be paid over the
course of 12 months with $1.25 million being paid in two installments of $0.625 million in 2017 and the
remaining $3.75 million being paid in three quarterly payments of $1.25 million beginning January 1,
2018. This agreement was memorialized by the court in an order issued on July 26, 2017.
WesternGeco filed a second petition for writ of certiorari in the U.S. Supreme Court on
February 17, 2017, appealing the lost profits issue again. We filed our response to WesternGeco’s
second attempt to appeal to the Supreme Court the lost profits issue, raising both the substantive
matters the Company addressed by opposing WesternGeco’s first petition, and also raising a procedural
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argument that WesternGeco cannot raise the same issue for a second time in a second petition for
certiorari. On May 30, 2017, the Supreme Court called for the views of the U.S. Solicitor General
regarding whether or not to grant certiorari. We and WesternGeco each met with the Solicitor
General’s office in late July, 2017. On December 6, 2017, the Solicitor General filed its brief, and took
the position that the Supreme Court ought to grant certiorari. On January 12, 2018, the Supreme Court
granted certiorari as to whether the Court of Appeals erred in holding that lost profits arising from use
of prohibited combinations occurring outside of the United States are categorically unavailable in cases
where patent infringement is proven under 35 U.S.C. § 271(f)(2) (the specific statute under which we
were ultimately held to have infringed WesternGeco’s patents and upon which the District Court and
the Federal Circuit relied in entering their final rulings). We will argue to the Supreme Court that the
decision of the Court of Appeals that eliminated lost profits ought to be upheld. We anticipate oral
arguments will take place in April of 2018 and that the Supreme Court will issue a decision by the end
of June of 2018.
At the Court of Appeals we presented multiple arguments as to why the District Court’s award of
lost profits was improper. The lost profits damages awarded by the District Court were based on the
use of our products by our customers outside of the United States. We argued at the Court of Appeals
that, as a matter of law, WesternGeco cannot recoup lost profits for the overseas use of our products.
We also argued that, under the jury instructions given in our case, WesternGeco would need to have
been a direct competitor of ours in the survey markets to recoup lost profits, and that the jury was
required to find that WesternGeco and ION were direct competitors. Because the Court of Appeals
ruled in our favor on the first argument, and overturned the award of lost profits on that basis, the
Court of Appeals did not rule on our ‘‘direct competitor’’ argument. If the Supreme Court overturns
the Court of Appeals’ decision that lost profits cannot be awarded to WesternGeco because the
subsequent use of the apparatus was overseas, the case will be remanded back to the Court of Appeals,
at which time we will present our second argument (that lost profits should not be awarded to
WesternGeco because they were not our direct competitor).
Other proceedings may have an impact on WesternGeco’s ability to recover lost profits damages
even if WesternGeco prevails in the Supreme Court, and even if we do not prevail on the ‘‘direct
competitor’’ argument in the Court of Appeals. We were a party to a challenge to the validity of
several of WesternGeco’s patent claims by means of an Inter Partes Review (‘‘IPR’’) with the Patent
Trial and Appeal Board (‘‘PTAB’’). While the above-described lawsuit was pending on appeal, the
PTAB invalidated four of the six patent claims that formed the basis for the jury verdict in the lawsuit.
WesternGeco appealed that decision to the Court of Appeals, which heard our and WesternGeco’s
arguments on January 23, 2018. If the Court of Appeals affirms the PTAB’s invalidation of the patents,
that may provide a separate ground for reducing or vacating any lost-profits award in the lawsuit. We
expect the Court of Appeals to rule on the PTAB issue late in the first quarter of 2018 or in the
second quarter of 2018.
We may not ultimately prevail in any of the appeals processes noted above and we could be
required to pay some or all of the lost profits that were awarded by the District Court. Our assessment
that we do not have a loss contingency may change in the future due to developments at the Supreme
Court, the Court of Appeals, or the District Court, and other events, such as changes in applicable law,
and such reassessment could lead to the determination that a significant loss contingency (up to the full
amount of the lost profits awarded by the District Court) is probable, which could have a material
adverse effect on our business, financial condition, cash flows and results of operations.
19
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 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 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. Additionally, the recent 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) significant devaluation of the Mexican Peso and its impact on the Mexican economy and
offshore exploration programs;
(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;
(cid:129) merger and divestiture activity among oil and gas companies and seismic contractors; and
(cid:129) compliance by members of the Organization of the Petroleum Exporting Countries (‘‘OPEC’’)
and non-OPEC members such as Russia, with recent agreements to cut oil production.
The level of oil and gas exploration and production activity has been volatile in recent years.
Trends in oil and gas exploration and development activities 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.
20
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 and
production of oil and natural gas and, in the case of new seismic data acquisition, the willingness of
those companies to forgo ownership of 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 heightened exploration activity by E&P companies leading up to the fourth
quarter of 2014, many E&P companies shifted their focus more to production activities and less on
exploration during 2015 and 2016, as the continued decline in oil and gas prices resulted in decreasing
revenues and prompted cost reduction initiatives across the industry. The U.S. Energy Information
Administration (‘‘EIA’’) forecasts the Brent crude oil spot price will average $60 per barrel in 2018 and
$61 per barrel in 2019, as members of OPEC limited production after a long period of unrestrained
output. Energy prices, which include oil, natural gas and coal, are projected to increase overall next
year as demand strengthens and supplies tighten. As of December 31, 2017, our E&P Technology &
Services segment backlog, consisting of commitments for data processing work and for underwritten
multi-client New Venture and proprietary projects increased by 16% compared to our existing backlog
as of December 31, 2016. The increase in our backlog was primarily due to our 3-D reimaging projects
offshore Mexico and Brazil.
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. In addition,
the revenues can vary widely from period to period due to changes in customer requirements and
demand. These factors can create fluctuations in our net revenues and results of operations from
period to period. Variability in our overall gross margins for any period, which depend on the
percentages of higher-margin and lower-margin services and products sold in that period, compounds
these uncertainties. As a result, if net revenues or gross margins fall below expectations, our results of
operations and financial condition will likely be materially adversely affected.
Additionally, our business can be seasonal in nature, with strongest demand typically in the fourth
calendar quarter of each year. Customer budgeting cycles at times result in higher spending activity
levels by our customers at different points of the year.
Due to the relatively high sales price of many of our products and seismic data libraries, our
quarterly operating results have historically fluctuated from period to period due to the timing of
orders and shipments and the mix of services and products sold. This uneven pattern makes financial
predictions for any given period difficult, increases the risk of unanticipated variations in our quarterly
results and financial condition, and places challenges on our inventory management. Delays caused by
factors beyond our control can affect our E&P Technology & Services 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 2017 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.
21
Our indebtedness could adversely affect our liquidity, financial condition and our ability to fulfill our
obligations and operate our business.
As of December 31, 2017, we had approximately $156.7 million of total outstanding indebtedness,
including $0.3 million of capital leases. As of December 31, 2017, there was $10.0 million 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, 2017, we
have $15.5 million remaining 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. See ‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operations’’
appearing below in this Form 10-K.
In October 2016, S&P Global Ratings (‘‘S&P’’) raised our corporate credit rating to CCC+ from
SD and maintains a negative outlook. In May 2016, Moody’s Investors Service (‘‘Moody’s’’) affirmed a
Corporate Family Rating of Caa2 and its rating outlook was changed from negative to stable. These
rating actions followed our completed exchange offer. S&P continues to hold a negative outlook on our
Company reflecting the high debt leverage, expected negative free cash flow and the potential for
liquidity to weaken, if market conditions do not significantly improve.
Our high level of indebtedness could have negative consequences to us, including:
(cid:129) we may have difficulty satisfying our obligations with respect to our outstanding debt;
(cid:129) we may have difficulty obtaining financing in the future for working capital, capital expenditures,
acquisitions or other purposes;
(cid:129) we may need to use all, or a substantial portion, of our available cash flow to pay interest and
principal on our debt, which will reduce the amount of money available to finance our
operations and other business activities;
(cid:129) our vulnerability to general economic downturns and adverse industry conditions could increase;
(cid:129) our flexibility in planning for, or reacting to, changes in our business and in our industry in
general could be limited;
(cid:129) our amount of debt and the amount we must pay to service our debt obligations could place us
at a competitive disadvantage compared to our competitors that have less debt;
(cid:129) our customers may react adversely to our significant debt level and seek or develop alternative
licensors or suppliers;
(cid:129) we may have insufficient funds, and our debt level may also restrict us from raising the funds
necessary to repurchase all of the Notes, as 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.
We face a significant debt maturity in 2018.
Our $28.5 million aggregate principal amount of Senior Secured Third-Priority Lien notes mature
on May 15, 2018. If our cash flows from operations and other capital resources are insufficient to pay
22
off such notes, we may face substantial liquidity problems and may be forced to reduce or delay
investments, dispose of material assets or operations, or issue additional debt or equity. We may not be
able to take such actions, if necessary, on commercially reasonable terms or at all. Our inability to
generate sufficient cash flows to satisfy our debt obligations, or to refinance our indebtedness on
commercially reasonable terms or at all, would materially and adversely affect our financial position
and results or operations.
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 OBS data acquisition. 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.
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
23
(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 provide assurance 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) OceanGeo’s cash flows may be inadequate to realize the value of manufactured equipment for
use in its ocean bottom seismic surveys;
(cid:129) risks associated with our Calypso and 4Sea ocean bottom products that are 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) our inability to realize operating efficiencies, cost savings or other benefits that we expect from
OceanGeo’s operations; and
(cid:129) difficulties and delays in securing new business and customer projects.
The indentures governing the 9.125% Senior Secured Second-Priority Notes due 2021 and 8.125% Senior
Secured Third-Priority Notes due 2018 (the ‘‘Notes’’) contain a number of restrictive covenants that limit our
ability to finance future operations or capital needs or engage in other business activities that may be in our
interest.
The indenture governing the Notes imposes, and the terms of any future indebtedness may impose,
operating and other restrictions on us and our subsidiaries. Such restrictions affect, or will affect, and
in many respects limit or prohibit, among other things, our ability and the ability of certain of our
subsidiaries to:
(cid:129) incur additional indebtedness;
(cid:129) create liens;
(cid:129) pay dividends and make other distributions in respect of our capital stock;
(cid:129) redeem our capital stock;
24
(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 3 ‘‘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
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 E&P Technology & Services segment and Optimization Software & Services
group within our E&P Operations Optimization segment, 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;
25
(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
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 also face exposure to product liability claims in the event that certain of our products, or
certain components manufactured by others that are incorporated into our products, fail to perform to
specification, which failure results, or is alleged to result, in property damage, bodily injury and/or
death. Any product liability claims decided adversely against us may have a material adverse effect on
our results of operations and cash flows. While we maintain insurance coverage with respect to certain
product liability claims, we may not be able to obtain such insurance on acceptable terms in the future,
if at all, and any such insurance may not provide adequate coverage against product liability claims. In
addition, product liability claims can be expensive to defend and can divert the attention of
26
management and other personnel for significant periods of time, regardless of the ultimate outcome.
Furthermore, even if we are successful in defending against a claim relating to our products, claims of
this nature could cause our customers to lose confidence in our products and us.
We have invested, and expect to continue to invest, significant sums of money in acquiring and processing
seismic data for our E&P Technology & Services’ 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 E&P
Technology & Services’ 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
2017, we invested approximately $23.7 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 E&P
Technology & Services’ 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 on a
straight-line basis 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
27
to reduce the carrying value of our data library. These increases or charges, if required, could be
material to our operating results for the periods in which they are recorded.
A substantial portion 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 76%, 78% and 66% of our consolidated net revenues for 2017,
2016 and 2015, 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, India, 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.
28
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
competitors also may result in delays in customer purchases and difficulty in predicting customer
29
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. 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 2016 and 2015; in 2017, we had one
customer with sales that exceeded 10%. Our top five customers together accounted for approximately
34%, 50% and 36%, of our consolidated net revenues during 2017, 2016 and 2015. 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.
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
30
credit to 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 and increasing 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 declines, our ability to raise funds through the
issuance of equity or otherwise use our common stock as consideration will be reduced. In addition, a
low price for our equity may negatively impact our ability to access additional debt capital. These
factors may limit our ability to implement our operating and growth plans.
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 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.
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, 2017, our remaining
goodwill and other intangible asset balances were $24.1 million and $1.7 million, respectively.
31
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.
Due to the international scope of our business activities, our results of operations may be significantly
affected by currency fluctuations.
We derived approximately 76% of our 2017 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, Latin America, 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. 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.
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.
Our subsidiaries in the U.K. and in other foreign 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 provide assurance
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 effectively operate our business.
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 businesses has intensified in recent years. A well-trained,
motivated and adequately-staffed work force has a positive impact on our ability to attract and retain
32
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, continuing into 2016, and reduced our
full-time employee base by approximately 60%, our workforce has since stabilized.
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 Devices group leases 144,000 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 August 2017, we lost use of our offices located in the Houston
metropolitan area for several days, as a result of Hurricane Harvey.
Future hurricanes or similar natural disasters that impact our facilities may negatively affect our
financial position and operating results for those periods. These negative effects may include reduced
production, product sales and data processing revenues; costs associated with resuming production;
reduced orders for our services and products from customers that were similarly affected by these
events; lost market share; late deliveries; additional costs to purchase materials and supplies from
outside suppliers; uninsured property losses; inadequate business interruption insurance and an inability
to retain necessary staff. To the extent that climate change increases the severity of hurricanes and
other weather events, as some have suggested, it could worsen the severity of these negative effects on
our financial position and operating results.
Our operations, and the operations of our customers, are subject to numerous government regulations,
which could adversely limit our operating flexibility. Regulatory initiatives undertaken from time to time, such
as restrictions, sanctions and embargoes, can adversely affect, and have 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 (including Russia) are subject to restrictions, 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
33
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. 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.
Existing or future laws and regulations related to greenhouse gases and climate change could have a
material adverse effect on our business, results of operations, and financial condition.
Changes in environmental requirements related to greenhouse gases and climate change may
negatively impact demand for our services. For example, oil and natural gas exploration and production
may decline as a result of environmental requirements. Local, state, and federal agencies have been
evaluating climate-related legislation and other regulatory initiatives that would restrict emissions of
greenhouse gases in areas in which we conduct business. Because our business depends on the level of
activity in the oil and natural gas industry, existing or future laws and regulations related to greenhouse
gases and climate change, including incentives to conserve energy or use alternative energy sources,
could have a negative impact on our business if such laws or regulations reduce demand for oil and
natural gas.
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
34
manufacturers, we may have fewer personnel resources with expertise to manage problems that may
arise from these third-party arrangements.
Additionally, our suppliers could be negatively impacted by current global economic conditions. If
certain of our suppliers were to experience significant cash flow issues or become insolvent as a result
of such conditions, it could result in a reduction or interruption in supplies to us or a significant
increase in the price of such supplies and adversely impact our results of operations and cash flows.
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.
35
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, 2017 were as follows:
Operating Facilities
Square
Footage
Segment
Houston, Texas . . . .
226,000 Global Headquarters, E&P Technology & Services
and Ocean Bottom Seismic Services
Harahan, Louisiana .
Edinburgh, Scotland
144,000 Devices group within E&P Operations Optimization
16,000 Optimization Software & Services group within
Chertsey, England . .
18,000 E&P Technology & Services
E&P Operations Optimization
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 2017 to 2025. See Footnote 12 ‘‘Operating Leases’’ of
Footnotes to Consolidated Financial Statements.
In addition, we lease offices in Beijing, China; Rio de Janeiro, 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; Cairo, Egypt; Villahermosa, Mexico; and Rio de Janeiro, Brazil.
Our executive headquarters is located at 2105 CityWest Boulevard, Suite 100, 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.
36
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 was 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 were subject to
supplemental damages and also ruling that the supplemental damages applicable to the additional units
were to 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 awarded 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. (the ‘‘Court of Appeals’’). On July 2, 2015, the Court of
Appeals reversed in part the Final Judgment of the District Court, 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.
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 $22.0 million.
On February 26, 2016, WesternGeco filed a petition for writ of certiorari by the Supreme Court.
We filed our response on April 27, 2016. Subsequently, on June 20, 2016, the Supreme Court vacated
the Court of Appeals’ ruling although it did not address the lost profits question at that time. Rather,
in light of the changes in case law regarding the standard of proof for willfulness in the Halo and
Stryker cases, the Supreme Court indicated that the case should be remanded to the Court of Appeals
for a determination of whether or not the willfulness determination by the District Court was
appropriate.
On October 14, 2016, the Court of Appeals issued a mandate returning the case to the District
Court for consideration of whether or not additional damages for willfulness were appropriate.
On March 14, 2017, the District Court held a hearing on whether or not additional damages for
willfulness would be payable. The Judge found that ION’s infringement was willful, based on his
perception that ION did not adequately investigate the scope of the patent, and ION’s conduct during
37
trial. However, in his ruling at the hearing, he limited enhanced damages to $5.0 million because it was
a ‘‘close case,’’ there was no evidence of copying, and ION was simply acting as a competitor in a
capitalist marketplace. The District Court also ordered the appeal bond to be released and discharged.
The Court’s findings and ruling were memorialized in an order issued on May 16, 2017. On June 30,
2017, WesternGeco and we jointly agreed that neither party would appeal the District Court’s award of
$5.0 million in enhanced damages. The parties also agreed that the $5.0 million would be paid over the
course of 12 months with $1.25 million being paid in two installments of $0.625 million in 2017 and the
remaining $3.75 million being paid in three quarterly payments of $1.25 million beginning January 1,
2018. This agreement was memorialized by the court in an order issued on July 26, 2017.
WesternGeco filed a second petition for writ of certiorari in the U.S. Supreme Court on
February 17, 2017, appealing the lost profits issue again. We filed our response to WesternGeco’s
second attempt to appeal to the Supreme Court the lost profits issue, raising both the substantive
matters the Company addressed by opposing WesternGeco’s first petition, and also raising a procedural
argument that WesternGeco cannot raise the same issue for a second time in a second petition for
certiorari. On May 30, 2017, the Supreme Court called for the views of the U.S. Solicitor General
regarding whether or not to grant certiorari. We and WesternGeco each met with the Solicitor
General’s office in late July, 2017. On December 6, 2017, the Solicitor General filed its brief, and took
the position that the Supreme Court ought to grant certiorari. On January 12, 2018, the Supreme Court
granted certiorari as to whether the Court of Appeals erred in holding that lost profits arising from use
of prohibited combinations occurring outside of the United States are categorically unavailable in cases
where patent infringement is proven under 35 U.S.C. § 271(f)(2) (the specific statute under which we
were ultimately held to have infringed WesternGeco’s patents and which the District Court and the
Federal Circuit relied in entering their final rulings). We will argue to the Supreme Court that the
decision of the Court of Appeals that eliminated lost profits ought to be upheld. We anticipate oral
arguments will take place in April of 2018 and that the Supreme Court will issue a decision by the end
of June of 2018.
At the Court of Appeals we presented multiple arguments as to why the District Court’s award of
lost profits was improper. The lost profits damages awarded by the District Court were based on the
use of our products by our customers outside of the United States. We argued at the Court of Appeals
that, as a matter of law, WesternGeco cannot recoup lost profits for the overseas use of our products.
We also argued that, under the jury instructions given in our case, WesternGeco would need to have
been a direct competitor of ours in the survey markets to recoup lost profits, and that the jury was
required to find that WesternGeco and ION were direct competitors. Because the Court of Appeals
ruled in our favor on the first argument, and overturned the award of lost profits on that basis, the
Court of Appeals did not rule on our ‘‘direct competitor’’ argument. If the Supreme Court overturns
the Court of Appeals’ decision that lost profits cannot be awarded to WesternGeco because the
subsequent use of the apparatus was overseas, the case will be remanded back to the Court of Appeals,
at which time we will present our second argument (that lost profits should not be awarded to
WesternGeco because they were not our direct competitor).
Other proceedings may have an impact on WesternGeco’s ability to recover lost profits damages
even if WesternGeco prevails in the Supreme Court, and even if we do not prevail on the ‘‘direct
competitor’’ argument in the Court of Appeals. We were a party to a challenge to the validity of
several of WesternGeco’s patent claims by means of an PTAB. While the above-described lawsuit was
pending on appeal, the PTAB invalidated four of the six patent claims that formed the basis for the
jury verdict in the lawsuit. WesternGeco appealed that decision to the Court of Appeals, which heard
our and WesternGeco’s arguments on January 23, 2018. If the Court of Appeals affirms the PTAB’s
invalidation of the patents, that may provide a separate ground for reducing or vacating any lost-profits
award in the lawsuit. We expect the Court of Appeals to rule on the PTAB issue late in Q1 of 2018 or
in Q2 of 2018.
38
We may not ultimately prevail in any of the appeals processes noted above and we could be
required to pay some or all of the lost profits that were awarded by the District Court. Our assessment
that we do not have a loss contingency may change in the future due to developments at the Supreme
Court, Court of Appeals, or District Court, and other events, such as changes in applicable law, and
such reassessment could lead to the determination that a loss contingency is probable, which could
have a material effect on our business, financial condition and results of operations. Our assessments
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 equal or
be considerably less than the lost profits awarded by the District Court. We do not anticipate that any
losses from the date hereof would exceed the lost profits awarded by the District Court (except for the
potential imposition of pre and post-judgment interest).
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.
39
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, 2017:
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
First Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year ended December 31, 2016:
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
First Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Price Range
High
Low
$20.54
9.85
4.85
6.30
$ 8.40
6.99
9.65
9.50
$7.55
3.20
4.10
3.87
$5.65
4.73
5.45
5.10
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
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, 2017, there were 636 holders of record of our common stock.
40
On December 14, 2017, in connection with the Equity Investment Program (as described in
Footnote 10 Stockholders’ Equity and Stock-based Compensation of Footnotes to the Consolidated
Financial Statements), we sold, in a private placement under Section 4(a)(2) of the Securities Act of
1933, as amended, 120,567 shares of our common stock at $13.05 per share (the closing price of the
our common stock on the NYSE on such date).
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. We were
authorized to repurchase up to $25 million through November 10, 2017 and had repurchased $3 million
or 451,792 shares of our common stock under the repurchase program at an average price per share of
$6.54. The program expired November 10, 2017.
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 2017, 2016, 2015, 2014 and 2013, and with
respect to our consolidated balance sheets at December 31, 2017, 2016, 2015, 2014 and 2013, have been
derived from our audited consolidated financial statements.
Our results of operations and financial condition have been affected by restructuring activities,
legal contingencies, 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 fiscal years ended December 31, 2013 - 2017 time period were
impacted by the following items (before tax):
Years Ended December 31,
2017
2016
2015
2014
2013
(In thousands)
Cost of sales:
Write-down of multi-client data library . . . . . . . . . $(2,304) $ — $
Write-down of excess and obsolete inventory . . . . . $ (398) $ (429) $
(399) $(100,100) $
(151) $
(5,461)
(6,952) $ (21,197)
Operating expenses:
Impairment of goodwill and intangible assets . . . . $ — $ — $
Write-down of receivables . . . . . . . . . . . . . . . . . . $ — $ — $
Accelerated vesting and cash exercise of stock
— $ (23,284) $
(8,214) $
— $
—
(9,157)
appreciation right awards . . . . . . . . . . . . . . . . . $(6,141) $ — $
— $
— $
—
Other income (expense):
Reversal of (accrual for) loss contingency related
to legal proceedings . . . . . . . . . . . . . . . . . . . . . $(5,000) $ 1,168 $101,978 $ 69,557 $(183,327)
—
6,522 $
— $
3,591
5,463 $
— $
—
— $
— $
— $
—
— $
— $ (49,485) $ (42,320)
(5,000)
— $
— $
Gain on sale of Source product line . . . . . . . . . . . $ — $ — $
Gain on sale of cost method investments . . . . . . . $ — $ — $
Recovery of INOVA bad debts . . . . . . . . . . . . . . . $
844 $ 3,983 $
Loss on bond exchange . . . . . . . . . . . . . . . . . . . . $ — $(2,182) $
Equity in earnings (losses) of investments . . . . . . . . $ — $ — $
Conversion payment of preferred stock . . . . . . . . . . $ — $ — $
41
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.
Historical Selected Financial Data
Statement of Operations Data:
Net revenues . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) from operations . . . . . . . . . . . .
Net income (loss) applicable to common
shares . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income (loss) per basic share . . . . . . . . . .
Net income (loss) per diluted share . . . . . . . .
Weighted average number of common shares
Years Ended December 31,
2017
2016
2015
2014
2013
(In thousands, except for per share data)
$197,554
75,639
(8,699)
$172,808
36,032
(43,171)
$ 221,513
8,003
(100,632)
$ 509,558
62,223
(117,929)
$ 549,167
159,313
16,396
(30,242)
(2.55)
(2.55)
$
$
(65,148)
$
$
(5.71) $
(5.71) $
(25,122)
(128,252)
(251,874)
(2.29) $ (11.72) $ (23.84)
(2.29) $ (11.72) $ (23.84)
outstanding . . . . . . . . . . . . . . . . . . . . . . . .
11,876
11,400
10,957
10,939
10,567
Weighted average number of diluted shares
outstanding . . . . . . . . . . . . . . . . . . . . . . . .
11,876
11,400
10,957
10,939
10,567
Balance Sheet Data (end of year):
Working capital
. . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt(b)
. . . . . . . . . . . . . . . . . . . . .
Total equity . . . . . . . . . . . . . . . . . . . . . . . . .
Other Data:
Investment in multi-client library . . . . . . . . . .
Capital expenditures . . . . . . . . . . . . . . . . . . .
Depreciation and amortization (other than
multi-client library) . . . . . . . . . . . . . . . . . .
Amortization of multi-client library . . . . . . . . .
$ (8,628)(a) $ 16,555
313,216
301,069
158,790
156,744
53,398
30,806
$ 93,160
435,088
182,992
112,040
$ 222,099
617,257
190,594
135,712
$ 248,857
864,671
220,152
257,885
$ 23,710
1,063
$ 14,884
1,488
$ 45,558
19,241
$ 67,785
8,264
$ 114,582
16,914
16,592
47,102
21,975
33,335
26,527
35,784
27,656
64,374
18,158
86,716
(a) Working Capital at December 31, 2017 is negative due to $28.5 million of Third Lien Notes (maturing
May 15, 2018) being reclassified from long-term to current.
(b) Includes current maturities of long-term debt.
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 three
42
business segments—E&P Technology & Services, E&P Operations Optimization and Ocean Bottom
Seismic Services.
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. Third-party reports now indicate that global exploration and production spending
is expected to increase 8% in 2018. This is an improvement from the 4% growth in 2017 that was
preceded by 2 years of double-digit declines.
The following is a summary of recent oil and gas pricing trends:
Brent Crude
(per bbl)
West Texas
Intermediate
Crude (per bbl)
Henry Hub
Natural Gas
(per mcf)
Quarter ended
High
Low
High
Low
High
Low
12/31/2017 . . . . . . . . . . . . . . . . .
9/30/2017 . . . . . . . . . . . . . . . . . .
6/30/2017 . . . . . . . . . . . . . . . . . .
3/31/2017 . . . . . . . . . . . . . . . . . .
12/31/2016 . . . . . . . . . . . . . . . . .
9/30/2016 . . . . . . . . . . . . . . . . . .
6/30/2016 . . . . . . . . . . . . . . . . . .
3/31/2016 . . . . . . . . . . . . . . . . . .
$66.80
$59.77
$55.05
$56.34
$54.96
$49.66
$50.73
$40.54
$55.29
$46.47
$43.98
$49.56
$41.61
$40.00
$35.88
$26.01
$60.46
$52.14
$53.38
$54.48
$54.01
$49.02
$51.23
$41.45
$49.34
$44.25
$42.48
$47.00
$43.29
$39.50
$34.30
$26.19
$3.69
$3.18
$3.27
$3.71
$3.80
$3.19
$2.94
$2.54
$2.60
$2.76
$2.85
$2.44
$2.08
$2.67
$1.71
$1.49
Source: EIA.
In the past few years, crude oil prices have been volatile due to global economic uncertainties.
Significant downward oil price volatility began late in 2014 and reached a low average of $33 per barrel
in early 2016. The material decrease in crude oil prices can be attributed principally to high levels of
global crude oil inventories resulting from significant production growth in the U.S. shale plays, the
strengthening of the U.S. dollar relative to other foreign currencies and the Organization of Petroleum
Exporting Countries (‘‘OPEC’’) increasing its production, causing a global supply and demand
imbalance for crude oil. In late November 2016, OPEC and other non-OPEC participants such as
Russia reached an agreement to cut their oil production.
The prices for West Texas Intermediate (‘‘WTI’’) and Intercontinental Exchange Brent (‘‘Brent’’)
crude oil increased to an average of $50 per barrel and $53 per barrel, respectively, in 2017 compared
to $42 per barrel and $43 per barrel, respectively for 2016. This increase was due to multiple factors,
including successful OPEC production cuts and net inventory crude draws which reduced the current
crude surplus. The EIA forecasts the Brent crude oil spot price will average $60 per barrel in 2018 and
$61 per barrel in 2019. Global supply and demand for crude oil is now largely in balance and some
industry analysts forecast that worldwide inventories will fall below the five-year historical average in
the first half of 2018. Energy reform in Mexico and a bill passed in Brazil that eliminates the
requirement for Petrobras to participate in every presalt offshore block, in conjunction with the stability
of oil prices, has resulted in increased investment in those areas. In addition, in January, 2018, the
Interior Department proposed to make more than 98% of outer continental shelf acreage available for
exploration and development. This price stability has encouraged North American drillers to increase
shale production. During 2017, U.S. producers added 270 oil rigs. This brought the total U.S. rig count
43
to 929, at December 31, 2017, an increase of 41% during 2017 compared to 659 rigs at the end of the
2016.
Given the historical volatility of crude prices, there is a continued risk that if prices do not
continue to improve, or if they start to decline again due to high levels of crude oil production, there is
a potential for slowing growth rates in various global regions and/or for ongoing supply/demand
imbalances.
Prices for natural gas in the U.S. averaged $2.99 per mmBtu for 2017, compared to $2.40 per
mmBtu for 2016. As a result of natural gas production growth outpacing demand in the U.S., natural
gas prices continue to be weak relative to prices experienced from 2006 through 2008 and are expected
to remain below levels considered economical for new investments in numerous natural gas fields.
Draws in late 2017 were larger than normal, resulting in total U.S. natural gas inventories of 2.8 trillion
cubic feet at the end of 2017, 13.0% lower than levels at this time a year ago, and 12.1% lower than
the five-year average. Inventories are expected to build slightly above the five year average by the end
of October 2018.
After a period of growth in exploration activities and associated spending leading up to the end of
2014, many E&P companies shifted their focus to production activities, away from exploration, as the
continued decline in oil and gas prices resulted in decreased revenues, prompting cost reduction
initiatives across the industry. From the end of 2014 through 2017, E&P companies decreased spending
on exploration and reportedly focused their spending on critical production requirements and existing
commitments. 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 while continuing to pay cash
dividends to shareholders. E&P companies relied on asset sales and debt financings to fund capital
requirements amid demands for greater returns to shareholders. The combination of these factors
placed many E&P companies in a position where they were unable to cover both their capital
expenditure budgets and targeted cash returns to shareholders. As a result, E&P companies
dramatically cut spending, with exploration spending receiving the largest reductions and seismic
spending being one of the most discretionary parts of their exploration budgets. As a result of this
industry downturn, many customers experienced a significant reduction in their liquidity with challenges
accessing the capital markets. Several exploration and production companies declared bankruptcy, or
exchanged equity for the forgiveness of debt, while others were forced to sell assets in an effort to
preserve liquidity. However, over the past 12 months, access to the capital and debt markets improved
significantly for certain of these customers.
E&P spending is expected to continue to rebound in 2018 over 2017, which was preceded by two
successive years of double digit declines as commodity prices are forecasted to remain more stable.
This positive trend in E&P spending, aided by favorable macroeconomic conditions has resulted in
increased revenues during 2017. If the global supply of oil decreases due to reduced capital investment
by E&P companies, government instability occurs in a major oil-producing nation or energy demand
increases in the U.S. or in countries such as China and India, the recovery in WTI and Brent crude oil
prices could continue to improve. If commodity prices do not continue to improve or if they start to
deteriorate again, demand for our services and products could decline.
Impact to Our Business
During 2017, we saw renewed customer interest in underwriting of our New Venture multi-client
programs as oil companies were able to right-size their expenditures to current oil prices and generate
profits for the first time in eight quarters. During 2017, revenues increased 14% versus prior year.
Investments in our multi-client data library are dependent upon the timing of our New Venture projects
and the availability of underwriting by our customers. We continue to maintain high standards for the
underwriting of any new projects, and sanctioned several new programs during 2017 that were originally
44
planned to occur during 2016. 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 our E&P Technology & Services segment, our New Venture revenues increased driven by our
3-D multi-client reimaging programs offshore Mexico and Brazil, as well as revenues from a new 2-D
multi-client program in Panama and other programs that have recently been launched, which met our
conservative underwriting standards. Imaging Services revenues decreased as a result of our strategic
shift toward higher return multi-client programs. The imaging work on multi-client programs are
reflected as part of New Venture or Data Library revenues depending on the program status, whereas
revenues from proprietary imaging programs are reflected as part of Imaging Services. The Imaging
Services group is fully utilized, with a large portion of our capacity dedicated to multi-client programs.
Our data library sales were flat in 2017 compared to 2016. We invested $23.7 million, approximately
$9 million more, in our multi-client data library during 2017, compared to 2016, but $22 million less
compared to 2015.
At December 31, 2017, our E&P Technology & Services segment backlog, which consists of
commitments for (i) imaging services work and (ii) multi-client New Venture and proprietary projects
underwritten by our customers, increased 16% or $5.3 million to $39.2 million, compared with
$33.9 million at December 31, 2016. The growth of backlog was due to ongoing activity in Mexico and
Brazil as well as activity related to several newly sanctioned programs. We anticipate that the majority
of our backlog will be recognized as revenue over the first half of 2018.
During 2017, our Ocean Bottom Seismic Services segment continues to be affected by E&P
companies delaying or canceling decisions to commit capital to OBS projects, while our crew has
remained idle since completion of a survey offshore Nigeria in the third quarter 2016. Despite political
issues and uncertainty, we see significant long-term potential for OceanGeo and our technologies to
improve OBS productivity, and we expect demand for OBS surveys to increase.
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 4Sea, WiBand, Orca, and Marlin, will continue to attract
customer interest, because those technologies are designed to deliver improvements in safety, efficiency
or image quality.
Key Financial Metrics
The tables below provide (i) a summary of our net revenues for our company as a whole, and by
segment, for 2017, 2016 and 2015, and (ii) an overview of other certain key financial metrics for our
company as a whole and our three business segments on a comparative basis for 2017, 2016 and 2015,
45
as reported and as adjusted in all three years for the restructuring and other charges recorded for those
years.
Years Ended December 31,
2017
2016
2015
(In thousands)
Net revenues:
E&P Technology & Services:
New Venture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Data Library . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total multi-client revenues . . . . . . . . . . . . . . . . . . . . . . . . . . .
Imaging Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total
$100,824
40,016
140,840
16,409
$157,249
$ 27,362
39,989
67,351
25,538
$ 92,889
E&P Operations Optimization:
Devices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Optimization Software & Services . . . . . . . . . . . . . . . . . . . . . . .
$ 23,610
16,695
$ 26,746
16,756
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ocean Bottom Seismic Services . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 40,305
$
$ 43,502
— $ 36,417
$ 48,294
63,326
111,620
45,630
$157,250
$ 36,269
27,994
$ 64,263
—
$
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$197,554
$172,808
$221,513
Year Ended December 31, 2017
Year Ended December 31, 2016
Year Ended December 31, 2015
As
Reported
Restructuring
and Other
Charges
As
Adjusted
As
Reported
Restructuring
and Other
Charges
As
Adjusted
As
Reported
Restructuring
and Other
Charges
As
Adjusted
$ 65,196
20,076
(9,633)
$ 75,639
$ —
—
—
$ 65,196
20,076
(9,633)
$ 4,708
21,745
9,579
$ 766
188
123
$ 5,474
21,933
9,702
$ 13,508
33,995
(39,500)
$ 3,193
536
252
$ 16,701
34,531
(39,248)
$ —
$ 75,639
$ 36,032
$1,077(c)
$ 37,109
$
8,003
$ 3,981(e)
$ 11,984
41%
50%
—%
38%
—%
—%
—%
—%
41%
50%
—%
38%
5%
50%
26%
21%
1%
—%
—%
—%
6%
50%
27%
21%
9%
53%
—%
4%
2%
1%
—%
1%
11%
54%
—%
5%
$ 42,505
8,022
(16,259)
(42,967)
$ (8,699)
$ —
—
—
6,141(a)
$ 42,505
8,022
(16,259)
(36,826)
$(16,446)
9,652
(1,756)
(34,621)
$1,128
197
504
180
$(15,318)
9,849
(1,252)
(34,441)
$ (24,941)
20,131
(55,080)
(40,742)
$ 4,295
1,790
252
877
$ (20,646)
21,921
(54,828)
(39,865)
$ 6,141
$ (2,558)
$(43,171)
$2,009(c)
$(41,162)
$(100,632)
$ 7,214(e)
$ (93,418)
27%
20%
—%
(22)%
(4)%
—%
—%
—%
3%
3%
27%
20%
—%
(19)%
(1)%
(18)%
22%
(5)%
(20)%
(25)%
2%
1%
2%
—%
1%
(16)%
23%
(3)%
(20)%
(24)%
(16)%
31%
—%
(18)%
(45)%
3%
3%
—%
—%
3%
(13)%
34%
—%
(18)%
(42)%
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
Gross profit:
E&P Technology & Services .
.
E&P Operations Optimization .
Ocean Bottom Seismic Services
Total
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
Gross margin:
E&P Technology & Services .
.
E&P Operations Optimization .
Ocean Bottom Seismic Services
Total
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
Income (loss) from operations:
E&P Technology & Services .
.
E&P Operations Optimization .
Ocean Bottom Seismic Services
.
Support and other
.
.
.
.
.
.
Total
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
Operating margin:
E&P Technology & Services .
.
E&P Operations Optimization .
Ocean Bottom Seismic Services
.
Support and other
.
.
.
.
.
.
Total
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
Net income (loss) applicable to
.
common shares .
.
.
.
.
.
.
.
.
$(30,242)
$11,141(b)
$(19,101)
$(65,148)
$ (960)(d)
$(66,108)
$ (25,122)
$(93,587)(f) $(118,709)
Diluted net income (loss) per
.
common share .
.
.
.
.
.
.
.
.
.
$ (2.55)
$
0.94
$
(1.61)
$ (5.71)
$ (0.09)
$
(5.80)
$
(2.29)
$ (8.54)
$ (10.83)
(a)
(b)
(c)
(d)
(e)
(f)
Represents accelerated vesting and cash exercise of stock appreciation right awards
In addition to item (a), also impacting net loss applicable to common shares was a loss contingency accrual related to legal proceedings.
Represents severance and facility charges related to the Company’s 2016 restructuring.
Represents a $3.9 million recovery of INOVA bad debts, partially offset by item (b).
Represents severance and facility charges related to the Company’s 2015 restructuring.
In addition to item (d), also impacting net income (loss) applicable to common shares was a reduction in the WesternGeco legal contingency by
$102.0 million.
46
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.
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, 2017 (As Adjusted) Compared to Year Ended December 31, 2016 (As Adjusted)
Our total net revenues of $197.6 million for 2017 increased $24.8 million, or 14%, compared to
total net revenues of $172.8 million for 2016. Our overall gross profit percentage for 2017 was 38%,
compared to a gross profit percentage of 21%, as adjusted, for 2016. Total operating expenses as a
percentage of net revenues for 2017 and 2016 were 40% and 45%, as adjusted, respectively. During
2017, our loss from operations was $2.6 million, as adjusted, compared to a loss of $41.2 million, as
adjusted, for 2016.
Our net loss for 2017 was $19.1 million, as adjusted, or $(1.61) per share, compared to net loss of
$66.1 million, as adjusted, or $(5.80) per share for 2016. As noted above, our net loss for 2017 and
2016 included restructuring charges and other special items totaling $11.1 million and $(1.0) million,
respectively, impacting our earnings per share by $0.94 and $(0.09), respectively.
Net Revenues, Gross Profits and Gross Margins (As Adjusted for 2016)
E&P Technology & Services—Net revenues for 2017 increased by $64.4 million, or 69%, to
$157.2 million, compared to $92.9 million for 2016. The increase was driven by New Venture revenues
from our 3-D multi-client reimaging programs offshore Mexico and Brazil, as well as revenues from a
new 2-D multi-client program in Panama and other programs that have recently been launched. This
increase was partially offset by lower Imaging Services revenues as a result of the shift towards higher
return multi-client programs during 2017. Revenues from Data Library sales were consistent year over
year.
Gross profit increased by $59.7 million to $65.2 million, representing a 41% gross margin,
compared to $5.5 million, as adjusted, or 6% gross margin, for 2016. These improvements in gross
profit and margin were due to the increase in revenues and the mix of higher margin 3-D reimaging
programs as noted above, as well as the full benefit of our cost control initiatives implemented in prior
years. These increases were partially offset by higher sales-based amortization of our multi-client data
library.
E&P Operations Optimization—Devices net revenues for 2017 decreased by $3.1 million, or 12%, to
$23.6 million, compared to $26.7 million for 2016. This decrease was due to a decline in our repairs
business, partially offset by sales of new product offerings during 2017. Optimization Software &
Services net revenues remained flat at $16.7 million. Excluding the effect of foreign currencies,
Optimization Software & Services revenues were up 4% in terms of local GBP currency. E&P
Operations Optimization gross profit for 2017 decreased by $1.9 million to $20.0 million, in 2017,
compared to $21.9 million, as adjusted, for 2016. Gross margin remained flat at 50%.
Ocean Bottom Seismic Services—Net revenues for 2017 were zero compared to 36.4 million for
2016. The crew was idle throughout 2017 as we pursued additional OBS work. Gross loss was
$9.6 million for 2017 compared to gross income of $9.7 million, as adjusted, for 2016. This decline was
due to the decrease in revenues, partially offset by several cost control initiatives implemented in 2017,
including the renegotiation of our vessel leases, which reduced our vessel lease costs.
47
Operating Expenses (As Adjusted for 2016)
The following table presents the ‘‘As Adjusted’’ in 2016, excluding special charges that resulted
from 2016 restructurings and other special items (in thousands):
Operating expenses:
Research, development and engineering
Marketing and sales . . . . . . . . . . . . . . .
General, administrative and other
Year Ended December 31, 2017
Year Ended December 31, 2016
As
Reported
Special
Items
As
Adjusted
As
Reported
Special
Items(a)
As
Adjusted
$16,431
20,778
$ — $16,431
— 20,778
$ 17,833
17,371
$ (397) $ 17,436
17,109
(262)
operating expenses . . . . . . . . . . . . . .
47,129
(6,141)
40,988
43,999
(273)
43,726
Total operating expenses . . . . . . . . . .
$84,338
$(6,141) $78,197
$ 79,203
$ (932) $ 78,271
Income (loss) from operations . . . . . . .
$ (8,699) $ 6,141
$ (2,558) $(43,171) $2,009
$(41,162)
(a)
Includes severance affecting operating expenses.
Research, Development and Engineering—Research, development and engineering expense
decreased $1.0 million, or 6%, to $16.4 million, for 2017, compared to $17.4 million, as adjusted, for
2016. During the current down-cycle in E&P exploration spending, we have been selective in spending
on research and development (‘‘R&D’’) projects in order to reduce expenses without sacrificing our
ability to develop our technologies. As discussed above, despite the extended market downturn and
uncertainty, we see significant long-term potential for OceanGeo and our technologies to improve OBS
productivity. We continue to invest in our 4Sea system and we expect long-term demand for OBS
production surveys (4-D) to increase.
Marketing and Sales—Marketing and sales expense increased $3.7 million, or 22%, to $20.8 million,
for 2017, compared to $17.1 million, as adjusted, for 2016. This increase was primarily due to higher
commissions driven by increased sales in the E&P Technology & Services segment.
General, Administrative and Other Operating Expenses—General, administrative and other operating
expenses decreased $2.7 million, as adjusted, or 6%, to $41.0 million, as adjusted for 2017 compared to
$43.7 million, as adjusted, for 2016. This decrease for 2017 was primarily due to the full benefit of our
cost control initiatives implemented in prior years.
Other Items
Interest Expense, net—Interest expense, net, of $16.7 million for 2017 compared to $18.5 million for
2016. This improvement was primarily due to reduced debt caused by the bond exchange during 2016.
For additional information, please refer to ‘‘—Liquidity and Capital Resources—Sources of Capital’’
below.
Other Income (Expense)—Other income (expense) for 2017 was $(3.9) million compared to other
income of $1.4 million for 2016. The difference primarily relates to changes in our accrual for loss
contingency related to a legal matter. See further discussion at Footnote 6 ‘‘Legal Matters’’ and in
Part 1, Item 3, ‘‘Legal Proceedings.’’
48
The following table reflects the significant items of other income (in thousands):
Years Ended
December 31,
2017
2016
Reduction of (accrued for) loss contingency related to legal proceedings
(Footnote 6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Recovery of INOVA bad debts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss on bond exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
844
$(5,000) $ 1,168
3,983
— (2,182)
(1,619)
211
Total other income (expense) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(3,945) $ 1,350
Income Tax Expense—Income tax expense for 2017 was less than $0.1 million compared to
$4.4 million for 2016. Our effective tax rates for 2017 and 2016 were (0.1)% and (7.3)%, respectively.
The income tax expense for 2017 and 2016 primarily relates to results generated by our non-U.S.
businesses. Tax expense for 2017 includes a $1.3 million tax benefit for the release of the valuation
allowance against refundable U.S. alternative minimum tax (‘‘AMT’’) credits. 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. Our effective tax rate for 2017 was negatively impacted by the change in valuation
allowance related to U.S. operating losses for which we cannot currently recognize a tax benefit. See
further discussion of establishment of the deferred tax valuation allowance at Footnote 5 ‘‘Income
Taxes’’ of Footnotes to Consolidated Financial Statements.
Results of Operations
Year Ended December 31, 2016 (As Adjusted) Compared to Year Ended December 31, 2015 (As Adjusted)
Our total net revenues of $172.8 million for 2016 decreased $48.7 million, or 22%, compared to
total net revenues of $221.5 million for 2015. Our overall gross profit percentage for 2016 was 21%, as
adjusted, compared to a gross profit percentage of 5%, as adjusted, for 2015. Total operating expenses,
as adjusted, as a percentage of net revenues for 2016 and 2015 were 45% and 48%, respectively.
During 2016, our loss from operations was $41.2 million, as adjusted, compared to a loss of
$93.4 million, as adjusted, for 2015.
Our net loss for 2016 was $66.1 million, as adjusted, or $(5.80) per share, compared to net loss of
$118.7 million, as adjusted, or $(10.83) per share for 2015. As noted above, our net loss for 2016 and
2015 included restructuring charges and other (credits) totaling $(1.0) million and $(93.6) million,
respectively, impacting our earnings per share by $(0.09) and $(8.54), respectively.
Net Revenues, Gross Profits and Gross Margins (As Adjusted)
E&P Technology & Services—Net revenues for 2016 decreased by $64.4 million, or 41%, to
$92.9 million, compared to $157.3 million for 2015. Revenues for our New Venture, Data Library and
Imaging Services businesses decreased due to the continued softness in exploration spending.
Gross profit decreased by $11.2 million to $5.5 million, as adjusted, representing a 6% gross
margin, compared to $16.7 million, as adjusted, or an 11% gross margin, for 2015. This decrease was
attributable to the significant revenue decline in our New Venture, Data Library and Imaging Services
businesses in 2016, partially offset by cost cutting measures.
E&P Operations Optimization—Devices net revenues for 2016 decreased by $9.5 million, or 26%, to
$26.7 million, compared to $36.3 million for 2015. This decrease in revenues was principally due to
lower sales of new marine positioning products and lower marine replacement revenues on existing
49
equipment. Optimization Software & Services net revenues for 2016 decreased by $11.2 million, or
40%, to $16.8 million, compared to $28.0 million for 2015. This decrease in revenues was due to a
reduction in Orca licensing revenues during 2016, due to reduced activity by seismic contractors who
have taken vessels out of service. E&P Operations Optimization gross profit for 2016 decreased by
$12.6 million to $21.9 million, as adjusted, representing a 50% gross margin, compared to $34.5 million,
as adjusted, or a 54% gross margin, for 2015. Gross profit and gross margin decreased due to the
significant reduction in revenues in 2016 compared to 2015.
Ocean Bottom Seismic Services—Net revenues for 2016 were $36.4 million representing a 27%
gross margin, compared to zero revenues and gross margins for 2015. Revenues and gross margin
during 2016 were favorably impacted by the completion of data acquisition for an OBS survey offshore
Nigeria in the current period, compared to our idle ocean bottom vessels and crew during 2015.
Operating Expenses (As Adjusted)
The following table presents the ‘‘As Adjusted’’ in both 2016 and 2015, excluding special charges
that resulted from both the 2016 and 2015 restructurings and other write-downs (in thousands):
Operating expenses:
Research, development and
engineering . . . . . . . . . . . . . . . . .
Marketing and sales . . . . . . . . . . . .
General, administrative and other
Year Ended December 31, 2016
Year Ended December 31, 2015
As
Reported
Special
Items(a)
As
Adjusted
As
Reported
Special
Items(b)
As
Adjusted
$ 17,833
17,371
$ (397) $ 17,436
17,109
(262)
$ 26,445
30,493
$ (603) $ 25,842
30,189
(304)
operating expenses . . . . . . . . . . . .
43,999
(273)
43,726
51,697
(2,326)
49,371
Total operating expenses . . . . . . . .
$ 79,203
$ (932) $ 78,271
$ 108,635
$(3,233) $105,402
Income (loss) from operations . . . . .
$(43,171) $2,009
$(41,162) $(100,632) $ 7,214
$ (93,418)
(a)
(b)
Includes severance affecting operating expenses.
Includes severance affecting operating expenses and facility abandonment charges.
Research, Development and Engineering—Research, development and engineering expense
decreased $8.4 million, or 33%, to $17.4 million, as adjusted, for 2016, compared to $25.8 million, as
adjusted, for 2015. During the current down-cycle in E&P exploration spending, we have been selective
in spending on research and development (‘‘R&D’’) projects in order to reduce expenses without
sacrificing our ability to develop our technologies. As discussed above, despite the extended market
downturn and uncertainty, we see significant long-term potential for OceanGeo and our technologies to
improve ocean bottom survey productivity, and we expect long-term demand for ocean bottom
production surveys (4-D) to increase.
Marketing and Sales—Marketing and sales expense decreased $13.1 million, or 43%, to
$17.1 million, as adjusted, for 2016, compared to $30.2 million, as adjusted, for 2015. During the
current down-cycle in oil and gas exploration spending, we have also reduced our payroll and marketing
expenses.
General, Administrative and Other Operating Expenses—General, administrative and other operating
expenses decreased $5.7 million, or 12%, to $43.7 million, as adjusted, for 2016 compared to
$49.4 million, as adjusted, for 2015. This decrease was primarily due to reduced payroll expenses and
50
professional fees resulting from our cost cutting measures in order to right-size the business to current
revenue levels.
Other Items
Interest Expense, net—Interest expense, net, of $18.5 million for 2016 compared to $18.8 million for
2015. For additional information, please refer to ‘‘—Liquidity and Capital Resources—Sources of
Capital’’ below.
Other Income—Other income for 2016 was $1.4 million compared to other income of $98.3 million
for 2015. The difference primarily relates to changes in our accrual for loss contingency related to a
legal matter. See further discussion at Footnote 6 ‘‘Legal Matters’’ and in Part 1, Item 3, ‘‘Legal
Proceedings.’’
The following table reflects the significant items of other income (in thousands):
Years Ended
December 31,
2016
2015
Reduction of loss contingency related to legal proceedings (Footnote 6) . . . . . . . .
Recovery of INOVA bad debts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss on bond exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1,168
3,983
(2,182)
(1,619)
$101,978
—
—
(3,703)
Total other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1,350
$ 98,275
Income Tax Expense—Income tax expense for 2016 was $4.4 million compared to $4.0 million for
2015. Our effective tax rates for 2016 and 2015 were (7.3)% and (19.2)%, respectively. Our effective tax
rate for 2016 and 2015 was negatively impacted by the establishment of a valuation allowance related to
our U.S. losses incurred in both years. See further discussion of establishment of the deferred tax
valuation allowance at Footnote 5 ‘‘Income Taxes’’ of Footnotes to Consolidated Financial Statements.
Our income tax expense for 2016 and 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.
Liquidity and Capital Resources
Sources of Capital
As of December 31, 2017, we had $52.1 million in cash on hand and $15.5 million of undrawn
borrowing base availability under the Credit Facility. Our cash requirements include working capital
requirements and cash required for our debt service payments, multi-client seismic data acquisition
activities and capital expenditures. As of December 31, 2017, we had working capital of $(8.6) million,
which includes a current liability of $28.5 million of Senior Secured Third-Priority Lien notes that are
payable during the second quarter of 2018, which we expect to pay using available liquidity. Working
capital requirements are primarily driven by our investment in our (i) multi-client data library
($23.7 million in 2017) and royalty payments for multi-client sales. Also, our headcount has traditionally
been a significant driver of our working capital needs. As a significant portion of our business is
involved in the planning, processing and interpretation of seismic data, one of our largest investments is
in our employees, which involves cash expenditures for their salaries, bonuses, payroll taxes and related
compensation expenses. During late 2014 and continuing through mid-2016, we reduced our workforce
by over 60%, and closed selected facilities. Our workforce has since stabilized. These actions are
expected to result in annualized cash savings of approximately $95 million which we began to fully
51
realize in 2017. During 2017, we saw an improved operating environment in oil prices which has
contributed to a stabilization in our workforce.
Our working capital requirements may change from time to time depending upon many factors,
including our operating results and adjustments in our operating plan in response to industry
conditions, competition and unexpected events. In recent years, our primary sources of funds have been
cash flows generated from operations, existing cash balances, debt and equity issuances and borrowings
under our revolving credit facilities.
Revolving Credit Facility
In August 2014, we and our material U.S. subsidiaries, GX Technology Corporation, ION
Exploration Products (U.S.A.), Inc. and I/O Marine Systems, Inc. (collectively, the ‘‘Subsidiary
Borrowers’’) entered into a Revolving Credit and Security Agreement with PNC Bank, National
Association (‘‘PNC’’), as agent (the ‘‘Original Credit Agreement’’), which was amended by the First
Amendment to Revolving Credit and Security Agreement in August 2015 (the ‘‘First Amendment’’) and
the Second Amendment to Revolving Credit and Security Agreement in April 2016 (the ‘‘Second
Amendment’’; the Original Credit Agreement, as amended by the First Amendment and the Second
Amendment, the ‘‘Credit Facility’’).
The Credit Facility is available to provide for the Borrowers’ general corporate needs, including
working capital requirements, capital expenditures, surety deposits and acquisition financing. The
maximum amount of the revolving line of credit under the Credit Facility is the lesser of $40.0 million
and a monthly borrowing base (which may be recalculated more frequently under certain
circumstances).
The borrowing base under the Credit Facility will increase or decrease monthly using a formula
based on certain eligible receivables, eligible inventory and other amounts, including a percentage of
the net orderly liquidation value of our multi-client data library (not to exceed $15.0 million for the
multi-client data library data component). As of December 31, 2017, the borrowing base under the
Credit Facility was $25.5 million, and there was $10.0 million of outstanding indebtedness under the
Credit Facility. We experienced a significant increase in our accounts and unbilled receivables during
the second half of 2017 due to the significant revenue increase, however, a majority of those increases
were part of our foreign operations, which are not included in the borrowing base calculation.
The Credit Facility requires us to maintain compliance with various covenants. At December 31,
2017, we were in compliance with all of the covenants under the Credit Facility. For further
information regarding our Credit Facility see Footnote 3 ‘‘Long-term Debt and Lease Obligations’’ of
Footnotes to Consolidated Financial Statements.
Senior Secured Notes
In May 2013, we sold $175.0 million aggregate principal amount of 8.125% Senior Secured Second-
Priority Notes due 2018 (the ‘‘Third Lien Notes’’) in a private offering pursuant to an indenture dated
as of May 13, 2013 (the ‘‘Third Lien Notes Indenture’’). Prior to the completion of the Exchange Offer
and Consent Solicitation on April 28, 2016, the Third Lien Notes were our senior secured second-
priority obligations. After giving effect to the Exchange Offer and Consent Solicitation, the remaining
aggregate principal amount of approximately $28.5 million of outstanding Third Lien Notes became our
senior secured third-priority obligations subordinated to the liens securing all of our senior and second
priority indebtedness, including under the Credit Facility and Second Lien Notes.
Pursuant to the Exchange Offer and Consent Solicitation, we (i) issued approximately
$120.6 million in aggregate principal amount of our new Second Lien Notes and 1,205,477 shares of
common stock, (utilizing 508,464 of treasury shares) in exchange for approximately $120.6 million in
52
aggregate principal amount of Third Lien Notes, and (ii) purchased approximately $25.9 million in
aggregate principal amount of Third Lien Notes in exchange for aggregate cash consideration totaling
approximately $15 million, plus accrued and unpaid interest on the Third Lien Notes from the
applicable last interest payment date to, but not including, April 28, 2016.
After giving effect to the Exchange Offer and Consent Solicitation, the aggregate principal amount
of the Third Lien Notes remaining outstanding was approximately $28.5 million and the aggregate
principal amount of Second Lien Notes outstanding was approximately $120.6 million.
The Third Lien Notes 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
‘‘Guarantors’’). The Third Lien Notes mature on May 15, 2018. Interest on the Third Lien 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 Third Lien Notes
exchanged their Third Lien Notes for a like principal amount of registered Third Lien Notes with the
same terms.
The Third Lien Notes Indenture requires us to maintain compliance with various covenants. At
December 31, 2017, we were in compliance with all of the covenants under the Third Lien Notes
Indenture. For further information regarding the Third Lien Notes, see Footnote 3 ‘‘Long-term Debt
and Lease Obligations’’ of Footnotes to Consolidated Financial Statements.
The Second Lien Notes are senior secured second-priority obligations guaranteed by the
Guarantors. The Second Lien Notes mature on December 15, 2021. Interest on the Second Lien Notes
accrues at the rate of 9.125% per annum and is payable semiannually in arrears on June 15 and
December 15 of each year during their term, beginning June 15, 2016, except that the interest payment
otherwise payable on June 15, 2021 will be payable on December 15, 2021.
The indenture dated April 28, 2016 governing the Second Lien Notes (the ‘‘Second Lien Notes
Indenture’’) contains certain covenants that, among other things, limit or prohibit our ability and the
ability of our restricted subsidiaries to take certain actions or permit certain conditions to exist during
the term of the Second Lien Notes, including among other things, incurring additional indebtedness,
creating liens, paying dividends and making other distributions in respect of our capital stock,
redeeming our capital stock, making investments or certain other restricted payments, selling certain
kinds of assets, entering into transactions with affiliates, and effecting mergers or consolidations. These
and other restrictive covenants contained in the Second Lien Notes Indenture are subject to certain
exceptions and qualifications. At December 31, 2017, we were in compliance with all of the covenants
under the Second Lien Notes Indenture. All of our subsidiaries are currently restricted subsidiaries.
On or after December 15, 2019, we may on one or more occasions redeem all or a part of the
Second Lien Notes at the redemption prices set forth below, plus accrued and unpaid interest and
special interest, if any, on the Second Lien Notes redeemed during the twelve-month period beginning
on December 15th of the years indicated below:
Date
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 and thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Percentage
105.500%
103.500%
100.000%
53
Meeting our Liquidity Requirements
As of December 31, 2017, our total outstanding indebtedness (including capital lease obligations)
was approximately $156.7 million, consisting primarily of approximately $28.5 million outstanding Third
Lien Notes (maturing in May 2018), $120.6 million outstanding Second Lien Notes (maturing in
December 2021) and $0.3 million of capital leases. As of December 31, 2017, there was $10.0 million of
outstanding indebtedness under our Credit Facility.
For 2017, total capital expenditures, including investments in our multi-client data library, were
$24.8 million. We currently expect that our capital expenditures, including investments in our multi-
client data library, will be a range of $30.0 million to $50.0 million in 2018. Investments in our multi-
client data library are dependent upon the timing of our New Venture projects and the availability of
underwriting by our customers.
For 2017, we paid $1.3 million of the $5.0 million litigation accrual we established in the first
quarter of 2017 and the remaining $3.7 million will be paid in quarterly installments during 2018. In
addition, we reclassified the $28.5 million outstanding Third Lien Notes to a current liability as this
balance matures in the second quarter of 2018. With respect to our ongoing WesternGeco litigation and
the approaching maturity of our outstanding Third Lien Notes, we believe that our existing cash
balance, cash from operations and undrawn availability under our Credit Facility will be sufficient to
meet our anticipated cash needs for at least the next 12 months. However, 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.
Cash Flow from Operations
Net cash provided by operating activities was $28.0 million for 2017, compared to net cash used in
operating activities of $1.6 million for 2016. The increase in net cash provided by operations was due to
a significant increase in New Venture revenues in 2017, compared to 2016 and due to $20.8 million
damages payment in 2016 for the WesternGeco lawsuit, which was partially offset by increases in
unbilled receivables as of December 31, 2017.
Net cash provided by operating activities was $1.6 million for 2016, compared to net cash used in
operating activities of $16.5 million for 2015. The increase in our cash flows from operations was
primarily due to reduced spend due to our cost reduction initiatives and accounts receivable collections
offset by a $20.8 million damages payment for the WesternGeco lawsuit.
Cash Flow Used In Investing Activities
Net cash flow used in investing activities was $24.8 million for 2017, compared to $13.6 million for
2016. The principal uses of cash in our investing activities during 2017 were $23.7 million of
investments in our multi-client data library and $1.1 million of investments in property, plant and
equipment.
Net cash flow used in investing activities was $13.6 million for 2016, compared to $63.5 million for
2015. The principal uses of cash in our investing activities during 2016 were $14.9 million of
investments in our multi-client data library and $1.5 million of investments in property, plant and
equipment, partially offset by proceeds from the escrow related to the sale of a cost method investment
in 2014.
Cash Flow Used in Financing Activities
Net cash flow used in financing activities was $3.6 million for 2017, compared to $21.6 million of
net cash flow used in financing activities for 2016. The net cash flow used in financing activities during
54
2017 was primarily related to $4.8 million of payments on long-term debt related to equipment capital
leases, partially offset by $1.6 million of proceeds from employee stock purchases.
Net cash flow used in financing activities was $21.6 million for 2016, compared to $9.5 million of
net cash flow used in financing activities for 2015. The net cash flow used in financing activities during
2016 was primarily related to $15.0 million to repurchase bonds, $8.7 million of payments on long-term
debt related to equipment capital leases, $6.6 million of debt issuance costs and $1.0 million to
repurchase of common stock. In addition, we had net borrowings of $10.0 million on our revolving line
of credit.
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.
Future Contractual Obligations
The following table sets forth estimates of future payments of our consolidated contractual
obligations, as of December 31, 2017 (in thousands):
Contractual Obligations
Long-term and Short-term debt . . . . . . . . . . .
Interest on long-term debt obligations . . . . . . .
Revolver credit facility . . . . . . . . . . . . . . . . . .
. . . . . . . .
Equipment capital lease obligations
Operating leases . . . . . . . . . . . . . . . . . . . . . .
Purchase obligations . . . . . . . . . . . . . . . . . . .
Total
$149,066
44,885
10,000
279
66,710
500
Less Than
1 Year
$28,497
12,197
10,000
250
10,334
500
1 - 3 Years
3 - 5 Years
$ — $120,569
10,544
—
—
18,686
—
22,144
—
29
19,292
—
More Than
5 Years
$ —
—
—
—
18,398
—
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$271,440
$61,778
$41,465
$149,799
$18,398
The Long-term and Short-term debt at December 31, 2017 included $28.5 million and
$120.6 million of principal indebtedness outstanding under our Third Lien Notes issued in May 2013
and our Second Lien Notes issued in April 2016, respectively. The $0.3 million of equipment capital
lease obligations relates to Imaging Services’ financing of computer and other equipment purchases.
The operating lease commitments at December 31, 2017 relate to our leases for certain equipment,
offices, processing centers, and warehouse space. Our purchase obligations primarily relate to our
committed inventory purchase orders under which deliveries of inventory are scheduled to be made in
2018.
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
55
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 E&P Technologies & Services segment;
(ii) seismic data acquisition systems and other seismic equipment, (iii) seismic command and control
software systems and software solutions for operations management within our E&P Operations
Optimization segment; and (iv) fully-integrated OBS solutions that include survey design and planning
and data acquisition within our Ocean Bottom Seismic Services segment. All revenues of the E&P
Technology & Services and Ocean Bottom Seismic Services segments and the services component of
revenues for the Optimization Software & Services group as part of the E&P Operations Optimization
segment are classified as services revenues. All other revenues are classified as product revenues.
Multi-Client and Proprietary Surveys, and Imaging Services—As our multi-client surveys are being
designed, acquired or processed, 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 collectability is reasonably assured. Revenues
from contract services performed on a day rate basis are recognized as the service is performed.
Acquisition Systems and Other Seismic Equipment—For the sales of seismic data acquisition systems
and other seismic equipment, we follow the requirements of ASC 605-10 ‘‘Revenue Recognition’’ and
recognize revenue when (a) evidence of an arrangement exists; (b) the price to the customer is fixed
and determinable; (c) collectability 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
56
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 Seismic Services—We recognize revenues as they are realized and earned and can be
reasonably measured, based on contractual day rates 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
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 2017, 2016 and 2015, we capitalized, as part of our multi-client
data library, $12.7 million, $6.6 million and $6.1 million, respectively, of direct internal processing costs.
57
Our method of amortizing the costs of an in-process multi-client survey (the period during which
the seismic data is being acquired or processed, 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’’ survey data) and multiplying that percentage by the total cost of the project
(the sales forecast method). We consider a multi-client survey to be complete when all work on the
creation of the seismic data is finished and that 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 2017, an increase of 10% in the sales
forecasts of all surveys would have increased our amortization expense by approximately $1.5 million.
We estimate the ultimate revenue expected to be derived from a particular seismic data survey
over its estimated useful economic life to determine the costs to amortize, if greater than straight-line
amortization. That estimate is made by us at the project’s initiation. For a completed multi-client
survey, we review the estimate quarterly. If during any such review, we determine that the ultimate
revenue for a survey is expected to be materially more or less than the original estimate of total
revenue for such survey, we decrease or increase (as the case may be) the amortization rate
attributable to the future revenue from such survey. In addition, in connection with such reviews, we
evaluate the recoverability of the multi-client data library, and if required under ASC 360-10
‘‘Impairment and Disposal of Long-Lived Assets,’’ record an impairment charge with respect to such
data.
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, 2017
was $15.0 million compared to $15.0 million at December 31, 2016.
58
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: E&P Technology & Services, Optimization Software & Services, Devices, and Ocean
Bottom Seismic Services. 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 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, 2017 and concluded no
impairment was required. The goodwill balance as of December 31, 2017 was comprised of
$21.1 million in our Optimization Software & Services and $2.9 million in our E&P Technology &
Services reporting units.
Based on our qualitative assessment performed as of December 31, 2017, we concluded it was
more likely than not that the fair values of our E&P Technology & Services, and Optimization
Software & Services reporting units exceeded their carrying values. However, if the market value of our
shares declines for a prolonged period, and if management’s judgments and assumptions regarding
future industry conditions and operations diminish, it is reasonably possible that our expectations of
future cash flows may decline and ultimately result in a goodwill impairment for our E&P
Technology & Services and Optimization Software & Services reporting units.
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 ‘‘Impairment and Disposal of Long-Lived Assets,’’ we review the
carrying values of these intangible assets for impairment if events or changes in the facts and
circumstances indicate that it is more likely than not their carrying value may not be recoverable. Any
impairment determined is recorded in the current period and is measured by comparing the fair value
of the related asset to its carrying value.
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Similar to our treatment of goodwill, in making these assessments, we rely on a number of factors,
including operating results, business plans, internal and external economic projections, anticipated
future cash flows and external market data. However, if our estimates or related projections associated
with the reporting units significantly change in the future, we may be required to record further
impairment charges.
Deferred Tax Assets
During 2013, we established a valuation allowance on a substantial majority of our U.S. net
deferred tax assets due to the large one-time charges taken during the year. The valuation allowance
was calculated in accordance with the provisions of ASC 740-10, ‘‘Accounting for Income Taxes,’’ which
requires that a valuation allowance be established or maintained when it is ‘‘more likely than not’’ that
all or a portion of deferred tax assets will not be realized. We will continue to record a valuation
allowance for the substantial majority of all of our deferred tax assets until there is sufficient evidence
to warrant reversal. In the event our expectations of future operating results change, an additional
valuation allowance may be required to be established on our existing unreserved net U.S. deferred tax
assets. As a result of passage of the Tax Cut and Jobs Act (the ‘‘Act’’) on December 22, 2017, the
Company’s U.S. deferred tax assets, liabilities, and associated valuation allowance as of December 31,
2017 have been re-measured at the new U.S. federal tax rate of 21%.
Foreign Sales Risks
For 2017, we recognized $44.9 million of sales to customers in Europe, $18.9 million of sales to
customers in Asia Pacific, $68.2 million of sales to customers in Latin America, $2.3 million of sales to
customers in the Middle East, $6.8 million of sales to customers in Africa and $8.2 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 2017, 2016 and 2015, international sales
comprised 76%, 78% and 66%, respectively, of total net revenues. The significant decline in oil price
that began in the fourth quarter of 2014 has continued to impact the global market through 2017. 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, 2017, 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.
60
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, 2017, we had outstanding total indebtedness of approximately $156.7 million.
As of December 31, 2017, all of this indebtedness, other than borrowings under our Credit Facility
(described below) 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 to help mitigate rising interest rates under our Credit Facility. We do
not use derivatives for trading or speculative purposes and only enter into contracts with major
financial institutions based on their credit rating and other factors.
Foreign Currency Exchange Rate Risk
Our operations are conducted in various countries around the world, and we receive revenue from
these operations in a number of different currencies with the most significant of our international
operations using British Pounds Sterling. As such, our earnings are subject to movements in foreign
currency exchange rates when transactions are denominated in currencies other than the U.S. dollar,
which is our functional currency, or the functional currency of many of our subsidiaries, which is not
necessarily the U.S. dollar. To the extent that transactions of these subsidiaries are settled in currencies
other than the U.S. dollar, a devaluation of these currencies versus the U.S. dollar could reduce the
contribution from these subsidiaries to our consolidated results of operations as reported in
U.S. dollars.
Through our subsidiaries, we operate in a wide variety of jurisdictions, including the United
Kingdom, Australia, the Netherlands, Brazil, China, Canada, Russia, the United Arab Emirates, Egypt
and other countries. Our financial results may be affected by changes in foreign currency exchange
rates. Our consolidated balance sheet at December 31, 2017 reflected approximately $6.2 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, 2017,
we recorded net foreign currency losses of approximately $1.6 million in other income, a majority of
these losses are due to currency fluctuations related to our operations within Brazil and 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
61
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, 2017. 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, 2017.
(b) Management’s Report on Internal Control Over Financial Reporting. Our management is
responsible for establishing and maintaining adequate internal control over financial reporting as
defined in Rules 13a-15(f) under the Exchange Act. Our internal control over financial reporting is
designed to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted
accounting principles. Our internal control over financial reporting includes those policies and
procedures that:
(i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect
the transactions and dispositions of the assets of our company;
(ii) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of our company are being made only in
accordance with authorizations of our management and directors; and
(iii) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of our assets that could have a material effect on the financial
statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject
to the risk that controls may become inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
Under the supervision and with the participation of our management, including our principal
executive officer and principal financial officer, we assessed the effectiveness of our internal control
over financial reporting as of December 31, 2017 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,
2017, which has materially affected, or is reasonably likely to materially affect, our internal control over
financial reporting.
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Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders
ION Geophysical Corporation
Opinion on internal control over financial reporting
We have audited the internal control over financial reporting of ION Geophysical Corporation (a
Delaware corporation) and subsidiaries (the ‘‘Company’’) as of December 31, 2017, based on criteria
established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all
material respects, effective internal control over financial reporting as of December 31, 2017, 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) (‘‘PCAOB’’), the consolidated financial statements of the Company as
of and for the year ended December 31, 2017, and our report dated February 8, 2018 expressed an
unqualified opinion on those financial statements.
Basis for opinion
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. Our responsibility
is to express an opinion on the Company’s internal control over financial reporting based on our audit.
We are a public accounting firm registered with the PCAOB and are required to be independent
with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. 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.
Definition and limitations of internal control over financial reporting
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.
/s/ GRANT THORNTON LLP
Houston, Texas
February 8, 2018
63
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 16, 2018 (the ‘‘2018
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 2018 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 2018 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 2018 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 2018 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.
64
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, as amended, filed on November 3, 2016 as
Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q and incorporated by
reference.
3.2 — Amended and Restated Bylaws of ION Geophysical Corporation filed on
September 24, 2007 as Exhibit 3.5 to the Company’s Current Report on Form 8-K
and incorporated herein by reference.
4.1 — 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.
4.2
4.3
First Supplemental Indenture, dated as of April 28, 2016, to the Indenture, dated
May 13, 2013, among ION Geophysical Corporation, the subsidiary guarantors
named therein, Wilmington Savings Fund Society, FSB, as trustee, and U.S. Bank
National Association, as collateral agent, filed on April 28, 2016 as Exhibit 4.3 to the
Company’s Current Report on Form 8-K and incorporated by reference.
Indenture, dated as of April 28, 2016, among ION Geophysical Corporation, the
subsidiary guarantors named therein, Wilmington Savings Fund Society, FSB, as
trustee and collateral agent filed on April 28, 2016 as Exhibit 4.1 to the Company’s
Current Report on Form 8-K and incorporated by reference.
65
4.4
Intercreditor Agreement, dated as of April 28, 2016, by and among PNC Bank,
National Association, as first lien representative and first lien collateral agent for the
first lien secured parties, and Wilmington Savings Fund Society, FSB, as second lien
representative and second lien collateral agent for the second lien secured parties
and as third lien representative for the third lien secured parties, and U.S. Bank
National Association as third lien collateral agent for the third lien secured parties
and acknowledged and agreed to by ION Geophysical Corporation and the other
grantors named therein, filed on April 28, 2016 as Exhibit 10.1 to the Company’s
Current Report on Form 8-K and incorporated by reference.
**10.1 — 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.
**10.2 — 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.
**10.3 — Sixth Amended and Restated—2004 Long-Term Incentive Plan, filed as Appendix A
to the definitive proxy statement for the 2011 Annual Meeting of Stockholders of
ION Geophysical Corporation, filed on April 21, 2011, and incorporated herein by
reference.
**10.4 — 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.
**10.5 — 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.
10.6 — Stock Purchase Agreement dated as of March 19, 2010, by and between ION
Geophysical Corporation and BGP Inc., China National Petroleum Corporation, filed
on March 31, 2010 as Exhibit 10.1 to the Company’s Current Report on Form 8-K,
and incorporated herein by reference.
10.7 — 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.
10.8 — 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.
10.9 — 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.
66
**10.10 — 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.
**10.11 — 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.
**10.12 — Consulting Services Agreement dated January 1, 2013, between ION Geophysical
Corporation and ThePeebler Group LLC, filed on January 4, 2013 as Exhibit 10.1 to
the Company’s Current Report on Form8-K, and incorporated herein by reference.
*10.13 — Second Amended and Restated 2013 Long-Term Incentive Plan, filed as
Exhibit 10.39 to the Company’s Annual Report on Form 10-K for the year ended
December 31, 2016, and incorporated herein by reference.
10.14 — 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.
10.15 — 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.
10.16 — Second Amendment to the Revolving Credit and Security Agreement, dated as of
April 28, 2016, among ION Geophysical Corporation and the subsidiary
co-borrowers named therein, as borrowers, the financial institutions party thereto, as
lenders, and PNC Bank, National Association, as agent for the lenders, filed on
April 28, 2016 as Exhibit 10.2 to the Company’s Current Report on Form 8-K and
incorporated by reference.
**10.17 — Employment Agreement dated effective as of November 13, 2014, between ION
Geophysical Corporation and Steve Bate, filed as Exhibit 10.44 to the Company’s
Annual Report 10-K for the year ended December 31, 2014, and incorporated herein
by reference.
**10.18 — 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.
*10.19 — Form of Rights Agreement dated March 1, 2016 issued under the ION Stock
Appreciation Rights Plan Dated November 17, 2008, and incorporated herein by
reference.
67
*10.20 — Equity Investment Agreement dated December 14, 2017, issued under the Second
Amended and Restated 2013 Long-Term Incentive Plan dated December 31, 2016,
and incorporated herein by reference.
*10.21 — Employee Stock Purchase Plan dated May 26, 2010, and incorporated herein by
reference.
*21.1 — Subsidiaries of the Company.
*23.1 — Consent of Grant Thornton 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, 2017 and 2016,
(ii) Consolidated Statements of Operations for the years ended December 31, 2017,
2016 and 2015, (iii) Comprehensive Income (Loss) for the years ended December 31,
2017, 2016 and 2015, (iv) Consolidated Statements of Cash Flows for the years
ended December 31, 2017, 2016 and 2015, (v) Consolidated Statements of
Stockholders’ Equity for the years ended December 31, 2017, 2016 and 2015,
(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.
68
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 8, 2018.
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 Matthew Powers 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, 2017, 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 8, 2018
/s/ STEVEN A. BATE
Steven A. Bate
Executive Vice President and Chief
Financial Officer (Principal Financial
Officer)
February 8, 2018
/s/ SCOTT SCHWAUSCH
Scott Schwausch
Vice President and Corporate Controller
(Principal Accounting Officer)
February 8, 2018
/s/ JAMES M. LAPEYRE, JR.
James M. Lapeyre, Jr.
Chairman of the Board of Directors and
Director
February 8, 2018
69
Name
Capacities
Date
February 8, 2018
February 8, 2018
February 8, 2018
February 8, 2018
February 8, 2018
February 8, 2018
/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
Director
Director
Director
Director
Director
70
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, 2017 and 2016 . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Operations—Years ended December 31, 2017, 2016 and 2015 . . . .
Consolidated Statements of Comprehensive Income (Loss)—Years ended December 31, 2017,
2016 and 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Cash Flows—Years ended December 31, 2017, 2016 and 2015 . . . .
Consolidated Statements of Stockholders’ Equity—Years ended December 31, 2017, 2016 and
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Footnotes to Consolidated Financial Statements
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Schedule II—Valuation and Qualifying Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Page
F-2
F-3
F-4
F-5
F-6
F-7
F-8
S-1
F-1
Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders
ION Geophysical Corporation
Opinion on the financial statements
We have audited the accompanying consolidated balance sheets of ION Geophysical Corporation
(a Delaware corporation) and subsidiaries (the ‘‘Company’’) as of December 31, 2017 and 2016, the
related consolidated statements of operations, comprehensive loss, stockholders’ equity, and cash flows
for each of the three years in the period ended December 31, 2017, and the related notes and schedule
(collectively referred to as the ‘‘financial statements’’). In our opinion, the financial statements present
fairly, in all material respects, the financial position of the Company as of December 31, 2017 and
2016, and the results of its operations and its cash flows for each of the three years in the period ended
December 31, 2017, in conformity with accounting principles generally accepted in the United States of
America.
We also have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States) (‘‘PCAOB’’), the Company’s internal control over financial reporting
as of December 31, 2017, 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 8, 2018 expressed an unqualified opinion.
Basis for opinion
These financial statements are the responsibility of the Company’s management. Our responsibility
is to express an opinion on the Company’s financial statements based on our audits. We are a public
accounting firm registered with the PCAOB and are required to be independent with respect to the
Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of
the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement, whether due to error or fraud. Our audits included
performing procedures to assess the risks of material misstatement of the financial statements, whether
due to error or fraud, and performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.
Our audits also included evaluating the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the financial statements. We believe that
our audits provide a reasonable basis for our opinion.
/s/ GRANT THORNTON LLP
We have served as the Company’s auditor since 2014
Houston, Texas
February 8, 2018
F-2
ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
2017
2016
(In thousands, except
share data)
Current assets:
ASSETS
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unbilled receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 52,056
19,478
37,304
14,508
7,643
$ 52,652
20,770
13,415
15,241
9,559
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
130,989
1,753
52,153
89,300
24,089
1,666
1,119
111,637
—
67,488
105,935
22,208
3,103
2,845
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 301,069
$ 313,216
Current liabilities:
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current maturities of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued multi-client data library royalties . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt, net of current maturities . . . . . . . . . . . . . . . . . . . . . . . . . .
Other long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 40,024
24,951
38,697
27,035
8,910
139,617
116,720
13,926
270,263
$ 14,581
26,889
26,240
23,663
3,709
95,082
144,209
20,527
259,818
Equity:
Common stock, $0.01 par value; authorized 26,666,667 shares; outstanding
12,019,701 and 11,792,447 shares at December 31, 2017 and 2016,
respectively. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
120
903,247
(854,921)
(18,879)
118
899,198
(824,679)
(21,748)
29,567
1,239
30,806
52,889
509
53,398
Total liabilities and equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 301,069
$ 313,216
See accompanying Footnotes to Consolidated Financial Statements.
F-3
ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Service revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Product revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Years Ended December 31,
2017
2016
2015
(In thousands, except per share data)
$ 160,480
$130,640
$159,410
61,033
42,168
38,144
Total net revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
197,554
172,808
Cost of services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
103,124
18,791
115,763
21,013
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
75,639
36,032
Operating expenses:
Research, development and engineering . . . . . . . . . . . . . . . . . . . .
Marketing and sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General, administrative and other operating expenses . . . . . . . . . .
Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income (expense) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net (income) loss attributable to noncontrolling interests . . . . . . . . .
16,431
20,778
47,129
84,338
(8,699)
(16,709)
(3,945)
(29,353)
24
(29,377)
(865)
17,833
17,371
43,999
79,203
(43,171)
(18,485)
1,350
(60,306)
4,421
(64,727)
(421)
221,513
180,215
33,295
8,003
26,445
30,493
51,697
108,635
(100,632)
(18,753)
98,275
(21,110)
4,044
(25,154)
32
Net loss attributable to ION . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (30,242) $ (65,148) $ (25,122)
Net loss per share:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
(2.55) $
(2.55) $
(5.71) $
(5.71) $
(2.29)
(2.29)
Weighted average number of common shares outstanding:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11,876
11,876
11,400
11,400
10,957
10,957
See accompanying Footnotes to Consolidated Financial Statements.
F-4
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 . . . . . . . . . . . . . . . . . . . .
Total other comprehensive income (loss), net of taxes . . . . . . . . .
Years Ended December 31,
2017
2016
2015
(In thousands)
$(29,377) $(64,727) $(25,154)
2,869
2,869
(6,967)
(6,967)
(1,974)
(1,974)
Comprehensive net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Comprehensive (income) loss attributable to noncontrolling interests
(26,508)
(865)
(71,694)
(421)
(27,128)
32
Comprehensive net loss attributable to ION . . . . . . . . . . . . . . . . . . . .
$(27,373) $(72,115) $(27,096)
See accompanying Footnotes to Consolidated Financial Statements.
F-5
ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31,
2017
2016
2015
(In thousands)
$(29,377) $(64,727) $ (25,154)
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 . . . . . . . . . . . . . . . . . . . . .
Impairment of multi-client data library . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation expense . . . . . . . . . . . . . . . . . . . . . . . . .
Accrual (reduction) of loss contingency related to legal proceedings . .
Loss on bond exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Write-down of excess and obsolete inventory . . . . . . . . . . . . . . . . . .
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
16,592
47,102
2,304
2,552
5,000
—
398
(5,420)
1,692
(23,947)
190
1,443
5,131
4,370
21,975
33,335
—
3,267
(1,168)
2,182
429
(1,181)
20,426
6,543
2,312
(5,085)
(2,759)
(13,978)
Net cash provided by (used in) operating activities . . . . . . . . . . . .
28,030
1,571
Cash flows from investing activities:
Investment in multi-client data library . . . . . . . . . . . . . . . . . . . . . . .
Purchase of property, plant, equipment and seismic rental equipment .
Proceeds from sale of cost method investments . . . . . . . . . . . . . . . .
Other investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(23,710)
(1,063)
—
—
(14,884)
(1,488)
2,698
30
Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . .
(24,773)
(13,644)
Cash flows from financing activities:
Borrowings under revolving line of credit . . . . . . . . . . . . . . . . . . . . .
Repayments under revolving line of credit . . . . . . . . . . . . . . . . . . . .
Payments on notes payable and long-term debt
. . . . . . . . . . . . . . . .
Cost associated with issuance of debt
. . . . . . . . . . . . . . . . . . . . . . .
Repurchase of common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments to repurchase bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from employee stock purchases and exercise of stock
options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividend payment to non-controlling interest . . . . . . . . . . . . . . . . . .
Other financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
15,000
—
(5,000)
—
(8,634)
(4,816)
(6,744)
(53)
—
(964)
— (15,000)
1,619
(100)
(243)
—
—
(252)
26,527
35,784
399
5,486
(101,978)
—
151
7,444
69,491
1,630
2,251
(30,264)
(1,571)
(6,720)
(16,524)
(45,558)
(19,241)
—
1,263
(63,536)
—
—
(7,452)
(145)
(1,989)
—
—
—
73
Net cash used in financing activities . . . . . . . . . . . . . . . . . . . . . . .
(3,593)
(21,594)
(9,513)
Effect of change in foreign currency exchange rates on cash and cash
equivalents
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(260)
1,386
898
Net decrease in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at beginning of period . . . . . . . . . . . . . . . . . .
(596)
52,652
(32,281)
84,933
(88,675)
173,608
Cash and cash equivalents at end of period . . . . . . . . . . . . . . . . . . . . . .
$ 52,056
$ 52,652
$ 84,933
See accompanying Footnotes to Consolidated Financial Statements.
F-6
ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Common Stock
Additional
Paid-In
Amount Capital
Accumulated
Other
Accumulated Comprehensive Treasury Noncontrolling
Deficit
Loss
Stock
Interests
Total
Equity
$110
—
—
—
$889,284
—
—
5,486
$(734,409)
(25,122)
—
—
$(12,807)
—
(1,974)
—
29,191
(296,488)
—
(3)
Shares
(In thousands, except shares)
Balance at January 1, 2015 . . . . . . . 10,965,606
—
—
—
Net (loss) income(a) . . . . . . . . . .
Translation adjustment . . . . . . . .
Stock-based compensation expense
Vesting of restricted stock units/
awards . . . . . . . . . . . . . . . .
Purchase of treasury shares . . . . .
Restricted stock cancelled for
employee minimum income taxes
Issuance of stock for the ESPP . . .
Purchase of subsidiary shares from
noncontrolling interest . . . . . . .
Balance at December 31, 2015(b)
Net (loss) income(a) . . . . . . . . . .
Translation adjustment . . . . . . . .
Stock-based compensation expense
Vesting of restricted stock units/
awards . . . . . . . . . . . . . . . .
Purchase of treasury shares . . . . .
Restricted stock cancelled for
employee minimum income taxes
Issuance of stock for the ESPP . . .
Issuance of stock in bond exchange
(6,208)
10,588
—
. . . 10,702,689
—
—
—
Balance at December 31, 2016 . . . . 11,792,447
—
—
Net (loss) income . . . . . . . . . . .
Translation adjustment . . . . . . . .
Dividend payment to
non-controlling interest . . . . . .
Stock-based compensation expense
Exercise of stock options
. . . . . .
Vesting of restricted stock units/
—
—
15,000
awards . . . . . . . . . . . . . . . .
115,576
Employee purchases of
unregistered shares of common
stock . . . . . . . . . . . . . . . . .
Restricted stock cancelled for
120,567
—
—
—
107
—
—
—
—
—
12
118
—
—
—
—
—
1
1
40,495
(155,304)
—
(1)
(4,973)
4,100
1,205,440
—
—
(126)
215
(144)
—
—
—
—
—
—
—
—
—
—
894,715
—
—
3,267
(759,531)
(65,148)
—
—
(14,781)
—
(6,967)
—
—
—
(22)
23
1,215
—
—
—
—
—
—
—
—
—
—
899,198
—
—
(824,679)
(30,242)
—
(21,748)
—
2,869
—
2,552
46
(1)
1,572
—
—
—
—
—
—
—
—
—
—
—
—
$(6,565)
—
—
—
—
(1,986)
—
—
—
(8,551)
—
—
—
—
(963)
—
—
9,514
—
—
—
—
—
—
—
—
—
$
99
4
(22)
—
$135,712
(25,118)
(1,996)
5,486
—
—
—
—
—
81
421
7
—
—
—
—
—
—
509
865
(35)
(100)
—
—
—
—
—
—
(1,989)
(126)
215
(144)
112,040
(64,727)
(6,960)
3,267
—
(964)
(22)
23
10,741
53,398
(29,377)
2,834
(100)
2,552
46
—
1,573
(120)
employee minimum income taxes
(23,889)
—
(120)
Balance at December 31, 2017 . . . . 12,019,701
$120
$903,247
$(854,921)
$(18,879)
$ —
$1,239
$ 30,806
(a) Net income attributable to noncontrolling interests for 2015 excludes less than $(0.1) million related to the redeemable
noncontrolling interests, which is reported in the mezzanine equity section of the Consolidated Balance Sheet.
(b)
The figures for 2015, 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-7
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, 2017 and 2016, there was $0.4 million and
$0.8 million, respectively, of long-term and short-term restricted cash used to secure standby and
commercial letters of credit, which is included within Long-term 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-8
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 2017, 2016 and 2015, the Company capitalized, as part of its multi-client
data library, $12.7 million, $6.6 million and $6.1 million, respectively, of direct internal processing costs.
At December 31, 2017 and 2016, multi-client data library costs and accumulated amortization consisted
of the following (in thousands):
December 31,
2017
2016
Gross costs of multi-client data creation . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less accumulated amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less impairments to multi-client data library . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 939,077
(727,872)
(121,905)
$ 906,306
(680,770)
(119,601)
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 89,300
$ 105,935
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-9
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.
Equity Method Investment
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.
At December 31, 2014, the Company fully impaired its investment in INOVA reducing its equity
investment in INOVA and its share of INOVA’s accumulated other comprehensive loss, both to zero.
As of December 31, 2017, the carrying value of this investment remains zero. The Company no longer
records its equity in losses or earnings and has no obligation, implicit or explicit, to fund any expenses
of INOVA Geophysical.
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. Net loss in the Consolidated Statements of Operations is
attributable to noncontrolling interests. The activity for this noncontrolling interest relates to
proprietary processing projects in Brazil.
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
F-10
following reporting units: E&P Technology & Services, Optimization Software & Services, Devices and
Ocean Bottom Seismic Services.
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 9 ‘‘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 ‘‘Impairment and Disposal of Long-Lived Assets,’’ 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 8 ‘‘Details of Selected
Balance Sheet Accounts—Intangible Assets.’’
Fair Value of Financial Instruments
The Company’s financial instruments include cash and cash equivalents, short-term investments,
accounts and unbilled receivables, accounts payable, accrued multi-client data library royalties and
long-term debt. The carrying amounts of cash and cash equivalents, short-term investments, accounts
and unbilled receivables, accounts payable and accrued multi-client data library royalties approximate
fair value due to the highly liquid nature of these instruments. The fair value of the long-term debt is
calculated using a market approach based upon Level 1 inputs, including an active market price.
Revenue Recognition
The Company derives revenue from the sale of (i) multi-client and proprietary surveys, licenses of
‘‘on-the-shelf’’ data libraries and imaging services within its E&P Technology & Services segment;
(ii) seismic data acquisition systems and other seismic equipment; (iii) seismic command and control
software systems and software solutions for operations management within its E&P Operations
F-11
Optimization segment; and (iv) fully-integrated Ocean Bottom Seismic Services (‘‘OBS’’) solutions that
include survey design and planning and data acquisition within its Ocean Bottom Seismic Services
segment. All revenues of the E&P Technology & Services and Ocean Bottom Seismic Services segments
and the services component of revenues for the Optimization Software & Services group within the
E&P Operations Optimization segment are classified as services revenues. All other revenues are
classified as product revenues.
Multi-Client and Proprietary Surveys, and Imaging Services—As multi-client surveys are being
designed, acquired and/or processed, 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) collectability 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) collectability is
reasonably assured; and (d) the software is delivered to the customer and risk of ownership has passed
to the customer, or, in the limited case in which a substantive customer-specified acceptance clause
exists, the later of delivery or when the customer-specified acceptance is obtained. These arrangements
generally include the Company providing related services, such as training courses, engineering services
and annual software maintenance. The Company allocates revenue to each element of the arrangement
based upon vendor-specific objective evidence (‘‘VSOE’’) of fair value of the element or, if VSOE is
not available for the delivered element, the residual method is used.
F-12
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 Seismic Services—The Company recognizes revenues as they are realized and earned
and can be reasonably measured, based on contractual day rates 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,
the Company has provided indemnification of customers for potential intellectual property infringement
claims relating to products sold.
F-13
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 5 ‘‘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.
Debt Issuance Costs
In the first quarter of 2016, the Company adopted Accounting Standards Update (ASU) 2015-03,
which requires entities to present debt issuance costs related to a debt liability as a direct deduction
from the carrying amount of that debt liability on the balance sheet as opposed to being presented as a
deferred charge, and ASU 2015-15, which adds paragraphs to ASU 2015-03 indicating that the SEC
staff would not object to an entity deferring and presenting debt issuance costs related to line of credit
arrangements as an asset and subsequently amortizing the deferred debt issuance costs ratably over the
term of the line of credit arrangement, regardless of whether there are any outstanding borrowings on
the line of credit arrangement.
For the years ended December 31, 2017 and 2016, unamortized debt issuance costs related to the
Company’s long-term debt are reported on the Consolidated Balance Sheets as a reduction of the
carrying value of the related debt, except for the unamortized debt issuance costs related to the
Company’s Credit Facility which are reported in ‘‘Other Assets’’ on the Consolidated Balance Sheets
($0.2 million for 2017 and $1.2 million for 2016). Prior to adoption, the Company reported all
unamortized debt issuance costs in ‘‘Other Assets’’ on the Consolidated Balance Sheets.
F-14
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, 2017 and 2016, consist of foreign currency translation adjustments.
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 as they
occur. Total foreign currency transaction losses were $1.6 million, $3.3 million and $2.1 million for
2017, 2016 and 2015, respectively.
Concentration of Foreign Sales Risk
The majority of the Company’s foreign sales are denominated in U.S. dollars. For 2017, 2016 and
2015, international sales comprised 76%, 78% and 66%, respectively, of total net revenues. The
significant decline in oil prices that began in the fourth quarter of 2014 have continued to impact the
global market throughout 2015 and 2016. Since 2008, global economic problems and uncertainties have
generally increased in scope and nature. 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.
(2) Segment and Geographic Information
The Company evaluates and reviews its results based on three business segments:
E&P Technology & Services, E&P Operations Optimization, and Ocean Bottom Seismic Services. The
Company measures segment operating results based on income (loss) from operations.
F-15
A summary of segment information follows (in thousands):
Years Ended December 31,
2017
2016
2015
Net revenues:
E&P Technology & Services:
New Venture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Data Library . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$100,824
40,016
$ 27,362
39,989
$ 48,294
63,326
Total multi-client revenues . . . . . . . . . . . . . . . . . . . . . . . . . .
Imaging Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
140,840
16,409
67,351
25,538
111,620
45,630
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$157,249
$ 92,889
$ 157,250
E&P Operations Optimization:
Devices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Optimization Software & Services . . . . . . . . . . . . . . . . . . . . . .
$ 23,610
16,695
$ 26,746
16,756
$ 36,269
27,994
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 40,305
$ 43,502
$ 64,263
Ocean Bottom Seismic Services . . . . . . . . . . . . . . . . . . . . . . . . . .
$
— $ 36,417
$
—
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$197,554
$172,808
$ 221,513
Gross profit (loss):
E&P Technology & Services . . . . . . . . . . . . . . . . . . . . . . . . . . .
E&P Operations Optimization . . . . . . . . . . . . . . . . . . . . . . . . .
Ocean Bottom Seismic Services . . . . . . . . . . . . . . . . . . . . . . . .
$ 65,196
20,076
(9,633)
$
4,708
21,745
9,579
$ 13,508
33,995
(39,500)
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 75,639
$ 36,032
$
8,003
Gross margin:
E&P Technology & Services . . . . . . . . . . . . . . . . . . . . . . . . . . .
E&P Operations Optimization . . . . . . . . . . . . . . . . . . . . . . . . .
Ocean Bottom Seismic Services . . . . . . . . . . . . . . . . . . . . . . . .
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
41%
50%
—%
38%
5%
50%
26%
21%
9%
53%
—%
4%
Loss from operations:
E&P Technology & Services . . . . . . . . . . . . . . . . . . . . . . . . . . .
E&P Operations Optimization . . . . . . . . . . . . . . . . . . . . . . . . .
Ocean Bottom Seismic Services . . . . . . . . . . . . . . . . . . . . . . . .
Support and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 42,505
8,022
(16,259)
(42,967)
$ (16,446) $ (24,941)
20,131
(55,080)
(40,742)
9,652
(1,756)
(34,621)
Loss from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income (expense)
(8,699)
(16,709)
(3,945)
(43,171)
(18,485)
1,350
(100,632)
(18,753)
98,275
Loss before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (29,353) $ (60,306) $ (21,110)
Depreciation and amortization (including multi-client data library):
E&P Technology & Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
E&P Operations Optimization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ocean Bottom Seismic Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Support and other
$53,663
1,349
7,001
1,681
$44,100
1,780
7,511
1,919
$51,014
2,869
6,158
2,270
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$63,694
$55,310
$62,311
Years Ended December 31,
2017
2016
2015
F-16
December 31,
2017
2016
Total assets:
E&P Technology & Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
E&P Operations Optimization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ocean Bottom Seismic Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Support and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$156,555
74,361
20,828
49,325
$159,965
76,992
29,908
46,351
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$301,069
$313,216
A summary of total assets by geographic area follows (in thousands):
December 31,
2017
2016
Total assets by geographic area:
North America . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Middle East . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Latin America . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$116,598
51,876
70,308
55,661
6,626
$145,013
61,329
72,984
23,891
9,999
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$301,069
$313,216
A summary of fixed assets less accumulated depreciation by geographic area as follows
(in thousands):
December 31,
2017
2016
Total fixed assets less accumulated deprecation by geographic area:
North America . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Middle East
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Latin America . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$10,609
20,725
20,543
170
106
$17,637
27,714
21,370
202
565
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$52,153
$67,488
Intersegment sales are insignificant for all periods presented. Support and other assets include all
assets specifically related to support personnel and operation and a majority of cash and cash
equivalents. Depreciation and amortization expense is allocated to segments based upon use of the
underlying assets.
F-17
A summary of net revenues by geographic area follows (in thousands):
Years Ended December 31,
2017
2016
2015
Net revenues by geographic area:
Latin America . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
North America . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asia Pacific . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commonwealth of Independent States . . . . . . . . . . . . . . . . . . . . .
Africa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Middle East
$ 68,241
48,120
44,930
18,896
8,222
6,837
2,308
$ 24,090
38,005
41,674
16,226
1,929
41,417
9,467
$ 16,406
74,634
72,577
19,135
11,008
13,182
14,571
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$197,554
$172,808
$221,513
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.
(3) Long-term Debt and Lease Obligations
Obligations (in thousands)
December 31,
2017
2016
Senior secured second-priority lien notes (maturing December 15, 2021) . . . . . . .
Senior secured third-priority lien notes (maturing May 15, 2018) . . . . . . . . . . . .
Revolving credit facility (maturing August 22, 2019) . . . . . . . . . . . . . . . . . . . . . .
Equipment capital leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Costs associated with issuances of debt(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$120,569
28,497
10,000
279
1,382
(3,983)
$120,569
28,497
10,000
3,446
1,415
(5,137)
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current portion of long-term debt and lease obligations . . . . . . . . . . . . . . . . . . .
156,744
(40,024)
158,790
(14,581)
Non-current portion of long-term debt and lease obligations . . . . . . . . . . . . . .
$116,720
$144,209
(1) Represents debt issuance costs presented as a direct deduction from the carrying amount of the
associated debt liability.
Revolving Credit Facility
In August 2014, ION and its material U.S. subsidiaries, GX Technology Corporation,
ION Exploration Products (U.S.A.), Inc. and I/O Marine Systems, Inc. (collectively, the ‘‘Subsidiary
Borrowers’’), and together with the Company, collectively, the ‘‘Borrowers’’) entered into a Revolving
Credit and Security Agreement with PNC Bank, National Association (‘‘PNC’’), as agent (the ‘‘Original
Credit Agreement’’), which was amended by the First Amendment to Revolving Credit and Security
Agreement in August 2015 (the ‘‘First Amendment’’) and the Second Amendment (as defined below)
(the Original Credit Agreement, as amended by the First Amendment, and the Second Amendment,
the ‘‘Credit Facility’’).
The Credit Facility is available to provide for the Borrowers’ general corporate needs, including
working capital requirements, capital expenditures, surety deposits and acquisition financing. The
F-18
maximum amount of the revolving line of credit under the Credit Facility is the lesser of $40.0 million
or a monthly borrowing base.
On April 28, 2016, the Borrowers and PNC entered into a second amendment (the ‘‘Second
Amendment’’) to the Credit Facility. The Second Amendment, among other things:
(cid:129) increased the applicable margin for loans by 0.50% per annum (from 2.50% per annum to
3.00% per annum for alternate base rate loans and from 3.50% per annum to 4.00% per annum
for LIBOR-based loans);
(cid:129) increased the minimum excess availability threshold to avoid triggering the agent’s rights to
exercise dominion over cash and deposit accounts and increases certain of the thresholds upon
which such dominion ceases;
(cid:129) increased the minimum liquidity threshold to avoid triggering the Company’s obligation to
calculate and comply with the existing fixed charge coverage ratio and increased certain of the
thresholds upon which such required calculation and compliance cease;
(cid:129) established a reserve that reduced the amount available to be borrowed by the aggregate amount
owing under all Third Lien Notes that remain outstanding (if any) on or after February 14, 2018
(i.e., 90 days prior to the stated maturity of the Third Lien Notes);
(cid:129) increased the maximum amount of certain permitted junior indebtedness to $200.0 million (from
$175.0 million);
(cid:129) incorporated technical and conforming changes to reflect that the Second Lien Notes and the
remaining Third Lien Notes (and any permitted refinancing thereof or subsequently incurred
replacement indebtedness meeting certain requirements) constitute permitted indebtedness;
(cid:129) clarified the circumstances and mechanics under which the Company may prepay, repurchase or
redeem the Second Lien Notes, the remaining Third Lien Notes and certain other junior
indebtedness;
(cid:129) modified the cross-default provisions to incorporated defaults under the Second Lien Notes, the
remaining Third Lien Notes and certain other junior indebtedness; and
(cid:129) eliminated the potential early commitment termination date and early maturity date that would
otherwise have occurred ninety (90) days prior the maturity date of the Third Lien Notes if any
of the Third Lien Notes then remained outstanding.
The borrowing base under the Credit Facility will increase or decrease monthly using a formula
based on certain eligible receivables, eligible inventory and other amounts, including a percentage of
the net orderly liquidation value of the Borrowers’ multi-client data library (not to exceed $15.0 million
for the multi-client data library data component). As of December 31, 2017, the borrowing base under
the Credit Facility was $25.5 million and there was $10.0 million of indebtedness resulting in
$15.5 million of undrawn borrowing base availability under the Credit Facility. The Credit Facility is
scheduled to mature on August 22, 2019.
The obligations of Borrowers 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 interest in
ION International Holdings L.P. and by substantially all other assets of the Borrowers.
The Credit Facility contains covenants that, among other things, limit or prohibit the Borrowers,
subject to certain exceptions and qualifications, from incurring additional indebtedness (including
capital lease obligations), repurchasing equity, paying dividends or distributions, granting or incurring
additional liens on the Borrowers’ properties, pledging shares of the Borrowers’ subsidiaries, entering
into certain merger transactions, entering into transactions with the Company’s affiliates, making
F-19
certain sales or other dispositions of the Borrowers’ assets, making certain investments, acquiring other
businesses and entering into sale-leaseback transactions with respect to the Borrowers’ property.
The Credit Facility, 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) $7.5 million for five
consecutive business days or (ii) $6.5 million on any given business day. Liquidity, as defined in the
Credit Facility, is the Company’s excess availability to borrow ($15.5 million at December 31, 2017) plus
the aggregate amount of unrestricted cash held by ION, the Subsidiary Borrowers and their domestic
subsidiaries. At December 31, 2017, ION, the Subsidiary Borrowers and their domestic subsidiaries had
unrestricted cash totaling $39.3 million and non-domestic subsidiaries had unrestricted cash totaling
$12.7 million.
At December 31, 2017, 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 Notes
In May 2013, the Company sold $175.0 million aggregate principal amount of 8.125% Senior
Secured Second-Priority Notes due 2018 (the ‘‘Third Lien Notes’’) in a private offering pursuant to an
Indenture dated as of May 13, 2013 (the Third Lien Notes Indenture’’). Prior to the completion of the
Exchange Offer (as defined below) and Consent Solicitation (as defined below) on April 28, 2016, the
Third Lien Notes were senior secured second-priority obligations of the Company. After giving effect to
the Exchange Offer and Consent Solicitation, the remaining aggregate principal amount of
approximately $28.5 million of outstanding Third Lien Notes became senior secured third-priority
obligations of the Company subordinated to the liens securing all senior and second priority
indebtedness of the Company, including under the Credit Facility and Second-Priority Lien Notes
(defined below).
Pursuant to the Exchange Offer and Consent Solicitation, the Company (i) issued approximately
$120.6 million in aggregate principal amount of the Company’s new 9.125% Senior Secured Second
Priority Notes due 2021 (the ‘‘Second Lien Notes,’’ and collectively with the Third Lien Notes, the
‘‘Notes’’) and 1,205,477 shares of the Company’s common stock in exchange for approximately
$120.6 million in aggregate principal amount of Third Lien Notes, and (ii) purchased approximately
$25.9 million in aggregate principal amount of Third Lien Notes in exchange for aggregate cash
consideration totaling approximately $15.0 million, plus accrued and unpaid interest on the Third Lien
Notes from the applicable last interest payment date to, but not including, April 28, 2016.
After giving effect to the Exchange Offer and Consent Solicitation, the aggregate principal amount
of the Third Lien Notes remaining outstanding was approximately $28.5 million and the aggregate
principal amount of Second Lien Notes outstanding was approximately $120.6 million.
The Third Lien Notes are guaranteed by the Company’s material U.S. subsidiaries, GX Technology
Corporation, ION Exploration Products (U.S.A.), Inc. and I/O Marine Systems, Inc. (the
‘‘Guarantors’’), and mature on May 15, 2018. Interest on the Third Lien Notes accrues at the rate of
F-20
8.125% per annum and will be payable semiannually in arrears on May 15 and November 15 of each
year during their term.
Prior to the completion of the Exchange Offer and Consent Solicitation, the Third Lien Notes
Indenture contained certain covenants that, among other things, limited or prohibited 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 Third Lien 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. These and other restrictive covenants contained in the Third Lien
Notes Indenture are subject to certain exceptions and qualifications. After giving effect to the Exchange
Offer and Consent Solicitation, the Third Lien Notes Indenture was amended to, among other things,
provide for the release of the second priority security interest in the collateral securing the remaining
Third Lien Notes and the grant of a third priority security interest in the collateral, subordinate to liens
securing all senior and second priority indebtedness of the Company, including the Credit Facility and
the Second Lien Notes, and eliminate substantially all of the restrictive covenants and certain events of
default pertaining to the remaining Third Lien Notes.
As of December 31, 2017, the Company was in compliance with the covenants with respect to the
Third Lien Notes.
The Second Lien Notes are senior secured second-priority obligations guaranteed by the
Guarantors. The Second Lien Notes mature on December 15, 2021. Interest on the Second Lien Notes
accrues at the rate of 9.125% per annum and is payable semiannually in arrears on June 15 and
December 15 of each year during their term, beginning June 15, 2016, except that the interest payment
otherwise payable on June 15, 2021 will be payable on December 15, 2021.
The indenture dated April 28, 2016 governing the Second Lien Notes (the ‘‘Second Lien Notes
Indenture’’) contains 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 Second Lien 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. These and other restrictive covenants contained in the Second Lien
Notes Indenture are subject to certain exceptions and qualifications. All of the Company’s subsidiaries
are currently restricted subsidiaries.
As of December 31, 2017, the Company was in compliance with the covenants with respect to the
Second Lien Notes.
On or after December 15, 2019, the Company may on one or more occasions redeem all or a part
of the Second Lien Notes at the redemption prices set forth below, plus accrued and unpaid interest
and special interest, if any, on the Second Lien Notes redeemed during the twelve-month period
beginning on December 15th of the years indicated below:
Date
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 and thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Percentage
105.500%
103.500%
100.000%
F-21
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 4.3% 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,
Short-Term and
Long-Term Debt
Capital Lease
Obligations
Other
Financing
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 38,497
—
—
—
120,569
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$159,066
$250
29
—
—
—
$279
Total
$ 40,129
29
—
—
120,569
$1,382
—
—
—
—
$1,382
$160,727
(4) Net Income (Loss) per Common Share
Basic net income (loss) per common share is computed by dividing net income (loss) applicable to
common shares by the weighted average number of common shares outstanding during the period.
Diluted net income (loss) per common share is determined based on the assumption that dilutive
restricted stock and restricted stock unit awards have vested and outstanding dilutive stock options have
been exercised and the aggregate proceeds were used to reacquire common stock using the average
price of such common stock for the period. The total number of shares issuable under anti-dilutive
options at December 31, 2017, 2016 and 2015 were 890,341, 847,635 and 560,797, respectively. All
outstanding stock options for the twelve months ended December 31, 2017, 2016 and 2015 were
anti-dilutive.
(5) Income Taxes
The sources of income (loss) before income taxes are as follows (in thousands):
Domestic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(12,487) $(41,246) $ 21,065
(42,175)
(19,060)
(16,866)
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(29,353) $(60,306) $(21,110)
Years Ended December 31,
2017
2016
2015
F-22
Components of income taxes are as follows (in thousands):
Years Ended December 31,
2017
2016
2015
Current:
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State and local . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred:
$ (166) $ — $(4,715)
41
1,274
28
5,574
116
5,494
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1,263)
(4,157)
—
(1,181)
2,726
4,718
Total income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
24
$ 4,421
$ 4,044
A reconciliation of the expected income tax expense on income (loss) before income taxes using
the statutory federal income tax rate of 35% for 2017, 2016 and 2015 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in U.S. tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expired Capital Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Valuation allowance:
Years Ended December 31,
2017
2016
2015
$(10,274) $(21,107) $ (7,389)
1,769
5,932
4,104
(4,828)
41
28
578
(259)
—
—
15,950
1,321
(2,914)
(5,610)
116
4,308
77,410
1,114
Valuation allowance on expiring capital losses . . . . . . . . . . . . . . . . .
Valuation allowance on operations . . . . . . . . . . . . . . . . . . . . . . . . .
(1,114)
(63,012)
(1,321)
24,655
(15,950)
4,941
Total income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
24
$ 4,421
$ 4,044
As a result of passage of the Tax Cut and Jobs Act (the ‘‘Act’’) on December 22, 2017, the
Company’s U.S. deferred tax assets, liabilities, and associated valuation allowance as of December 31,
2017 have been re-measured at the new U.S. federal tax rate of 21%. The tax effects of the cumulative
F-23
temporary differences resulting in the net deferred income tax asset (liability) are as follows (in
thousands):
December 31,
2017
2016
Non-current deferred:
Deferred income tax assets:
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . .
Allowance Accounts . . . . . . . . . . . . . . . . . . . . . . . . .
Net operating loss carryforward . . . . . . . . . . . . . . . . .
Capital loss carryforward . . . . . . . . . . . . . . . . . . . . . .
Equity method investment . . . . . . . . . . . . . . . . . . . . .
Original issue discount . . . . . . . . . . . . . . . . . . . . . . .
Basis in identified intangibles . . . . . . . . . . . . . . . . . .
Tax credit carryforwards . . . . . . . . . . . . . . . . . . . . . .
Contingency accrual . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
1,976
2,960
87,705
—
35,292
9,624
9,408
6,929
788
4,035
$
2,994
4,861
98,896
1,114
58,820
17,924
15,286
7,051
—
10,755
Total non-current deferred income tax asset . . . . . . . . . . .
Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . .
158,717
(153,463)
217,701
(217,589)
Net non-current deferred income tax asset . . . . . . . . . . . .
5,254
112
Deferred income tax liabilities:
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unbilled receivables . . . . . . . . . . . . . . . . . . . . . . . . . . .
Basis in property, plant and equipment . . . . . . . . . . . . .
—
(3,501)
—
(1,240)
(1,908)
(531)
Total net non-current deferred income tax asset (liability) .
$
1,753
$
(3,567)
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, 2017, the Company has a valuation allowance
on substantially all net U.S. deferred tax assets. The valuation allowance was released in 2017 with
respect to refundable U.S. alternative minimum tax (‘‘AMT’’) credits that will be realized as a result of
provisions in the Act. 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, 2017, the Company had U.S. net operating loss carryforwards of approximately
$238.0 million, expiring in 2034, and net operating loss carryforwards outside of the U.S. of
approximately $134.7 million, the majority of which expire beyond 2025.
As of December 31, 2017, the Company has approximately $0.4 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
F-24
recorded in income tax expense. During 2017, 2016 and 2015, the aggregate changes in the Company’s
total gross amount of unrecognized tax benefits are summarized as follows (in thousands):
Years Ended December 31,
2017
2016
2015
Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increases in unrecognized tax benefits—current year positions . . . . . . . . .
Decreases in unrecognized tax benefits—prior year position . . . . . . . . . . .
$1,299
59
(911)
$1,250
49
—
$1,957
75
(782)
Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 447
$1,299
$1,250
The Company’s U.S. federal tax returns for 2014 and subsequent years remain subject to
examination by tax authorities. In the Company’s foreign tax jurisdictions, tax returns for 2013 and
subsequent years generally remain open to examination.
As of December 31, 2017, the Company considered the outside book-over-tax basis difference in
its foreign subsidiaries to be in the amount of approximately $92.2 million. United States income taxes
have not been provided on this basis difference as it is the Company’s intention to reinvest the
undistributed earnings of its foreign subsidiaries to the extent they cannot be remitted to the United
States without incurring incremental tax as provided in the Act. Additionally, the Company had no
impact in the U.S. with respect to the one-time deemed repatriation of net foreign subsidiary earnings
under the Act, as a result of the allocation of foreign subsidiary deficits against positive earnings.
(6) 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, 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 the damages amount. In the
Memorandum and Order, the judge also stated that WesternGeco was 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 were subject to supplemental damages and also ruling that the supplemental damages
applicable to the additional units were to 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 awarded in the case by $3.0 million to reflect a settlement
F-25
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. The
Final Judgment also 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. (the ‘‘Court of Appeals’’). On July 2, 2015, the
Court of Appeals reversed in part the Final Judgment of the District Court, 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.
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 $22.0 million.
On February 26, 2016, WesternGeco filed a petition for writ of certiorari by the Supreme Court.
The Company filed its response on April 27, 2016. Subsequently, on June 20, 2016, the Supreme Court
vacated the Court of Appeals’ ruling although it did not address the lost profits question at that time.
Rather, in light of the changes in case law regarding the standard of proof for willfulness in the Halo
and Stryker cases, the Supreme Court indicated that the case should be remanded to the Court of
Appeals for a determination of whether or not the willfulness determination by the District Court was
appropriate.
On October 14, 2016, the Court of Appeals issued a mandate returning the case to the District
Court for consideration of whether or not additional damages for willfulness we appropriate. On
March 14, 2017, the District Court held a hearing on whether or not additional damages for willfulness
would be payable. The Judge found that ION’s infringement was willful, based on his perception that
ION did not adequately investigate the scope of the patent, and ION’s conduct during trial. However,
in his ruling at the hearing, he limited enhanced damages to $5.0 million because it was a ‘‘close case,’’
there was no evidence of copying, and ION was simply acting as a competitor in a capitalist
marketplace. The District Court also ordered the appeal bond to be released and discharged. The
Court’s findings and ruling were memorialized in an order issued on May 16, 2017. On June 30, 2017,
WesternGeco and the Company jointly agreed that neither party would appeal the District Court’s
award of $5.0 million in enhanced damages. The parties also agreed that the $5.0 million would be paid
over the course of 12 months with $1.25 million being paid in two installments of $0.625 million in
2017 and the remaining $3.75 million being paid in three quarterly payments of $1.25 million beginning
January 1, 2018. This agreement was memorialized by the court in an order issued on July 26, 2017.
WesternGeco filed a second petition for writ of certiorari in the U.S. Supreme Court on
February 17, 2017, appealing the lost profits issue again. The Company filed its response to
WesternGeco’s second attempt to appeal to the Supreme Court the lost profits issue, raising both the
substantive matters the Company addressed by opposing WesternGeco’s first petition, and also raising a
procedural argument that WesternGeco cannot raise the same issue for a second time in a second
F-26
petition for certiorari. On May 30, 2017, the Supreme Court called for the views of the U.S. Solicitor
General regarding whether or not to grant certiorari. The Company and WesternGeco each met with
the Solicitor General’s office in late July, 2017. On December 6, 2017, the Solicitor General filed its
brief, and took the position that the Supreme Court ought to grant certiorari. On January 12, 2018, the
Supreme Court granted certiorari as to whether the Court of Appeals erred in holding that lost profits
arising from use of prohibited combinations occurring outside of the United States are categorically
unavailable in cases where patent infringement is proven under 35 U.S.C. § 271(f)(2) (the specific
statute under which the Company was ultimately held to have infringed WesternGeco’s patents and
which the District Court and the Federal Circuit relied in entering their final rulings). The Company
will argue to the Supreme Court that the decision of the Court of Appeals that eliminated lost profits
ought to be upheld. We anticipate oral arguments will take place in April of 2018 and that the
Supreme Court will issue a decision by the end of June of 2018.
At the Court of Appeals the Company presented multiple arguments as to why the District Court’s
award of lost profits was improper. The lost profits damages awarded by the District Court were based
on the use of the Company’s products by our customers outside of the United States. The Company
argued at the Court of Appeals that, as a matter of law, WesternGeco cannot recoup lost profits for
the overseas use of our products. The Company also argued that, under the jury instructions given in
our case, WesternGeco would need to have been a direct competitor of the Company’s in the survey
markets to recoup lost profits, and that the jury was required to find that WesternGeco and ION were
direct competitors. Because the Court of Appeals ruled in our favor on the first argument, and
overturned the award of lost profits on that basis, the Court of Appeals did not rule on our ‘‘direct
competitor’’ argument. If the Supreme Court overturns the Court of Appeals’ decision that lost profits
cannot be awarded to WesternGeco because the subsequent use of the apparatus was overseas, the case
will be remanded back to the Court of Appeals, at which time the Company will present our second
argument (that lost profits should not be awarded to WesternGeco because they were not our direct
competitor).
Other proceedings may have an impact on WesternGeco’s ability to recover lost profits damages
even if WesternGeco prevails in the Supreme Court, and even if the Company does not prevail on the
‘‘direct competitor’’ argument in the Court of Appeals. The Company was a party to a challenge to the
validity of several of WesternGeco’s patent claims by means of an Inter Partes Review (‘‘IPR’’) with the
Patent Trial and Appeal Board (‘‘PTAB’’). While the above-described lawsuit was pending on appeal,
the PTAB invalidated four of the six patent claims that formed the basis for the jury verdict in the
lawsuit. WesternGeco appealed that decision to the Court of Appeals, which heard our and
WesternGeco’s arguments on January 23, 2018. If the Court of Appeals affirms the PTAB’s invalidation
of the patents, that may provide a separate ground for reducing or vacating any lost-profits award in
the lawsuit. We expect the Court of Appeals to rule on the PTAB issue late in first quarter of 2018 or
in the second quarter of 2018.
The Company may not ultimately prevail in any of the appeals processes noted above and we
could be required to pay some or all of the lost profits that were awarded by the District Court. Our
assessment that we do not have a loss contingency may change in the future due to developments at
the Supreme Court, Court of Appeals, or District Court, and other events, such as changes in
applicable law, and such reassessment could lead to the determination that a loss contingency is
probable, which could have a material effect on our business, financial condition and results of
operations. The Company’s assessments 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 equal or be considerably less than the lost profits awarded by the
District Court. The Company does not anticipate that any losses from the date hereof would exceed the
lost profits awarded by the District Court (except for the potential imposition of pre and post-judgment
interest).
F-27
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.
(7) Other Income
A summary of other income follows (in thousands):
Reduction of (accrual for) loss contingency related to legal proceedings
(Footnote 6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Recovery of INOVA bad debts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss on bond exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
844
$(5,000) $ 1,168
3,983
— (2,182)
(1,619)
211
$101,978
—
—
(3,703)
Total other income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(3,945) $ 1,350
$ 98,275
Years Ended December 31,
2017
2016
2015
(8) 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 . . . . . . . . . . . . . . . . . . . . .
$20,050
(572)
$22,214
(1,444)
Accounts receivable, net . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$19,478
$20,770
December 31,
2017
2016
Inventories
A summary of inventories follows (in thousands):
Raw materials and purchased subassemblies . . . . . . . . . . . . . .
Work-in-process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Finished goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reserve for excess and obsolete inventories . . . . . . . . . . . . . . .
$ 20,448
1,146
7,953
(15,039)
$ 21,454
2,255
6,581
(15,049)
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 14,508
$ 15,241
December 31,
2017
2016
F-28
Property, Plant, Equipment and Seismic Rental Equipment
A summary of property, plant, equipment and seismic rental equipment follows (in thousands):
December 31,
2017
2016
Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Machinery and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Seismic rental equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Furniture and fixtures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 15,822
145,654
1,677
3,869
28,965
$ 17,424
157,618
1,557
3,905
30,049
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
195,987
(143,834)
210,553
(143,065)
Property, plant, equipment and seismic rental equipment, net
. . . . . . . . . . . . .
$ 52,153
$ 67,488
Total depreciation expense, including amortization of assets recorded under capital leases, for 2017,
2016 and 2015 was $15.2 million, $20.3 million and $24.6 million, respectively.
Intangible Assets
A summary of intangible assets, net, follows (in thousands):
Customer relationships . . . . . . . . . . . . . . . . . . . . . .
$34,400
$(32,734)
$1,666
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$34,400
$(32,734)
$1,666
December 31, 2017
Gross
Amount
Accumulated
Amortization
Net
December 31, 2016
Gross
Amount
Accumulated
Amortization
Net
Customer relationships
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$36,934
$(33,831)
$3,103
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$36,934
$(33,831)
$3,103
Total amortization expense for intangible assets for 2017, 2016 and 2015 was $1.4 million,
$1.7 million and $1.9 million, respectively. A summary of the estimated amortization expense for the
next three years follows (in thousands):
Years Ended December 31,
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,169
$ 497
F-29
Accrued Expenses
A summary of accrued expenses follows (in thousands):
December 31,
2017
2016
Compensation, including compensation-related taxes and
commissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued multi-client data library acquisition costs . . . . . . . . . . . .
Income tax payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrual for legal proceedings (Footnote 6) . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$19,809
5,104
1,868
3,750
8,166
$14,935
567
1,306
—
9,432
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$38,697
$26,240
Other Long-term Liabilities
A summary of other long-term liabilities follows (in thousands):
Deferred lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Facility restructuring accrual . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income tax liability . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12,811
—
—
1,115
13,955
1,765
3,679
1,128
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$13,926
$20,527
December 31,
2017
2016
(9) Goodwill
On December 31, 2017, the Company completed the annual reviews of the carrying value of
goodwill in its E&P Technology & Services and Optimization Software & Services reporting units and
noted no impairments. The qualitative assessment concluded it was more likely than not that the fair
values of the Company’s E&P Technology & Services, and Optimization Software & Services reporting
units exceeded their carrying values.
The following is a summary of the changes in the carrying amount of goodwill for the years ended
December 31, 2017 and 2016 (in thousands):
E&P Technology &
Services
Optimization
Software &
Services
Total
Balance at January 1, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . .
Impact of foreign currency translation adjustments . . . . . . .
Balance at December 31, 2016 . . . . . . . . . . . . . . . . . . . . . . .
Impact of foreign currency translation adjustments . . . . . . .
Balance at December 31, 2017 . . . . . . . . . . . . . . . . . . . . . . .
$2,943
—
2,943
—
$2,943
$23,331
(4,066)
$26,274
(4,066)
19,265
1,881
22,208
1,881
$21,146
$24,089
F-30
(10) 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. 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 (‘‘Committee’’) of the Board of Directors (‘‘Board’’) of the
Company approved fixed pre-established quarterly grant dates for all future grants of options.
At-The-Market Equity Offering Program
On December 22, 2016 the Company announced that it had filed a prospectus supplement under
which it may sell up to $20.0 million of its common stock through an ‘‘at-the-market’’ equity offering
program (the ‘‘ATM Program’’). The Company intended to use the net proceeds from sales under the
ATM Program for general corporate purposes. The timing of any sales depended on a variety of factors
to be determined by the Company. Effective May 2, 2017, the Company terminated and canceled the
ATM Program. No shares were sold pursuant to the ATM Program and the Company has no further
obligations thereunder.
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 was 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 was determined by management at its discretion and depended 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 the Company’s
outstanding indebtedness. The repurchase program did not obligate the Company to acquire any
particular amount of common stock and could be modified or suspended at any time and could be
terminated prior to completion. As of December 31, 2016, the Company was authorized to repurchase
up to $25 million through November 10, 2017 and had repurchased $3 million or 451,792 shares of its
common stock under the repurchase program at an average price per share of $6.41. The program
expired November 10, 2017.
F-31
Transactions under the stock option plans are summarized as follows:
January 1, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . .
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 . . . . . . . . . . . . . . . . . .
December 31, 2015 . . . . . . . . . . . . . . . . . . . . . . .
Increase in shares authorized . . . . . . . . . . . . . .
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 . . . . . . . . . . . . . . . . . .
December 31, 2016 . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cancelled/forfeited . . . . . . . . . . . . . . . . . . . . . .
Restricted stock granted out of option plans . . .
Restricted stock forfeited or cancelled for
employee minimum income taxes and
returned to the plans . . . . . . . . . . . . . . . . . .
Option Price
per Share
$37.05 - 245.85
34.20
—
37.05 - 231.45
—
Outstanding
Vested
599,069
53,328
—
(91,600)
—
358,390
—
79,779
(53,864)
—
Available
for Grant
183,468
(53,328)
—
12,358
(45,652)
—
—
—
157
34.20 - 245.85
—
3.10
—
3.10 - 245.85
—
560,797
—
415,000
—
(128,162)
—
384,305
97,003
— 1,150,940
— (415,000)
—
18,895
— (259,300)
67,480
(103,432)
—
—
—
7,182
3.10 - 245.85
13.15
—
3.10
3.10 - 245.85
—
847,635
156,000
348,353
— 149,537
(15,000)
(47,612)
—
(15,000)
(98,294)
—
599,720
— (156,000)
—
—
82,118
(59,500)
—
—
—
22,065
December 31, 2017 . . . . . . . . . . . . . . . . . . . . . . .
$3.10 - $245.85
890,341
435,278
488,403
Stock options outstanding at December 31, 2017 are summarized as follows:
Option Price per Share
Outstanding
$3.10 - $57.90 . . . . . . . . . . . .
$61.05 - $71.85 . . . . . . . . . . .
$81.60 - $99.60 . . . . . . . . . . .
$106.05 - $245.85 . . . . . . . . . .
641,030
76,963
115,742
56,606
Totals . . . . . . . . . . . . . . . .
890,341
Weighted Average
Exercise Price
of Outstanding
Options
Weighted Average
Remaining
Contract Life
$ 15.17
$ 62.14
$ 88.79
$131.16
$ 36.17
7.1 years
5.8 years
4.4 years
2.7 years
6.4 years
Weighted Average
Exercise Price
of Vested
Options
$ 29.89
$ 62.43
$ 88.79
$131.16
$ 63.25
Vested
202,312
60,618
115,742
56,606
435,278
F-32
Additional information related to the Company’s stock options follows:
Weighted Average Weighted Average
Number of Weighted Average
Shares
Exercise Price
Grant Date
Fair Value
Remaining
Contractual Life Value (000’s)
Aggregate
Intrinsic
Total outstanding at January 1,
2017 . . . . . . . . . . . . . . . . . . . . . 847,635
Options granted . . . . . . . . . . . . . 156,000
(15,000)
Options exercised . . . . . . . . . . . .
(50,682)
Options cancelled . . . . . . . . . . . .
(47,612)
Options forfeited . . . . . . . . . . . .
$ 46.21
$ 13.15
3.10
$
7.32
$
$180.52
Total outstanding at December 31,
6.1 years
$1,175
$8.10
2017 . . . . . . . . . . . . . . . . . . . . . 890,341
$ 36.17
6.4 years
$6,774
Options exercisable and vested at
December 31, 2017 . . . . . . . . . . 435,278
$ 63.25
5.4 years
$1,436
The total intrinsic value of options exercised during 2017, 2016 and 2015 was less than $0.1 million,
$0.1 million and $0.1 million, respectively. Cash received from option exercises under all share-based
payment arrangements for 2017 was less than $0.1 million and during 2016 and 2015 there was no cash
received. The weighted average grant date fair value for stock option awards granted during 2017, 2016
and 2015 was $8.10, $2.04 and $16.65 per share, respectively.
Restricted Stock and Restricted Stock Unit Plans
The Company has issued restricted stock and restricted stock units under the Company’s 2013
Long-Term Incentive Plan and other applicable plans. Restricted stock units are awards that obligate
the Company to issue a specific number of shares of common stock in the future if continued service
vesting requirements are met. Non-forfeitable ownership of the common stock will vest over a period as
determined by the Company in its sole discretion, generally in equal annual installments over a
three-year period. Shares of restricted stock awarded may not be sold, assigned, transferred, pledged or
otherwise encumbered by the grantee during the vesting period.
The status of the Company’s restricted stock and restricted stock unit awards for 2017 follows:
Total nonvested at January 1, 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Number of
Shares/Units
285,308
59,500
(115,577)
(27,529)
Total nonvested at December 31, 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
201,702
At December 31, 2017, the intrinsic value of restricted stock and restricted stock unit awards was
approximately $4.0 million. The weighted average grant date fair value for restricted stock and
restricted stock unit awards granted during 2017, 2016 and 2015 was $11.36, $3.81 and $34.20 per share,
respectively. The total fair value of shares vested during 2017, 2016 and 2015 was $0.6 million,
$0.2 million and $0.6 million, respectively.
Employee Stock Purchase Plan
Effective February, 2016, the Company suspended its Employee Stock Purchase Plan (‘‘ESPP’’)
that had been in place since June 2010. The ESPP allowed 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
F-33
purchase of the Company’s common stock. Each participant was limited to purchase no more than
33 shares per offering period or 66 shares annually. Additionally, no participant could purchase shares
in any calendar year that exceeded $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 was 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 was six months and commenced on February 1 and
August 1 of each year. The ESPP was considered a compensatory plan under ASC 718, and the
Company recorded compensation expense of approximately $0.1 million and $0.2 million during 2016
and 2015, 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.
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, 2016, the Company issued 1,210,000 Stock Appreciation Rights (‘‘SARs’’) awards to
15 selected key employees with an exercise price of $3.10. None of these SARs were awarded to
non-employee directors. 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.
On December 13, 2017, the Compensation Committee (the ‘‘Committee’’) of the Board of
Directors (the ‘‘Board’’) of the Company authorized and approved the acceleration of the vesting date
to December 13, 2017 for the second tranche of the Company’s outstanding SARs, which were issued
on March 1, 2016. The second tranche of the SARs awards was originally scheduled to vest on
March 1, 2018. The vesting of the second tranche of the SARs awards was accelerated to facilitate the
exercise by the SARs participants, if they so choose, of a larger portion of the SARs awards prior to
year-end, as such an exercise would minimize the potential cash flow impact of any such exercise in the
first quarter of 2018, would mitigate the ongoing mark to market accounting requirements for
cash-settled SARs, and would afford the SARs participants liquidity to invest in common stock of the
Company to further align their interests with those of the Company’s stockholders. Participants
exercised 663,330 SARs awards at a $9.95 gain per share.
Pursuant to ASC 718, the SARs are considered liability awards and as such, these amounts are
accrued in the liability section of the balance sheet. The Company calculated the fair value of each
F-34
SAR award as of December 31, 2017 using a Monte Carlo simulation model. The following
assumptions were used:
December 31, 2017
Risk-free interest rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected lives (in years) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected dividend yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2.36%
1.25
—%
77.8%
On March 1, 2015, the Company issued 207,207 SAR awards to 16 selected key employees with an
exercise price of $34.20. None of these SARs were awarded to non-employee directors. 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 SARs are considered liability
awards and as such, these amounts are accrued in the liability section of the balance 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2.19%
3.3
—%
69.38%
Additionally, as of December 31, 2017, the Company had 9,333 SAR awards outstanding to one
individual with an exercise price of $45.00.
The Company recorded $6.6 million of share-based compensation expense during 2017,
$0.5 million during 2016 and less than $0.1 million in 2015, related to employee SARs.
December 31, 2015
F-35
Additional information related to the Company’s SARs follows:
Weighted Grant
Date
Average
Fair
Number of Exercise
Value
Shares
Price
Weighted
Average Weighted
Average
Remaining
Contractual
Life
Aggregate
Intrinsic
Value
(000’s)
Total outstanding at January 1, 2015 .
SARs granted . . . . . . . . . . . . . . . .
9,333 $45.00
207,199 $34.20
$ 9.94
2.9 years
$ —
Total outstanding at December 31,
2015 . . . . . . . . . . . . . . . . . . . . . . .
216,532 $34.67
SARs granted . . . . . . . . . . . . . . . . 1,210,000 $ 3.10
(10,399) $34.20
SARs cancelled . . . . . . . . . . . . . . .
$17.55
Total outstanding at December 31,
2016 . . . . . . . . . . . . . . . . . . . . . . . 1,416,133 $ 7.70
(713,330) $ 3.10
SARs exercised . . . . . . . . . . . . . . .
(136,939) $ 7.70
SARs cancelled . . . . . . . . . . . . . . .
Total outstanding at December 31,
2017 . . . . . . . . . . . . . . . . . . . . . . .
565,864 $13.49
7.2 years
$6,327
SARs exercisable and vested at
December 31, 2017 . . . . . . . . . . . .
44,332 $11.92
7.2 years
$ 583
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,
2017
2016
2015
Risk-free interest rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected lives (in years) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected dividend yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2.14% 1.3% 1.38%
5.5
—%
4.5
—%
74.41% 78.76% 59.32%
5.0
—%
The computation of expected volatility during 2017, 2016 and 2015 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 2017, 2016 and 2015 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.
F-36
Stock-based Compensation Expense
The following tables summarizes stock-based compensation expense for the years ended
December 31, 2017, 2016 and 2015 as follows (in thousands):
Stock-based compensation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax benefit related thereto . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$2,552
(862)
$ 3,267
(1,168)
$ 5,486
(1,826)
Stock-based compensation expense, net of tax . . . . . . . . . . . . . . . . . . . .
$1,690
$ 2,099
$ 3,660
Years Ended December 31,
2017
2016
2015
Stock appreciation rights expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax benefit related thereto . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 6,611
(2,314)
$ 547
(191)
$(54)
19
Stock appreciation rights expense, net of tax . . . . . . . . . . . . . . . . . . . . . . .
$ 4,297
$ 356
$(35)
Years Ended December 31,
2017
2016
2015
Equity Investment Program
To encourage the Company’s executive officers and other key employees to purchase common
stock of the Company and further align their interests with those of the Company’s stockholders, the
Board authorized and approved an equity investment program (the ‘‘Program’’) pursuant to which
certain of the executive officers and other key employees of the Company are permitted, but not
obligated, to purchase unregistered shares of common stock of the Company directly from the
Company at market prices. In connection with any such purchases, the Committee authorized and
approved, on December 13, 2017, a grant by the Company to such purchasing executive officers and
key employees of a certain number of shares of restricted stock. On December 13, 2017, the
Committee also authorized and approved to grant to certain executive officers and key employees a
certain number of shares of restricted stock in connection with certain purchases of shares of the
Company’s common stock in the open market.
Specifically, for each five (5) shares directly purchased from the Company or in the open market
during a defined period (to expire no later than December 31, 2017), the Company will issue one (1)
share of restricted stock, subject to certain limitations as to the total number of restricted shares to be
issued by the Company. Provided that an executive officer or key employee remains employed with the
Company until March 1, 2018, the restricted stock will be granted as of March 1, 2018, will vest in full
on the date that is 90 days after the grant date and will be subject to the other terms and conditions of
the Company’s form of restricted stock agreement and the Company’s 2013 Long-Term Incentive Plan.
The Company sold, in a private placement under Section 4(a)(2) of the Securities Act of 1933, as
amended on December 14, 2017, 120,567 shares of Company common stock at $13.05 per share (the
closing price of the Company’s common stock on the NYSE on such date) and executive officers and
other key employees purchased 219,346 shares in the open market.
F-37
(11) Supplemental Cash Flow Information and Non-Cash Activity
Supplemental disclosure of cash flow information follows (in thousands):
Years Ended December 31,
2017
2016
2015
Cash paid during the period for:
Interest
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$14,181
7,030
$15,691
4,474
$15,441
8,163
Non-cash items from investing and financing activities:
Purchase of computer equipment financed through capital leases . . . .
Leasehold improvement paid by landlord . . . . . . . . . . . . . . . . . . . . .
Issuance of stock in bond exchange . . . . . . . . . . . . . . . . . . . . . . . . .
Transfer of inventory to property, plant and equipment . . . . . . . . . . .
Investment in multi-client data library financed through trade
—
—
—
955
— 10,741
— 17,662(a)
1,178
—
—
15,936(b)
payables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9,059
—
8,939
(a) This transfer of $17.7 million of inventory to property, plant, equipment and seismic rental
equipment in December 2016, relates to ocean bottom seismic equipment manufactured by the
Company to be deployed in the acquisition of ocean bottom seismic data.
(b) 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 Seismic Services segment.
(12) Operating Leases
Lessee. The Company leases certain equipment, offices and warehouse space under
non-cancelable operating leases. Rental expense was $11.4 million, $11.3 million and $11.8 million for
2017, 2016 and 2015, respectively.
A summary of future rental commitments over the next five years under non-cancelable operating
leases follows (in thousands):
Years Ending December 31,
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$10,334
9,812
9,480
9,435
9,251
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$48,312
(13) 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.
F-38
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, 2017 and 2016 were
$160.7 million and $163.9 million, respectively, compared to its fair values of $158.2 million and
$114.8 million as of December 31, 2017 and 2016, respectively. The fair value of the long-term debt was
calculated using Level 1 inputs, including an active market price.
(14) 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 $0.8 million, $0.8 million and
$1.4 million, during 2017, 2016 and 2015, respectively.
(15) Selected Quarterly Information—(Unaudited)
A summary of selected quarterly information follows (in thousands, except per share amounts):
Three Months Ended
Year Ended December 31, 2017
March 31
June 30
September 30
December 31
Service revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Product revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 23,828
8,728
$ 34,454
11,547
$52,615
8,480
$48,513
9,389
Total net revenues . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) from operations . . . . . . . . . . . . . . . . . .
Interest expense, net . . . . . . . . . . . . . . . . . . . . . . . . .
Other income (expense) . . . . . . . . . . . . . . . . . . . . . . .
Income tax expense (benefit) . . . . . . . . . . . . . . . . . . .
Net (income) loss attributable to noncontrolling
32,556
6,101
(13,912)
(4,464)
(5,068)
(418)
46,001
15,618
(3,572)
(4,241)
192
2,402
61,095
30,109
9,936
(3,959)
722
1,686
57,902
23,811
(1,151)
(4,045)
209
(3,646)
interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(316)
(418)
(78)
(53)
Net income (loss) applicable to ION . . . . . . . . . . . .
$(23,342) $(10,441)
$ 4,935
$ (1,394)
Net income (loss) per share:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (1.98) $
$ (1.98) $
(0.88)
(0.88)
$
$
0.42
0.41
$ (0.12)
$ (0.12)
F-39
Three Months Ended
Year Ended December 31, 2016
March 31
June 30
September 30
December 31
Service revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Product revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 13,156
9,509
$ 25,430
10,722
$65,914
12,708
$26,140
9,229
Total net revenues . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) from operations . . . . . . . . . . . . . . . . . .
Interest expense, net . . . . . . . . . . . . . . . . . . . . . . . . .
Other income (expense) . . . . . . . . . . . . . . . . . . . . . . .
Income tax expense (benefit) . . . . . . . . . . . . . . . . . . .
Net (income) loss attributable to noncontrolling
22,665
(8,930)
(30,129)
(4,734)
120
293
36,152
4,853
(16,588)
(4,702)
(1,717)
2,256
78,622
31,765
11,864
(4,607)
(2,027)
3,316
35,369
8,344
(8,318)
(4,442)
4,974
(1,444)
interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
22
(79)
(215)
(149)
Net income (loss) applicable to ION . . . . . . . . . . . .
$(35,014) $(25,342)
$ 1,699
$ (6,491)
Net income (loss) per share:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (3.30) $
$ (3.30) $
(2.22)
(2.22)
$
$
0.14
0.14
$ (0.55)
$ (0.55)
(16) Certain Relationships and Related Party Transactions
For 2017, 2016 and 2015, the Company recorded revenues from BGP of $4.4 million, $3.6 million
and $6.3 million, respectively. Receivables due from BGP were $0.6 million and $0.4 million at
December 31, 2017 and 2016, respectively. BGP owned approximately 13.0% of the Company’s
outstanding common stock as of December 31, 2017.
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 10.2% of the Company’s outstanding common stock as of December 31, 2017.
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 2017, the Company paid Laitram and its affiliates $0.2 million which consisted of
manufacturing services and reimbursement of costs. During 2016 and 2015 the Company paid less than
$0.1 million in each year for reimbursement for costs related to providing administrative and other
back-office support services in connection with the Company’s Louisiana marine operations. In
addition, the Company is currently subleasing approximately 4,100 square feet of office space to
Laitram. 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. INOVA Geophysical has repaid a total of $6.0 million, of
which $4.0 million remained outstanding at December 31, 2017. INOVA has advised the Company that
F-40
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.
(17) Cost Reduction Initiatives and Other Charges
2016 Cost Reduction Initiatives and Other Charges
In April 2016, the Company implemented additional cost saving initiatives by reducing its current
workforce by approximately 12%. Additional reductions were needed to further streamline the
organization and bring it in line with the Company’s current revenue stream, while maintaining the
necessary core capabilities to continue our operations and strategic initiatives. In addition, the
Company incurred losses in association with the exchange of a portion of its bonds during the second
quarter 2016. During the twelve months ended December 31, 2016, the Company recognized the
following pre-tax charges (in thousands):
Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,077
932
—
Consolidated total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$2,009
$ —
—
2,182
$2,182
Severance
charges(a)
Loss on bond
exchange(b)
Total
$1,077
932
2,182
$4,191
(a) Represents severance charges related to the second quarter 2016 restructurings.
(b) Represents a loss on exchange of bonds during the second quarter 2016.
2015 Cost Reduction Initiatives
During 2015, the Company implemented additional savings 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 that, combined with
reductions starting in December 2014 and reduced the Company’s full-time employee base by
approximately 50%. During 2015, the Company recognized the following pre-tax charges and credits (in
thousands):
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
1,323
1,618
1,618
(269)
(150)
(172)
—
Consolidated total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$5,600
$2,791
$8,391
Severance
charges(a)
Facility
charges(b)
Total
(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.
F-41
(18) 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. In August 2015, the FASB
issued guidance deferring the effective date to years beginning after December 15, 2017, and interim
periods within those years. This new guidance replaces virtually all existing U.S. GAAP and IFRS
guidance on revenue recognition. The underlying principle is that the entity will recognize revenue to
depict the transfer of goods and services to customers at an amount that the entity expects to be
entitled to in the exchange of goods and services. The guidance provides a five-step analysis of
transactions to determine when and how revenue is recognized. Other major provisions include
capitalization of certain contract costs, consideration of time value of money in the transaction price,
and allowing estimates of variable consideration to be recognized before contingencies are resolved in
certain circumstances. The guidance also requires enhanced disclosures regarding the nature, amount,
timing and uncertainty of revenue and cash flows arising from an entity’s contracts with customers.
In December 2016, the FASB issued amendments to ASC 606, ‘‘Revenue from Contracts with
Customers’’. The amendments allow entities not to make quantitative disclosures about remaining
performance obligations in certain cases and require entities that use any of the new or previously
existing optional exemptions to expand their qualitative disclosures. It also makes additional technical
corrections and improvements to the new revenue standard. The guidance will be effective with the
same date and transition requirements as those in ASC 606.
The Company will use the modified retrospective adoption method and has concluded that the
adoption of ASC 606 will not have a material impact on its consolidated balance sheets or consolidated
statement of operations for any of its reporting segments. The Company adopted this ASU on
January 1, 2018, and will disclose additional quantitative and qualitative information regarding revenue
and cash flows generated from its contracts with customers.
In February 2016, the FASB issued ASU 2016-2, ‘‘Leases (Topic 842)’’ which introduces the
recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases
under previous guidance. The guidance will be effective for annual reporting periods beginning after
December 15, 2018 and interim periods within those fiscal years with early adoption permitted. The
Company will adopt ASU 2016-2 on January 1, 2019, and estimates this ASU will have a material
impact related to its facility operating leases on its consolidated balance sheet.
In November 2016 the FASB issued ASU 2016-18, ‘‘Statement of Cash Flows (Topic 230), Restricted
Cash (a consensus of the FASB Emerging Issues Task Force) (ASU 2016-18)’’, that will require entities to
show changes in the total of cash, cash equivalents, restricted cash and restricted cash equivalents in
the statement of cash flows. As a result, entities will no longer present transfers between cash and cash
equivalents and restricted cash and restricted cash equivalents in the statement of cash flows. When
cash, cash equivalents, restricted cash and restricted cash equivalents are presented in more than
one-line item on the balance sheet, a reconciliation of the totals in the statement of cash flows to the
related captions in the balance sheet is required. The guidance will be effective for annual periods
beginning after December 15, 2017 and interim periods within those annual periods. Early adoption is
permitted. The Company adopted ASU 2016-18 on January 1, 2018 and has concluded that this ASU
will not have a material impact its consolidated balance sheet or consolidated statement of operations.
F-42
(19) Condensed Consolidating Financial Information
The notes were issued by ION Geophysical Corporation, and are guaranteed by the Company’s
current material U.S. subsidiaries: GX Technology Corporation, ION Exploration Products
(U.S.A.), Inc. and I/O Marine Systems, Inc. (‘‘the Guarantors’’), which are 100-percent-owned
subsidiaries. The Guarantors have fully and unconditionally guaranteed the payment obligations of
ION Geophysical Corporation with respect to these debt securities. The following condensed
consolidating financial information presents the results of operations, financial position and cash flows
for:
(cid:129) ION Geophysical Corporation and the guarantor subsidiaries (in each case, reflecting
investments in subsidiaries utilizing the equity method of accounting).
(cid:129) All other nonguarantor subsidiaries.
(cid:129) The consolidating adjustments necessary to present ION Geophysical Corporation’s results on a
consolidated basis.
F-43
This condensed consolidating financial information should be read in conjunction with the
accompanying consolidated financial statements and notes.
December 31, 2017
ION
Geophysical
Corporation Guarantors Subsidiaries Adjustments Consolidated
All Other Consolidating
Total
The
Balance Sheet
Current assets:
ASSETS
Cash and cash equivalents . . . . . . . . . . . . . $ 39,344 $
Accounts receivable, net . . . . . . . . . . . . . . .
Unbilled receivables . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets . .
50
—
—
2,427
41,821
1,264
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 . . . . . . . . . . . . . . . . . . . . . . . . .
(In thousands)
— $ 12,712 $
9,374
16,666
8,686
769
35,495
—
10,054
20,638
5,822
4,447
53,673
489
— $ 52,056
19,478
—
37,304
—
14,508
—
7,643
—
— 130,989
1,753
—
7,170
62,438
321,934
511
—
693,679
—
—
1,666
— 132,184
145
686
44,472
26,862
—
—
— (1,015,613)
—
—
(222,411)
—
— 24,089
—
90,227
288
52,153
89,300
—
24,089
1,666
—
1,119
Total assets . . . . . . . . . . . . . . . . . . . . . . $ 737,961 $ 561,032 $240,100 $(1,238,024) $ 301,069
LIABILITIES AND EQUITY
Current liabilities:
. . . . . $ 39,774 $
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 . . . . . . . . . . . . . . .
1,774
12,284
—
—
53,832
116,691
537,417
454
Total liabilities . . . . . . . . . . . . . . . . . . . .
708,394
250 $
— $
20,982
15,601
26,824
3,201
66,858
29
—
6,084
72,971
2,195
10,812
211
5,709
18,927
—
—
7,388
26,315
— $ 40,024
24,951
—
38,697
—
27,035
—
8,910
—
— 139,617
— 116,720
—
13,926
(537,417)
—
(537,417)
270,263
Equity:
Common stock . . . . . . . . . . . . . . . . . . . . .
Additional paid-in capital . . . . . . . . . . . . . .
Accumulated earnings (deficit) . . . . . . . . . .
Accumulated other comprehensive income
120
903,247
(854,921)
290,460
180,701
248,770
49,394
202,290
59,307
(339,854)
(382,991)
(308,077)
120
903,247
(854,921)
(loss) . . . . . . . . . . . . . . . . . . . . . . . . . . .
Due from ION Geophysical Corporation . . .
(18,879)
4,372
— (236,242)
(19,681)
(78,764)
15,309
315,006
(18,879)
—
Total stockholders’ equity . . . . . . . . . . . .
Noncontrolling interests . . . . . . . . . . . . . . .
29,567
—
488,061
—
212,546
1,239
(700,607)
—
Total equity . . . . . . . . . . . . . . . . . . . . . .
29,567
488,061
213,785
(700,607)
29,567
1,239
30,806
Total liabilities and equity . . . . . . . . . . . . $ 737,961 $ 561,032 $240,100 $(1,238,024) $ 301,069
F-44
Balance Sheet
Current assets:
ASSETS
December 31, 2016
ION
Geophysical
Corporation Guarantors Subsidiaries Adjustments Consolidated
All Other Consolidating
Total
The
(In thousands)
Cash and cash equivalents . . . . . . . . . . . . . $ 23,042 $
Accounts receivable, net . . . . . . . . . . . . . . .
Unbilled receivables . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets . .
—
—
—
3,387
— $ 29,610
7,995
8,140
6,631
1,548
12,775
5,275
8,610
4,624
$
Total current assets . . . . . . . . . . . . . . . . .
26,429
31,284
53,924
— $ 52,652
20,770
—
13,415
—
15,241
—
9,559
—
—
111,637
Property, plant, equipment and seismic rental
equipment, net
. . . . . . . . . . . . . . . . . . . . .
Multi-client data library, net
. . . . . . . . . . . . .
Investment in subsidiaries . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill
Intangible assets, net . . . . . . . . . . . . . . . . . . .
Intercompany receivables . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . .
1,745
—
660,880
—
—
—
2,469
12,369
97,369
257,732
53,374
8,566
—
—
— (918,612)
—
—
(32,174)
—
3,008
— 22,208
95
— 32,174
231
145
67,488
105,935
—
22,208
3,103
—
2,845
Total assets . . . . . . . . . . . . . . . . . . . . . . $ 691,523 $ 401,907 $170,572
$(950,786) $ 313,216
LIABILITIES AND EQUITY
Current liabilities:
Current maturities of long-term debt . . . . . . $ 11,281 $
Accounts payable . . . . . . . . . . . . . . . . . . . .
Accrued expenses . . . . . . . . . . . . . . . . . . .
Accrued multi-client data library royalties . .
Deferred revenue . . . . . . . . . . . . . . . . . . . .
2,101
8,579
—
—
3,166 $
19,720
10,016
23,663
2,667
134
5,068
7,645
—
1,042
$
— $ 14,581
26,889
—
26,240
—
23,663
—
3,709
—
Total current liabilities . . . . . . . . . . . . . .
Long-term debt, net of current maturities . . . .
Intercompany payables . . . . . . . . . . . . . . . . .
Other long-term liabilities . . . . . . . . . . . . . . .
21,961
143,930
472,276
467
Total liabilities . . . . . . . . . . . . . . . . . . . .
638,634
59,232
279
10,155
12,117
81,783
—
13,889
—
—
— (482,431)
—
7,943
95,082
144,209
—
20,527
21,832
(482,431)
259,818
Equity:
Common stock . . . . . . . . . . . . . . . . . . . . .
Additional paid-in capital . . . . . . . . . . . . . .
Accumulated earnings (deficit) . . . . . . . . . .
Accumulated other comprehensive income
(loss) . . . . . . . . . . . . . . . . . . . . . . . . . . .
Due from ION Geophysical Corporation . . .
Treasury stock . . . . . . . . . . . . . . . . . . . . . .
118
899,198
(824,679)
290,460
180,700
216,730
19,138
232,590
(3,639)
(309,598)
(413,290)
(213,091)
118
899,198
(824,679)
(21,748)
4,420
— (372,186)
—
(21,787)
(78,071)
17,367
450,257
Total stockholders’ equity . . . . . . . . . . . .
Noncontrolling interests . . . . . . . . . . . . . . .
52,889
—
320,124
—
148,231
509
(468,355)
—
Total equity . . . . . . . . . . . . . . . . . . . . . .
52,889
320,124
148,740
(468,355)
Total liabilities and equity . . . . . . . . . . . . $ 691,523 $ 401,907 $170,572
$(950,786) $ 313,216
F-45
(21,748)
—
—
52,889
509
53,398
Income Statement
Year Ended December 31, 2017
ION
Geophysical
Corporation Guarantors Subsidiaries Adjustments Consolidated
All Other Consolidating
Total
The
Total net revenues . . . . . . . . . . . . . . . . . . . . . $
Cost of goods sold . . . . . . . . . . . . . . . . . . . . .
— $ 77,054
— 80,427
Gross profit (loss) . . . . . . . . . . . . . . . . . . .
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) . . . . . . . . . . . . .
—
39,000
(39,000)
(16,729)
1,084
27,696
(4,610)
(31,559)
(1,317)
(3,373)
27,950
(31,323)
(107)
(6,613)
67,290
(382)
28,865
(3,175)
Net income (loss) . . . . . . . . . . . . . . . . . . . .
(30,242)
32,040
Net income attributable to noncontrolling
(In thousands)
$120,500
41,488
$
— $197,554
121,915
—
79,012
17,388
—
—
61,624
127
5,529
—
—
—
— (94,986)
—
1,047
(94,986)
—
68,327
4,516
63,811
75,639
84,338
(8,699)
(16,709)
—
—
(3,945)
(29,353)
24
(94,986)
(29,377)
interests . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
(865)
—
(865)
Net income (loss) attributable to ION . . . . . $(30,242) $ 32,040
$ 62,946
$(94,986)
$ (30,242)
Comprehensive net income (loss) . . . . . . . . . . $(27,373) $ 31,992
$ 65,916
$(97,043)
$ (26,508)
Comprehensive income attributable to
noncontrolling interest
. . . . . . . . . . . . . .
—
—
(865)
—
(865)
Comprehensive net income (loss) attributable
to ION . . . . . . . . . . . . . . . . . . . . . . . . . . . $(27,373) $ 31,992
$ 65,051
$(97,043)
$ (27,373)
F-46
Income Statement
Year Ended December 31, 2016
ION
Geophysical
Corporation Guarantors Subsidiaries Adjustments Consolidated
All Other Consolidating
Total
The
Total net revenues . . . . . . . . . . . . . . . . . . . . . $
Cost of goods sold . . . . . . . . . . . . . . . . . . . . .
— $ 79,006
— 84,373
(In thousands)
$93,802
52,403
$ — $172,808
136,776
—
Gross profit (loss) . . . . . . . . . . . . . . . . . . .
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 . . . . . . . . . . . . . . . . . . . .
—
31,438
(31,438)
(18,406)
978
(19,756)
3,528
(65,094)
54
(5,367)
27,274
(32,641)
(173)
(4,397)
23,368
702
(13,141)
1,337
41,399
20,491
20,908
94
3,419
—
(2,880)
21,541
3,030
Net income (loss) . . . . . . . . . . . . . . . . . . . .
(65,148)
(14,478)
18,511
Net income attributable to noncontrolling
—
—
—
—
—
(3,612)
—
(3,612)
—
(3,612)
36,032
79,203
(43,171)
(18,485)
—
—
1,350
(60,306)
4,421
(64,727)
interests . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
(421)
—
(421)
Net income (loss) attributable to ION . . . . . $(65,148) $(14,478) $18,090
$(3,612)
$ (65,148)
Comprehensive net income (loss) . . . . . . . . . . $(72,331) $(14,478) $10,907
$ 4,208
$ (71,694)
Comprehensive loss attributable to
noncontrolling interest
. . . . . . . . . . . . . .
—
—
(421)
—
(421)
Comprehensive net income (loss) attributable
to ION . . . . . . . . . . . . . . . . . . . . . . . . . . . $(72,331) $(14,478) $10,486
$ 4,208
$ (72,115)
F-47
Income Statement
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
Year Ended December 31, 2015
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 income attributable
$(27,096)
$ 20,553
$(50,551)
$29,966
$ (27,128)
to noncontrolling interest
. . . . . . .
—
—
32
—
32
Comprehensive net income (loss)
attributable to ION . . . . . . . . . . . . .
$(27,096)
$ 20,553
$(50,519)
$29,966
$ (27,096)
F-48
Statement of Cash Flows
Cash flows from operating activities:
Net cash provided by (used in) operating
Year Ended December 31, 2017
ION
Geophysical
Corporation Guarantors
The
All Other
Subsidiaries
Total
Consolidated
(In thousands)
activities . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(21,897)
$ 61,390
$(11,463)
$ 28,030
Cash flows from investing activities:
Investment in multi-client data library . . . . . . . . . .
Purchase of property, plant, equipment and seismic
. . . . . . . . . . . . . . . . . . . . . . .
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 . . . . . . . . . . .
Intercompany lending . . . . . . . . . . . . . . . . . . . . . .
Proceeds from employee stock purchases and
exercise of stock options . . . . . . . . . . . . . . . . . .
Dividend payment to non-controlling interest . . . . .
Other financing activities . . . . . . . . . . . . . . . . . . .
Net cash provided by (used in) financing
—
(11,797)
(11,913)
(23,710)
(165)
(165)
(1,591)
(53)
38,732
1,619
(100)
(243)
(817)
(81)
(1,063)
(12,614)
(11,994)
(24,773)
(3,167)
—
(45,609)
—
—
—
(58)
—
6,877
—
—
—
(4,816)
(53)
—
1,619
(100)
(243)
activities . . . . . . . . . . . . . . . . . . . . . . . . . . . .
38,364
(48,776)
6,819
(3,593)
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 . .
16,302
23,042
—
—
—
(260)
(260)
(16,898)
29,610
(596)
52,652
Cash and cash equivalents at end of period . . . . . .
$ 39,344
$
— $ 12,712
$ 52,056
F-49
Statement of Cash Flows
Cash flows from operating activities:
Net cash provided by (used in) operating
Year Ended December 31, 2016
ION
Geophysical
Corporation Guarantors
The
All Other
Subsidiaries
Total
Consolidated
(In thousands)
activities . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(30,154)
$ 52,385
$(20,660)
$ 1,571
Cash flows from investing activities:
Investment in multi-client data library . . . . . . . . . .
Purchase of property, plant, equipment and seismic
. . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sale of a cost-method investment . . .
Other investing activities . . . . . . . . . . . . . . . . . . . .
rental equipment
Net cash provided by (used in) investing
—
(10,985)
(3,899)
(14,884)
(73)
2,698
—
(343)
—
30
(1,072)
—
—
(1,488)
2,698
30
activities . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,625
(11,298)
(4,971)
(13,644)
Cash flows from financing activities:
Borrowings under revolving line of credit . . . . . . . .
Repayments under revolving line of credit . . . . . . .
Payments on notes payable and long-term debt
. . .
Cost associated with issuance of debt . . . . . . . . . . .
Repurchase of common stock . . . . . . . . . . . . . . . .
Intercompany lending . . . . . . . . . . . . . . . . . . . . . .
Payments to repurchase bonds
. . . . . . . . . . . . . . .
Other financing activities . . . . . . . . . . . . . . . . . . .
Net cash provided by (used in) financing
15,000
(5,000)
(2,070)
(6,744)
(964)
31,867
(15,000)
(252)
—
—
(6,316)
—
—
(34,771)
—
—
—
—
(248)
—
—
2,904
—
—
15,000
(5,000)
(8,634)
(6,744)
(964)
—
(15,000)
(252)
activities . . . . . . . . . . . . . . . . . . . . . . . . . . . .
16,837
(41,087)
2,656
(21,594)
Effect of change in foreign currency exchange rates
on cash and cash equivalents . . . . . . . . . . . . . . .
—
Net decrease in cash and cash equivalents . . . . .
Cash and cash equivalents at beginning of period . .
(10,692)
33,734
—
—
—
1,386
1,386
(21,589)
51,199
(32,281)
84,933
Cash and cash equivalents at end of period . . . . . .
$ 23,042
$
— $ 29,610
$ 52,652
F-50
Statement of Cash Flows
Cash flows from operating activities:
Net cash provided by (used in) operating
Year Ended December 31, 2015
ION
Geophysical
Corporation
The
Guarantors
All Other
Subsidiaries
Total
Consolidated
(In thousands)
activities . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(425,310) $ 225,581
$ 183,205
$ (16,524)
Cash flows from investing activities:
Investment in multi-client data library . . . . . . . . . .
Purchase of property, plant and equipment . . . . . .
Other investing activities . . . . . . . . . . . . . . . . . . .
Net cash used in investing activities . . . . . . . . . .
—
(347)
—
(347)
(44,687)
(3,945)
1,263
(871)
(14,949)
—
(45,558)
(19,241)
1,263
(47,369)
(15,820)
(63,536)
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 . . . . . . . . . . . . . . . . . . . . . .
Other financing activities . . . . . . . . . . . . . . . . . . .
(153)
(145)
(1,989)
352,091
73
(6,467)
—
—
(171,745)
—
(832)
—
—
(180,346)
—
(7,452)
(145)
(1,989)
—
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 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-51
SCHEDULE II
ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
Year Ended December 31, 2015
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 . . . . . . . . . .
Valuation allowance on deferred tax assets . . . . . . . .
Excess and obsolete inventory . . . . . . . . . . . . . . . . . .
$
7,633
4,000
205,264
29,804
$ 1,841
—
(11,009)
151
$(4,555)
—
—
(5,480)
$
4,919
4,000
194,255
24,475
Year Ended December 31, 2016
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 . . . . . . . . . .
Valuation allowance on deferred tax assets . . . . . . . .
Excess and obsolete inventory . . . . . . . . . . . . . . . . . .
$
4,919
4,000
194,255
24,475
$ 1,834
—
23,334
429
$(5,310)
—
—
(9,855)
$
1,443
4,000
217,589
15,049
Year Ended December 31, 2017
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 . . . . . . . . . .
Valuation allowance on deferred tax assets . . . . . . . .
Excess and obsolete inventory . . . . . . . . . . . . . . . . . .
$
1,443
4,000
217,589
15,049
$
949
—
(64,126)
398
$(1,820)
—
—
(408)
$
572
4,000
153,463
15,039
S-1
CORPORATE INFORMATION
EXECUTIVE OFFICERS
R. Brian Hanson
President and Chief Executive Officer
Steven A. Bate
Executive Vice President
and Chief Financial Officer
Matthew Powers
Executive Vice President, General Counsel
and Corporate Secretary
Colin T. Hulme
Executive Vice President,
Strategic Marketing and New Technologies,
Chief Executive Officer, OceanGeo B.V.
Christopher T. Usher
Executive Vice President and Chief Operating
Officer, Operations Optimization
Kenneth G. Williamson
Executive Vice President and Chief Operating
Officer, E&P Technology & Services
Lawrence T. Burke
Executive Vice President,
Global Human Resources
BOARD OF DIRECTORS
James M. Lapeyre, Jr.
Chairman of the Board
President, Laitram, L.L.C.
David H. Barr
Former President and Chief Executive Officer,
Logan International Inc.
R. Brian Hanson
President and Chief Executive Officer,
ION Geophysical Corporation
Zheng HuaSheng
Executive Vice President, BGP Inc.,
China National Petroleum Corporation
Michael C. Jennings
Chairman of the Board
HollyFrontier Corporation
Franklin Myers
Senior Advisor
Quantum Energy Partners
S. James Nelson, Jr.
Former Vice Chairman,
Cal Dive International, Inc.
(now Helix Energy Solutions Group, Inc.)
John N. Seitz
Chairman and Chief Executive Officer,
GulfSlope Energy, Inc.
INVESTOR RELATIONS
Stockholders, securities analysts, portfolio managers,
or brokers seeking information about the Company are
welcome to call Investor Relations at +1 281 933 3339. If
you prefer, you may send your requests to the Investor
Relations e-mail address: ir@iongeo.com. Recent news
releases, financial information, and SEC filings can be
downloaded from the Company’s website at iongeo.com.
ANNUAL REPORT ON FORM 10-K
ION Geophysical Corporation’s Annual Report on Form
10-K for the fiscal year ended December 31, 2017, as
amended, 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 100,
Houston, Texas 77042-2855.
ANNUAL MEETING
The Annual Meeting of Stockholders of
ION
Geophysical Corporation will be held at the offices of
the Company located at 2105 CityWest Blvd., Suite 100,
Houston, Texas, on May 16, 2018, at 10:30 AM CST.
STOCK TRANSFER AGENT
Computershare Investor Services
462 South 4th Street, Suite 1600
Louisville, KY 40202
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 Exhibits 31.1 and
31.2 to its Annual Report on Form 10-K/A for the
fiscal year ended December 31, 2017, filed with the
Securities and Exchange Commission, certificates of
the Chief Executive Officer and Chief Financial Officer
of the Company certifying the quality of the Company’s
public disclosure and the Company has submitted to
the New York Stock Exchange a certificate of the Chief
Executive Officer of the Company certifying that he is
not aware of any violation by the Company of the New
York Stock Exchange corporate governance listing
standards.
FORWARD-LOOKING STATEMENTS
to Stockholders contains or
This Annual Report
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 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
industry
future seismic
comparable terminology. Examples of other forward-
incorporated by
looking statements contained or
reference in this Annual Report to Stockholders include
statements regarding any additional damages or adverse
rulings in the WesternGeco litigation and future potential
adverse effects on our financial results and liquidity;
future levels of capital expenditures of our customers for
seismic activities; future oil and gas commodity prices;
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; future cash needs and availability of cash
to fund our operations and pay our obligations; the
effects 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
financial accounting purposes; the effects of ongoing
and future industry consolidation, including, in particular,
the effects of consolidation and vertical integration in
the marine towed streamer market; the timing of future
revenue realization of anticipated orders for multi-client
survey projects and data processing work in our E&P
Technology & Services 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 benefits to be derived from our OceanGeo
fundamentals,
subsidiary;
including future demand for seismic services and
equipment; future benefits to our customers to be
derived from new services and products; future benefits
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 financial covenants;
expectations regarding realization of deferred tax assets;
expectations regarding the impact of the U.S. Tax Cuts
and Jobs Act; anticipated results with respect to certain
estimates we make for financial accounting purposes;
and compliance with the U.S. Foreign Corrupt Practices
Act and other applicable U.S. and foreign laws prohibiting
corrupt payments to government officials and other third
parties. 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. 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 , as amended, for the fiscal
year ended December 31, 2017 in Part I, Item 1A. “Risk
Factors” and in other documents that we file from time
to time with the Securities and Exchange Commission.
ION Geophysical Corporation
2105 CityWest Blvd., Suite 100
Houston, TX 77042 USA
+1 281 933 3339
iongeo.com