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EX-32.2 - EXHIBIT 32.2 - ION GEOPHYSICAL CORPex322cfosec906cert09302017.htm
EX-32.1 - EXHIBIT 32.1 - ION GEOPHYSICAL CORPex321ceosec906cert09302017.htm
EX-31.2 - EXHIBIT 31.2 - ION GEOPHYSICAL CORPex312cfosec302cert09302017.htm
EX-31.1 - EXHIBIT 31.1 - ION GEOPHYSICAL CORPex311ceosec302cert09302017.htm
    

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 SEPTEMBER 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  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, 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 October 31, 2017, there were 11,896,190 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 SEPTEMBER 30, 2017
 
 
PAGE
PART I. Financial Information
 
Item 1. Financial Statements
 
Condensed Consolidated Balance Sheets as of September 30, 2017 and December 31, 2016
Condensed Consolidated Statements of Operations for the three- and nine-months ended September 30, 2017 and 2016
Condensed Consolidated Statements of Comprehensive Income (Loss) for the three- and nine-months ended September 30, 2017 and 2016
Condensed Consolidated Statements of Cash Flows for the nine months ended September 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)
 
September 30, 2017
 
December 31, 2016
 
(In thousands, except share data)
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
40,225

 
$
52,652

Accounts receivable, net
39,374

 
20,770

Unbilled receivables
25,833

 
13,415

Inventories
14,264

 
15,241

Prepaid expenses and other current assets
4,259

 
9,559

Total current assets
123,955

 
111,637

Property, plant, equipment and seismic rental equipment, net
55,188

 
67,488

Multi-client data library, net
96,751

 
105,935

Goodwill
24,048

 
22,208

Intangible assets, net
2,026

 
3,103

Other assets
1,485

 
2,845

Total assets
$
303,453

 
$
313,216

LIABILITIES AND EQUITY
 
 
 
Current liabilities:
 
 
 
Current maturities of long-term debt
$
38,819

 
$
14,581

Accounts payable
24,674

 
26,889

Accrued expenses
40,874

 
26,240

Accrued multi-client data library royalties
24,576

 
23,663

Deferred revenue
10,875

 
3,709

Total current liabilities
139,818

 
95,082

Long-term debt, net of current maturities
116,506

 
144,209

Other long-term liabilities
17,066

 
20,527

Total liabilities
273,390

 
259,818

Equity:
 
 
 
Common stock, $0.01 par value; authorized 26,666,667 shares; outstanding 11,896,190 and 11,792,447 shares at September 30, 2017 and December 31, 2016, respectively
119

 
118

Additional paid-in capital
901,138

 
899,198

Accumulated deficit
(853,527
)
 
(824,679
)
Accumulated other comprehensive loss
(18,999
)
 
(21,748
)
Total stockholders’ equity
28,731

 
52,889

Noncontrolling interest
1,332

 
509

Total equity
30,063

 
53,398

Total liabilities and equity
$
303,453

 
$
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 September 30,
 
Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
 
(In thousands, except per share data)
Service revenues
$
52,615

 
$
65,914

 
$
110,897

 
$
104,500

Product revenues
8,480

 
12,708

 
28,755

 
32,939

Total net revenues
61,095

 
78,622

 
139,652

 
137,439

Cost of services
26,392

 
40,694

 
73,518

 
93,706

Cost of products
4,594

 
6,163

 
14,306

 
16,045

Gross profit
30,109

 
31,765

 
51,828

 
27,688

Operating expenses:
 
 
 
 
 
 
 
Research, development and engineering
4,396

 
4,231

 
11,998

 
14,601

Marketing and sales
5,645

 
4,680

 
15,062

 
13,374

General, administrative and other operating expenses
10,132

 
10,990

 
32,316

 
34,566

Total operating expenses
20,173

 
19,901

 
59,376

 
62,541

Income (loss) from operations
9,936

 
11,864

 
(7,548
)
 
(34,853
)
Interest expense, net
(3,959
)
 
(4,607
)
 
(12,664
)
 
(14,043
)
Other income (expense), net
722

 
(2,027
)
 
(4,154
)
 
(3,624
)
Income (loss) before income taxes
6,699

 
5,230

 
(24,366
)
 
(52,520
)
Income tax expense
1,686

 
3,316

 
3,670

 
5,865

Net income (loss)
5,013

 
1,914

 
(28,036
)
 
(58,385
)
Net income attributable to noncontrolling interests
(78
)
 
(215
)
 
(812
)
 
(272
)
Net income (loss) attributable to ION
$
4,935

 
$
1,699

 
$
(28,848
)
 
$
(58,657
)
Net income (loss) per share:
 
 
 
 
 
 
 
Basic
$
0.42

 
$
0.14

 
$
(2.43
)
 
$
(5.21
)
Diluted
$
0.41

 
$
0.14

 
$
(2.43
)
 
$
(5.21
)
Weighted average number of common shares outstanding
 
 
 
 
 
 
 
Basic
11,890

 
11,786

 
11,862

 
11,269

Diluted
12,071

 
11,907

 
11,862

 
11,269


See accompanying Footnotes to Unaudited Condensed Consolidated Financial Statements.



4

    

ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
 
(In thousands)
Net income (loss)
$
5,013

 
$
1,914

 
$
(28,036
)
 
$
(58,385
)
Other comprehensive loss, net of taxes, as appropriate:
 
 
 
 
 
 
 
Foreign currency translation adjustments
1,033

 
(1,083
)
 
2,749

 
(5,282
)
Comprehensive net income (loss)
6,046

 
831

 
(25,287
)
 
(63,667
)
Comprehensive (income) attributable to noncontrolling interest
(78
)
 
(215
)
 
(812
)
 
(272
)
Comprehensive net income (loss) attributable to ION
$
5,968

 
$
616

 
$
(26,099
)
 
$
(63,939
)

See accompanying Footnotes to Unaudited Condensed Consolidated Financial Statements.


5

    

ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
 
Nine Months Ended September 30,
 
2017
 
2016
 
(In thousands)
Cash flows from operating activities:
 
 
 
Net loss
$
(28,036
)
 
$
(58,385
)
Adjustments to reconcile net loss to cash provided by operating activities:
 
 
 
Depreciation and amortization (other than multi-client data library)
13,199

 
17,024

Amortization of multi-client data library
34,245

 
23,161

Stock-based compensation expense
1,694

 
2,512

Accrual for loss contingency related to legal proceedings
5,000

 

Loss on extinguishment of debt

 
2,182

Deferred income taxes
(900
)
 
1,031

Change in operating assets and liabilities:
 
 
 
Accounts receivable
(18,200
)
 
9,325

Unbilled receivables
(12,398
)
 
(3,711
)
Inventories
831

 
2,374

Accounts payable, accrued expenses and accrued royalties
1,011

 
3,381

Deferred revenue
7,092

 
(2,103
)
Other assets and liabilities
6,480

 
6,441

Net cash provided by operating activities
10,018

 
3,232

Cash flows from investing activities:
 
 
 
Cash invested in multi-client data library
(16,576
)
 
(11,601
)
Purchase of property, plant, equipment and seismic rental assets
(1,021
)
 
(567
)
Net cash used in investing activities
(17,597
)
 
(12,168
)
Cash flows from financing activities:
 
 
 
Borrowings under revolving line of credit

 
15,000

Payments on notes payable and long-term debt
(4,320
)
 
(6,726
)
Costs associated with issuance of debt

 
(6,638
)
Payment to repurchase bonds

 
(15,000
)
Repurchase of common stock

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

Other financing activities
(134
)
 
13

Net cash used in financing activities
(4,577
)
 
(14,315
)
Effect of change in foreign currency exchange rates on cash and cash equivalents
(271
)
 
854

Net decrease in cash and cash equivalents
(12,427
)
 
(22,397
)
Cash and cash equivalents at beginning of period
52,652

 
84,933

Cash and cash equivalents at end of period
$
40,225

 
$
62,536

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 September 30, 2017, and the condensed consolidated statements of operations and comprehensive income (loss) for the three and nine months ended September 30, 2017 and 2016 and the condensed consolidated statements of cash flows for the nine months ended September 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 nine months ended September 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 condensed consolidated balance sheets. The activity for this noncontrolling interest relates to proprietary processing projects in Brazil.
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 September 30,
 
Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
Net revenues:
 
 
 
 
 
 
 
E&P Technology & Services:
 
 
 
 
 
 
 
New Venture
$
43,542

 
$
8,393

 
$
70,477

 
$
16,278

Data Library
5,044

 
21,510

 
25,360

 
32,057

Total multi-client revenues
48,586

 
29,903

 
95,837

 
48,335

Imaging Services
3,468

 
6,134

 
13,409

 
19,338

Total
52,054

 
36,037

 
109,246

 
67,673

E&P Operations Optimization:
 
 
 
 
 
 
 
Devices
5,260

 
8,679

 
17,929

 
20,664

Optimization Software & Services
3,781

 
3,922

 
12,477

 
12,685

Total
9,041

 
12,601

 
30,406

 
33,349

Ocean Bottom Seismic Services

 
29,984

 

 
36,417

Total
$
61,095

 
$
78,622

 
$
139,652

 
$
137,439

Gross profit (loss):






 
E&P Technology & Services
$
28,533

 
$
12,888

 
$
44,464

 
$
(418
)
E&P Operations Optimization
4,055

 
6,866

 
15,100

 
16,647

Ocean Bottom Seismic Services
(2,479
)
 
12,011

 
(7,736
)
 
11,459

Total
$
30,109

 
$
31,765

 
$
51,828

 
$
27,688

Gross margin:
 
 
 
 
 
 
 
E&P Technology & Services
55
%
 
36
%
 
41
%
 
(1
)%
E&P Operations Optimization
45
%
 
54
%
 
50
%
 
50
 %
Ocean Bottom Seismic Services
%
 
40
%
 
%
 
31
 %
Total
49
%
 
40
%
 
37
%
 
20
 %
Income (loss) from operations:
 
 
 
 
 
 
 
E&P Technology & Services
$
22,695

 
$
7,259

 
$
27,952

 
$
(16,867
)
E&P Operations Optimization
998

 
3,682

 
5,569

 
7,162

Ocean Bottom Seismic Services
(4,432
)
 
9,320

 
(12,300
)
 
2,053

Support and other
(9,325
)
 
(8,397
)
 
(28,769
)
 
(27,201
)
Income (loss) from operations
9,936

 
11,864

 
(7,548
)
 
(34,853
)
Interest expense, net
(3,959
)
 
(4,607
)
 
(12,664
)
 
(14,043
)
Other income (expense), net
722

 
(2,027
)
 
(4,154
)
 
(3,624
)
Income (loss) before income taxes
$
6,699

 
$
5,230

 
$
(24,366
)
 
$
(52,520
)
 
 
 
 
 
 
 
 

(3)    Long-term Debt

The following table is a summary of long-term debt obligations, net (in thousands):    
Obligations (in thousands)
 
September 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
 
542

 
3,446

Other debt
 

 
1,415

Costs associated with issuances of debt (1)
 
(4,283
)
 
(5,137
)
Total
 
155,325

 
158,790

Current portion of long-term debt and lease obligations (2)
 
(38,819
)
 
(14,581
)
Non-current portion of long-term debt and lease obligations
 
$
116,506

 
$
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 $0.4 million and $1.2 million of debt issuance costs associated with the Revolving Credit Facility as of September 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., and I/O Marine Systems, Inc. (collectively, the “Subsidiary Borrowers”, and together with ION 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 September 30, 2017, the borrowing base under the Credit Facility was $22.1 million, and there was $10.0 million of indebtedness under the Credit Facility. Even though the Company experienced a significant increase in its accounts and unbilled receivables, those increases were part of the Company’s foreign operations which are not included in the borrowing base calculation. 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.

9

    

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.
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 ($12.1 million at September 30, 2017) plus the aggregate amount of unrestricted cash held by ION, the Subsidiary Borrowers and their domestic subsidiaries. At September 30, 2017, ION, the Subsidiary Borrowers and their domestic subsidiaries had unrestricted cash totaling $17.2 million and non-domestic subsidiaries had unrestricted cash totaling $23.0 million.
At September 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.

10

    

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 September 30, 2017, the Company was in compliance with the covenants with respect to the Third Lien Notes.
The Second Lien Notes are senior secured second-priority obligations guaranteed by the Guarantors. The Second Lien Notes mature on December 15, 2021. Interest on the Second Lien Notes accrues at the rate of 9.125% per annum and is payable semiannually in arrears on June 15 and December 15 of each year during their term, 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 September 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 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 September 30, 2017 and 2016 was 782,739 and 877,569, respectively, and the total number of shares of restricted stock and shares reserved for restricted stock units outstanding at September 30, 2017 and 2016 was 163,184 and 293,340, respectively. The effects of the dilutive stock awards were anti-dilutive for the nine months ended September 30, 2017 and 2016, as reflected in the table below.
The following table summarizes the computation of basic and diluted net income (loss) per common share (in thousands, except per share amounts):

11

    

 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
Net income (loss) attributable to ION
$
4,935

 
$
1,699

 
$
(28,848
)
 
$
(58,657
)
Weighted average number of common shares outstanding
11,890

 
11,786

 
11,862

 
11,269

Effect of dilutive stock awards
181

 
121

 

 

Weighted average number of diluted common shares outstanding
12,071

 
11,907

 
11,862

 
11,269

 
 
 
 
 
 
 
 
Basic net income (loss) per share
$
0.42

 
$
0.14

 
$
(2.43
)
 
$
(5.21
)
Diluted net income (loss) per share
$
0.41

 
$
0.14

 
$
(2.43
)
 
$
(5.21
)

(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 September 30, 2017, the Company has no unreserved U.S. deferred tax assets.
The tax provision for the nine months ended September 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 September 30, 2017 and 2016 were 25.2% and 63.4%, respectively. The Company’s effective tax rate for the nine months ended September 30, 2017 and 2016 were (15.1)% and (11.2)% respectively. The Company’s effective tax rates for the three and nine months ended September 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 nine months ended September 30, 2017 of $3.7 million primarily relates to results from the Company’s non-U.S. businesses.
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 September 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.

12

    

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.
On March 14, 2017, the District Court held a hearing on whether or not additional damages for willfulness would be payable. The Judge found that ION’s infringement was willful, based on his perception that ION did not adequately investigate the scope of the patent, and ION’s conduct during trial. However, in his May 16, 2017 order, he limited enhanced damages to $5.0 million because it was a “close case,” there was no evidence of copying, and ION was simply acting as a competitor in a capitalist marketplace. The District Court also ordered the appeal bond to be released and discharged. The Court’s findings were memorialized in an order issued on May 16, 2017. On June 30, 2017, WesternGeco and the Company jointly agreed that neither party would appeal the District Court's award of $5.0 million in enhanced damages. The parties also agreed that the $5.0 million would be paid over the course of 12 months with $1.25 million being paid in two installments of $0.625 million in 2017 and the remaining $3.75 million being paid in three quarterly payments of $1.25 million beginning January 1, 2018. This agreement was memorialized by the court in an order issued on July 26, 2017.
WesternGeco filed a second petition for writ of certiorari in the U.S. Supreme Court on February 17, 2017, appealing the lost profits issue again. The Company filed its response to WesternGeco’s second attempt to appeal to the Supreme Court the lost profits issue, raising both the substantive matters the Company addressed by opposing WesternGeco’s first petition, and also raising a procedural argument that WesternGeco cannot raise the same issue for a second time in a second 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 U.S. Supreme Court has discretion to hear, or not hear, WesternGeco’s appeal; granting WesternGeco’s request for a writ of certiorari would mean that the U.S. Supreme Court decided to hear WesternGeco’s appeal of the decision by the United States Court of Appeals for the Federal Circuit with respect to the lost profits issue.  If the Supreme Court agrees to hear WesternGeco’s appeal, the Company will contest WesternGeco’s appeal at the Supreme Court.  In such a case, it is possible that the Supreme Court could issue a ruling adverse to the Company.) The Company and WesternGeco each met with the Solicitor General’s office in late July, 2017.  The Solicitor General is expected to issue its brief as to whether the Supreme Court should grant certiorari near the end of 2017 or the beginning of 2018, although there is no deadline for the Solicitor General to issue its brief.

13

    

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 September 30,
 
Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
Accrual for loss related to legal proceedings (Footnote 6)
$

 
$

 
$
(5,000
)
 
$

Loss on bond exchange

 

 

 
(2,182
)
Other income (expense), net
722

 
(2,027
)
 
846

 
(1,442
)
Total other income (expense), net
$
722

 
$
(2,027
)
 
$
(4,154
)
 
$
(3,624
)

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

September 30, 2017
 
December 31, 2016
Raw materials and subassemblies
$
20,519

 
$
21,454

Work-in-process
1,044

 
2,255

Finished goods
7,392

 
6,581

Reserve for excess and obsolete inventories
(14,691
)
 
(15,049
)
Total
$
14,264

 
$
15,241


(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 income
 
2,749

 
2,749

Accumulated other comprehensive loss at September 30, 2017
 
$
(18,999
)
 
$
(18,999
)
 
 
 
 
 


14

    

(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):
 
Nine Months Ended September 30,
 
 
2017
 
2016
 
Cash paid during the period for:
 
 
 
 
Interest
$
7,273

 
$
8,819

 
Income taxes
3,756

 
2,579

 
Non-cash items from investing and financing activities:
 
 
 
 
Investment in multi-client data library in accounts payable and accrued expenses
8,485

 

 
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 debt as of September 30, 2017 and December 31, 2016 were $159.6 million and $163.9 million, respectively, compared to its fair values of $139.8 million and $114.8 million as of September 30, 2017 and December 31, 2016, respectively. The fair value of the 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 could have sold 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. Effective May 2, 2017, the Company terminated and canceled the ATM Program.  No shares were sold pursuant to the ATM Program.
Stock-Based Compensation
The total number of shares issued or reserved for future issuance under outstanding stock options at September 30, 2017 and 2016 was 782,739 and 877,569, respectively, and the total number of shares of restricted stock and shares reserved for restricted stock units outstanding at September 30, 2017 and 2016 was 163,184 and 293,340, respectively. The following table presents a summary of the activity related to stock options, restricted stock and restricted stock unit awards for the nine months ended September 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 and unit awards vested
(12,500
)
 
(115,133
)
Cancelled/forfeited
(52,396
)
 
(24,491
)
Outstanding at September 30, 2017
782,739

 
163,184

Stock-based compensation expense recognized for the nine months ended September 30, 2017 and 2016, totaled $1.7 million and $2.5 million, respectively.

15

    

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 changed and now 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 September 30, 2017, the Company 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. The Company does not expect to repurchase any additional shares prior to the expiration of the program on November 10, 2017.
(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.
The Company currently expects to use the modified retrospective adoption method effective January 1, 2018. 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. The Company has put in place an implementation team to review contracts subject to the new revenue standard, provide trainings and work with third party specialists to assist in the evaluation. The implementation team continues to review contracts and monitor the potential impact to the Company’s financial position or results of operations.
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 Seismic Services segment.
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.

16

    

(14)    Condensed Consolidating Financial Information
The Notes were issued by ION Geophysical Corporation and are guaranteed by the Guarantors, all of which are wholly-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.
  

17

    

 
September 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
$
17,244

 
$

 
$
22,981

 
$

 
$
40,225

Accounts receivable, net
40

 
6,034

 
33,300

 

 
39,374

Unbilled receivables

 
11,357

 
14,476

 

 
25,833

Inventories

 
8,582

 
5,682

 

 
14,264

Prepaid expenses and other current assets
1,558

 
504

 
2,197

 

 
4,259

Total current assets
18,842

 
26,477

 
78,636

 

 
123,955

Property, plant, equipment and seismic rental equipment, net
761

 
8,292

 
46,135

 

 
55,188

Multi-client data library, net

 
68,791

 
27,960

 

 
96,751

Investment in subsidiaries
679,958

 
303,996

 

 
(983,954
)
 

Goodwill

 

 
24,048

 

 
24,048

Intangible assets, net

 
2,002

 
24

 

 
2,026

Intercompany receivables

 

 
52,655

 
(52,655
)
 

Other assets
1,080

 
145

 
260

 

 
1,485

Total assets
$
700,641

 
$
409,703

 
$
229,718

 
$
(1,036,609
)
 
$
303,453

LIABILITIES AND EQUITY
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
Current maturities of long-term debt
$
38,278

 
$
541

 
$

 
$

 
$
38,819

Accounts payable
2,682

 
19,720

 
2,272

 

 
24,674

Accrued expenses
16,325

 
13,458

 
11,091

 

 
40,874

Accrued multi-client data library royalties

 
24,371

 
205

 

 
24,576

Deferred revenue

 
2,431

 
8,444

 

 
10,875

Total current liabilities
57,285

 
60,521

 
22,012

 

 
139,818

Long-term debt, net of current maturities
116,506

 

 

 

 
116,506

Intercompany payables
497,658

 
38,708

 

 
(536,366
)
 

Other long-term liabilities
461

 
6,170

 
10,435

 

 
17,066

Total liabilities
671,910

 
105,399

 
32,447

 
(536,366
)
 
273,390

Equity:
 
 
 
 
 
 
 
 
 
Common stock
119

 
290,460

 
49,394

 
(339,854
)
 
119

Additional paid-in capital
901,138

 
180,699

 
202,290

 
(382,989
)
 
901,138

Accumulated earnings (deficit)
(853,527
)
 
233,706

 
42,766

 
(276,472
)
 
(853,527
)
Accumulated other comprehensive income (loss)
(18,999
)
 
4,385

 
(19,746
)
 
15,361

 
(18,999
)
Due from ION Geophysical Corporation

 
(404,946
)
 
(78,765
)
 
483,711

 

Total stockholders’ equity
28,731

 
304,304

 
195,939

 
(500,243
)
 
28,731

Noncontrolling interests

 

 
1,332

 

 
1,332

Total equity
28,731

 
304,304

 
197,271

 
(500,243
)
 
30,063

Total liabilities and equity
$
700,641

 
$
409,703

 
$
229,718

 
$
(1,036,609
)
 
$
303,453


18

    

 
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


19

    

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

 
$
16,554

 
$
44,541

 
$

 
$
61,095

Cost of sales

 
19,517

 
11,469

 

 
30,986

Gross profit (loss)

 
(2,963
)
 
33,072

 

 
30,109

Total operating expenses
8,349

 
7,856

 
3,968

 

 
20,173

Income (loss) from operations
(8,349
)
 
(10,819
)
 
29,104

 

 
9,936

Interest expense, net
(4,054
)
 
36

 
59

 

 
(3,959
)
Intercompany interest, net
259

 
(1,603
)
 
1,344

 

 

Equity in earnings of investments
17,097

 
31,565

 

 
(48,662
)
 

Other income (expense)
19

 
(8
)
 
711

 

 
722

Net income (loss) before income taxes
4,972

 
19,171

 
31,218

 
(48,662
)
 
6,699

Income tax expense
37

 
837

 
812

 

 
1,686

Net income
4,935

 
18,334

 
30,406

 
(48,662
)
 
5,013

Net income attributable to noncontrolling interests

 

 
(78
)
 

 
(78
)
Net income (loss) attributable to ION
$
4,935

 
$
18,334

 
$
30,328

 
(48,662
)
 
$
4,935

Comprehensive net income
$
5,968

 
$
18,347

 
$
31,351

 
$
(49,620
)
 
$
6,046

Comprehensive income attributable to noncontrolling interest

 

 
(78
)
 

 
(78
)
Comprehensive net income attributable to ION
$
5,968

 
$
18,347

 
$
31,273

 
$
(49,620
)
 
$
5,968

 
 
 
 
 
 
 
 
 
 
 
Three Months Ended September 30, 2016
Income Statement
ION Geophysical Corporation
 
The Guarantors
 
All Other Subsidiaries
 
Consolidating Adjustments
 
Total Consolidated
 
(In thousands)
Net revenues
$

 
$
30,155

 
$
48,467

 
$

 
$
78,622

Cost of sales

 
22,724

 
24,133

 

 
46,857

Gross profit

 
7,431

 
24,334

 

 
31,765

Total operating expenses
7,692

 
7,186

 
5,023

 

 
19,901

Income (loss) from operations
(7,692
)
 
245

 
19,311

 

 
11,864

Interest expense, net
(4,583
)
 
(32
)
 
8

 

 
(4,607
)
Intercompany interest, net
276

 
(1,138
)
 
862

 

 

Equity in earnings of investments
13,494

 
15,039

 

 
(28,533
)
 

Other income (expense)
245

 
948

 
(3,220
)
 

 
(2,027
)
Net income before income taxes
1,740

 
15,062

 
16,961

 
(28,533
)
 
5,230

Income tax expense
41

 
670

 
2,605

 

 
3,316

Net income
1,699

 
14,392

 
14,356

 
(28,533
)
 
1,914

Net income attributable to noncontrolling interests

 

 
(215
)
 

 
(215
)
Net income attributable to ION
$
1,699

 
$
14,392

 
$
14,141

 
(28,533
)
 
$
1,699

Comprehensive net income
$
616

 
$
14,392

 
$
13,058

 
$
(27,235
)
 
$
831

Comprehensive income attributable to noncontrolling interest

 

 
(215
)
 

 
(215
)
Comprehensive net income attributable to ION
$
616

 
$
14,392

 
$
12,843

 
$
(27,235
)
 
$
616

 
 
 
 
 
 
 
 
 
 

20

    

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

 
$
44,533

 
$
95,119

 
$

 
$
139,652

Cost of sales

 
55,473

 
32,351

 

 
87,824

Gross profit (loss)

 
(10,940
)
 
62,768

 

 
51,828

Total operating expenses
25,761

 
20,727

 
12,888

 

 
59,376

Income (loss) from operations
(25,761
)
 
(31,667
)
 
49,880

 

 
(7,548
)
Interest expense, net
(12,697
)
 
(60
)
 
93

 

 
(12,664
)
Intercompany interest, net
852

 
(4,743
)
 
3,891

 

 

Equity in earnings of investments
13,963

 
49,418

 

 
(63,381
)
 

Other income (expense)
(5,068
)
 
(348
)
 
1,262

 

 
(4,154
)
Net income (loss) before income taxes
(28,711
)
 
12,600

 
55,126

 
(63,381
)
 
(24,366
)
Income tax expense
137

 
(4,376
)
 
7,909

 

 
3,670

Net income
(28,848
)
 
16,976

 
47,217

 
(63,381
)
 
(28,036
)
Net income attributable to noncontrolling interests

 

 
(812
)
 

 
(812
)
Net income (loss) attributable to ION
$
(28,848
)
 
$
16,976

 
46,405

 
$
(63,381
)
 
(28,848
)
Comprehensive net income (loss)
$
(26,099
)
 
$
16,941

 
$
49,257

 
$
(65,386
)
 
$
(25,287
)
Comprehensive income attributable to noncontrolling interest

 

 
(812
)
 

 
(812
)
Comprehensive net income (loss) attributable to ION
$
(26,099
)
 
$
16,941

 
$
48,445

 
$
(65,386
)
 
$
(26,099
)
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended September 30, 2016
Income Statement
ION Geophysical Corporation
 
The Guarantors
 
All Other Subsidiaries
 
Consolidating Adjustments
 
Total Consolidated
 
(In thousands)
Net revenues
$

 
$
58,907

 
$
78,532

 
$

 
$
137,439

Cost of sales

 
67,061

 
42,690

 

 
109,751

Gross profit (loss)

 
(8,154
)
 
35,842