ION GEOPHYSICAL CORP - FORM 10-Q

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EX-32.2 - CFO SECTION 906 CERTIFICATION - ION GEOPHYSICAL CORP	ex322cfosec906cert06302014.htm
EX-32.1 - CEO SECTION 906 CERTIFICATION - ION GEOPHYSICAL CORP	ex321ceosec906cert06302014.htm
EXCEL - IDEA: XBRL DOCUMENT - ION GEOPHYSICAL CORP	Financial_Report.xls
EX-31.1 - CEO SECTION 302 CERTIFICATION - ION GEOPHYSICAL CORP	ex311ceosec302cert06302014.htm
EX-31.2 - CFO SECTION 302 CERTIFICATION - ION GEOPHYSICAL CORP	ex312cfosec302cert06302014.htm

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q



ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2014



¨	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		22-2286646
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)



2105 CityWest Blvd.
Suite 400
Houston, Texas		77042-2839
(Address of principal executive offices)		(Zip Code)

REGISTRANT’S TELEPHONE NUMBER, INCLUDING AREA CODE: (281) 933-3339

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 ý No ¨

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 ý No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):



Large accelerated filer	ý	Accelerated filer	o

Non-accelerated filer	o (Do not check if a smaller reporting company)	Smaller reporting company	o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No ý

At July 25, 2014, there were 164,086,011 shares of common stock, par value $0.01 per share, outstanding.

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ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES

TABLE OF CONTENTS FOR FORM 10-Q

FOR THE QUARTER ENDED JUNE 30, 2014



	PAGE
PART I. Financial Information
Item 1. Financial Statements	3
Condensed Consolidated Balance Sheets as of June 30, 2014 and December 31, 2013	3
Condensed Consolidated Statements of Operations for the three- and six-months ended June 30, 2014 and 2013	4
Condensed Consolidated Statements of Comprehensive Income (Loss) for the three- and six-months ended June 30, 2014 and 2013	5
Condensed Consolidated Statements of Cash Flows for the six-months ended June 30, 2014 and 2013	6
Notes to Unaudited Condensed Consolidated Financial Statements	7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
Item 3. Quantitative and Qualitative Disclosures about Market Risk	33
Item 4. Controls and Procedures	33

PART II. Other Information
Item 1. Legal Proceedings	34
Item 1A. Risk Factors	35
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	37
Item 5. Other Information	37
Item 6. Exhibits	38

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)



	June 30, 2014			December 31, 2013
	( In thousands, except share data)
ASSETS
Current assets:
Cash and cash equivalents	$	157,779		$	148,056
Accounts receivable, net	85,800			149,448
Unbilled receivables	63,769			49,468
Inventories	55,322			57,173
Prepaid expenses and other current assets	34,526			24,772
Total current assets	397,196			428,917
Deferred income tax asset	14,339			14,650
Property, plant, equipment and seismic rental equipment, net	59,623			46,684
Multi-client data library, net	246,054			238,784
Equity method investments	44,995			53,865
Goodwill	51,626			55,876
Intangible assets, net	9,932			11,247
Other assets	15,604			14,648
Total assets	$	839,369		$	864,671
LIABILITIES AND EQUITY
Current liabilities:
Current maturities of long-term debt	$	10,664		$	5,906
Accounts payable	36,181			22,654
Accrued expenses	81,460			84,358
Accrued multi-client data library royalties	23,981			46,460
Deferred revenue	15,766			20,682
Total current liabilities	168,052			180,060
Long-term debt, net of current maturities	179,992			214,246
Other long-term liabilities	143,082			210,602
Total liabilities	491,126			604,908
Redeemable noncontrolling interests	6,846			1,878
Equity:
Common stock, $0.01 par value; authorized 200,000,000 shares; outstanding 164,086,011 and 163,737,757 shares at June 30, 2014 and December 31, 2013, respectively, net of treasury stock	1,641			1,637
Additional paid-in capital	884,796			879,969
Accumulated deficit	(528,990		)	(606,157		)
Accumulated other comprehensive loss	(9,854		)	(11,138		)
Treasury stock, at cost, 849,539 shares at both June 30, 2014 and December 31, 2013	(6,565		)	(6,565		)
Total stockholders’ equity	341,028			257,746
Noncontrolling interests	369			139
Total equity	341,397			257,885
Total liabilities and equity	$	839,369		$	864,671

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

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ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)



	Three Months Ended June 30,						Six Months Ended June 30,
	2014			2013			2014			2013
	(In thousands, except per share data)
Service revenues	$	89,767		$	89,603		$	200,463		$	179,552
Product revenues	31,713			31,312			65,715			71,100
Total net revenues	121,480			120,915			266,178			250,652
Cost of services	68,341			66,965			140,412			136,238
Cost of products	14,911			17,332			30,684			42,839
Gross profit	38,228			36,618			95,082			71,575
Operating expenses:
Research, development and engineering	10,305			9,087			19,344			18,377
Marketing and sales	9,917			8,968			19,130			16,948
General, administrative and other operating expenses	14,221			11,793			33,152			27,557
Total operating expenses	34,443			29,848			71,626			62,882
Income from operations	3,785			6,770			23,456			8,693
Interest expense, net	(4,934		)	(2,756		)	(9,731		)	(3,822		)
Equity in losses of investments	(1,781		)	(6,338		)	(3,469		)	(5,222		)
Other income (expense), net	6,066			(107,118		)	74,592			(106,091		)
Income (loss) before income taxes	3,136			(109,442		)	84,848			(106,442		)
Income tax expense (benefit)	653			(38,705		)	5,916			(37,504		)
Net income (loss)	2,483			(70,737		)	78,932			(68,938		)
Net (income) loss attributable to noncontrolling interests	(1,295		)	(59		)	(1,765		)	17
Net income (loss) attributable to ION	1,188			(70,796		)	77,167			(68,921		)
Preferred stock dividends	—			338			—			676
Net income (loss) applicable to common shares	$	1,188		$	(71,134	)	$	77,167		$	(69,597	)
Net income (loss) per share:
Basic	$	0.01		$	(0.45	)	$	0.47		$	(0.44	)
Diluted	$	0.01		$	(0.45	)	$	0.47		$	(0.44	)
Weighted average number of common shares outstanding:
Basic	164,063			156,910			163,956			156,689
Diluted	164,423			156,910			164,243			156,689

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

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ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(UNAUDITED)



	Three Months Ended June 30,						Six Months Ended June 30,
	2014			2013			2014			2013
	(In thousands)
Net income (loss)	$	2,483		$	(70,737	)	$	78,932		$	(68,938	)
Other comprehensive income (loss), net of taxes, as appropriate:
Foreign currency translation adjustments	2,635			597			3,121			(3,044		)
Equity interest in investees' other comprehensive loss	(690		)	(526		)	(1,863		)	(549		)
Other changes in other comprehensive income	—			347			26			355
Total other comprehensive income (loss), net of taxes	1,945			418			1,284			(3,238		)
Comprehensive net income (loss)	4,428			(70,319		)	80,216			(72,176		)
Comprehensive (income) loss attributable to noncontrolling interest	(1,295		)	(59		)	(1,765		)	17
Comprehensive net income (loss) attributable to ION	$	3,133		$	(70,378	)	$	78,451		$	(72,159	)

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

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ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)



	Six Months Ended June 30,
	2014			2013
	(In thousands)
Cash flows from operating activities:
Net income (loss)	$	78,932		$	(68,938	)
Adjustments to reconcile net income (loss) to cash provided by operating activities:
Depreciation and amortization (other than multi-client data library)	13,785			8,302
Amortization of multi-client data library	34,257			36,679
Stock-based compensation expense	5,033			3,831
Equity in losses of investments	3,469			5,222
Accrual for (reduction of) loss contingency related to legal proceedings	(69,557		)	110,000
Gain on sale of Source product line	(6,522		)	—
Gain on sale of cost-method investment	—			(3,591		)
Deferred income taxes	(5,612		)	(48,627		)
Change in operating assets and liabilities:
Accounts receivable	73,254			34,259
Unbilled receivables	(14,236		)	(9,160		)
Inventories	(3,197		)	(8,993		)
Accounts payable, accrued expenses and accrued royalties	(30,807		)	(11,391		)
Deferred revenue	(4,988		)	(8,242		)
Other assets and liabilities	2,927			4,026
Net cash provided by operating activities	76,738			43,377
Cash flows from investing activities:
Cash invested in multi-client data library	(34,317		)	(48,599		)
Purchase of property, plant, equipment and seismic rental assets	(4,543		)	(8,963		)
Repayment of advances by INOVA Geophysical	1,000			—
Investment in and advances to OceanGeo B.V.	(3,683		)	(9,500		)
Cash of OceanGeo B.V. upon acquiring a controlling interest	609			—
Net proceeds from sale of Source product line	14,394			—
Proceeds from sale of a cost-method investment	—			4,150
Investment in convertible note	—			(2,000		)
Other investing activities	605			76
Net cash used in investing activities	(25,935		)	(64,836		)
Cash flows from financing activities:
Proceeds from issuance of notes	—			175,000
Borrowings under revolving line of credit	15,000			—
Payments under revolving line of credit	(50,000		)	(97,250		)
Payments on notes payable and long-term debt	(5,595		)	(1,815		)
Cost associated with issuance of notes	—			(6,731		)
Payment of preferred dividends	—			(676		)
Proceeds from employee stock purchases and exercise of stock options	340			1,972
Other financing activities	(679		)	302
Net cash (used in) provided by financing activities	(40,934		)	70,802
Effect of change in foreign currency exchange rates on cash and cash equivalents	(146		)	(813		)
Net increase in cash and cash equivalents	9,723			48,530
Cash and cash equivalents at beginning of period	148,056			60,971
Cash and cash equivalents at end of period	$	157,779		$	109,501

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

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ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(1) Basis of Presentation

The condensed consolidated balance sheet of ION Geophysical Corporation and its subsidiaries (collectively referred to as the “Company” or “ION,” unless the context otherwise requires) at December 31, 2013 has been derived from the Company’s audited consolidated financial statements at that date. The condensed consolidated balance sheet at June 30, 2014, and the condensed consolidated statements of operations and comprehensive income (loss) for the three and six months ended June 30, 2014 and 2013 and the condensed consolidated statements of cash flows for the six months ended June 30, 2014 and 2013, are unaudited. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. The results of operations for the three and six months ended June 30, 2014 are not necessarily indicative of the operating results for a full year or of future operations.

These condensed consolidated financial statements have been prepared using accounting principles generally accepted in the United States for interim financial information and the instructions to Form 10-Q and applicable rules of Regulation S-X of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in annual financial statements presented in accordance with accounting principles generally accepted in the United States have been omitted. The accompanying condensed consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2013 and Amendment No. 1 thereto on Form 10-K/A, which was filed on March 28, 2014 and contains the separate consolidated financial statements of INOVA Geophysical Equipment Limited (“INOVA Geophysical”) for its fiscal year ended December 31, 2013.

(2) Acquisition of Controlling Interest in OceanGeo

In February 2013, the Company acquired 30% of OceanGeo B.V. (“OceanGeo”), the Company’s seabed data acquisition joint venture. In October 2013, the Company reached agreement with its joint venture partner in OceanGeo, Georadar Levantamentos Geofisicos S/A (“Georadar”), for the Company to have the option to increase its ownership percentage in OceanGeo from 30% to 70%, subject to certain conditions. OceanGeo is headquartered in Rio de Janeiro, Brazil, and specializes in seismic acquisition operations using ocean bottom cables deployed from vessels leased by OceanGeo.

To further assist OceanGeo in acquiring backlog, in October 2013, the Company also agreed to loan OceanGeo additional funds for working capital, as necessary, up to a maximum of $25.0 million. Prior to obtaining the controlling interest in OceanGeo, the Company advanced a total of $18.9 million to OceanGeo.

In late January 2014, the Company acquired an additional 40% interest in OceanGeo, through the conversion of certain outstanding amounts loaned to OceanGeo by the Company into additional equity interests of OceanGeo, bringing the Company’s total equity interest in OceanGeo to 70% and giving the Company control over OceanGeo. The Company has included in its results of operations, the results of OceanGeo from the date of the Company’s acquisition of the controlling interest.

The Company acquired its ownership interest in OceanGeo as part of its strategy to expand the range of service offerings it can provide to oil and gas exploration and production customers and to put its Calypso^® seabed acquisition technology to work in a service model to meet the growing demand for seabed seismic services. In June 2014, the Company reached an agreement with Georadar to acquire the remaining 30% owned by Georadar. However, the acquisition of the remaining 30% was not completed as of June 30, 2014 (see “— Subsequent Event” below).

In July, the Company paid $6.0 million to Georadar and increased its equity interest in OceanGeo to 100%. In addition to the $6.0 million purchase price, the Company also agreed to pay Georadar the amount of $5.0 million, contingent upon the occurrence of certain future events, including the award of a future material project in 2014 and a minimal amount of vessel downtime. Since the initial investment in early 2013, the Company has invested or contributed assets totaling approximately $40.5 million to OceanGeo.

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The acquisition of the controlling interest was accounted for by the acquisition method, whereby the assets acquired and liabilities assumed were recorded at their fair values as of the acquisition date based on an income approach. The estimated fair value of the assets acquired and liabilities assumed approximated the purchase price and therefore no goodwill or bargain purchase was recognized. As of June 30, 2014, the allocation of the purchase price of OceanGeo was based upon preliminary fair value studies and may be subject to change as additional information becomes available. In connection with the acquisition, the Company incurred $1.3 million in acquisition-related transaction costs related to professional services and fees. These costs were expensed as incurred and were included in other income (expense), net in the Company’s condensed consolidated statement of operations for the six months ended June 30, 2014. As a result of consolidating OceanGeo’s results into the Company’s consolidated results of operations for the period from the acquisition date at the end of January 2014 to June 30, 2014, the Company’s results of operations include $25.9 million of OceanGeo revenues and $6.5 million of income from OceanGeo’s operations for the three months ended June 30, 2014, and $46.5 million of OceanGeo revenues and $10.7 million of income from OceanGeo’s operations for the six months ended June 30, 2014. The following table summarizes the fair value assigned to the assets acquired and liabilities assumed, as well as the noncontrolling interest, at the acquisition date (in thousands):



Estimated Fair Value of Assets Acquired and Liabilities Assumed:
Cash and cash equivalents	$	609
Accounts receivable	9,247
Prepaid expenses and other current assets	1,433
Multi-client data library	3,876
Property, plant, equipment and seismic rental equipment, net	14,598
Other assets	2,227
Total identifiable assets	31,990
Accounts payable and accrued liabilities	(13,464		)
Bank loans	(6,135		)
Other liabilities	(1,026		)
Net assets	11,365
Noncontrolling interest	(3,410		)
Total consideration	$	7,955

The following summarized unaudited pro forma consolidated income statement information for the six months ended June 30, 2014 and 2013 and for the three months ended June 30, 2013, assumes that the OceanGeo acquisition had occurred as of the beginning of the periods presented. The Company has prepared these unaudited pro forma financial results for comparative purposes only. These unaudited pro forma financial results may not be indicative of the results that would have occurred if ION had completed the acquisition as of the beginning of the periods presented or the results that may be attained in the future. Amounts presented below are in thousands, except for the per share amounts:



Pro forma Consolidated ION Income Statement Information	Three Months Ended June 30, 2013			Six Months Ended June 30,
Pro forma Consolidated ION Income Statement Information	Three Months Ended June 30, 2013			2014		2013
Net revenues	$	134,613		$	275,362	$	282,319
Income from operations	$	2,867		$	26,730	$	7,158
Net income (loss)	$	(73,073	)	$	79,649	$	(69,063	)
Net income (loss) attributable to ION	$	(71,948	)	$	77,448	$	(68,784	)
Basic net income (loss) per common share	$	(0.46	)	$	0.47	$	(0.44	)
Diluted net income (loss) per common share	$	(0.46	)	$	0.47	$	(0.44	)

(3) Segment Information

The Company operates through four business segments – Solutions, Systems, Software and Ocean Bottom Services (the segment name for OceanGeo) – as well as through its INOVA Geophysical joint venture. See Note 4 “Equity Method Investments” for the summarized financial information for INOVA Geophysical. The Company measures segment operating results based on income from operations.

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A summary of segment information is as follows (in thousands):



	Three Months Ended June 30,						Six Months Ended June 30,
	2014			2013			2014			2013
Net revenues:
Solutions:
New Venture	$	25,315		$	33,249		$	58,053		$	81,685
Data Library	13,625			21,521			26,842			30,969
Total multi-client revenues	38,940			54,770			84,895			112,654
Data Processing	23,694			33,849			66,980			65,135
Total	$	62,634		$	88,619		$	151,875		$	177,789
Systems:
Towed Streamer	$	10,265		$	12,570		$	22,116		$	26,119
Ocean Bottom Equipment	—			383			—			7,148
Other	12,140			10,895			25,137			22,428
Total	$	22,405		$	23,848		$	47,253		$	55,695
Software:
Software Systems	$	9,308		$	7,464		$	18,462		$	15,405
Services	1,225			984			2,110			1,763
Total	$	10,533		$	8,448		$	20,572		$	17,168
Ocean Bottom Services	$	25,908		$	—		$	46,478		$	—
Total	$	121,480		$	120,915		$	266,178		$	250,652
Gross profit:
Solutions	$	12,269		$	21,890		$	45,280		$	42,087
Systems	9,748			8,802			21,165			17,182
Software	7,805			5,926			15,062			12,306
Ocean Bottom Services	8,406			—			13,575			—
Total	$	38,228		$	36,618		$	95,082		$	71,575
Gross margin:
Solutions	20		%	25		%	30		%	24		%
Systems	44		%	37		%	45		%	31		%
Software	74		%	70		%	73		%	72		%
Ocean Bottom Services	32		%	—		%	29		%	—		%
Total	31		%	30		%	36		%	29		%
Income from operations:
Solutions	$	(1,419	)	$	11,021		$	17,693		$	18,378
Systems	3,547			1,504			6,918			2,438
Software	5,630			4,955			10,758			10,116
Ocean Bottom Services	6,494			—			10,656			—
Corporate and other	(10,467		)	(10,710		)	(22,569		)	(22,239		)
Income from operations	3,785			6,770			23,456			8,693
Interest expense, net	(4,934		)	(2,756		)	(9,731		)	(3,822		)
Equity in losses of investments	(1,781		)	(6,338		)	(3,469		)	(5,222		)
Other income (expense), net	6,066			(107,118		)	74,592			(106,091		)
Income (loss) before income taxes	$	3,136		$	(109,442	)	$	84,848		$	(106,442	)

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(4) Equity Method Investments

The following table reflects the change in the Company’s equity method investments during the six months ended June 30, 2014 (in thousands):



	INOVA Geophysical			OceanGeo			Total
Investments at December 31, 2013	$	51,065		$	2,800		$	53,865
Equity in earnings (losses) of investments	(4,207		)	738			(3,469		)
Advances to OceanGeo (prior to consolidation)	—			3,683			3,683
Acquisition of controlling interest (consolidation) of OceanGeo	—			(7,221		)	(7,221		)
Equity interest in investees' other comprehensive loss	(1,863		)	—			(1,863		)
Investments at June 30, 2014	$	44,995		$	—		$	44,995

INOVA Geophysical — The Company accounts for its 49% interest in INOVA Geophysical as an equity method investment and records its share of earnings and losses of INOVA Geophysical on a one fiscal quarter lag basis. For the three and six months ended June 30, 2014, the Company recorded its share of losses from INOVA Geophysical of $(1.8) million and $(4.2) million, respectively, compared to its share of losses for the corresponding periods in 2013, of $(4.7) million and $(2.9) million, respectively. The following table reflects the summarized financial information for INOVA Geophysical for the three months ended March 31, 2014 and 2013 and the six-month periods from October 1, 2013 to March 31, 2014 and 2013 (in thousands):



	Three Months Ended March 31,						Six-Month Period from October 1 through March 31,
	2014			2013			2014			2013
Net revenues	$	26,506		$	22,095		$	66,682		$	81,706
Gross profit	$	5,236		$	1,808		$	10,184		$	14,135
Loss from operations	$	(2,576	)	$	(8,511	)	$	(6,243	)	$	(8,761	)
Net loss	$	(3,634	)	$	(9,772	)	$	(8,585	)	$	(6,030	)

Related Party Transactions

For information regarding transactions between the Company and its equity method investees, see Note 14 “Related Party Transactions.”

(5) Long-term Debt



Obligations (in thousands)	June 30, 2014			December 31, 2013
Senior secured second-priority notes	$	175,000		$	175,000
Revolving line of credit	—			35,000
Equipment capital leases	10,416			8,651
OceanGeo Brazil bank debt	4,201			—
Facility capital lease obligation	1,039			1,501
Total	190,656			220,152
Current portion of long-term debt and lease obligations	(10,664		)	(5,906		)
Non-current portion of long-term debt and lease obligations	$	179,992		$	214,246

Senior Secured Second-Priority Notes

In May 2013, the Company sold $175.0 million aggregate principal amount of 8.125% Senior Secured Second-Priority Notes due 2018 (“Notes”) in a private offering pursuant to an Indenture dated as of May 13, 2013. The Notes are senior secured second-priority obligations of the Company, are guaranteed by certain of the Company’s U.S. subsidiaries, and mature on May 15, 2018. Interest on the Notes accrues at the rate of 8.125% per annum and will be payable semiannually in arrears on May 15 and November 15 of each year during their term. In May 2014, the holders of the Notes exchanged their Notes for a like principal amount of registered Notes with the same terms.

On or after May 15, 2015, the Company may on one or more occasions redeem all or a part of the Notes at the redemption prices set forth below, plus accrued and unpaid interest and special interest, if any, on the Notes redeemed during the 12-month period beginning on May 15th of the years indicated below:

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Date		Percentage
2015		104.063%
2016		102.031%
2017 and thereafter		100.000%

The Notes are initially jointly and severally guaranteed on a senior secured basis by each of the Company’s current material U.S. subsidiaries: GX Technology Corporation, ION Exploration Production (U.S.A.), Inc. and I/O Marine Systems, Inc. (the “Notes Guarantors”). The Notes and the guarantees are secured, subject to certain exceptions and permitted liens, by second-priority liens on substantially all of the assets that secure the indebtedness under the Company’s senior first-priority secured credit facility with China Merchants Bank Co., Ltd., New York Branch (“CMB”), as administrative agent and lender under the facility (see “— Revolving Line of Credit” below). The indebtedness under the Notes is effectively junior to the Company’s obligations under the senior secured credit facility to the extent of the value of the collateral securing the facility, and to any other indebtedness secured on a first-priority basis to the extent of the value of the Company’s assets subject to those first-priority security interests.

The Notes contain certain covenants that, among other things, limit the Company’s ability and the ability of its restricted subsidiaries to take certain actions or permit certain conditions to exist during the term of the Notes. These limits apply to making certain investments, incurring additional indebtedness, selling assets, paying dividends, issuing preferred stock, carrying out mergers or consolidations, and certain other transactions. These and other restrictive covenants contained in the Indenture are subject to important exceptions and qualifications. All of the Company’s subsidiaries are currently restricted subsidiaries. As of June 30, 2014, the Company was in compliance with these covenants.

In connection with the offering of the Notes, the Company entered into a consent agreement with CMB, as administrative agent and lender under the Company’s senior secured credit facility. See “— Revolving Line of Credit” below.

In connection with the issuance of the Notes, the Company and the Notes Guarantors entered into a second lien intercreditor agreement (the “Intercreditor Agreement”) with, among others, CMB, as administrative agent, first lien representative for the first lien secured parties and collateral agent for the first lien secured parties, the trustee under the Indenture and the collateral agent for the second lien secured parties. The Intercreditor Agreement provides, among other things, that the liens on the collateral securing the Notes and related obligations will be junior and subordinate in all respects to the liens on the collateral securing the Company’s senior secured credit facility and related obligations.

Revolving Line of Credit

In May 2012, the Company amended the terms of its senior secured credit facility (the “Credit Facility”) with CMB, as administrative agent and lender. The First Amendment to the Credit Agreement and Loan Documents (the “First Amendment”) modified certain provisions of the Company’s senior credit agreement with CMB that it had entered into in March 2010. The maturity date of any outstanding debt under the Credit Facility is March 24, 2015.

As amended by the First Amendment, the Credit Facility provides that the Company may make revolving credit borrowings in U.S. Dollars, Euros, British Pounds Sterling or Canadian Dollars up to an amount not to exceed the U.S. Dollar equivalent of $175.0 million. The Company also agreed that no additional borrowings may be made at any time at which the outstanding indebtedness under the revolving line of credit (principal, accrued interest and fees) exceeds the U.S. Dollar equivalent of $175.0 million. The First Amendment eliminated sub-facility limits under the Credit Facility.

The Company’s obligations under the Credit Facility continue to be guaranteed by certain of its material U.S. subsidiaries that remain as parties to the Credit Facility. In addition, INOVA Geophysical continues to provide a bank stand-by letter of credit as credit support for the Company’s obligations under the Credit Facility. The Company also entered into a credit support agreement with INOVA Geophysical whereby the Company has agreed to indemnify INOVA Geophysical for any and all losses sustained by INOVA Geophysical that arise out of INOVA Geophysical’s guarantee.

As amended by the First Amendment, the interest rates per annum on borrowings under the Credit Facility are, at the Company’s option:


•	an alternate base rate equal to the sum of (i) the greatest of (a) the prime rate of CMB, (b) a federal funds effective rate plus 0.50%, or (c) an adjusted LIBOR-based rate plus 1.0%, and (ii) an applicable interest margin of 1.4% (reduced from 2.5%); or


•	for eurodollar borrowings and borrowings in Euros, Pounds Sterling or Canadian Dollars, the sum of (i) an adjusted LIBOR-based rate, and (ii) an applicable interest margin of 2.4% (reduced from 3.5%).

As of June 30, 2014, no borrowed amounts were outstanding under the Credit Facility.

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The Credit Facility requires compliance with certain financial covenants, including the following:


•	maintain a minimum fixed charge coverage ratio, as defined, in an amount equal to at least 1.125 to 1;


•	not exceed a maximum leverage ratio, as defined, of 3.25 to 1; and


•	maintain a minimum tangible net worth of at least 60% of the Company’s tangible net worth as of March 31, 2010, as defined.

As of June 30, 2014, the Company was in compliance with these financial covenants.

OceanGeo Brazil Bank Debt

In connection with the Company’s acquisition of a controlling interest in OceanGeo, OceanGeo’s existing debt was consolidated into the Company’s accounts. As of June 30, 2014, the outstanding amount, denominated in Brazilian Reais, of this debt was $4.2 million, with various maturity dates in 2014 and 2015; the latest being November 3, 2015. Interest on this debt accrues at an average rate of 15.42%. In July 2014, OceanGeo repaid this debt in full.

(6) Net Income (Loss) per 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 issued or reserved for future issuance under outstanding stock options at June 30, 2014 and 2013 was 9,425,725 and 7,313,250, respectively, and the total number of shares of restricted stock and shares reserved for restricted stock units outstanding at June 30, 2014 and 2013 was 1,211,462 and 989,354, respectively. All outstanding stock awards for the three and six months ended June 30, 2013 were anti-dilutive.

Prior to September 30, 2013, there were 27,000 shares outstanding of the Company’s Series D Cumulative Convertible Preferred Stock (“Series D Preferred Stock”). In September 2013, the holder converted all of the outstanding shares of Series D Preferred Stock into 6,065,075 shares of common stock. The then-outstanding shares of Series D Preferred Stock were anti-dilutive for the three and six months ended June 30, 2013.

The following table summarizes the computation of basic and diluted net income (loss) per common share (in thousands, except per share amounts):



	Three Months Ended June 30,					Six Months Ended June 30,
	2014		2013			2014		2013
Net income (loss) applicable to common shares	$	1,188	$	(71,134	)	$	77,167	$	(69,597	)
Weighted average number of common shares outstanding	164,063		156,910			163,956		156,689
Effect of dilutive stock awards	360		—			287		—
Weighted average number of diluted common shares outstanding	164,423		156,910			164,243		156,689
Basic net income (loss) per share	$	0.01	$	(0.45	)	$	0.47	$	(0.44	)
Diluted net income (loss) per share	$	0.01	$	(0.45	)	$	0.47	$	(0.44	)

(7) Income Taxes

The Company maintains a valuation allowance for substantially all of its deferred tax assets. The valuation allowance is calculated in accordance with the provisions of the Financial Accounting Standards Board’s (“FASB”) Accounting Standard Codification Topic 740 “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. In the event the Company’s expectations of future operating results change, the valuation allowance may need to be adjusted upward or downward. As of June 30, 2014, the Company’s unreserved net U.S. deferred tax assets totaled $4.6 million. These existing unreserved deferred tax assets are currently considered to be “more likely than not” realized.

The Company’s effective tax rates for the three months ended June 30, 2014 and 2013 were 20.8% and 35.4%, and for the six months ended June 30, 2014 and 2013 were 7.0% and 35.2%, respectively. The Company’s effective tax rate for the six months ended June 30, 2014 was positively impacted by the change in valuation allowance related to the reduction of the legal contingency reserve, offset by the impact of pre-tax losses of OceanGeo within certain jurisdictions for which it could not recognize a tax benefit to offset its tax expenses. Excluding the change in valuation allowance, the Company’s effective tax rate for the six months ended June 30, 2014 was 35.7%.

The Company has approximately $2.2 million of unrecognized tax benefits and does not expect to recognize significant increases in unrecognized tax benefits during the next 12-month period. Interest and penalties, if any, related to unrecognized tax benefits are recorded in income tax expense.

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As of June 30, 2014, the Company’s U.S. federal tax returns for 2007 and subsequent years remain subject to examination by tax authorities. The Company is no longer subject to U.S. Internal Revenue Service (“IRS”) examination for periods prior to 2007, although carryforward attributes that were generated prior to 2007 may still be adjusted upon examination by the IRS if they either have been or will be used in an open year. In the Company’s foreign tax jurisdictions, tax returns for 2010 and subsequent years generally remain open to examination.

(8) Litigation

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, ruling that WesternGeco is entitled to be awarded supplemental damages for the additional DigiFIN units that were supplied from the United States before and after trial that were not included in the jury verdict due to the timing of the trial. In October 2013, the judge entered another Memorandum and Order, ruling on the number of DigiFIN units that are subject to supplemental damages and also ruling that the supplemental damages applicable to the additional units should be calculated by adding together the jury’s previous reasonable royalty and lost profits damages awards per unit, resulting in supplemental damages of $73.1 million.

In April 2014, the judge entered another Order, ruling that lost profits should not have been included in the calculation of supplemental damages in the October 2013 Memorandum and Order and reducing the supplemental damages award in the case from $73.1 million to $9.4 million. In the Order, the judge also further reduced the damages award in the case by $3.0 million to reflect a settlement and license that WesternGeco entered into with a customer of the Company that had purchased and used DigiFIN units that were also included in the damages amounts awarded against the Company.

In May 2014, the judge signed and entered a Final Judgment in the amount of $123.8 million. Also, the Final Judgment included an injunction that enjoins the Company, its servants, agents and anyone acting in concert with it, from supplying in or from the United States the DigiFIN product or any parts unique to the DigiFIN product, or any instrumentality no more than colorably different from any of these products or parts, for combination outside of the United States. The Company has conducted its business in compliance with the Court’s orders in the case, and the Company has reorganized its operations such that it no longer supplies the DigiFIN product or any parts unique to the DigiFIN product in or from the United States.

As previously disclosed, the Company has taken a loss contingency accrual of $123.8 million related to this case. Post-judgment interest will continue to accrue until this legal matter is fully resolved. The Company’s assessment of its potential loss contingency may change in the future due to developments in the case and other events, such as changes in applicable law, and such reassessment could lead to the determination that no loss contingency is probable or that a greater or lesser loss contingency is probable. Any such reassessment could have a material effect on the Company’s financial condition or results of operations.

The Company and WesternGeco have each appealed the Final Judgment to the United States Court of Appeals for the Federal Circuit. In order to stay the judgment during the appeal, the Company arranged with sureties to post an appeal bond with the trial court on the Company’s behalf in the amount of $120.0 million. The terms of the appeal bond arrangements provide the sureties the contractual right for as long as the bond is outstanding to require the Company to post cash collateral for up to the full amount of the bond; however, the sureties have not required cash collateral upon the posting of the appeal bond. If the sureties exercise their right to require collateral while the appeal bond is outstanding, the Company would intend to utilize a combination of cash on hand and undrawn balances available under the Company’s Credit Facility. If the Company is required to collateralize the full amount of the bond, the Company might also seek additional debt and/or equity financing. The collateralization of the full amount of the bond could have an adverse effect on the Company’s liquidity. Any requirements that the Company collateralize the appeal bond will reduce its liquidity and may reduce the borrowings otherwise available under its Credit Facility. The current maturity date of any outstanding debt under the Company’s Credit Facility is March 2015. No assurances can be made whether the Company’s efforts to raise additional cash would be successful and, if so, on what terms and conditions, and at what cost the Company might be able to secure any such financing. The Company will incur fees of approximately $2.0 million per year to maintain the appeal bond until such time as the appeal bond is no longer required.

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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.

(9) Other Income (Expense), Net

A summary of other income (expense), net is as follows (in thousands):



	Three Months Ended June 30,						Six Months Ended June 30,
	2014			2013			2014			2013
Reduction of (accrual for) loss contingency related to legal proceedings (Note 8)	$	—		$	(110,000	)	$	69,557		$	(110,000	)
Gain on sale of product line⁽¹⁾	6,522			—			6,522			—
Gain on sale of a cost-method investment	—			3,591			—			3,591
Other income (expense), net	(456		)	(709		)	(1,487		)	318
Total other income (expense), net	$	6,066		$	(107,118	)	$	74,592		$	(106,091	)


⁽¹⁾	In May 2014, the Company sold its Source product line for approximately $14.4 million, net of transaction fees, recording a gain of approximately $6.5 million before taxes. As a part of this transaction, the Company reduced Goodwill on the Marine reporting unit by $5.1 million. The historical results of this product line have not been material to the Company’s results of operations.

(10) Details of Selected Balance Sheet Accounts

Inventories



A summary of inventories is as follows (in thousands):	June 30, 2014			December 31, 2013
Raw materials and subassemblies	$	51,975		$	54,168
Work-in-process	4,434			2,297
Finished goods	25,306			33,263
Reserve for excess and obsolete inventories	(26,393		)	(32,555		)
Total	$	55,322		$	57,173

Other Long-term Liabilities



A summary of other long-term liabilities is as follows (in thousands):	June 30, 2014		December 31, 2013
Accrual for loss contingency related to legal proceedings (Note 8)	$	123,770	$	193,327
Facility abandonment restructuring accrual	4,722		4,837
Other long-term liabilities	14,590		12,438
Total	$	143,082	$	210,602

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(11) Accumulated Other Comprehensive Income (Loss)

A summary of changes in accumulated other comprehensive loss by component is as follows (in thousands):



	Foreign currency translation adjustments			Equity interest in investees’ other comprehensive income (loss)			Other changes in other comprehensive income (loss)			Total
Accumulated other comprehensive income (loss) at December 31, 2013	$	(11,923	)	$	841		$	(56	)	$	(11,138	)
Net current-period other comprehensive income (loss)	3,121			(1,863		)	26			1,284
Accumulated other comprehensive loss at June 30, 2014	$	(8,802	)	$	(1,022	)	$	(30	)	$	(9,854	)

(12) Supplemental Cash Flow Information and Non-cash Activity

A summary of non-cash items from investing and financing activities is as follows (in thousands):



	Six Months Ended June 30,
	2014		2013
Cash paid during the period for:
Interest	$	8,803	$	1,662
Income taxes	$	7,326	$	11,146
Non-cash items from investing and financing activities:
Purchases of computer equipment financed through capital leases	$	4,780	$	2,465
Leasehold improvement paid by landlord	$	—	$	1,738
Conversion of investment in a convertible note to equity	$	—	$	6,765
Transfer of inventory to property, plant, equipment and seismic rental equipment	$	2,308	$	—
Investment in multi-client data library financed through trade payables	$	2,773	$	—

(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.

Investment in Convertible Note. In March 2012, the Company and a privately owned U.S.-based technology company entered into an agreement for the Company to make available to the technology company a credit facility in an amount of up to $4.0 million. The credit facility has since been amended such that the current maturity date is March 2015, the annual interest rate is 0.25%, and the conversion provision allows for conversion of any or all of the outstanding balance of the promissory note under the credit facility into common shares of the technology company. As of June 30, 2014, the technology company had drawn $4.0 million under this credit arrangement.

The Company performed a fair value analysis with respect to its investment in the convertible note using Level 3 inputs. These inputs included a market approach, including the terms and likelihood of an investment event. As of June 30, 2014, the fair value of this investment was approximately $4.2 million, including accrued interest.

Fair Value of Other Financial Instruments. Due to their highly liquid nature, the amount of the Company’s other financial instruments, including cash and cash equivalents, accounts and unbilled receivables, notes receivable, accounts payable, and accrued multi-client data library royalties, represent their approximate fair value.

The carrying amounts of the Company’s long-term debt as of June 30, 2014 and December 31, 2013 were $190.7 million and $220.2 million, respectively, compared to its fair values of $188.0 million and $190.4 million as of June 30, 2014 and December 31, 2013, respectively. The fair value of the long-term debt was calculated using a market approach based upon Level 2 inputs, including a price quote from a major financial institution.

The Company’s cost method investments for which quoted market prices are not available are recorded at cost and reviewed periodically if there are events or changes in circumstances that may have a significant adverse effect on the fair value of the investments.

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(14) Related Party Transactions

BGP Inc. (“BGP”) owned approximately 14.5% of the Company’s outstanding common stock as of June 30, 2014. For the six months ended June 30, 2014 and 2013, the Company recorded revenues from BGP of $3.9 million and $2.9 million, respectively. Total receivables due from BGP were $1.8 million at June 30, 2014.

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 originally scheduled to mature on September 30, 2013. The maturity date of the promissory note has since been extended to September 30, 2014. The loan was made by the Company to support certain short-term working capital needs of INOVA Geophysical. The indebtedness under the note accrues interest at an annual rate equal to the London Interbank Offered Rate plus 650 basis points. In 2013, the Company advanced the full principal amount of $10.0 million to INOVA Geophysical under the promissory note. INOVA Geophysical has repaid a total of $6.0 million, of which $4.0 million remains outstanding at June 30, 2014. This balance is included in Prepaid expenses and other current assets.

(15) Recent Accounting Pronouncements

Revenue Recognition — In May 2014, the FASB and the International Accounting Standards Board (“IASB”) jointly issued new accounting guidance for recognition of revenue. This new guidance replaces virtually all existing U.S. GAAP and IFRS guidance on revenue recognition. The new guidance is effective for fiscal years beginning after December 15, 2016. This new guidance applies to all periods presented. Therefore, when the Company issues its financial statements on Forms 10-Q and 10-K for periods included in its year ended December 31, 2017, its comparative periods that are presented from the years ended December 31, 2015 and 2016, must be retrospectively presented in compliance with this new guidance. Early adoption is not allowed for U.S. GAAP. The new guidance requires companies to make more estimates and use more judgment than under current accounting guidance. The Company is currently evaluating (i) the two allowed adoption methods to determine which method it plans to use for retrospective presentation of comparative periods and (ii) whether the implementation of this new guidance will have a material impact on the Company’s consolidated financial position or results of operations for the periods presented.

Reporting Discontinued Operations — In April 2014, the FASB issued amendments to guidance for reporting discontinued operations and disposals of components of an entity. The amended guidance requires that a disposal representing a strategic shift that has (or will have) a major effect on an entity’s financial results or a business activity classified as held for sale should be reported as discontinued operations. The amendments also expand the disclosure requirements for discontinued operations and add new disclosures for individually significant dispositions that do not qualify as discontinued operations. The amendments are effective prospectively for fiscal years, and interim reporting periods within those years, beginning after December 15, 2014 (early adoption is permitted only for disposals that have not been previously reported). The implementation of the amended guidance is not expected to have a material impact on the Company’s consolidated financial position or results of operations.

(16) Condensed Consolidating Financial Information

In 2013, the Company sold $175.0 million of its 8.125% Senior Secured Second-Priority Notes due 2018. 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:


•	ION Geophysical Corporation and the Guarantors (in each case, reflecting investments in subsidiaries utilizing the equity method of accounting).


•	All other subsidiaries of ION Geophysical Corporation that are not Guarantors.


•	The consolidating adjustments necessary to present ION Geophysical Corporation’s results on a consolidated basis.

This condensed consolidating financial information should be read in conjunction with the accompanying consolidated financial statements and notes.

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	June 30, 2014
Balance Sheet	ION Geophysical Corporation			The Guarantors			All Other Subsidiaries			Consolidating Adjustments			Total Consolidated
	(In thousands)
ASSETS
Current assets:
Cash and cash equivalents	$	100,784		$	—		$	56,995		$	—		$	157,779
Accounts receivable, net	1,509			34,611			54,347			(4,667		)	85,800
Unbilled receivables	—			50,645			13,124			—			63,769
Inventories	—			4,154			51,168			—			55,322
Prepaid expenses and other current assets	16,031			4,224			16,041			(1,770		)	34,526
Total current assets	118,324			93,634			191,675			(6,437		)	397,196
Deferred income tax asset	6,499			6,675			759			406			14,339
Property, plant, equipment and seismic rental equipment, net	6,082			30,548			22,993			—			59,623
Multi-client data library, net	—			216,044			30,010			—			246,054
Equity method investments	44,995			—			—			—			44,995
Investment in subsidiaries	805,573			275,625			—			(1,081,198		)	—
Goodwill	—			21,884			29,742			—			51,626
Intangible assets, net	—			7,250			2,682			—			9,932
Intercompany receivables	31,892			—			4,215			(36,107		)	—
Other assets	13,767			97			1,740			—			15,604
Total assets	$	1,027,132		$	651,757		$	283,816		$	(1,123,336	)	$	839,369
LIABILITIES AND EQUITY
Current liabilities:
Current maturities of long-term debt	$	—		$	5,153		$	5,511		$	—		$	10,664
Accounts payable	2,313			13,419			25,116			(4,667		)	36,181
Accrued expenses	9,374			48,721			24,448			(1,083		)	81,460
Accrued multi-client data library royalties	—			23,315			666			—			23,981
Deferred revenue	—			12,646			3,120			—			15,766
Total current liabilities	11,687			103,254			58,861			(5,750		)	168,052
Long-term debt, net of current maturities	175,000			4,815			318			(141		)	179,992
Intercompany payables	496,632			31,892			—			(528,524		)	—
Other long-term liabilities	2,785			130,330			10,107			(140		)	143,082
Total liabilities	686,104			270,291			69,286			(534,555		)	491,126
Redeemable noncontrolling interests	—			—			6,846			—			6,846
Equity:
Common stock	1,641			290,460			19,137			(309,597		)	1,641
Additional paid-in capital	884,796			175,005			235,236			(410,241		)	884,796
Accumulated earnings (deficit)	(528,990		)	340,856			19,968			(360,824		)	(528,990		)
Accumulated other comprehensive income (loss)	(9,854		)	9,343			(8,807		)	(536		)	(9,854		)
Due from ION Geophysical Corporation	—			(434,198		)	(58,219		)	492,417			—
Treasury stock	(6,565		)	—			—			—			(6,565		)
Total stockholders’ equity	341,028			381,466			207,315			(588,781		)	341,028
Noncontrolling interests	—			—			369			—			369
Total equity	341,028			381,466			207,684			(588,781		)	341,397
Total liabilities and equity	$	1,027,132		$	651,757		$	283,816		$	(1,123,336	)	$	839,369

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	December 31, 2013
Balance Sheet	ION Geophysical Corporation			The Guarantors			All Other Subsidiaries			Consolidating Adjustments			Total Consolidated
	(In thousands)
ASSETS
Current assets:
Cash and cash equivalents	$	124,701		$	—		$	23,355		$	—		$	148,056
Accounts receivable, net	1,874			99,547			48,027			—			149,448
Unbilled receivables	—			33,490			15,978			—			49,468
Inventories	—			6,595			50,578			—			57,173
Prepaid expenses and other current assets	12,888			5,030			7,438			(584		)	24,772
Total current assets	139,463			144,662			145,376			(584		)	428,917
Deferred income tax asset	6,513			6,960			489			688			14,650
Property, plant, equipment and seismic rental equipment, net	6,440			29,845			10,399			—			46,684
Multi-client data library, net	—			212,572			26,212			—			238,784
Equity method investments	51,065			—			2,800			—			53,865
Investment in subsidiaries	699,695			248,482			—			(948,177		)	—
Goodwill	—			26,984			28,892			—			55,876
Intangible assets, net	—			8,246			3,001			—			11,247
Intercompany receivables	8,313			13,419			—			(21,732		)	—
Other assets	14,315			56			24,262			(23,985		)	14,648
Total assets	$	925,804		$	691,226		$	241,431		$	(993,790	)	$	864,671
LIABILITIES AND EQUITY
Current liabilities:
Current maturities of long-term debt	$	—		$	4,716		$	1,190		$	—		$	5,906
Accounts payable	3,515			11,741			7,364			34			22,654
Accrued expenses	16,652			54,250			13,392			64			84,358
Accrued multi-client data library royalties	—			45,921			539			—			46,460
Deferred revenue	—			16,387			4,295			—			20,682
Total current liabilities	20,167			133,015			26,780			98			180,060
Long-term debt, net of current maturities	210,000			3,655			591			—			214,246
Intercompany payables	426,134			—			21,732			(447,866		)	—
Other long-term liabilities	11,757			214,211			8,637			(24,003		)	210,602
Total liabilities	668,058			350,881			57,740			(471,771		)	604,908
Redeemable noncontrolling interests	—			—			1,878			—			1,878
Equity:
Common stock	1,637			290,460			19,138			(309,598		)	1,637
Additional paid-in capital	879,969			180,700			235,381			(416,081		)	879,969
Accumulated earnings (deficit)	(606,157		)	232,186			(4,010		)	(228,176		)	(606,157		)
Accumulated other comprehensive income (loss)	(11,138		)	6,218			(11,920		)	5,702			(11,138		)
Due from ION Geophysical Corporation	—			(369,219		)	(56,915		)	426,134			—
Treasury stock	(6,565		)	—			—			—			(6,565		)
Total stockholders’ equity	257,746			340,345			181,674			(522,019		)	257,746
Noncontrolling interests	—			—			139			—			139
Total equity	257,746			340,345			181,813			(522,019		)	257,885
Total liabilities and equity	$	925,804		$	691,226		$	241,431		$	(993,790	)	$	864,671

Table of Contents



	Three Months Ended June 30, 2014
Income Statement	ION Geophysical Corporation			The Guarantors			All Other Subsidiaries			Consolidating Adjustments			Total Consolidated
	(In thousands)
Net revenues	$	—		$	47,881		$	74,877		$	(1,278	)	$	121,480
Cost of sales	—			41,018			43,512			(1,278		)	83,252
Gross profit	—			6,863			31,365			—			38,228
Total operating expenses	7,518			15,326			11,599			—			34,443
Income (loss) from operations	(7,518		)	(8,463		)	19,766			—			3,785
Interest expense, net	(4,458		)	(48		)	(428		)	—			(4,934		)
Intercompany interest, net	(210		)	1,388			(1,178		)	—			—
Equity in earnings (losses) of investments	14,838			20,259			—			(36,878		)	(1,781		)
Other income (expense)	(1,711		)	3,572			4,205			—			6,066
Net income before income taxes	941			16,708			22,365			(36,878		)	3,136
Income tax expense (benefit)	(247		)	(133		)	1,033			—			653
Net income	1,188			16,841			21,332			(36,878		)	2,483
Net income attributable to noncontrolling interests	—			—			(1,295		)	—			(1,295		)
Net income applicable to common shares	$	1,188		$	16,841		$	20,037		$	(36,878	)	$	1,188
Comprehensive net income	$	3,133		$	19,967		$	23,955		$	(42,627	)	$	4,428
Comprehensive income attributable to noncontrolling interest	—			—			(1,295		)	—			(1,295		)
Comprehensive net income attributable to ION	$	3,133		$	19,967		$	22,660		$	(42,627	)	$	3,133

ION GEOPHYSICAL CORP - FORM 10-Q - August 7, 2014

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