ION GEOPHYSICAL CORP - FORM 10-Q - August 3, 2017

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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, 2017
OR
¨
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 100
 
 
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  ¨    No  ý
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, 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
 
o
 
Accelerated filer
ý
 
 
 
 
 
 
Non-accelerated filer
 
o  (Do not check if a smaller reporting company)
 
Smaller reporting company
o
 
 
 
 
 
 
 
 
 
 
Emerging growth company
o
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.
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 31, 2017, there were 11,883,690 shares of common stock, par value $0.01 per share, outstanding.

1
    

ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS FOR FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2017
 
 
PAGE
PART I. Financial Information
 
Item 1. Financial Statements
 
Condensed Consolidated Balance Sheets as of June 30, 2017 and December 31, 2016
Condensed Consolidated Statements of Operations for the three- and six-months ended June 30, 2017 and 2016
Condensed Consolidated Statements of Comprehensive Loss for the three- and six-months ended June 30, 2017 and 2016
Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2017 and 2016
Footnotes to Unaudited Condensed Consolidated Financial Statements
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Item 4. Controls and Procedures
 
 
PART II. Other Information
 
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 5. Other Information
Item 6. Exhibits

2
    

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements

ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
 
June 30, 2017
 
December 31, 2016
 
(In thousands, except share data)
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
43,272

 
$
52,652

Accounts receivable, net
18,992

 
20,770

Unbilled receivables
18,883

 
13,415

Inventories
14,623

 
15,241

Prepaid expenses and other current assets
5,866

 
9,559

Total current assets
101,636

 
111,637

Property, plant, equipment and seismic rental equipment, net
58,899

 
67,488

Multi-client data library, net
96,844

 
105,935

Goodwill
23,354

 
22,208

Intangible assets, net
2,386

 
3,103

Other assets
1,733

 
2,845

Total assets
$
284,852

 
$
313,216

LIABILITIES AND EQUITY
 
 
 
Current liabilities:
 
 
 
Current maturities of long-term debt
$
39,983

 
$
14,581

Accounts payable
24,478

 
26,889

Accrued expenses
30,266

 
26,240

Accrued multi-client data library royalties
22,651

 
23,663

Deferred revenue
9,276

 
3,709

Total current liabilities
126,654

 
95,082

Long-term debt, net of current maturities
116,206

 
144,209

Other long-term liabilities
18,577

 
20,527

Total liabilities
261,437

 
259,818

Equity:
 
 
 
Common stock, $0.01 par value; authorized 26,666,667 shares; outstanding 11,883,690 and 11,792,447 shares at June 30, 2017 and December 31, 2016, respectively
119

 
118

Additional paid-in capital
900,574

 
899,198

Accumulated deficit
(858,462
)
 
(824,679
)
Accumulated other comprehensive loss
(20,032
)
 
(21,748
)
Total stockholders’ equity
22,199

 
52,889

Noncontrolling interest
1,216

 
509

Total equity
23,415

 
53,398

Total liabilities and equity
$
284,852

 
$
313,216

See accompanying Footnotes to Unaudited Condensed Consolidated Financial Statements.

3
    

ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2017
 
2016
 
2017
 
2016
 
(In thousands, except per share data)
Service revenues
$
34,454

 
$
25,430

 
$
58,282

 
$
38,586

Product revenues
11,547

 
10,722

 
20,275

 
20,231

Total net revenues
46,001

 
36,152

 
78,557

 
58,817

Cost of services
24,827

 
27,175

 
47,126

 
53,012

Cost of products
5,556

 
4,124

 
9,712

 
9,882

Gross profit (loss)
15,618

 
4,853

 
21,719

 
(4,077
)
Operating expenses:
 
 
 
 
 
 
 
Research, development and engineering
4,107

 
4,761

 
7,602

 
10,370

Marketing and sales
4,931

 
4,684

 
9,417

 
8,694

General, administrative and other operating expenses
10,152

 
11,996

 
22,184

 
23,576

Total operating expenses
19,190

 
21,441

 
39,203

 
42,640

Loss from operations
(3,572
)
 
(16,588
)
 
(17,484
)
 
(46,717
)
Interest expense, net
(4,241
)
 
(4,702
)
 
(8,705
)
 
(9,436
)
Other income (expense), net
192

 
(1,717
)
 
(4,876
)
 
(1,597
)
Loss before income taxes
(7,621
)
 
(23,007
)
 
(31,065
)
 
(57,750
)
Income tax expense
2,402

 
2,256

 
1,984

 
2,549

Net loss
(10,023
)
 
(25,263
)
 
(33,049
)
 
(60,299
)
Net income attributable to noncontrolling interests
(418
)
 
(79
)
 
(734
)
 
(57
)
Net loss attributable to ION
$
(10,441
)
 
$
(25,342
)
 
$
(33,783
)
 
$
(60,356
)
Net loss per share:
 
 
 
 
 
 
 
Basic
$
(0.88
)
 
$
(2.22
)
 
$
(2.85
)
 
$
(5.48
)
Diluted
$
(0.88
)
 
$
(2.22
)
 
$
(2.85
)
 
$
(5.48
)
Weighted average number of common shares outstanding:
 
 
 
 
 
 
 
Basic
11,875

 
11,415

 
11,847

 
11,008

Diluted
11,875

 
11,415

 
11,847

 
11,008


See accompanying Footnotes to Unaudited Condensed Consolidated Financial Statements.



4
    

ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(UNAUDITED)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2017
 
2016
 
2017
 
2016
 
(In thousands)
Net loss
$
(10,023
)
 
$
(25,263
)
 
$
(33,049
)
 
$
(60,299
)
Other comprehensive loss, net of taxes, as appropriate:
 
 
 
 
 
 
 
Foreign currency translation adjustments
1,199

 
(2,737
)
 
1,716

 
(4,199
)
Comprehensive net loss
(8,824
)
 
(28,000
)
 
(31,333
)
 
(64,498
)
Comprehensive income attributable to noncontrolling interest
(418
)
 
(79
)
 
(734
)
 
(57
)
Comprehensive net loss attributable to ION
$
(9,242
)
 
$
(28,079
)
 
$
(32,067
)
 
$
(64,555
)

See accompanying Footnotes to Unaudited Condensed Consolidated Financial Statements.


5
    

ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
 
Six Months Ended June 30,
 
2017
 
2016
 
(In thousands)
Cash flows from operating activities:
 
 
 
Net loss
$
(33,049
)
 
$
(60,299
)
Adjustments to reconcile net loss to cash provided by (used in) operating activities:
 
 
 
Depreciation and amortization (other than multi-client data library)
9,030

 
11,416

Amortization of multi-client data library
21,933

 
14,244

Stock-based compensation expense
1,169

 
1,610

Accrual for loss contingency related to legal proceedings
5,000

 
—

Loss on extinguishment of debt
—

 
2,182

Deferred income taxes
(932
)
 
381

Change in operating assets and liabilities:
 
 
 
Accounts receivable
2,075

 
23,980

Unbilled receivables
(5,542
)
 
(2,042
)
Inventories
440

 
1,329

Accounts payable, accrued expenses and accrued royalties
(6,059
)
 
(5,518
)
Deferred revenue
5,521

 
1,151

Other assets and liabilities
4,053

 
(773
)
Net cash provided by (used in) operating activities
3,639

 
(12,339
)
Cash flows from investing activities:
 
 
 
Cash invested in multi-client data library
(8,482
)
 
(8,648
)
Purchase of property, plant, equipment and seismic rental assets
(915
)
 
(340
)
Net cash used in investing activities
(9,397
)
 
(8,988
)
Cash flows from financing activities:
 
 
 
Borrowings under revolving line of credit
—

 
15,000

Payments on notes payable and long-term debt
(3,157
)
 
(4,786
)
Costs associated with issuance of debt
—

 
(6,174
)
Payment to repurchase bonds
—

 
(15,000
)
Repurchase of common stock
—

 
(964
)
Costs associated with issuance of equity
(123
)
 
—

Other financing activities
(173
)
 
13

Net cash used in financing activities
(3,453
)
 
(11,911
)
Effect of change in foreign currency exchange rates on cash and cash equivalents
(169
)
 
738

Net decrease in cash, and cash equivalents
(9,380
)
 
(32,500
)
Cash and cash equivalents at beginning of period
52,652

 
84,933

Cash and cash equivalents at end of period
$
43,272

 
$
52,433

See accompanying Footnotes to Unaudited Condensed Consolidated Financial Statements.


6
    

ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES
FOOTNOTES 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, 2016 has been derived from the Company’s audited consolidated financial statements at that date. The condensed consolidated balance sheet at June 30, 2017, and the condensed consolidated statements of operations and comprehensive loss for the three and six months ended June 30, 2017 and 2016 and the condensed consolidated statements of cash flows for the six months ended June 30, 2017 and 2016, 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, 2017, are not necessarily indicative of the operating results for a full year or of future operations.
The Company has non-redeemable noncontrolling interests in majority-owned affiliates which are reported as a separate component of equity in “Noncontrolling interests” in the Consolidated Balance Sheets.
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, 2016.
(2)    Segment 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.

7
    

The following table is a summary of segment information (in thousands):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2017
 
2016
 
2017
 
2016
Net revenues:
 
 
 
 
 
 
 
E&P Technology & Services:
 
 
 
 
 
 
 
New Venture
$
19,986

 
$
4,579

 
$
26,935

 
$
7,885

Data Library
9,710

 
6,275

 
20,316

 
10,547

Total multi-client revenues
29,696

 
10,854

 
47,251

 
18,432

Imaging Services
4,186

 
7,764

 
9,941

 
13,204

Total
33,882

 
18,618

 
57,192

 
31,636

E&P Operations Optimization:
 
 
 
 
 
 
 
Devices
7,679

 
6,626

 
12,669

 
11,985

Optimization Software & Services
4,440

 
4,475

 
8,696

 
8,763

Total
12,119

 
11,101

 
21,365

 
20,748

Ocean Bottom Seismic Services
—

 
6,433

 
—

 
6,433

Total
$
46,001

 
$
36,152

 
$
78,557

 
$
58,817

Gross profit (loss):






 
E&P Technology & Services
$
11,921

 
$
(3,533
)
 
$
15,931

 
$
(13,306
)
E&P Operations Optimization
6,258

 
5,064

 
11,045

 
9,783

Ocean Bottom Seismic Services
(2,561
)
 
3,322

 
(5,257
)
 
(554
)
Total
$
15,618

 
$
4,853

 
$
21,719

 
$
(4,077
)
Gross margin:
 
 
 
 
 
 
 
E&P Technology & Services
35
%
 
(19
)%
 
28
%
 
(42
)%
E&P Operations Optimization
52
%
 
46
 %
 
52
%
 
47
 %
Ocean Bottom Seismic Services
—
%
 
52
 %
 
—
%
 
(9
)%
Total
34
%
 
13
 %
 
28
%
 
(7
)%
Income (loss) from operations:
 
 
 
 
 
 
 
E&P Technology & Services
$
6,353

 
$
(9,410
)
 
$
5,257

 
$
(24,124
)
E&P Operations Optimization
3,022

 
1,882

 
4,571

 
3,483

Ocean Bottom Seismic Services
(3,860
)
 
360

 
(7,868
)
 
(7,271
)
Support and other
(9,087
)
 
(9,420
)
 
(19,444
)
 
(18,805
)
Loss from operations
(3,572
)
 
(16,588
)
 
(17,484
)
 
(46,717
)
Interest expense, net
(4,241
)
 
(4,702
)
 
(8,705
)
 
(9,436
)
Other income (expense), net
192

 
(1,717
)
 
(4,876
)
 
(1,597
)
Loss before income taxes
$
(7,621
)
 
$
(23,007
)
 
$
(31,065
)
 
$
(57,750
)
 
 
 
 
 
 
 
 

(3)    Long-term Debt

The following table is a summary of long-term debt obligations, net (in thousands):    
Obligations (in thousands)
 
June 30, 2017
 
December 31, 2016
Senior secured second-priority lien notes (maturing December 15, 2021)
 
$
120,569

 
$
120,569

Senior secured third-priority lien notes (maturing May 15, 2018)
 
28,497

 
28,497

Revolving line of credit (maturing August 22, 2019)
 
10,000

 
10,000

Equipment capital leases
 
1,365

 
3,446

Other debt
 
341

 
1,415

Costs associated with issuances of debt (1)
 
(4,583
)
 
(5,137
)
Total
 
156,189

 
158,790

Current portion of long-term debt and lease obligations (2)
 
(39,983
)
 
(14,581
)
Non-current portion of long-term debt and lease obligations
 
$
116,206

 
$
144,209


8
    

(1) 
Represents debt issuance costs presented as a direct deduction from the carrying amount of the debt liability associated with the Senior Secured second-priority and senior secured third-priority lien notes. These amounts do not include $0.7 million and $1.2 million of debt issuance costs associated with the Revolving Credit Facility as of June 30, 2017 and December 31, 2016 respectively, which are included within other assets on the balance sheet.
(2) 
Includes $28.5 million Senior secured third-priority lien notes reclassified from long-term to current during the second quarter 2017.

Revolving Credit Facility
In August 2014, ION and its material U.S. subsidiaries, GX Technology Corporation, ION Exploration Products (U.S.A.), Inc., I/O Marine Systems, Inc. and (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”). For a complete discussion of the terms, available credit and security of this Credit Facility, prior to the effectiveness of the Second Amendment, see Footnote 4 to the Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.
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 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:
•
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);
•
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;
•
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;
•
establish a reserve that will reduce 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);
•
increased the maximum amount of certain permitted junior indebtedness to $200.0 million (from $175.0 million);
•
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;
•
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;
•
modified the cross-default provisions to incorporated defaults under the Second Lien Notes, the remaining Third Lien Notes and certain other junior indebtedness; and
•
eliminated the potential early commitment termination date and early maturity date that would otherwise have occurred ninety (90) days prior to 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 library (not to exceed $15.0 million for the multi-client data library data component).  As of June 30, 2017, the borrowing base under the Credit Facility was $21.7 million, and there was $10.0 million of indebtedness 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 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.

9
    

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 ($11.7 million at June 30, 2017) plus the aggregate amount of unrestricted cash held by ION, the Subsidiary Borrowers and their domestic subsidiaries. At June 30, 2017, ION, the Subsidiary Borrowers and their domestic subsidiaries had unrestricted cash totaling $18.4 million and non-domestic subsidiaries had unrestricted cash totaling $24.9 million.
At June 30, 2017, the Company was in compliance with all of the covenants under the Credit Facility.
The Credit Facility 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”). On April 28, 2016, the Company successfully completed an exchange offer (the “Exchange Offer”) and consent solicitation (the “Consent Solicitation”) related to the Third Lien Notes. For a complete discussion of the terms of the Exchange Offer and Consent Solicitation, see Footnote 4 to the Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016. Prior to the completion of the Exchange Offer and Consent Solicitation 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 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 June 30, 2017, the Company was in compliance with the covenants with respect to the Third Lien Notes.
On or after May 15, 2015, the Company may on one or more occasions redeem all or a part of the Third Lien Notes at the redemption prices set forth below, plus accrued and unpaid interest and special interest, if any, on the Third Lien Notes redeemed during the 12-month period beginning on May 15th of the years indicated below:

10
    

Date
 
Percentage
2015
 
104.063%
2016
 
102.031%
2017 and thereafter
 
100.000%
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, 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, limits or prohibits 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 June 30, 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
 
Percentage
2019
 
105.500%
2020
 
103.500%
2021 and thereafter
 
100.000%
(4)    Net Loss per Share
Basic net loss per common share is computed by dividing net loss applicable to common shares by the weighted average number of common shares outstanding during the period. Diluted net 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 outstanding stock options were anti-dilutive for all periods presented.
(5)    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 (“ASC”) 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 downward. As of June 30, 2017, the Company has no unreserved U.S. deferred tax assets.
The tax provision for the six months ended June 30, 2017, has been calculated based on the actual tax expense incurred for the period. Given the current uncertainty in expected income generated in various foreign jurisdictions, where tax rates can vary greatly, the Company’s actual tax rate is the best estimate of year-to-date tax expense. The Company’s effective tax rates for the three months ended June 30, 2017 and 2016 were (31.5)% and (9.8)%, respectively. The Company’s effective tax rate for the six months ended June 30, 2017 and 2016 were (6.4)% and (4.4)% respectively. The Company’s effective tax rates for the three and six months ended June 30, 2017 were negatively impacted by the change in valuation allowance related to U.S. operating losses for which the Company cannot currently recognize a tax benefit. The Company’s income tax expense for the six months ended June 30, 2017 of $2.0 million primarily relates to results from the Company’s non-U.S. businesses.

11
    

The Company has approximately $1.3 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.
As of June 30, 2017, the Company’s U.S. federal tax returns for 2013 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 2013, although carryforward attributes related to losses generated prior to 2013 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.
(6) 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 the 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 reduced the supplemental damages award in the case from $73.1 million to $9.4 million. In the Order, the judge also further reduced the damages award in the case by $3.0 million to reflect a settlement and license that WesternGeco entered into with a customer of the Company that had purchased and used DigiFIN units that were also included in the damage amounts awarded against the Company.
In May 2014, the judge signed and entered a Final Judgment in the amount of $123.8 million related to the case. 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. On July 2, 2015, the Court of Appeals reversed in part the judgment, holding the District Court erred by including lost profits in the Final Judgment. Lost profits were $93.4 million and prejudgment interest 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.
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 refused to disturb the Court of Appeals ruling finding no lost profits as a matter of law.  Separately, 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 Federal Circuit for a determination of whether or not the willfulness determination by the District Court was appropriate.
On November 14, 2016, the District Court issued an order reducing the amount of the appeal bond from $120.0 million to $65.0 million, ordered the sureties to pay principal and interest on the royalty previously awarded and declined to issue a final judgment until after consideration of whether enhanced damages related to willfulness should be awarded in the case. While the Company did not agree with the unusual decision by the District Court ordering payment of the royalty damages and interest without a final judgment, the Company paid the $20.8 million due pursuant to the order to WesternGeco on November 25, 2016.

12
    

On March 14, 2017, the District Court held a hearing on whether or not additional damages for willfulness would be payable. On May 16, 2017, the District Court issued an order awarding WesternGeco additional damages in the amount of $5.0 million and ordering the appeal bond to be released and discharged. 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.
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 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 are each scheduled to meet with the Solicitor General’s office in late July 2017. The Solicitor General is expected to issue its opinion near the end of the third quarter of 2017.
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 (Expense), Net
The following table is a summary of other income (expense), net (in thousands):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2017
 
2016
 
2017
 
2016
Accrual for loss related to legal proceedings (Footnote 6)
$
—

 
$
—

 
$
(5,000
)
 
$
—

Loss on bond exchange
—

 
(2,182
)
 
—

 
(2,182
)
Other income, net
192

 
465

 
124

 
585

Total other income (expense), net
$
192

 
$
(1,717
)
 
$
(4,876
)
 
$
(1,597
)

(8)    Details of Selected Balance Sheet Accounts
Inventories
The following table is a summary of inventories (in thousands):

June 30, 2017
 
December 31, 2016
Raw materials and subassemblies
$
21,216

 
$
21,454

Work-in-process
724

 
2,255

Finished goods
7,649

 
6,581

Reserve for excess and obsolete inventories
(14,966
)
 
(15,049
)
Total
$
14,623

 
$
15,241

Other Long-term Liabilities
The following table is a summary of other long-term liabilities (in thousands):
June 30, 2017
 
December 31, 2016
Deferred rents
13,410

 
13,955

Facility restructuring accrual
—

 
1,765

Deferred income tax liability
2,740

 
3,679

Other long-term liabilities
2,427

 
1,128

Total
$
18,577

 
$
20,527


13
    


(9)    Accumulated Other Comprehensive Loss
The following table is a summary of changes in accumulated other comprehensive loss by component (in thousands):
 
 
Foreign currency translation adjustments
 
Total
Accumulated other comprehensive loss at December 31, 2016
 
$
(21,748
)
 
$
(21,748
)
Net current-period other comprehensive loss
 
1,716

 
1,716

Accumulated other comprehensive loss at June 30, 2017
 
$
(20,032
)
 
$
(20,032
)
 
 
 
 
 

(10)    Supplemental Cash Flow Information and Non-cash Activity
The following table is a summary of cash paid for Interest and Income taxes and non-cash items from investing and financing activities (in thousands):
 
Six Months Ended June 30,
 
 
2017
 
2016
 
Cash paid during the period for:
 
 
 
 
Interest
$
7,075

 
$
8,149

 
Income taxes (refunds)
2,364

 
(6
)
 
Non-cash items from investing and financing activities:
 
 
 
 
Investment in multi-client data library in accounts payable and accrued expenses
4,561

 
—

 
Bond exchange
—

 
10,740

(a) 
(a) 
This represents the non cash portion of the bond exchange.
(11)    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.
The carrying amounts of the Company’s long-term debt as of June 30, 2017 and December 31, 2016 were $160.8 million and $163.9 million, respectively, compared to its fair values of $115.2 million and $114.8 million as of June 30, 2017 and December 31, 2016, respectively. The fair value of the long-term debt was calculated using a readily observable price (Level 1).
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.
(12)    Stockholder's Equity, Stock-Based Compensation Expense and Repurchase Plan
At-The-Market Equity Offering Program
On December 22, 2016 the Company announced that it filed a prospectus supplement under which it may sell up to $20 million of its common stock through an "at-the-market" equity offering program (the "ATM Program"). ION intended to use the net proceeds from sales under the ATM Program to be positioned to capitalize on opportunities such as acquiring complementary distressed assets, or other value-added transactions. The timing of any sales depended on a variety of factors to be determined by ION. Effective May 2, 2017, the Company terminated and canceled the ATM Program.  No shares were sold pursuant to the ATM Program.

14
    

Stock-Based Compensation
The total number of shares issued or reserved for future issuance under outstanding stock options at June 30, 2017 and 2016 was 838,582 and 900,623, respectively, and the total number of shares of restricted stock and shares reserved for restricted stock units outstanding at June 30, 2017 and 2016 was 187,675 and 293,709, respectively. The following table presents a summary of the activity related to stock options, restricted stock and restricted stock unit awards for the six months ended June 30, 2017:
 
Stock Options
 
Restricted Stock and Unit Awards
 
Number of Shares
Outstanding at December 31, 2016
847,635

 
285,308

Granted
—

 
17,500

Stock options exercised/restricted stock/unit awards vested
—

 
(115,133
)
Cancelled/forfeited
(9,053
)
 
—

Outstanding at June 30, 2017
838,582

 
187,675

Stock-based compensation expense recognized for the six months ended June 30, 2017 and 2016, totaled $1.2 million and $1.6 million, respectively.
In the first quarter 2017, the Company adopted ASU 2016-09, "Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting," that changed how the Company accounts for certain aspects of share-based payments to employees. The Company is required to recognize the income tax effects of awards in the statement of income when the awards vest or are settled. The guidance on employers’ accounting for an employee’s use of shares to satisfy the employer’s statutory income tax withholding obligation and for forfeitures is changing and the update requires companies to present excess tax benefits as an operating activity on the statement of cash flows rather than as a financing activity. There was no impact of adoption of ASU 2016-09 on net income, basic and diluted earnings per share, deferred tax assets or net cash from operations.
Stock Repurchase Program
On November 4, 2015, the Company’s board of directors approved a stock repurchase program authorizing a Company stock repurchase, from time to time from November 10, 2015, through November 10, 2017, up to $25 million in shares of the Company’s outstanding common stock. The stock repurchase program may be implemented through open market repurchases or privately negotiated transactions, at management’s discretion. The actual timing, number and value of shares repurchased under the program will be determined by management at its discretion and will depend on a number of factors including the market price of the shares of our common stock and general market and economic conditions, applicable legal requirements and compliance with the terms of our outstanding indebtedness. The repurchase program does not obligate the Company to acquire any particular amount of common stock and may be modified or suspended at any time and could be terminated prior to completion. As of June 30, 2017, the Company was authorized to repurchase up to $25 million through November 17, 2017, and had repurchased $3.0 million or 451,792 shares of its common stock under the repurchase program at an average price per share of $6.41.
(13)    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.

15
    

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 currently expects to use the modified retrospective adoption method. While the Company continues to finalize its assessment regarding how the implementation of this new guidance may affect the Company’s New Venture group’s financial position or results of operations, no material impact is currently expected. The Company does not expect the adoption of ASC 606 to have a material impact on its consolidated balance sheets or consolidated statement of operations for its Imaging Services group, Devices group, Optimization Software & Services group or its Ocean Bottom Seismic Services segment.
In February 2016, the FASB issued ASU 2016-02, “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 currently expects that the adoption of ASU 2016-02 may have a material impact related to its facility operating leases on its consolidated financial statements, and continues to evaluate the impact of vessel leases in the Company’s Ocean Bottom Services segment.
In June 2016, the FASB issued ASU 2016-13, "Measurement of Credit Losses on Financial Instruments” that will change how companies measure credit losses for most financial assets and certain other instruments that aren’t measured at fair value through net income. The standard will replace today’s “incurred loss” approach with an “expected loss” model for instruments measured at amortized cost. For available-for-sale debt securities, entities will be required to record allowances rather than reduce the carrying amount. The amendments in this update will be effective for annual periods beginning after December 15, 2019, and interim periods within those annual periods. Early adoption is permitted for annual periods beginning after December 15, 2018. The Company is evaluating the effect of ASU 2016-13 on our consolidated financial statements.
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 does not currently expect the adoption of ASU 2016-18 to have a material impact on its consolidated financial statements.
(14)    Condensed Consolidating Financial Information
The Notes were issued by ION Geophysical Corporation and are guaranteed by the Guarantors, all of which are 100-percent-owned subsidiaries. The Guarantors have fully and unconditionally guaranteed the payment obligations of ION Geophysical Corporation with respect to the Notes. 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 footnotes. For additional information pertaining to the Notes, See Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II of this Form 10-Q.
  

16
    

 
June 30, 2017
Balance Sheet
ION Geophysical Corporation
 
The Guarantors
 
All Other Subsidiaries
 
Consolidating Adjustments
 
Total Consolidated
 
(In thousands)
ASSETS
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
18,258

 
$
—

 
$
25,014

 
$
—

 
$
43,272

Accounts receivable, net
—

 
8,640

 
10,352

 
—

 
18,992

Unbilled receivables
—

 
1,565

 
17,318

 
—

 
18,883

Inventories
—

 
8,558

 
6,065

 
—

 
14,623

Prepaid expenses and other current assets
2,378

 
892

 
2,596

 
—

 
5,866

Total current assets
20,636

 
19,655

 
61,345

 
—

 
101,636

Property, plant, equipment and seismic rental equipment, net
1,259

 
9,641

 
47,999

 
—

 
58,899

Multi-client data library, net
—

 
69,746

 
27,098

 
—

 
96,844

Investment in subsidiaries
662,848

 
271,486

 
—

 
(934,334
)
 
—

Goodwill
—

 
—

 
23,354

 
—

 
23,354

Intangible assets, net
—

 
2,337

 
49

 
—

 
2,386

Intercompany receivables
—

 
—

 
35,433

 
(35,433
)
 
—

Other assets
1,332

 
145

 
256

 
—

 
1,733

Total assets
$
686,075

 
$
373,010

 
$
195,534

 
$
(969,767
)
 
$
284,852

LIABILITIES AND EQUITY
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
Current maturities of long-term debt
$
38,619

 
$
1,364

 
$
—

 
$
—

 
$
39,983

Accounts payable
2,829

 
19,026

 
2,623

 
—

 
24,478

Accrued expenses
10,839

 
9,919

 
9,508

 
—

 
30,266

Accrued multi-client data library royalties
—

 
22,573

 
78

 
—

 
22,651

Deferred revenue
—

 
2,684

 
6,592

 
—

 
9,276

Total current liabilities
52,287

 
55,566

 
18,801

 
—

 
126,654

Long-term debt, net of current maturities
116,206

 
—

 
—

 
—

 
116,206

Intercompany payables
493,667

 
15,252

 
—

 
(508,919
)
 
—

Other long-term liabilities
1,716

 
6,238

 
10,623

 
—

 
18,577

Total liabilities
663,876

 
77,056

 
29,424

 
(508,919
)
 
261,437

Equity:
 
 
 
 
 
 
 
 
 
Common stock
119

 
290,460

 
49,394

 
(339,854
)
 
119

Additional paid-in capital
900,574

 
180,699

 
202,290

 
(382,989
)
 
900,574

Accumulated earnings (deficit)
(858,462
)
 
215,372

 
12,438

 
(227,810
)
 
(858,462
)
Accumulated other comprehensive income (loss)
(20,032
)
 
4,372

 
(20,691
)
 
16,319

 
(20,032
)
Due from ION Geophysical Corporation
—

 
(394,949
)
 
(78,537
)
 
473,486

 
—

Total stockholders’ equity
22,199

 
295,954

 
164,894

 
(460,848
)
 
22,199

Noncontrolling interests
—

 
—

 
1,216

 
—

 
1,216

Total equity
22,199

 
295,954

 
166,110

 
(460,848
)
 
23,415

Total liabilities and equity
$
686,075

 
$
373,010

 
$
195,534

 
$
(969,767
)
 
$
284,852


17
    

 
December 31, 2016
Balance Sheet
ION Geophysical Corporation
 
The Guarantors
 
All Other Subsidiaries
 
Consolidating Adjustments
 
Total Consolidated
 
(In thousands)
ASSETS
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
23,042

 
$
—

 
$
29,610

 
$
—

 
$
52,652

Accounts receivable, net
—

 
12,775

 
7,995

 
—

 
20,770

Unbilled receivables
—

 
5,275

 
8,140

 
—

 
13,415

Inventories
—

 
8,610

 
6,631

 
—

 
15,241

Prepaid expenses and other current assets
3,387

 
4,624

 
1,548

 
—

 
9,559

Total current assets
26,429

 
31,284

 
53,924

 
—

 
111,637

Property, plant, equipment and seismic rental equipment, net
1,745

 
12,369

 
53,374

 
—

 
67,488

Multi-client data library, net
—

 
97,369

 
8,566

 
—

 
105,935

Investment in subsidiaries
660,880

 
257,732

 
—

 
(918,612
)
 
—

Goodwill
—

 
—

 
22,208

 
—

 
22,208

Intangible assets, net
—

 
3,008

 
95

 
—

 
3,103

Intercompany receivables
—

 
—

 
32,174

 
(32,174
)
 
—

Other assets
2,469

 
145

 
231

 
—

 
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

 
$
3,166

 
$
134

 
$
—

 
$
14,581

Accounts payable
2,101

 
19,720

 
5,068

 
—

 
26,889

Accrued expenses
8,579

 
10,016

 
7,645

 
—

 
26,240

Accrued multi-client data library royalties
—

 
23,663

 
—

 
—

 
23,663

Deferred revenue
—

 
2,667

 
1,042

 
—

 
3,709

Total current liabilities
21,961

 
59,232

 
13,889

 
—

 
95,082

Long-term debt, net of current maturities
143,930

 
279

 
—

 
—

 
144,209

Intercompany payables
472,276

 
10,155

 
—

 
(482,431
)
 
—

Other long-term liabilities
467

 
12,117

 
7,943

 
—

 
20,527

Total liabilities
638,634

 
81,783

 
21,832

 
(482,431
)
 
259,818

Equity:
 
 
 
 
 
 
 
 
 
Common stock
118

 
290,460

 
19,138

 
(309,598
)
 
118

Additional paid-in capital
899,198

 
180,700

 
232,590

 
(413,290
)
 
899,198

Accumulated earnings (deficit)
(824,679
)
 
216,730

 
(3,639
)
 
(213,091
)
 
(824,679
)
Accumulated other comprehensive income (loss)
(21,748
)
 
4,420

 
(21,787
)
 
17,367

 
(21,748
)
Due from ION Geophysical Corporation
—

 
(372,186
)
 
(78,071
)
 
450,257

 
—

Total stockholders’ equity
52,889

 
320,124

 
148,231

 
(468,355
)
 
52,889

Noncontrolling interests
—

 
—

 
509

 
—

 
509

Total equity
52,889

 
320,124

 
148,740

 
(468,355
)
 
53,398

Total liabilities and equity
$
691,523

 
$
401,907

 
$
170,572

 
$
(950,786
)
 
$
313,216


18
    

 
Three Months Ended June 30, 2017
Income Statement
ION Geophysical Corporation
 
The Guarantors
 
All Other Subsidiaries
 
Consolidating Adjustments
 
Total Consolidated
 
(In thousands)
Net revenues
$
—

 
$
14,945

 
$
31,056

 
$
—

 
$
46,001

Cost of sales
—

 
18,369

 
12,014

 
—

 
30,383

Gross profit (loss)
—

 
(3,424
)
 
19,042

 
—

 
15,618

Total operating expenses
8,072

 
6,712

 
4,406

 
—

 
19,190

Income (loss) from operations
(8,072
)
 
(10,136
)
 
14,636

 
—

 
(3,572
)
Interest expense, net
(4,183
)
 
(69
)
 
11

 
—

 
(4,241
)
Intercompany interest, net
265

 
(1,643
)
 
1,378

 
—

 
—

Equity in earnings of investments
1,910

 
9,077

 
—

 
(10,987
)
 
—

Other income (expense)
(328
)
 
(1
)
 
521

 
—

 
192

Net income (loss) before income taxes
(10,408
)
 
(2,772
)
 
16,546

 
(10,987
)
 
(7,621
)
Income tax expense (benefit)
33

 
(5,171
)
 
7,540

 
—

 
2,402

Net income (loss)
(10,441
)
 
2,399

 
9,006

 
(10,987
)
 
(10,023
)
Net income attributable to noncontrolling interests
—

 
—

 
(418
)
 
—

 
(418
)
Net income (loss) attributable to ION
$
(10,441
)
 
$
2,399

 
$
8,588

 
(10,987
)
 
$
(10,441
)
Comprehensive net loss
$
(9,242
)
 
$
2,399

 
$
9,852

 
$
(11,833
)
 
$
(8,824
)
Comprehensive income attributable to noncontrolling interest
—

 
—

 
(418
)
 
—

 
(418
)
Comprehensive net income (loss) attributable to ION
$
(9,242
)
 
$
2,399

 
$
9,434

 
$
(11,833
)
 
$
(9,242
)
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended June 30, 2016
Income Statement
ION Geophysical Corporation
 
The Guarantors
 
All Other Subsidiaries
 
Consolidating Adjustments
 
Total Consolidated
 
(In thousands)
Net revenues
$
—

 
$
17,590

 
$
18,564

 
$
(2
)
 
$
36,152

Cost of sales
—

 
22,910

 
8,391

 
(2
)
 
31,299

Gross profit (loss)
—

 
(5,320
)
 
10,173

 
—

 
4,853

Total operating expenses
9,791

 
6,685

 
4,965

 
—

 
21,441

Income (loss) from operations
(9,791
)
 
(12,005
)
 
5,208

 
—

 
(16,588
)
Interest expense, net
(4,641
)
 
(77
)
 
16

 
—

 
(4,702
)
Intercompany interest, net
219

 
(1,095
)
 
876

 
—

 
—

Equity in earnings (losses) of investments
(8,976
)
 
5,932

 
—

 
3,044

 
—

Other income (expense)
(2,112
)
 
182

 
213

 
—

 
(1,717
)
Net income (loss) before income taxes
(25,301
)
 
(7,063
)
 
6,313

 
3,044

 
(23,007
)
Income tax expense
41

 
496

 
1,719

 
—

 
2,256

Net income (loss)
(25,342
)
 
(7,559
)
 
4,594

 
3,044

 
(25,263
)
Net income attributable to noncontrolling interests
—

 
—

 
(79
)
 
—

 
(79
)
Net income (loss) attributable to ION
$
(25,342
)
 
$
(7,559
)
 
$
4,515

 
3,044

 
$
(25,342
)
Comprehensive net income (loss)
$
(28,057
)
 
$
(7,559
)
 
$
1,800

 
$
5,816

 
$
(28,000
)
Comprehensive income attributable to noncontrolling interest
—

 
—

 
(79
)
 
—

 
(79
)
Comprehensive net income (loss) attributable to ION
$
(28,057
)
 
$
(7,559
)
 
$
1,721

 
$
5,816

 
$
(28,079
)
 
 
 
 
 
 
 
 
 
 

19
    

 
Six Months Ended June 30, 2017
Income Statement
ION Geophysical Corporation
 
The Guarantors
 
All Other Subsidiaries
 
Consolidating Adjustments
 
Total Consolidated
 
(In thousands)
Net revenues
$
—

 
$
27,979

 
$
50,578

 
$
—

 
$
78,557

Cost of sales
—

 
35,956

 
20,882

 
—

 
56,838

Gross profit (loss)
—

 
(7,977
)
 
29,696

 
—

 
21,719

Total operating expenses
17,412

 
12,871

 
8,920

 
—

 
39,203

Income (loss) from operations
(17,412
)
 
(20,848
)
 
20,776

 
—

 
(17,484
)
Interest expense, net
(8,643
)
 
(96
)
 
34

 
—

 
(8,705
)
Intercompany interest, net
593

 
(3,140
)
 
2,547

 
—

 
—

Equity in earnings of investments
(3,134
)
 
17,853

 
—

 
(14,719
)
 
—

Other income (expense)
(5,087
)
 
(340
)
 
551

 
—

 
(4,876
)
Net income (loss) before income taxes
(33,683
)
 
(6,571
)
 
23,908

 
(14,719
)
 
(31,065
)
Income tax expense (benefit)
100

 
(5,213
)
 
7,097

 
—

 
1,984

Net income (loss)
(33,783
)
 
(1,358
)
 
16,811

 
(14,719
)
 
(33,049
)
Net income attributable to noncontrolling interests
—

 
—

 
(734
)
 
—

 
(734
)
Net income (loss) attributable to ION
$
(33,783
)
 
$
(1,358
)
 
16,077

 
$
(14,719
)
 
(33,783
)
Comprehensive net income (loss)
$
(32,067
)
 
$
(1,406
)
 
$
17,906

 
$
(15,766
)
 
$
(31,333
)
Comprehensive income attributable to noncontrolling interest
—

 
—

 
(734
)
 
—

 
(734
)
Comprehensive net income (loss) attributable to ION
$
(32,067
)
 
$
(1,406
)
 
$
17,172

 
$
(15,766
)
 
$
(32,067
)
 
 
 
 
 
 
 
 
 
 
 
Six Months Ended June 30, 2016
Income Statement
ION Geophysical Corporation
 
The Guarantors
 
All Other Subsidiaries
 
Consolidating Adjustments
 
Total Consolidated
 
(In thousands)
Net revenues
$
—

 
$
28,752

 
$
30,065

 
$
—

 
$
58,817

Cost of sales
—

 
44,337

 
18,557

 
—

 
62,894

Gross profit (loss)
—

 
(15,585
)
 
11,508

 
—

 
(4,077
)
Total operating expenses
17,202

 
14,501

 
10,937

 
—

 
42,640

Income (loss) from operations
(17,202
)
 
(30,086
)
 
571

 
—

 
(46,717
)
Interest expense, net
(9,334
)
 
(147
)
 
45

 
—

 
(9,436
)
Intercompany interest, net
451

 
(2,112
)