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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, DC 20549
 Form 10-K
  þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Fiscal Year Ended December 31, 2008
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 Commission file number 1-12691
 ION Geophysical Corporation
 (Exact Name of Registrant as Specified in Its Charter)
 Delaware(State or Other Jurisdiction of 
Incorporation or Organization)
    
    22-2286646(I.R.S. Employer
Identification No.)
 2105 CityWest Blvd
Suite 400
Houston, Texas 77042-2839  (Address of Principal Executive Offices, Including Zip Code)
 (281) 933-3339  (Registrants Telephone Number, Including Area Code)
 Securities registered pursuant to Section 12(b) of the Act:
 Title of Each Class
    
    Name of Each Exchange on Which RegisteredCommon Stock, $0.01 par value
    
    New York Stock ExchangeRights to Purchase Series A Junior Participating Preferred Stock
    
    New York Stock Exchange
 Securities registered pursuant to Section 12(g) of the Act:
None
 o þ
 o þ
 þ o
 o
  Large accelerated filer þ
Accelerated filer o
Non-accelerated filer o(Do not check if a smaller reporting company)
Smaller reporting company o o þ
   DOCUMENTS INCORPORATED BY REFERENCE
 Document
    
    Parts Into Which IncorporatedPortions of the Proxy Statement for the Annual Meeting of Stockholders to be held May 27, 2009
    
    Part III




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TABLE OF CONTENTS
 PagePART IItem 1.
    
    Business
    
    
    3Item 1A.
    
    Risk Factors
    
    
    16Item 1B.
    
    Unresolved Staff Comments
    
    
    30Item 2.
    
    Properties
    
    
    31Item 3.
    
    Legal Proceedings
    
    
    31Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    31PART IIItem 5.
    
    Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
    
    
    32Item 6.
    
    Selected Financial Data
    
    
    33Item 7.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    34Item 7A.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    56Item 8.
    
    Financial Statements and Supplementary Data
    
    
    57Item 9.
    
    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    57Item 9A.
    
    Controls and Procedures
    
    
    57Item 9B.
    
    Other Information
    
    
    59PART IIIItem 10.
    
    Directors, Executive Officers and Corporate Governance
    
    
    59Item 11.
    
    Executive Compensation
    
    
    59Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    60Item 13.
    
    Certain Relationships and Related Transactions and Director Independence
    
    
    60Item 14.
    
    Principal Accountant Fees and Services
    
    
    60PART IVItem 15.
    
    Exhibits and Financial Statement Schedules
    
    
    60Signatures
    
    
    65Index to Consolidated Financial Statements
    
    
    F-1EX-10.47EX-21.1EX-23.1EX-31.1EX-31.2EX-32.1EX-32.2
  2




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##### Table of Contents



PART I
 Preliminary Note: This Annual Report on Form 10-K contains forward-looking statements as
that term is defined in the Private Securities Litigation Reform Act of 1995. Forward-looking
statements should be read in conjunction with the cautionary statements and other important factors
included in this Form 10-K . See Item 1A.  Risk Factors for a description of important factors
which could cause actual results to differ materially from those contained in the forward-looking
statements.
  
 Item 1. Business
  
    
    land and marine seismic data acquisition equipment,
    
    navigation, command & control, and data management software products,
    
    planning services for survey design and optimization,
    
    seismic data processing services, and
    
    seismic data libraries.
  Managements Discussion and Analysis of
Financial Condition and Results of Operations  Executive Summary
 
 
    
    Land Imaging Systems cable-based, cableless, and radio-controlled seismic data
acquisition systems, digital and analog geophone sensors, vibroseis vehicles (i.e. vibrator
trucks), and source controllers for detonator and vibrator energy sources.
    
    Marine Imaging Systems towed streamer and redeployable ocean bottom cable seismic data
acquisition systems and shipboard recorders, streamer positioning and control systems, and
energy sources (such as air guns and air gun controllers).
 3




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
    
    Data Management Solutions software and related services for navigation and data
management involving towed marine streamer and seabed operations.
    
    ION Solutions advanced seismic data processing services for marine and land
environments, our marine seismic data libraries, and our Integrated Seismic Solutions (ISS)
services.
 www.iongeo.com
  . www.sec.gov
 Seismic Industry Overview
      4




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Managements Discussion and Analysis of Financial Condition and Results
of Operations 
 ION Geophysicals Business Strategy
   5




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
    
    Our acquisition of Concept Systems Holdings Limited (Concept Systems) and its integrated
planning, navigation, command & control, and data management software and solutions for
towed streamer and seabed operations; and
    
    Our acquisition of GX Technology Corporation (GXT), and its advanced seismic data imaging
solutions services and seismic data libraries for the marine environment.
        6




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
    
    Continuing to manage our cost structure to reflect current market and economic conditions
while keeping key strategic technology programs progressing with an overall goal of enabling
E&P companies to solve their complex reservoir problems most efficiently and effectively;
    
    Expanding our ION Solutions business in new regions with new customers and new land and
marine service offerings, including proprietary services for owners and operators of oil and
gas properties;
    
    Globalizing our ION Solutions data processing business by opening advanced imaging
centers in strategic locations, and expanding our presence in the land seismic processing
segment, with emphasis on serving the emerging national oil companies;
    
    Developing and introducing our next generation of marine towed streamer products, with a
goal of developing markets beyond the new vessel market;
    
    Expanding our seabed imaging solutions business using our VectorSeis® Ocean
(VSO) acquisition system platform and derivative products to obtain technical and market
leadership in what we continue to believe is a very important and expanding market;
    
    Utilizing our recent ARAM acquisition as a framework to increase our market share and
profitability in cable-based land acquisition systems; and
    
    Furthering the commercialization of FireFly®, our cableless full-wave land
data acquisition system, through sales and also through a services/rental model to advance
the diffusion rate.
 ® " Products and Services
 Full-Wave Digital
    7




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
    
    Scorpion®  our cable-based land acquisition system that replaced our System
Four® system in late 2006;
    
    VectorSeis Ocean (VSO)  our redeployable ocean bottom cable system for the seabed; and
    
    FireFly  our cableless full-wave land acquisition system.
 Segment Information
 
 
    
    Land Imaging Systems cable-based, cableless, and radio-controlled seismic data
acquisition systems, digital and analog geophone sensors, vibroseis vehicles (i.e. vibrator
trucks), and source controllers for detonator and vibrator energy sources.
    
    Marine Imaging Systems towed streamer and redeployable ocean bottom cable seismic data
acquisition systems and shipboard recorders, streamer positioning and control systems, and
energy sources (such as air guns and air gun controllers).
    
    Data Management Solutions software and related services for navigation and data
management involving towed marine streamer and seabed operations.
    
    ION Solutions advanced seismic data processing services for marine and land
environments, our marine seismic data libraries, and our Integrated Seismic Solutions (ISS)
services.
 Notes to Consolidated Financial Statements.
 Products and Services
 Managements Discussion and Analysis of Financial Condition and Results of
Operations  Executive Summary
 ION Systems Division
 Land Imaging Systems Products
  Land Acquisition Systems. ®
 
 8




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Geophones.
 Vibrators and Energy Sources. ®
  9




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Marine Imaging Systems Products
  Marine Acquisition Systems. 
  Marine Positioning Systems. ® 
 Source and Source Control Systems. ®
 Data Management Solutions Products and Services
  Marine Imaging. ®
 Seabed Imaging. ®
 10




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Survey Design, Planning and Optimization.
 Post-Survey Analysis Tools. ® ®
 ION Solutions Division Services
  Seismic Data Processing Services.
   
  Integrated Seismic Solutions (ISS).
 Seismic Data Libraries.
 11




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Product Research and Development
   Selected Financial Data
  Markets and Customers
    12




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Notes
to Consolidated Financial Statements
 Manufacturing Outsourcing and Suppliers
    13




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Competition
       Intellectual Property
  14




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® ® ® ® ® ® ® ® ® ® ® ® ® ®             
 Regulatory Matters
   Employees
   Financial Information by Segment and Geographic Area
 Notes to Consolidated Financial Statements.
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Item 1A. Risk Factors
  
    
    our expectations for future financing and the refinancing of our existing indebtedness;
    
    the expected effects of current and future worldwide economic conditions and demand for
oil and natural gas;
    
    future levels of spending by our customers;
    
    compliance with our debt financial covenants;
    
    expected net revenues, income from operations and net income;
    
    expected gross margins for our products and services;
    
    future benefits to our customers to be derived from new products and services, such as
Scorpion and FireFly;
    
    future growth rates for certain of our products and services;
    
    future sales to our significant customers;
    
    our ability to continue to leverage our costs by growing our revenues and earnings;
    
    the degree and rate of future market acceptance of our new products and services;
    
    expectations regarding future mix of business and future asset recoveries;
    
    the timing of anticipated sales;
    
    anticipated timing and success of commercialization and capabilities of products and
services under development and start- up costs associated with their development;
    
    expected improved operational efficiencies from our full-wave digital products and
services;
    
    potential future acquisitions;
    
    future levels of capital expenditures;
    
    future cash needs and future sources of cash, including availability under our revolving
line of credit facility;
    
    our ability to maintain our costs at consistent percentages of our revenues in the
future;
    
    the outcome of pending or threatened disputes and other contingencies;
    
    future demand for seismic equipment and services;
    
    future seismic industry fundamentals;
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
    
    the adequacy of our future liquidity and capital resources;
    
    future oil and gas commodity prices;
    
    future opportunities for new products and projected research and development expenses;
    
    success in integrating our acquired businesses;
    
    expectations regarding realization of deferred tax assets; and
    
    anticipated results regarding accounting estimates we make.
  The current economic and credit environment and lower oil and natural gas prices could have a
continuing adverse affect on demand for certain of our products and services, our results of
operations, our cash flows, our financial condition, our ability to borrow and our stock price.
     17




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We have a substantial amount of outstanding indebtedness, and we will need to pay or refinance our
existing indebtedness or incur additional indebtedness, which may adversely affect our operations.
     
    
    increase our vulnerability to general adverse economic, competitive and industry
conditions;
    
    limit our ability to obtain additional financing in the future for working capital,
capital expenditures, acquisitions, general corporate purposes or other purposes on
satisfactory terms, or at all;
    
    require us to dedicate a substantial portion of our cash flow from operations to the
payment of our indebtedness, thereby reducing funds available to us for operations and any
future business opportunities;
    
    expose us to the risk of increased interest rates because certain of our borrowings,
including borrowings under our Amended Credit Facility, are at variable rates of interest;
    
    restrict us from making strategic acquisitions or cause us to make non-strategic
divestitures;
    
    limit our planning flexibility for, or ability to react to, changes in our business and
the industries in which we operate;
    
    limit our ability to adjust to changing market conditions; and
    
    place us at a competitive disadvantage to our competitors who may have less indebtedness
or greater access to financing.
  18




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Managements Discussion and Analysis of Financial Condition and Results of
Operations  Executive Summary  Our Current Debt Levels and   Liquidity and Capital
Resources  Sources of Capital  Meeting our Liquidity Requirements
   To comply with our indebtedness and other obligations, we will require a significant amount of cash
and will be required to satisfy certain debt financial covenants. Our ability to generate cash and
satisfy debt covenants depends on many factors beyond our control.
      
    
    incurring additional indebtedness and issuing preferred stock;
    
    creating liens on our assets;
    
    making certain investments or restricted payments;
    
    consolidating or merging with, or acquiring, another business;
    
    selling or otherwise disposing of our assets;
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
    
    paying dividends and making other distributions with respect to capital stock, or
repurchasing, redeeming or retiring capital stock or subordinated debt; and
    
    entering into transactions with our affiliates.
     Given the reduced budgets for capital expenditures by E&P companies, demand for our products and
services and our results of operations will be adversely affected.
  
    
    the supply of and demand for oil and gas;
 20




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
    
    the level of prices, and expectations about future prices, of oil and gas;
    
    the cost of exploring for, developing, producing and delivering oil and gas;
    
    the ability of the Organization of Petroleum Exporting Countries (OPEC) to set and
maintain production levels for oil;
    
    the expected rates of declining current production;
    
    the discovery rates of new oil and gas reserves;
    
    weather conditions, including hurricanes, that can affect oil and gas operations over a
wide area, as well as less severe inclement weather that can preclude or delay seismic data
acquisition;
    
    domestic and worldwide economic conditions;
    
    political instability in oil and gas producing countries;
    
    technical advances affecting energy consumption;
    
    government policies regarding the exploration, production and development of oil and gas
reserves;
    
    the ability of oil and gas producers to raise equity capital and debt financing; and
    
    merger and divestiture activity among oil and gas companies and seismic contractors.
  We derive a substantial amount of our revenues from foreign operations and sales, which pose
additional risks.
   
    
    disruption of oil and natural gas E&P activities;
    
    restriction of the movement and exchange of funds;
    
    inhibition of our ability to collect receivables;
    
    enactment of additional or stricter U.S. government or international sanctions;
    
    limitation of our access to markets for periods of time;
    
    expropriation and nationalization of our assets;
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
    
    political and economic instability, which may include armed conflict and civil
disturbance;
    
    currency fluctuations, devaluations, and conversion restrictions;
    
    confiscatory taxation or other adverse tax policies; and
    
    governmental actions that may result in the deprivation of our contractual rights.
   Our variable rate indebtedness subjects us to interest rate risk, which could cause our debt
service obligations to increase significantly.
 
   Due to the international scope of our business activities, our results of operations may be
significantly affected by currency fluctuations .
  22




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We may not gain rapid market acceptance for our full-wave digital products, which could materially
and adversely affect our results of operations and financial condition.
  Managements Discussion and Analysis of Financial Condition and Results of Operations 
Liquidity and Capital Resources
 Our operating results may fluctuate from period to period, and we are subject to seasonality
factors.
   Our outstanding shares of Series D-1 Cumulative Convertible Preferred Stock, Series D-2 Cumulative
Convertible Preferred Stock and Series D-3 Cumulative Convertible Preferred Stock are convertible
into shares of our common stock. The conversion of these securities would result in substantial
dilution to existing stockholders, and sales in the open market of the shares of common stock
acquired upon conversion may have the effect of reducing the then-current market prices for our
common stock.
 23




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Technologies and businesses that we acquire (including those in connection with the ARAM
acquisition) may be difficult to integrate, disrupt our business, dilute stockholder value or
divert management attention.
   
    
    increased costs associated with the acquisition and operation of the new businesses or
technologies and the management of geographically dispersed operations;
    
    risks associated with the assimilation of new technologies (including incorporating
ARAMs land seismic acquisition products with our existing product lines), operations,
sites, and personnel;
    
    difficulties in retaining and integrating key technical, sales and marketing personnel
and the possible loss of such employees and costs associated with their loss;
    
    difficulties associated with preserving relationships with ARAMs customers, partners and
vendors;
    
    risks that any technology we acquire may not perform as well as we had anticipated;
    
    the diversion of managements attention and other resources from existing business
concerns;
    
    the potential inability to replicate operating efficiencies in the acquired companys
operations;
    
    potential impairments of goodwill and intangible assets;
    
    the inability to generate revenues to offset associated acquisition costs;
    
    the requirement to maintain uniform standards, controls and procedures;
    
    the impairment of relationships with employees and customers as a result of any
integration of new and inexperienced management personnel; and
    
    the risk that acquired technologies do not provide us with the benefits we anticipated.
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Goodwill and other intangible assets that we have recorded in connection with our acquisitions are
subject to mandatory annual impairment evaluations and as a result, we could be required to
write-off additional goodwill and other intangible assets, which may adversely affect our
financial condition and results of operations.
 Goodwill and Other
Intangible Assets
 We are exposed to risks related to complex, highly technical products.
   Reservoir Exploration Technology (RXT) has been a significant customer of our Marine Imaging
Systems segment. A loss of business from this customer could adversely affect our sales and
financial condition if RXT is not replaced by another customer or customers.
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We rely on highly skilled personnel in our businesses, and if we are unable to retain or motivate
key personnel or hire qualified personnel, we may not be able to grow effectively.
  If we do not effectively manage our transitions into new products and services, our revenues may
suffer.
   Technological change in the seismic industry requires us to make substantial research and
development expenditures.
  We invest significant sums of money in acquiring and processing seismic data for our ION Solutions
multi-client data library.
  26




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The loss of any significant customer could materially and adversely affect our results of
operations and financial condition.
   Our ION Solutions and Data Management Solutions segments increase our exposure to the risks
experienced by more technology-intensive companies.
  
    
    future competition from more established companies entering the market;
    
    product obsolescence;
    
    dependence upon continued growth of the market for seismic data processing;
    
    the rate of change in the markets for these segments technology and services;
    
    research and development efforts not proving sufficient to keep up with changing market
demands;
    
    dependence on third-party software for inclusion in these segments products and
services;
    
    misappropriation of these segments technology by other companies;
    
    alleged or actual infringement of intellectual property rights that could result in
substantial additional costs;
    
    difficulties inherent in forecasting sales for newly developed technologies or
advancements in technologies;
    
    recruiting, training, and retaining technically skilled personnel that could increase the
costs for these segments, or limit their growth; and
    
    the ability to maintain traditional margins for certain of their technology or services.
 We are subject to intense competition, which could limit our ability to maintain or increase our
market share or to maintain our prices at profitable levels.
 Business  Competition.
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Certain of our facilities could be damaged by hurricanes and other natural disasters, which could
have an adverse effect on our results of operations and financial condition.
   We have outsourcing arrangements with third parties to manufacture some of our products. If these
third party suppliers fail to deliver quality products or components at reasonable prices on a
timely basis, we may alienate some of our customers and our revenues, profitability, and cash flow
may decline. Additionally, the current global economic crisis could have a negative impact on our
suppliers, causing a disruption in our vendor supplies. A disruption in vendor supplies may
adversely affect our results of operations.
    Our outsourcing relationships may require us to purchase inventory when demand for products
produced by third-party manufacturers is low.
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We may be unable to obtain broad intellectual property protection for our current and future
products and we may become involved in intellectual property disputes.
   Our operations, and the operations of our customers, are subject to numerous government
regulations, which could adversely limit our operating flexibility.
  If we, our option holders or our existing stockholders holding registration rights sell additional
shares of our common stock in the future, the market price of our common stock could decline.
   Managements
Discussion and Analysis of Financial Condition and Results of Operations  Liquidity and Capital
Resources
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Our certificate of incorporation and bylaws, Delaware law, our stockholders rights plan, the terms
of our Series D Preferred Stock and contractual requirements under our agreement with Fletcher
contain provisions that could discourage another company from acquiring us.
  
    
    authorizing the issuance of blank check preferred stock without any need for action by
stockholders;
    
    providing for a dividend on our common stock, commonly referred to as a poison pill,
which can be triggered after a person or group acquires, obtains the right to acquire or
commences a tender or exchange offer to acquire, 20% or more of our outstanding common
stock;
    
    providing for a classified board of directors with staggered terms;
    
    requiring supermajority stockholder voting to effect certain amendments to our certificate of
incorporation and by-laws;
    
    eliminating the ability of stockholders to call special meetings of stockholders;
    
    prohibiting stockholder action by written consent;
    
    establishing advance notice requirements for nominations for election to the board of
directors or for proposing matters that can be acted on by stockholders at stockholder
meetings; and
    
    requiring an acquiring party to assume all of our obligations under our agreement with
Fletcher and the terms of the Series D Preferred Stock set forth in our certificates of
rights and designations for those series, including the dividend, liquidation, conversion,
voting and share registration provisions.
 Note: The foregoing factors pursuant to the Private Securities Litigation Reform Act of 1995
should not be construed as exhaustive. In addition to the foregoing, we wish to refer readers to
other factors discussed elsewhere in this report as well as other filings and reports with the SEC
for a further discussion of risks and uncertainties that could cause actual results to differ
materially from those contained in forward-looking statements. We undertake no obligation to
publicly release the result of any revisions to any such forward-looking statements, which may be
made to reflect the events or circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
 
 Item 1B. Unresolved Staff Comments
  30




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Item 2. Properties
  SquareOperating Facilities
    
    Footage
    
    
    
    SegmentStafford, Texas
    
    
    281,000
    
    
    
    
    Land and Marine Imaging SystemsCalgary, Canada
    
    
    131,000
    
    
    
    
    Land Imaging Systems and ION SolutionsHouston, Texas
    
    
    106,000
    
    
    
    
    Global Headquarters and ION SolutionsHarahan, Louisiana
    
    
    104,000
    
    
    
    
    Marine Imaging SystemsLacombe, Louisiana
    
    
    87,000
    
    
    
    
    Marine Imaging SystemsJebel Ali, Dubai, United Arab Emirates
    
    
    47,000
    
    
    
    
    International Sales Headquarters and
Land Imaging SystemsDenver, Colorado
    
    
    29,000
    
    
    
    
    ION SolutionsVoorschoten, The Netherlands
    
    
    29,000
    
    
    
    
    Land Imaging SystemsEdinburgh, Scotland
    
    
    15,000
    
    
    
    
    Data Management Solutions829,000
 Notes to
Consolidated Financial Statements.
  
 Item 3. Legal Proceedings
  
 Item 4. Submission of Matters to a Vote of Security Holders
  31




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PART II
 
 Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
  Price RangePeriod
    
    High
    
    LowYear ended December 31, 2008:Fourth Quarter
    
    $
    13.95
    
    
    $
    2.14Third Quarter
    
    
    17.61
    
    
    
    12.64Second Quarter
    
    
    18.26
    
    
    
    13.82First Quarter
    
    
    16.05
    
    
    
    11.04Year ended December 31, 2007:Fourth Quarter
    
    $
    16.85
    
    
    $
    13.28Third Quarter
    
    
    17.02
    
    
    
    11.86Second Quarter
    
    
    17.30
    
    
    
    13.32First Quarter
    
    
    14.82
    
    
    
    11.47
   Managements Discussion and Analysis of Financial Condition and Results of Operations 
Liquidity and Capital Resources
   (d) Maximum Number(or ApproximateDollar(c) Total Number of
    
    
    Value) of SharesShares Purchased as
    
    
    That(a)
    
    
    (b)
    
    
    Part of Publicly
    
    
    May Yet Be PurchasedTotal Number of
    
    
    Average Price
    
    
    Announced Plans or
    
    
    Under the Plans orPeriod
    
    Shares Acquired
    
    
    Paid Per Share
    
    
    Program
    
    
    ProgramOctober 1, 2008 to October 31, 2008
    
    
    
    
    
    $
    
    
    
    Not applicable
    
    Not applicableNovember 1, 2008 to November 30, 2008
    
    
    
    
    
    $
    
    
    
    Not applicable
    
    Not applicableDecember 1, 2008 to December 31, 2008
    
    
    23,145
    
    
    $
    2.81
    
    
    Not applicable
    
    Not applicableTotal
    
    
    23,145
    
    
    $
    2.81
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Item 6. Selected Financial Data
 Managements
Discussion and Analysis of Financial Condition and Results of Operations
 Years Ended December 31,2008
    
    
    2007
    
    
    2006
    
    
    2005
    
    
    2004(In thousands, except for per share data)Statement of Operations Data:Product revenues
    
    $
    417,511
    
    
    $
    537,691
    
    
    $
    354,258
    
    
    $
    237,359
    
    
    $
    194,978Service revenues
    
    
    262,012
    
    
    
    175,420
    
    
    
    149,298
    
    
    
    125,323
    
    
    
    45,663Net revenues
    
    
    679,523
    
    
    
    713,111
    
    
    
    503,556
    
    
    
    362,682
    
    
    
    240,641Cost of products
    
    
    289,795
    
    
    
    386,849
    
    
    
    252,647
    
    
    
    163,575
    
    
    
    130,615Cost of services
    
    
    181,980
    
    
    
    119,679
    
    
    
    91,592
    
    
    
    86,619
    
    
    
    40,075Gross profit
    
    
    207,748
    
    
    
    206,583
    
    
    
    159,317
    
    
    
    112,488
    
    
    
    69,951Operating expenses (income):Research, development and engineering
    
    
    49,541
    
    
    
    49,965
    
    
    
    37,853
    
    
    
    26,379
    
    
    
    23,870Marketing and sales
    
    
    47,854
    
    
    
    43,877
    
    
    
    40,651
    
    
    
    33,167
    
    
    
    23,491General and administrative
    
    
    70,776
    
    
    
    49,100
    
    
    
    40,807
    
    
    
    28,227
    
    
    
    29,748Impairment of goodwill and intangible assets
    
    
    252,283
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (Gain) loss on sale of assets
    
    
    117
    
    
    
    (253
    )
    
    
    58
    
    
    
    99
    
    
    
    (3,980
    )Total operating expenses
    
    
    420,571
    
    
    
    142,689
    
    
    
    119,369
    
    
    
    87,872
    
    
    
    73,129Income (loss) from operations
    
    
    (212,823
    )
    
    
    63,894
    
    
    
    39,948
    
    
    
    24,616
    
    
    
    (3,178
    )Interest expense
    
    
    (12,723
    )
    
    
    (6,283
    )
    
    
    (5,770
    )
    
    
    (6,134
    )
    
    
    (6,231
    )Interest income
    
    
    1,439
    
    
    
    1,848
    
    
    
    2,040
    
    
    
    843
    
    
    
    1,276Loss on debt conversion
    
    
    
    
    
    
    (2,902
    )
    
    
    
    
    
    
    
    
    
    
    Fair value adjustment of preferred stock redemption features
    
    
    1,215
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other income (expense)
    
    
    2,985
    
    
    
    (1,090
    )
    
    
    (2,161
    )
    
    
    820
    
    
    
    220Income (loss) before income taxes and change in
accounting principle
    
    
    (219,907
    )
    
    
    55,467
    
    
    
    34,057
    
    
    
    20,145
    
    
    
    (7,913
    )Income tax expense
    
    
    1,131
    
    
    
    12,823
    
    
    
    5,114
    
    
    
    1,366
    
    
    
    701Net income (loss) before change in accounting principle
    
    
    (221,038
    )
    
    
    42,644
    
    
    
    28,943
    
    
    
    18,779
    
    
    
    (8,614
    )Cumulative effect of change in accounting principle
    
    
    
    
    
    
    
    
    
    
    398
    
    
    
    
    
    
    
    Net income (loss)
    
    
    (221,038
    )
    
    
    42,644
    
    
    
    29,341
    
    
    
    18,779
    
    
    
    (8,614
    )Preferred stock dividends and accretion
    
    
    3,889
    
    
    
    2,388
    
    
    
    2,429
    
    
    
    1,635
    
    
    
    Preferred stock beneficial conversion charge
    
    
    68,786
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income (loss) applicable to common shares
    
    $
    (293,713
    )
    
    $
    40,256
    
    
    $
    26,912
    
    
    $
    17,144
    
    
    $
    (8,614
    )Net income (loss) per basic share before change in
accounting principle
    
    $
    (3.06
    )
    
    $
    0.49
    
    
    $
    0.33
    
    
    $
    0.22
    
    
    $
    (0.13
    )Cumulative effect of change in accounting principle
    
    
    
    
    
    
    
    
    
    
    0.01
    
    
    
    
    
    
    
    Net income (loss) per basic share
    
    $
    (3.06
    )
    
    $
    0.49
    
    
    $
    0.34
    
    
    $
    0.22
    
    
    $
    (0.13
    )Net income (loss) per diluted share before change in
accounting principle
    
    $
    (3.06
    )
    
    $
    0.45
    
    
    $
    0.32
    
    
    $
    0.21
    
    
    $
    (0.13
    )Cumulative effect of change in accounting principle
    
    
    
    
    
    
    
    
    
    
    0.01
    
    
    
    
    
    
    
    Net income (loss) per diluted share
    
    $
    (3.06
    )
    
    $
    0.45
    
    
    $
    0.33
    
    
    $
    0.21
    
    
    $
    (0.13
    )
 33




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Years Ended December 31,2008
    
    
    2007
    
    
    2006
    
    
    2005
    
    
    2004(In thousands, except for per share data)Weighted average number of common shares outstanding
    
    
    95,887
    
    
    
    81,941
    
    
    
    79,497
    
    
    
    78,600
    
    
    
    65,759Weighted average number of diluted shares outstanding
    
    
    95,887
    
    
    
    97,321
    
    
    
    95,182
    
    
    
    79,842
    
    
    
    65,759Balance Sheet Data (end of year):Working capital
    
    $
    267,155
    
    
    $
    220,522
    
    
    $
    170,342
    
    
    $
    153,761
    
    
    $
    101,121Total assets
    
    
    861,431
    
    
    
    709,149
    
    
    
    655,136
    
    
    
    537,861
    
    
    
    486,094Notes payable and long-term debt
    
    
    291,909
    
    
    
    24,713
    
    
    
    77,540
    
    
    
    75,946
    
    
    
    85,951Stockholders equity
    
    
    325,070
    
    
    
    476,240
    
    
    
    369,668
    
    
    
    327,545
    
    
    
    308,760Other Data:Capital expenditures
    
    $
    17,539
    
    
    $
    11,375
    
    
    $
    13,704
    
    
    $
    5,304
    
    
    $
    5,022Investment in multi-client library
    
    
    110,362
    
    
    
    64,279
    
    
    
    39,087
    
    
    
    19,678
    
    
    
    4,168Depreciation and amortization (other than multi-client library)
    
    
    33,052
    
    
    
    26,767
    
    
    
    22,036
    
    
    
    23,497
    
    
    
    18,345Amortization of multi-client library
    
    
    80,532
    
    
    
    37,662
    
    
    
    25,011
    
    
    
    10,707
    
    
    
    5,870
 
 Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Note: The following should be read in conjunction with our Consolidated Financial Statements
and related notes that appear elsewhere in this Annual Report on Form 10-K .
 Executive Summary
 Our Business.
  
    
    Land Imaging Systems cable-based, cableless and radio-controlled seismic data
acquisition systems, digital and analog geophone sensors, vibroseis vehicles (i.e.,
vibrator trucks) and source controllers for detonator and vibrator energy sources.
    
    Marine Imaging Systems towed streamer and redeployable ocean bottom cable seismic
data acquisition systems and shipboard recorders, streamer positioning and control systems
and energy sources (such as air guns and air gun controllers).
    
    Data Management Solutions software systems and related services for navigation and
data management involving towed marine streamer and seabed operations.
    
    ION Solutions advanced seismic data processing services for marine and land
environments, seismic data libraries, and Integrated Seismic Solutions (ISS) services.
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
    
    Continuing to manage our cost structure to reflect current market and economic
conditions while keeping key strategic technology programs progressing with an overall goal
of enabling E&P companies to solve their complex reservoir problems most efficiently and
effectively;
    
    Expanding our ION Solutions business in new regions with new customers and new land and
marine service offerings, including proprietary services for owners and operators of oil
and gas properties;
    
    Globalizing our ION Solutions data processing business by opening advanced imaging
centers in new strategic locations, and expanding our presence in the land seismic
processing segment, with emphasis on serving the emerging national oil companies;
    
    Developing and introducing our next generation of marine towed streamer products, with
a goal of developing markets beyond the new vessel market;
    
    Expanding our seabed imaging solutions business using our VectorSeis® Ocean
(VSO) acquisition system platform and derivative products to obtain technical and market
leadership in what we continue to believe is a very important and expanding market;
    
    Utilizing our recent ARAM acquisition as a framework to increase our market share and
profitability in cable-based land acquisition systems; and
    
    Furthering the commercialization of FireFly®, our cableless full-wave land
data acquisition system, through sales and also through a services/rental model to advance
the diffusion rate.
 Our Current Debt Levels.
  Notes Payable, Long-Term Debt and Lease Obligations Liquidity and Capital Resources  Sources of Capital Risk Factors
  35




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Risk
Factors
 Economic and Credit Market Conditions.
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2008 Developments.
    
    
    On September 18, 2008, we acquired ARAM. See further discussion below at  ARAM
Acquisition of this Item 2.
    
    In March 2008, we completed acquisition of a basin-scale seismic survey library that
provides a new regional 2D seismic framework of the Eastern Java Sea and the Makassar
Straits, two prospective areas offshore Indonesia and Malaysia. Data for nearly 10,000
kilometers were acquired during the acquisition phase of this project.
    
    We experienced strong sales of our new DigiFIN advanced streamer command and control
systems as market demand continued to be strong for this new product.
    
    In June 2008, our first DigiSTREAMER solid streamer acquisition system was
successfully deployed in a commercial acquisition program in the North Sea.
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
    
    On July 3, 2008, we entered into a $100.0 million amended and restated revolving credit
facility. In September and December 2008, we amended this facility to add a new $125
million term loan sub-facility to finance our acquisition of ARAM, to permit us to
implement a shareholder rights plan and to accommodate the terms of our refinancing
transactions on December 30, 2008. See  Liquidity and Capital Resources  Sources of
Capital  Revolving Line of Credit and Term Facilities below.
    
    In August 2008, we successfully completed the acquisition phase of a multi-client
seismic imaging project using our FireFly cableless land acquisition system at Durham Ranch
in Northwest Colorado. More than 6,000 VectorSeis-enabled FireFly stations were deployed
with 10,500 receiver points of full-wave seismic data acquired.
    
    In October 2008, we announced that we had been awarded a multi-year, marine
multi-component processing contract by Mobil Producing Nigeria (MPN) Unlimited, operator of
a joint venture with Nigeria National Petroleum Corporation. The contract was the largest
data processing project in our history and consisted of providing advanced imaging services
for a series of seabed seismic surveys to be acquired over the next several years.
    
    In November 2008, we announced the completion of our basin-scale
ArcticSPAN. This new data complements the original 6,700 kilometers of
ArcticSPAN data acquired during 2006. In total, more than 12,000 km of ultra-deep,
basin-scale 2D data, imaged with advanced processing and depth imaging techniques from our
ION Solutions segment, are currently available.
    
    In November 2008, after successful field trials with Conquest Seismic Services, Inc. in
North Dakota, we announced the commercialization of our cable-based ARIES II
seismic recording platform. ARIES II builds upon the market success of ARIES I, but
implements a new system architecture that is designed to improve channel capacity,
efficient equipment deployment and system performance.
    
    In November 2008, we were awarded a fleet-wide contract in excess of $25 million by The
Polarcus Group of Companies to equip their vessels with four streamer positioning and
control technologies. These technologies include DigiFIN, CompassBIRD,
DigiRANGE II and Orca command and control systems.
    
    In January 2009, we announced our first commercial delivery of a multi-thousand station
FireFly system equipped with digital, full-wave VectorSeis sensors. The deployment of IONs
first commercialized FireFly system is taking place in a producing hydrocarbon basin
containing reservoirs that have proven difficult to image with conventional seismic
techniques.
 Key Financial Metrics.
 Years Ended December 31,2008
    
    
    2007
    
    
    2006Net revenues:ION Systems Division:Land Imaging Systems
    
    $
    200,493
    
    
    $
    325,037
    
    
    $
    205,779Marine Imaging Systems
    
    
    182,710
    
    
    
    177,685
    
    
    
    127,927Data Management Solutions
    
    
    37,240
    
    
    
    37,660
    
    
    
    23,198Total ION Systems Division
    
    
    420,443
    
    
    
    540,382
    
    
    
    356,904ION Solutions Division
    
    
    259,080
    
    
    
    172,729
    
    
    
    146,652Total
    
    $
    679,523
    
    
    $
    713,111
    
    
    $
    503,556Income (loss) from operations:ION Systems Division:Land Imaging Systems
    
    $
    (13,662
    )
    
    $
    28,681
    
    
    $
    13,463Marine Imaging Systems
    
    
    52,624
    
    
    
    44,727
    
    
    
    30,258Data Management Solutions
    
    
    22,298
    
    
    
    17,290
    
    
    
    7,461Total ION Systems Division
    
    
    61,260
    
    
    
    90,698
    
    
    
    51,182ION Solutions Division
    
    
    40,534
    
    
    
    21,646
    
    
    
    28,648Corporate
    
    
    (62,334
    )
    
    
    (48,450
    )
    
    
    (39,882
    )Impairment of goodwill and intangible assets
    
    
    (252,283
    )
    
    
    
    
    
    
    Total
    
    $
    (212,823
    )
    
    $
    63,894
    
    
    $
    39,948
 38




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Years Ended December 31,2008
    
    
    2007
    
    
    2006Net income (loss) applicable to common shares
    
    $
    (293,713
    )
    
    $
    40,256
    
    
    $
    26,912Basic net income (loss) per common share
    
    $
    (3.06
    )
    
    $
    0.49
    
    
    $
    0.34Diluted net income per (loss) common share
    
    $
    (3.06
    )
    
    $
    0.45
    
    
    $
    0.33
  Risk Factors
 ARAM Acquisition
  ARAM Acquisition Notes
to Consolidated Financial Statements
  Liquidity and Capital Resources  Sources of Capital 
Revolving Line of Credit and Term Facilities
  Liquidity and Capital Resources  Sources of Capital  Revolving Line of
Credit and Term Facilities see Liquidity and Capital Resources  Sources of Capital Bridge Loan
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Liquidity and Capital Resources
 Refinancing IONs Obligations to the Sellers
   
    
    terminate the $35.0 million purchase price escrow arrangements they had agreed to in
the Amended Purchase Agreement, and
    
    release Maison Mazel and the other Sellers from their obligations under the Amended
Purchase Agreement to indemnify us, ION Sub and other ION-related indemnified persons for
breaches by the Sellers of certain of their representations and warranties contained in the
Amended Purchase Agreement.
  40




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Liquidity and
Capital Resources
  Results of Operations
 Year Ended December 31, 2008 Compared to Year Ended December 31, 2007
 Net Revenues. 
  Gross Profit and Gross Profit Percentage.
 Research,
Development and Engineering. Business 
Product Research and Development
 Marketing and Sales.
 General and Administrative.
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Impairment of Goodwill and Intangible Assets.
 Income Tax Expense.
 Preferred Stock Dividends and Accretion. 1 2
 Adjustments from Preferred Stock Redemption and Conversion Features
 Liquidity and Capital Resources  Sources of Capital -
Cumulative Convertible Preferred Stock
  Fair
Value Adjustment of Preferred Stock Redemption Features
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Preferred Stock Beneficial Conversion Charge
 Year Ended December 31, 2007 Compared to Year Ended December 31, 2006
 Net Revenues.
  Gross Profit and Gross Profit Percentage.
 Research, Development and Engineering. Business  Product Research and
Development
 Marketing and Sales.
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General and Administrative.
 Loss on Debt Conversion.
 Income Tax Expense.
 Preferred Stock Dividends and Accretion.
 Liquidity and Capital Resources
 Sources of Capital
 see Revolving Line of Credit and Term Facilities
  
    
    Our Amended Credit Facility, comprised of:
 
    
    An amended revolving line of credit sub-facility; and
    
    A $125.0 million term loan;
 
    
    A bridge loan agreement with Jefferies Finance LLC (Jefferies); and
    
    The Amended and Restated Subordinated Promissory Note.
 Subordinated Seller Note
 Revolving Line of Credit and Term Facilities.
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##### Table of Contents



ARAM Acquisition
    
    
    Incurring additional indebtedness (including capital lease obligations), granting or
incurring additional liens on our properties, pledging shares of our subsidiaries, entering
into certain merger or other similar transactions, entering into transactions with
affiliates, making certain sales or other dispositions of assets, making certain
investments, acquiring other businesses and entering into certain sale-leaseback
transactions with respect to certain of our properties;
    
    Paying cash dividends on our common stock and repurchasing and acquiring shares of our
common stock unless (i) there is no event of default under the Amended Credit Facility and
(ii) the amount of cash used for cash dividends, repurchases and acquisitions does not, in
the aggregate, exceed an amount equal to the excess of 30% of IONs domestic consolidated
net income for our most recently completed fiscal year over $15.0 million.
  
    
    maintain a minimum fixed charge coverage ratio in an amount equal to 1.50 to 1 for each
fiscal quarter beginning in 2009;
    
    not exceed a maximum leverage ratio of 2.25 to 1 for each fiscal quarter beginning in
2009; and
    
    maintain a minimum tangible net worth of at least 80% of the our tangible net worth as of
September 18, 2008 (the date that we completed our acquisition of ARAM), plus 50% of our
consolidated net income for each quarter thereafter, and 80% of the proceeds from any
mandatorily convertible notes and preferred and common stock issuances for each quarter
thereafter.
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,
     Bridge Loan.
  1 2
 46




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##### Table of Contents



Amended and Restated Subordinated Seller Note.
  .
  
    
    qualifies as Long Term Junior Financing (as defined in the Amended Credit Agreement),
    
    results from a refinancing or replacement of the Amended Credit Facility such that the
aggregate principal indebtedness (including revolving commitments) thereunder would be in
excess of $275.0 million, or
    
    qualifies as unsecured indebtedness for borrowed money that is evidenced by notes or
debentures, has a maturity date of at least five years after the date of its issuance and
results in total gross cash proceeds to us of not less than $45.0 million ($40.0 million
after the Bridge Loan has been paid in full),
  47




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
    
    our obligations under the Amended Credit Facility,
    
    our obligations under the Bridge Loan Agreement,
    
    our liabilities with respect to capital leases and obligations under our facility
sale-leaseback facility that qualify as a Sale/Leaseback Agreement (as that term is
defined in the Credit Agreement),
    
    guarantees of the indebtedness described above, and
    
    debentures, notes or other evidences of indebtedness issued in exchange for, or in the
refinancing of, the Senior Obligations described above, or any indebtedness arising from the
payment and satisfaction of any Senior Obligations by a guarantor.
 Subordinated Seller Note. ARAM
Acquisition
 Cumulative Convertible Preferred Stock
  
    
    The conversion price for the Series D-1 Preferred Stock was $7.869 per share;
    
    The conversion price for the Series D-2 Preferred Stock was $16.0429 per share; and
    
    The conversion price for the Series D-3 Preferred Stock was $14.7981 per share.
   
    
    satisfy all future redemption obligations by distributing only cash, or a combination of
cash and common stock, or
    
    reset the conversion prices of all of the outstanding shares of Series D Preferred Stock
to the Minimum Price, in which event Fletcher would have no further rights to redeem its
shares of Series D Preferred Stock.
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
    
    Fletcher is no longer permitted to redeem its shares of Series D Preferred Stock,
    
    we are required to pay all future dividends on the Series D Preferred Stock in cash and
may not pay such dividends in shares of our common stock, and
    
    the Maximum Number of shares of common stock into which the shares of Series D Preferred
Stock may be converted is 9,669,434 shares.
 Risk Factors.
 Meeting our Liquidity Requirements. Risk Factors Future Contractual Obligations
  49




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Cash Flows from Operations
  Cash Flows from Investing Activities
  Cash Flows from Financing Activities
  Inflation and Seasonality
  Future Contractual Obligations
  50




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Less Than
    
    
    1-3
    
    
    3-5
    
    
    More ThanContractual Obligations
    
    Total
    
    
    1 Year
    
    
    Years
    
    
    Years
    
    
    5 YearsNotes payable and long-term debt
    
    $
    278,909
    
    
    $
    31,353
    
    
    $
    87,260
    
    
    $
    158,796
    
    
    $
    1,500Interest on notes payable and long-term debt obligations
    
    
    59,040
    
    
    
    21,222
    
    
    
    23,047
    
    
    
    14,628
    
    
    
    143Equipment capital lease obligations
    
    
    13,000
    
    
    
    7,046
    
    
    
    5,954
    
    
    
    
    
    
    
    Operating leases
    
    
    50,269
    
    
    
    11,487
    
    
    
    19,723
    
    
    
    9,678
    
    
    
    9,381Product warranty
    
    
    10,526
    
    
    
    10,526
    
    
    
    
    
    
    
    
    
    
    
    Purchase obligations
    
    
    72,607
    
    
    
    72,450
    
    
    
    157
    
    
    
    
    
    
    
    Total
    
    $
    484,351
    
    
    $
    154,084
    
    
    $
    136,141
    
    
    $
    183,102
    
    
    $
    11,024
 Notes Payable, Long-term Debt and Lease Obligations Notes to
Consolidated Financial Statements.
    Liquidity and Capital Resources
 Critical Accounting Policies and Estimates
  
    
    Revenue Recognition and Product Warranty We derive revenue from the sale and rental of (i)
acquisition systems and other seismic equipment within our Land Imaging Systems and Marine
Imaging Systems segments; (ii) imaging services, multi-client surveys and licenses of
off-the-shelf data libraries within our ION Solutions segment; and (iii) navigation, survey
and quality control software systems within our Data Management Solutions segment.
 Revenue Recognition
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Accounting for
Multiple-Element Revenue Arrangement,
 Software Revenue Recognition, Applicability of AICPA Statement of Position 97-2 to Non-Software Deliverables in an Arrangement
Containing More-Than-Incidental Software 
   
    
    Multi-Client Data Library Our multi-client data library consists of seismic surveys that
are offered for licensing to customers on a non-exclusive basis. The capitalized costs include
the costs paid to third parties for the acquisition of data and related activities associated
with the data creation activity and direct internal processing costs, such as salaries,
benefits, computer-related
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expenses, and other costs incurred for seismic data project design and management. For the years
ended December 31, 2008, 2007 and 2006, we capitalized, as part of our multi-client data library,
$5.4 million, $4.3 million, and $3.1 million, respectively, of direct internal processing costs.
   Accounting for the
Impairment and Disposal of Long-Lived Assets
 
    
    Reserve for Excess and Obsolete Inventories Our reserve for excess and obsolete
inventories is based on historical sales trends and various other assumptions and judgments,
including future demand for our inventory and the timing of market acceptance of our new
products. Should these assumptions and judgments not be realized for reasons such as delayed
market acceptance of our new products, our valuation allowance would be adjusted to reflect
actual results. Our industry is subject to technological change and new product development
that could result in obsolete inventory. Our valuation reserve for inventory at December 31,
2008 was $24.1 million compared to $11.5 million at December 31, 2007. The increase in our
reserves for excess and obsolete inventories primarily relates to our analog land acquisition
systems. As a result of the planned integration of ARAM into our Land Imaging Systems
segment, we evaluated and determined that market values of certain of our mature analog
products were lower than their then-current book values. As a result, we wrote down the
inventory to its expected market value, which resulted in a charge to cost of products of
approximately $10.1 million.
    
    Goodwill and Other Intangible Assets For purposes of performing the impairment test for
goodwill as required by SFAS 142, we established the following reporting units: Land Imaging
Systems, ARAM Systems, Sensor Geophone, Marine Imaging Systems, Data Management Solutions, and
ION Solutions. To determine the fair value of our reporting units, we use a discounted future
returns valuation method. If we had established different reporting units or utilized
different valuation methodologies, our impairment test results could differ.
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
    
    Accounts and Notes Receivable Collectibility We consider current information and
circumstances regarding our customers ability to repay their obligations, such as the length
of time the receivable balance is outstanding, the customers credit worthiness and historical
experience, and consider an account or note impaired when it is probable that we will be
unable to collect all amounts due. When we consider an account or note as impaired, we measure
the amount of the impairment based on the present value of expected future cash flows or the
fair value of collateral. We include impairment losses (recoveries) in our allowance for
doubtful accounts and notes through an increase (decrease) in bad debt expense.
  
    
    Stock-Based Compensation We account for stock based compensation under the recognition
provisions of SFAS 123R Share-Based Payment.We estimate the value of stock option awards on
the date of grant using the Black-Scholes option pricing model. The determination of the fair
value of stock-based payment awards on the date of grant using an option-pricing model is
affected by our stock price as well as assumptions regarding a number of subjective variables.
These variables include, but are not limited to, our expected stock price volatility over the
term of the awards, actual and projected employee stock option exercise behaviors, risk-free
interest rate, and expected dividends.
  Recent Accounting Pronouncements
 Determining the Fair Value of a Financial Asset When the Market for That Asset
Is Not Active
 Determining Whether an Instrument (or
Embedded Feature) is Indexed to a Entitys Own Stock
 54




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##### Table of Contents



, Determining Whether
Instruments Granted in Share-Based Payment Transactions Are Participating Securities
 Disclosures about Derivative Instruments and
Hedging Activities,
 Business Combinations
 The Fair Value Option for Financial Assets
and Financial Liabilities
 Credit and Sales Risks
   55




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##### Table of Contents



Certain Relationships and Related Party Transactions
   Off-Balance Sheet Arrangements
  Indemnification
  
 Item 7A. Quantitative and Qualitative Disclosures about Market Risk
  Interest Rate Risk
  56




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##### Table of Contents



Foreign Currency Exchange Rate Risk
   
 Item 8. Financial Statements and Supplementary Data
  
 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
  
 Item 9A. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures.
  Managements Report on Internal Control Over Financial Reporting
 57




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##### Table of Contents



(i)
    
    pertain to the maintenance of records that, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of the assets of the company;(ii)
    
    provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company are being made only in
accordance with authorizations of our management and directors; and(iii)
    
    provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of our assets that could have a material
effect on the financial statements.
    Internal Control  Integrated Framework
  Changes in Internal Control
 Report of Independent Registered Public Accounting Firm
     58




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##### Table of Contents



.
  /s/ Ernst & Young LLP 
 
 Item 9B. Other Information
  
 PART III
 
 Item 10. Directors, Executive Officers and Corporate Governance
 Item
1 Election of Directors,
 
 Item 11. Executive Compensation
 Executive
Compensation,
 59




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##### Table of Contents



Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
 Item 1 
Section 16(a) Beneficial Ownership Reporting Compliance,
 
 Item 13. Certain Relationships and Related Transactions, and Director Independence
 Item 1 
Certain Transactions and Relationships,
 
 Item 14. Principal Accountant Fees and Services
 Principal
Auditor Fees and Services,
 
 PART IV
 
 Item 15. Exhibits and Financial Statement Schedules
 List of Documents Filed
 Financial Statements
  Financial Statement Schedules
    Exhibits
 3.1
    
    
    
    Restated Certificate of Incorporation dated September 24, 2007 filed on September 24,
2007 as Exhibit 3.4 to the Companys Current Report on Form 8-K and incorporated
herein by reference.3.2
    
    
    
    Amended and Restated Bylaws of ION Geophysical Corporation filed on September 24,
2007 as Exhibit 3.5 to the Companys Current Report on Form 8-K and incorporated
herein by reference.3.3
    
    
    
    Certificate of Ownership and Merger merging ION Geophysical Corporation with and into
Input/Output, Inc. dated September 21, 2007, filed on September 24, 2007 as Exhibit
3.1 to the Companys Current Report on Form 8-K and incorporated herein by reference.4.1
    
    
    
    Certificate of Rights and Designations of Series D-1 Cumulative Convertible Preferred
Stock, dated February 16, 2005 and filed on February 17, 2005 as Exhibit 3.1 to the
Companys Current Report on Form 8-K and incorporated herein by reference.4.2
    
    
    
    Certificate of Elimination of Series B Preferred Stock dated September 24, 2007,
filed on September 24, 2007 as Exhibit 3.2 to the Companys Current Report on Form
8-K and incorporated herein by reference.
 60




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##### Table of Contents



4.3
    
    
    
    Certificate of Elimination of Series C Preferred Stock dated September 24, 2007,
filed on September 24, 2007 as Exhibit 3.3 to the Companys Current Report on Form
8-K and incorporated herein by reference.4.4
    
    
    
    Certificate of Designation of Series D-2 Cumulative Convertible Preferred Stock dated
December 6, 2007, filed on December 6, 2007 as Exhibit 3.1 to the Companys Current
Report on Form 8-K and incorporated herein by reference.4.5
    
    
    
    Certificate of Designation of Series D-3 Cumulative Convertible Preferred Stock dated
February 20, 2008, filed on February 22, 2008 as Exhibit 3.1 to the Companys Current
Report on Form 8-K and incorporated herein by reference.4.6
    
    
    
    Certificate of Designations of Series A Junior Participating Preferred Stock of ION
Geophysical Corporation effective as of December 31, 2008, filed on January 5, 2009
as Exhibit 3.1 to the Companys Current Report on Form 8-K and incorporated herein by
reference.4.7
    
    
    
    Form of Senior Indenture, filed on December 19, 2008 as Exhibit 4.3 to the Companys
Registration Statement on Form S-3 (Registration No. 333-156362) and incorporated
herein by reference.4.8
    
    
    
    Form of Senior Note, filed on December 19, 2008 as Exhibit 4.4 to the Companys
Registration Statement on Form S-3 (Registration No. 333-156362) and incorporated
herein by reference.4.9
    
    
    
    Form of Subordinated Indenture, filed on December 19, 2008 as Exhibit 4.5 to the
Companys Registration Statement on Form S-3 (Registration No. 333-156362) and
incorporated herein by reference.4.10
    
    
    
    Form of Subordinated Note, filed on December 19, 2008 as Exhibit 4.6 to the Companys
Registration Statement on Form S-3 (Registration No. 333-156362) and incorporated
herein by reference.**10.1
    
    
    
    Amended and Restated 1990 Stock Option Plan, filed on June 9, 1999 as Exhibit 4.2 to
the Companys Registration Statement on Form S-8 (Registration No. 333-80299), and
incorporated herein by reference.10.2
    
    
    
    Office and Industrial/Commercial Lease dated June 2005 by and between Stafford Office
Park II, LP as Landlord and Input/Output, Inc. as Tenant, filed on March 31, 2006 as
Exhibit 10.2 to the Companys Annual Report on Form 10-K for the year ended December
31, 2005, and incorporated herein by reference.10.3
    
    
    
    Office and Industrial/Commercial Lease dated June 2005 by and between Stafford Office
Park District as Landlord and Input/Output, Inc. as Tenant, filed on March 31, 2006
as Exhibit 10.3 to the Companys Annual Report on Form 10-K for the year ended
December 31, 2005, and incorporated herein by reference.**10.4
    
    
    
    Input/Output, Inc. Amended and Restated 1996 Non-Employee Director Stock Option Plan,
filed on June 9, 1999 as Exhibit 4.3 to the Companys Registration Statement on Form
S-8 (Registration No. 333-80299), and incorporated herein by reference.**10.5
    
    
    
    Amendment No. 1 to the Input/Output, Inc. Amended and Restated 1996 Non-Employee
Director Stock Option Plan dated September 13, 1999 filed on November 14, 1999 as
Exhibit 10.4 to the Companys Quarterly Report on Form 10-Q for the fiscal quarter
ended August 31, 1999 and incorporated herein by reference.**10.6
    
    
    
    Employment Agreement dated effective as of May 22, 2006 between Input/Output, Inc.
and R. Brian Hanson, filed on May 1, 2006 as Exhibit 10.1 to the Companys Form 8-K,
and incorporated herein by reference.**10.7
    
    
    
    First Amendment to Employment Agreement dated as of August 20, 2007 between
Input/Output, Inc. and R. Brian Hanson, filed on August 21, 2007 as Exhibit 10.1 to
the Companys Current Report on Form 8-K and incorporated herein by reference.**10.8
    
    
    
    Second Amendment to Employment Agreement, dated as of December 1, 2008, between ION
Geophysical Corporation and R. Brian Hanson, filed on January 29, 2009 as Exhibit
10.2 to the Companys Current Report on Form 8-K and incorporated herein by
reference.**10.9
    
    
    
    Input/Output, Inc. Employee Stock Purchase Plan, filed on March 28, 1997 as Exhibit
4.4 to the Companys Registration Statement on Form S-8 (Registration No. 333-24125),
and incorporated herein by reference.**10.10
    
    
    
    Fourth Amended and Restated  2004 Long-Term Incentive Plan, filed as Appendix A to
the definitive proxy statement for the 2008 Annual Meeting of Stockholders of ION
Geophysical Corporation, filed on April 21, 2008, and incorporated herein by
reference.10.11
    
    
    
    Registration Rights Agreement dated as of November 16, 1998, by and among the Company
and The Laitram Corporation, filed on March 12, 2004 as Exhibit 10.7 to the Companys
Annual Report on Form 10-K for the year ended December 31, 2003, and incorporated
herein by reference.**10.12
    
    
    
    Input/Output, Inc. 1998 Restricted Stock Plan dated as of June 1, 1998, filed on June
9, 1999 as Exhibit 4.7 to the
 61




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##### Table of Contents



Companys Registration Statement on S-8 (Registration
No. 333-80297), and incorporated herein by reference.**10.13
    
    
    
    Input/Output Inc. Non-qualified Deferred Compensation Plan, filed on April 1, 2002 as
Exhibit 10.14 to the Companys Annual Report on Form 10-K for the year ended December
31, 2001, and incorporated herein by reference.**10.14
    
    
    
    Input/Output, Inc. 2000 Restricted Stock Plan, effective as of March 13, 2000, filed
on August 17, 2000 as Exhibit 10.27 to the Companys Annual Report on Form 10-K for
the fiscal year ended May 31, 2000, and incorporated herein by reference.**10.15
    
    
    
    Input/Output, Inc. 2000 Long-Term Incentive Plan, filed on November 6, 2000 as
Exhibit 4.7 to the Companys Registration Statement on Form S-8 (Registration No.
333-49382), and incorporated by reference herein.**10.16
    
    
    
    Employment Agreement dated effective as of March 31, 2003, by and between the Company
and Robert P. Peebler, filed on March 31, 2003 as Exhibit 10.1 to the Companys
Current Report on Form 8-K and incorporated herein by reference.**10.17
    
    
    
    First Amendment to Employment Agreement dated September 6, 2006, between
Input/Output, Inc. and Robert P. Peebler, filed on September 7, 2006, as Exhibit 10.1
to the Companys Current Report on Form 8-K, and incorporated herein by reference.**10.18
    
    
    
    Second Amendment to Employment Agreement dated February 16, 2007, between
Input/Output, Inc. and Robert P. Peebler, filed on February 16, 2007 as Exhibit 10.1
to the Companys Current Report on Form 8-K, and incorporated herein by reference.**10.19
    
    
    
    Third Amendment to Employment Agreement dated as of August 20, 2007 between
Input/Output, Inc. and Robert P. Peebler, filed on August 21, 2007 as Exhibit 10.2 to
the Companys Current Report on Form 8-K and incorporated herein by reference.**10.20
    
    
    
    Fourth Amendment to Employment Agreement, dated as of January 26, 2009, between ION
Geophysical Corporation and Robert P. Peebler, filed on January 29, 2009 as Exhibit
10.1 to the Companys Current Report on Form 8-K and incorporated herein by
reference.**10.21
    
    
    
    Employment Agreement dated effective as of June 15, 2004, by and between the Company
and David L. Roland, filed on August 9, 2004 as Exhibit 10.5 to the Companys
Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2004, and
incorporated herein by reference.**10.22
    
    
    
    Employment Agreement, dated as of December 1, 2008, between ION Geophysical
Corporation and James R. Hollis, filed on January 29, 2009 as Exhibit 10.3 to the
Companys Current Report on Form 8-K and incorporated herein by reference.**10.23
    
    
    
    GX Technology Corporation Employee Stock Option Plan, filed on August 9, 2004 as
Exhibit 10.1 to the Companys Quarterly Report on Form 10-Q for the quarterly period
ended June 30, 2004, and incorporated herein by reference.10.24
    
    
    
    Concept Systems Holdings Limited Share Acquisition Agreement dated February 23, 2004,
filed on March 5, 2004 as Exhibit 2.1 to the Companys Current Report on Form 8-K,
and incorporated herein by reference.10.25
    
    
    
    Registration Rights Agreement by and between ION Geophysical Corporation and 1236929
Alberta Ltd. dated September 18, 2008, filed on November 7, 2008 as Exhibit 10.1 to
the Companys Quarterly Report on Form 10-Q and incorporated herein by reference.**10.26
    
    
    
    Form of Employment Inducement Stock Option Agreement for the Input/Output, Inc. 
Concept Systems Employment Inducement Stock Option Program, filed on July 27, 2004 as
Exhibit 4.1 to the Companys Registration Statement on Form S-8 (Reg. No.
333-117716), and incorporated herein by reference.**10.27
    
    
    
    Form of Employee Stock Option Award Agreement for ARAM Systems Employee Inducement
Stock Option Program, filed on November 14, 2008 as Exhibit 4.4 to the Companys
Registration Statement on Form S-8 (Registration No. 333-155378) and incorporated
herein by reference.10.28
    
    
    
    Agreement dated as of February 15, 2005, between Input/Output, Inc. and Fletcher
International, Ltd., filed on February 17, 2005 as Exhibit 10.1 to the Companys
Current Report on Form 8-K and incorporated herein by reference.10.29
    
    
    
    First Amendment to Agreement, dated as of May 6, 2005, between the Company and
Fletcher International, Ltd., filed on May 10, 2005 as Exhibit 10.2 to the Companys
Current Report on Form 8-K, and incorporated herein by reference.**10.30
    
    
    
    Input/Output, Inc. 2003 Stock Option Plan, dated March 27, 2003, filed as Appendix B
of the Companys definitive proxy statement filed with the SEC on April 30, 2003, and
incorporated herein by reference.10.31
    
    
    
    Amended and Restated Credit Agreement dated as of July 3, 2008, by and among ION
Geophysical Corporation, ION
 62




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##### Table of Contents



International S.À R.L., HSBC Bank USA, N.A., as
administrative agent, joint lead arranger and joint bookrunner, ABN AMRO
Incorporated, as joint lead arranger and joint bookrunner, and CitiBank, N.A., as
syndication agent, filed on July 8, 2008 as Exhibit 10.1 to the Companys Current
Report on Form 8-K and incorporated herein by reference.10.32
    
    
    
    First Amendment to Amended and Restated Credit Agreement and Domestic Security
Agreement, dated as of September 17, 2008, by and among ION Geophysical Corporation,
ION International S.À R.L., HSBC Bank USA, N.A., as administrative agent, joint lead
arranger and joint bookrunner, ABN AMRO Incorporated, as joint lead arranger and
joint bookrunner, and CitiBank, N.A., as syndication agent, filed on September 23,
2008 as Exhibit 10.1 to the Companys Current Report on Form 8-K and incorporated
herein by reference.10.33
    
    
    
    Third Amendment to Amended and Restated Credit Agreement dated as of December 29,
2008, by and among ION Geophysical Corporation, ION International S.À R.L., the
Guarantors and Lenders party thereto and HSBC Bank USA, N.A., as administrative
agent, filed on January 5, 2009 as Exhibit 10.3 to the Companys Current Report on
Form 8-K and incorporated herein by reference.10.34
    
    
    
    Fourth Amendment to Amended and Restated Credit Agreement and Foreign Security
Agreement, Limited Waiver and Release dated as of December 30, 2008, by and among ION
Geophysical Corporation, ION International S.À R.L., the Guarantors and Lenders party
thereto and HSBC Bank USA, N.A., as administrative agent, filed on January 5, 2009 as
Exhibit 10.4 to the Companys Current Report on Form 8-K and incorporated herein by
reference.**10.35
    
    
    
    Form of Employment Inducement Stock Option Agreement for the Input/Output, Inc.  GX
Technology Corporation Employment Inducement Stock Option Program, filed on April 4,
2005 as Exhibit 4.1 to the Companys Registration Statement on Form S-8 (Reg. No.
333-123831), and incorporated herein by reference.**10.36
    
    
    
    Consulting Services Agreement dated as of October 19, 2006, by and between GX
Technology Corporation and Michael K. Lambert, filed on October 24, 2006 as Exhibit
10.2 to the Companys Current Report on Form 8-K, and incorporated herein by
reference.**10.37
    
    
    
    First Amendment to Consulting Services Agreement dated as of January 5, 2007, by and
between GX Technology Corporation and Michael K. Lambert, filed on January 8, 2007 as
Exhibit 10.1 to the Companys Current Report on Form 8-K, and incorporated herein by
reference.**10.38
    
    
    
    Letter agreement dated October 19, 2006, by and between the Company and Michael K.
Lambert, filed on October 24, 2006 as Exhibit 10.1 to the Companys Current Report on
Form 8-K, and incorporated herein by reference.**10.39
    
    
    
    Severance Agreement dated as of December 1, 2008, between ION Geophysical Corporation
and Charles J. Ledet, filed on December 5, 2008 as Exhibit 10.1 to the Companys
Current Report on Form 8-K and incorporated herein by reference.10.40
    
    
    
    Consulting Agreement dated as of December 1, 2008, between ION Geophysical
Corporation and Charles J. Ledet, filed on December 5, 2008 as Exhibit 10.2 to the
Companys Current Report on Form 8-K and incorporated herein by reference.10.41
    
    
    
    Rights Agreement, dated as of December 30, 2008, between ION Geophysical Corporation
and Computershare Trust Company, N.A., as Rights Agent, filed as Exhibit 4.1 to the
Companys Form 8-A (Registration No. 001-12691) and incorporated herein by reference.10.42
    
    
    
    Amended and Restated Share Purchase Agreement, dated as of September 17, 2008, by and
among ION Geophysical Corporation, Aram Systems Ltd., Canadian Seismic Rentals Inc.
and the Sellers party thereto, filed on September 23, 2008 as Exhibit 2.1 to the
Companys Current Report on Form 8-K and incorporated herein by reference.10.43
    
    
    
    Assignment Agreement dated as of December 30, 2008 by and among 3226509 Nova Scotia
Company, ARAM Systems Ltd., Canadian Seismic Rentals Inc., Maison Mazel Ltd. and ION
Geophysical Corporation, filed on January 5, 2009 as Exhibit 10.1 to the Companys
Current Report on Form 8-K and incorporated herein by reference.10.44
    
    
    
    Release Agreement dated as of December 30, 2008 by and among ION Geophysical
Corporation, 3226509 Nova Scotia Company, ARAM Systems Ltd., Canadian Seismic Rentals
Inc., Maison Mazel Ltd. and the Sellers party thereto, filed on January 5, 2009 as
Exhibit 10.2 to the Companys Current Report on Form 8-K and incorporated herein by
reference.10.45
    
    
    
    Bridge Loan Agreement dated as of December 30, 2008, by and among ION Geophysical
Corporation, the Guarantors and Lenders party thereto and Jefferies Finance LLC, as
administrative agent, sole bookrunner and sole lead arranger, filed on January 5,
2009 as Exhibit 10.5 to the Companys Current Report on Form 8-K and incorporated
herein by reference.10.46
    
    
    
    Amended and Restated Subordinated Promissory Note dated December 30, 2008, made by
3226509 Nova Scotia Company in favor of Maison Mazel Ltd., filed on January 5, 2009
as Exhibit 10.6 to the Companys Current Report on
 63




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##### Table of Contents



Form 8-K and incorporated herein
by reference.* **10.47
    
    
    
    ION Stock Appreciation Rights Plan
dated November 17, 2008.*21.1
    
    
    
    Subsidiaries of the Company.*23.1
    
    
    
    Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm.*24.1
    
    
    
    The Power of Attorney is set forth on the signature page hereof.*31.1
    
    
    
    Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a).*31.2
    
    
    
    Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a).*32.1
    
    
    
    Certification of Chief Executive Officer Pursuant to 18 U.S.C. §1350.*32.2
    
    
    
    Certification of Chief Financial Officer Pursuant to 18 U.S.C. §1350.
 
 *
    
    Filed herewith.**
    
    Management contract or compensatory plan or arrangement. Exhibits required by Item 601 of Regulation S-K.
  Not applicable.
 64




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##### Table of Contents



SIGNATURES
  ION GEOPHYSICAL CORPORATIONBy
    /s/ R. Brian HansonR. Brian HansonExecutive Vice President and Chief Financial Officer POWER OF ATTORNEY
   Name
    
    Capacities
    
    Date/s/ ROBERT P. PEEBLER

Robert P. Peebler
    
    Chief Executive Officer and Director
(Principal Executive Officer)
    
    March 2, 2009/s/ R. BRIAN HANSON

R. Brian Hanson
    
    Executive Vice President and Chief Financial
Officer (Principal Financial Officer)
    
    March 2, 2009/s/ MICHAEL L. MORRISON

Michael L. Morrison
    
    Vice President and Corporate Controller
(Principal Accounting Officer)
    
    March 2, 2009/s/ JAMES M. LAPEYRE, JR.

James M. Lapeyre, Jr.
    
    Chairman of the Board of Directors and Director
    
    March 2, 2009/s/ BRUCE S. APPELBAUM

Bruce S. Appelbaum
    
    Director
    
    March 2, 2009/s/ THEODORE H. ELLIOTT, JR.

Theodore H. Elliott, Jr.
    
    Director
    
    March 2, 2009/s/ G. THOMAS MARSH

G. Thomas Marsh
    
    Director
    
    March 2, 2009/s/ FRANKLIN MYERS

Franklin Myers
    
    Director
    
    March 2, 2009/s/ S. JAMES NELSON, JR.

S. James Nelson, Jr.
    
    Director
    
    March 2, 2009/s/ JOHN N. SEITZ

John N. Seitz
    
    Director
    
    March 2, 2009/s/ NICHOLAS G. VLAHAKIS

Nicholas G. Vlahakis
    
    Director
    
    March 2, 2009
 65




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##### Table of Contents



ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 PageION Geophysical Corporation and Subsidiaries:Report of Independent Registered Public Accounting Firm
    
    F-2Consolidated Balance Sheets  December 31, 2008 and 2007
    
    F-3Consolidated Statements of Operations  Years ended December 31, 2008, 2007, and 2006
    
    F-4Consolidated Statements of Cash Flows  Years ended December 31, 2008, 2007, and 2006
    
    F-5Consolidated Statements of Stockholders Equity and Comprehensive Income (Loss) Years ended December 2008, 2007, and 2006
    
    F-6Notes to Consolidated Financial Statements
    
    F-7Schedule II  Valuation and Qualifying Accounts
    
    S-1
  F-1




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##### Table of Contents



Report of Independent Registered Public Accounting Firm
     Accounting for Uncertainty in Income Taxes, an Interpretation of FASB
Statement No. 109 Share-Based
Payment.
  /s/ Ernst & Young LLP 
 F-2




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##### Table of Contents



ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
 December 31,2008
    
    
    2007(In thousands,except share data)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    35,172
    
    
    $
    36,409Restricted cash
    
    
    6,610
    
    
    
    7,052Accounts receivable, net
    
    
    150,565
    
    
    
    188,029Current portion notes receivable, net
    
    
    11,665
    
    
    
    5,454Unbilled receivables
    
    
    36,472
    
    
    
    22,388Inventories
    
    
    262,519
    
    
    
    128,961Prepaid expenses and other current assets
    
    
    20,386
    
    
    
    12,717Total current assets
    
    
    523,389
    
    
    
    401,010Notes receivable
    
    
    4,438
    
    
    
    Deferred income tax asset
    
    
    11,757
    
    
    
    2,872Property, plant and equipment, net
    
    
    59,129
    
    
    
    36,951Multi-client data library, net
    
    
    89,519
    
    
    
    59,689Goodwill
    
    
    49,772
    
    
    
    153,145Intangible assets, net
    
    
    107,443
    
    
    
    40,907Other assets
    
    
    15,984
    
    
    
    14,575Total assets
    
    $
    861,431
    
    
    $
    709,149LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Notes payable and current maturities of long-term debt
    
    $
    38,399
    
    
    $
    14,871Accounts payable
    
    
    94,586
    
    
    
    44,674Accrued expenses
    
    
    77,046
    
    
    
    66,911Accrued multi-client data library royalties
    
    
    28,044
    
    
    
    29,962Deferred revenue
    
    
    17,767
    
    
    
    21,278Deferred income tax liability
    
    
    392
    
    
    
    2,792Total current liabilities
    
    
    256,234
    
    
    
    180,488Long-term debt, net of current maturities
    
    
    253,510
    
    
    
    9,842Non-current deferred income tax liability
    
    
    22,713
    
    
    
    3,384Other long-term liabilities
    
    
    3,904
    
    
    
    4,195Total liabilities
    
    
    536,361
    
    
    
    197,909Cumulative convertible preferred stock
    
    
    
    
    
    
    35,000Commitments and contingenciesStockholders equity:Cumulative convertible preferred stock
    
    
    68,786
    
    
    
    Common stock, $.01 par value; authorized 200,000,000 shares; outstanding 99,621,926 and
93,847,608 shares at December 31, 2008 and 2007, respectively, net of treasury stock
    
    
    996
    
    
    
    948Additional paid-in capital
    
    
    694,261
    
    
    
    559,255Accumulated deficit
    
    
    (376,552
    )
    
    
    (82,839
    )Accumulated other comprehensive income (loss)
    
    
    (55,859
    )
    
    
    5,460Treasury stock, at cost, 848,422 and 853,402 shares at December 31, 2008 and 2007, respectively
    
    
    (6,562
    )
    
    
    (6,584
    )Total stockholders equity
    
    
    325,070
    
    
    
    476,240Total liabilities and stockholders equity
    
    $
    861,431
    
    
    $
    709,149
  F-3




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##### Table of Contents



ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
 Years Ended December 31,2008
    
    
    2007
    
    
    2006(In thousands, except per share data)Product revenues
    
    $
    417,511
    
    
    $
    537,691
    
    
    $
    354,258Service revenues
    
    
    262,012
    
    
    
    175,420
    
    
    
    149,298Total net revenues
    
    
    679,523
    
    
    
    713,111
    
    
    
    503,556Cost of products
    
    
    289,795
    
    
    
    386,849
    
    
    
    252,647Cost of services
    
    
    181,980
    
    
    
    119,679
    
    
    
    91,592Gross profit
    
    
    207,748
    
    
    
    206,583
    
    
    
    159,317Operating expenses:Research, development and engineering
    
    
    49,541
    
    
    
    49,965
    
    
    
    37,853Marketing and sales
    
    
    47,854
    
    
    
    43,877
    
    
    
    40,651General and administrative
    
    
    70,893
    
    
    
    48,847
    
    
    
    40,865Impairment of goodwill and intangible assets
    
    
    252,283
    
    
    
    
    
    
    
    Total operating expenses
    
    
    420,571
    
    
    
    142,689
    
    
    
    119,369Income (loss) from operations
    
    
    (212,823
    )
    
    
    63,894
    
    
    
    39,948Interest expense
    
    
    (12,723
    )
    
    
    (6,283
    )
    
    
    (5,770
    )Interest income
    
    
    1,439
    
    
    
    1,848
    
    
    
    2,040Loss on debt conversion
    
    
    
    
    
    
    (2,902
    )
    
    
    Fair value adjustment of preferred stock redemption features
    
    
    1,215
    
    
    
    
    
    
    
    Other income (expense)
    
    
    2,985
    
    
    
    (1,090
    )
    
    
    (2,161
    )Income (loss) before income taxes and change in accounting principle
    
    
    (219,907
    )
    
    
    55,467
    
    
    
    34,057Income tax expense
    
    
    1,131
    
    
    
    12,823
    
    
    
    5,114Net income (loss) before change in accounting principle
    
    
    (221,038
    )
    
    
    42,644
    
    
    
    28,943Cumulative effect of change in accounting principle
    
    
    
    
    
    
    
    
    
    
    398Net income (loss)
    
    
    (221,038
    )
    
    
    42,644
    
    
    
    29,341Preferred stock dividends and accretion
    
    
    3,889
    
    
    
    2,388
    
    
    
    2,429Preferred stock beneficial conversion charge
    
    
    68,786
    
    
    
    
    
    
    
    Net income (loss) applicable to common shares
    
    $
    (293,713
    )
    
    $
    40,256
    
    
    $
    26,912Basic earnings per share:Net income (loss) per basic share before change in accounting principle
    
    $
    (3.06
    )
    
    $
    0.49
    
    
    $
    0.33Cumulative effect of change in accounting principle
    
    
    
    
    
    
    
    
    
    
    0.01Net income (loss) per basic share
    
    $
    (3.06
    )
    
    $
    0.49
    
    
    $
    0.34Diluted earnings per share:Net income (loss) per diluted share before change in accounting principle
    
    $
    (3.06
    )
    
    $
    0.45
    
    
    $
    0.32Cumulative effect of change in accounting principle
    
    
    
    
    
    
    
    
    
    
    0.01Net income (loss) per diluted share
    
    $
    (3.06
    )
    
    $
    0.45
    
    
    $
    0.33Weighted average number of common shares outstanding:Basic
    
    
    95,887
    
    
    
    81,941
    
    
    
    79,497Diluted
    
    
    95,887
    
    
    
    97,321
    
    
    
    95,182
  F-4




---



##### Table of Contents



ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
 Years Ended December 312008
    
    
    2007
    
    
    2006(In thousands)Cash flows from operating activities:Net income (loss)
    
    $
    (221,038
    )
    
    $
    42,644
    
    
    $
    29,341Adjustments to reconcile net income (loss) to net cash provided by operating activities:Cumulative effect of change in accounting principle
    
    
    
    
    
    
    
    
    
    
    (398
    )Depreciation and amortization (other than multi-client library)
    
    
    33,052
    
    
    
    26,767
    
    
    
    22,036Amortization of multi-client data library
    
    
    80,532
    
    
    
    37,662
    
    
    
    25,011Stock-based compensation expense related to stock options, nonvested stock, and
employee stock purchases
    
    
    8,306
    
    
    
    6,875
    
    
    
    6,121Bad debt expense
    
    
    4,852
    
    
    
    437
    
    
    
    577Amortization of debt discount
    
    
    816
    
    
    
    
    
    
    
    Fair value adjustment of preferred stock redemption features
    
    
    (1,215
    )
    
    
    
    
    
    
    Impairment of goodwill and intangible assets
    
    
    252,283
    
    
    
    
    
    
    
    Deferred income tax
    
    
    (17,549
    )
    
    
    2,960
    
    
    
    (1,014
    )Excess tax benefit from stock-based compensation
    
    
    (328
    )
    
    
    
    
    
    
    Profit on sale of rental assets
    
    
    (3,190
    )
    
    
    
    
    
    
    (Gain) loss on disposal of fixed assets
    
    
    117
    
    
    
    (253
    )
    
    
    58Change in operating assets and liabilities:Accounts and notes receivable
    
    
    37,673
    
    
    
    (14,348
    )
    
    
    (45,243
    )Unbilled receivables
    
    
    (14,084
    )
    
    
    6,211
    
    
    
    (13,529
    )Inventories
    
    
    (89,998
    )
    
    
    (11,270
    )
    
    
    (32,697
    )Accounts payable, accrued expenses and accrued royalties
    
    
    46,160
    
    
    
    8,674
    
    
    
    43,235Deferred revenue
    
    
    (6,088
    )
    
    
    (16,203
    )
    
    
    25,386Other assets and liabilities
    
    
    1,414
    
    
    
    3,604
    
    
    
    (910
    )Net cash provided by operating activities
    
    
    111,715
    
    
    
    93,760
    
    
    
    57,974Cash flows from investing activities:Purchase of property, plant and equipment
    
    
    (17,539
    )
    
    
    (11,375
    )
    
    
    (13,704
    )Investment in multi-client data library
    
    
    (110,362
    )
    
    
    (64,279
    )
    
    
    (39,087
    )Business acquisition
    
    
    (242,835
    )
    
    
    
    
    
    
    Cash of acquired business
    
    
    10,677
    
    
    
    
    
    
    
    Proceeds from the sale of fixed assets and rental equipment
    
    
    5,434
    
    
    
    386
    
    
    
    311Increase in cost method investments
    
    
    
    
    
    
    (700
    )
    
    
    (254
    )Other investing activities
    
    
    
    
    
    
    
    
    
    
    2,909Net cash used in investing activities
    
    
    (354,625
    )
    
    
    (75,968
    )
    
    
    (49,825
    )Cash flows from financing activities:Borrowings under revolving line of credit
    
    
    235,000
    
    
    
    175,000
    
    
    
    36,265Repayments under revolving line of credit
    
    
    (169,000
    )
    
    
    (175,000
    )
    
    
    (39,265
    )Net proceeds from issuance of debt
    
    
    160,308
    
    
    
    
    
    
    
    Payments on notes payable and long-term debt
    
    
    (18,082
    )
    
    
    (8,424
    )
    
    
    (6,940
    )Issuance of preferred stock
    
    
    35,000
    
    
    
    5,000
    
    
    
    Payment of preferred dividends
    
    
    (3,889
    )
    
    
    (2,375
    )
    
    
    (2,280
    )Proceeds from employee stock purchases and exercise of stock options
    
    
    6,323
    
    
    
    8,038
    
    
    
    4,435Restricted stock cancelled for employee minimum income taxes
    
    
    (1,660
    )
    
    
    (1,314
    )
    
    
    Excess tax benefit from stock-based compensation
    
    
    328
    
    
    
    
    
    
    
    Purchases of treasury stock
    
    
    (39
    )
    
    
    (117
    )
    
    
    (615
    )Net cash provided by (used in) financing activities
    
    
    244,289
    
    
    
    808
    
    
    
    (8,400
    )Effect of change in foreign currency exchange rates on cash and cash equivalents
    
    
    (2,616
    )
    
    
    753
    
    
    
    1,454Net (decrease) increase in cash and cash equivalents
    
    
    (1,237
    )
    
    
    19,353
    
    
    
    1,203Cash and cash equivalents at beginning of period
    
    
    36,409
    
    
    
    17,056
    
    
    
    15,853Cash and cash equivalents at end of period
    
    $
    35,172
    
    
    $
    36,409
    
    
    $
    17,056
  F-5




---



##### Table of Contents



ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY AND
COMPREHENSIVE INCOME (LOSS)
 AccumulatedOther
    
    
    
    
    
    
    UnamortizedCumulative Convertible
    
    
    
    
    
    
    
    
    
    
    Additional
    
    
    
    
    
    
    Comprehensive
    
    
    
    
    
    
    Restricted
    
    
    TotalPreferred Stock
    
    
    Common Stock
    
    
    Paid - In
    
    
    Accumulated
    
    
    Income
    
    
    Treasury
    
    
    Stock
    
    
    StockholdersShares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Capital
    
    
    Deficit
    
    
    (Loss)
    
    
    Stock
    
    
    Compensation
    
    
    Equity(In thousands, except per share data)Balance at January 1, 2006
    
    
    
    
    
    $
    
    
    
    
    79,764,338
    
    
    $
    807
    
    
    $
    487,232
    
    
    $
    (150,007
    )
    
    $
    (728
    )
    
    $
    (5,968
    )
    
    $
    (3,791
    )
    
    $
    327,545Comprehensive income:Net income applicable to common shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    26,912
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    26,912Other comprehensive income:Translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,587
    
    
    
    
    
    
    
    
    
    
    
    5,587Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    32,499Stock-based compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,121
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,121Impact of adoption of SFAS 123R on
restricted stock
    
    
    
    
    
    
    
    
    
    
    (743,238
    )
    
    
    (7
    )
    
    
    (4,182
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,791
    
    
    
    (398
    )Purchase of treasury stock
    
    
    
    
    
    
    
    
    
    
    (62,883
    )
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (615
    )
    
    
    
    
    
    
    (616
    )Exercise of stock options
    
    
    
    
    
    
    
    
    
    
    778,921
    
    
    
    8
    
    
    
    3,788
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,796Vesting of restricted stock units/awards
    
    
    
    
    
    
    
    
    
    
    263,787
    
    
    
    2
    
    
    
    (2
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Issuance of stock for the ESPP
    
    
    
    
    
    
    
    
    
    
    113,582
    
    
    
    1
    
    
    
    640
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    641Issuance of treasury stock
    
    
    
    
    
    
    
    
    
    
    8,979
    
    
    
    
    
    
    
    8
    
    
    
    
    
    
    
    
    
    
    
    72
    
    
    
    
    
    
    
    80Balance at December 31, 2006
    
    
    
    
    
    
    
    
    
    
    80,123,486
    
    
    
    810
    
    
    
    493,605
    
    
    
    (123,095
    )
    
    
    4,859
    
    
    
    (6,511
    )
    
    
    
    
    
    
    369,668Comprehensive income:Net income applicable to common shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    40,256
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    40,256Other comprehensive income:Translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    601
    
    
    
    
    
    
    
    
    
    
    
    601Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    40,857Stock-based compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,875
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,875Purchase of treasury stock
    
    
    
    
    
    
    
    
    
    
    (8,548
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (117
    )
    
    
    
    
    
    
    (117
    )Exercise of stock options
    
    
    
    
    
    
    
    
    
    
    1,036,794
    
    
    
    10
    
    
    
    6,960
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,970Vesting of restricted stock units/awards
    
    
    
    
    
    
    
    
    
    
    455,307
    
    
    
    4
    
    
    
    (4
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Restricted stock cancelled for employee
minimum income taxes
    
    
    
    
    
    
    
    
    
    
    (91,732
    )
    
    
    
    
    
    
    (1,314
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,314
    )Issuance of stock for the ESPP
    
    
    
    
    
    
    
    
    
    
    113,763
    
    
    
    2
    
    
    
    1,068
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,070Conversion of 5.5% convertible senior
notes
    
    
    
    
    
    
    
    
    
    
    12,212,964
    
    
    
    122
    
    
    
    52,030
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    52,152Issuance of treasury stock
    
    
    
    
    
    
    
    
    
    
    5,574
    
    
    
    
    
    
    
    35
    
    
    
    
    
    
    
    
    
    
    
    44
    
    
    
    
    
    
    
    79Balance at December 31, 2007
    
    
    
    
    
    
    
    
    
    
    93,847,608
    
    
    
    948
    
    
    
    559,255
    
    
    
    (82,839
    )
    
    
    5,460
    
    
    
    (6,584
    )
    
    
    
    
    
    
    476,240Comprehensive income:Net loss applicable to common shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (293,713
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (293,713
    )Other comprehensive loss:Translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (61,319
    )
    
    
    
    
    
    
    
    
    
    
    (61,319
    )Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (355,032
    )Reclassification of preferred stock to
equity
    
    
    70,000
    
    
    
    68,786
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    68,786Preferred stock beneficial conversion
charge
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    68,786
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    68,786Stock-based compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,306
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,306Purchase of treasury stock
    
    
    
    
    
    
    
    
    
    
    (2,745
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (39
    )
    
    
    
    
    
    
    (39
    )Issuance of stock for ARAM acquisition
    
    
    
    
    
    
    
    
    
    
    3,629,211
    
    
    
    36
    
    
    
    48,922
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    48,958Exercise of stock options
    
    
    
    
    
    
    
    
    
    
    656,166
    
    
    
    6
    
    
    
    4,842
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,848Vesting of restricted stock units/awards
    
    
    
    
    
    
    
    
    
    
    550,083
    
    
    
    5
    
    
    
    (5
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Restricted stock cancelled for employee
minimum income taxes
    
    
    
    
    
    
    
    
    
    
    (101,991
    )
    
    
    
    
    
    
    (1,660
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,660
    )Issuance of stock for the ESPP
    
    
    
    
    
    
    
    
    
    
    109,943
    
    
    
    1
    
    
    
    1,474
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,475Conversion of 5.5% convertible senior
notes
    
    
    
    
    
    
    
    
    
    
    925,926
    
    
    
    9
    
    
    
    3,996
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,005Tax benefits from stock-based
compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    271
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    271Issuance of treasury stock
    
    
    
    
    
    
    
    
    
    
    7,725
    
    
    
    
    
    
    
    65
    
    
    
    
    
    
    
    
    
    
    
    61
    
    
    
    
    
    
    
    126Other equity adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9
    )
    
    
    9
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance at December 31, 2008
    
    
    70,000
    
    
    $
    68,786
    
    
    
    99,621,926
    
    
    $
    996
    
    
    $
    694,261
    
    
    $
    (376,552
    )
    
    $
    (55,859
    )
    
    $
    (6,562
    )
    
    $
    
    
    
    $
    325,070
  F-6




---



##### Table of Contents



ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (1) Summary of Significant Accounting Policies
 General
Description, Overview and Principles of Consolidation.
      F-7




---



##### Table of Contents



Notes Payable, Long-Term Debt and
Lease Obligations s
 Use of Estimates.
 Cash and Cash Equivalents.
 Accounts and Notes Receivable.
  F-8




---



##### Table of Contents



Inventories.
 Property, Plant and Equipment.
 YearsMachinery and equipment
    
    
    3-8Buildings
    
    
    10-20Rental equipment
    
    
    2-7Leased equipment and other
    
    
    1-10
   Multi-Client Data Library.
 December 31,
    
    
    December 31,2008
    
    
    2007Gross costs of multi-client data creation
    
    $
    247,881
    
    
    $
    137,519Less accumulated amortization
    
    
    (158,362
    )
    
    
    (77,830
    )Total
    
    $
    89,519
    
    
    $
    59,689
  Accounting for the Impairment and Disposal of Long-Lived Assets,
 F-9




---



##### Table of Contents



Computer Software.
 Cost Method Investments.
 Equity Method Investment.
 Financial Instruments.
  Goodwill and Other Intangible Assets.
   F-10




---



##### Table of Contents



Estimated Useful Life(Years)Proprietary technology
    
    
    4-8Customer relationships
    
    
    8Patents
    
    
    5-20Trade names
    
    
    5Non-compete agreements
    
    
    5
  Estimated Economic Life(Years)Customer relationships
    
    
    15Intellectual property rights
    
    
    5
 Revenue Recognition and Product Warranty.
 Revenue Recognition
    F-11




---



##### Table of Contents



Accounting for Multiple-Element Revenue Arrangement,
 Software Revenue Recognition, Applicability of AICPA Statement of Position 97-2 to Non-Software
Deliverables in an Arrangement Containing More-Than-Incidental Software
   Research, Development and Engineering.
 Income Taxes. Notes to Consolidated Financial Statements
 Comprehensive Net Income (Loss).
 Net Income (Loss) per Common Share.
 F-12




---



##### Table of Contents



Cumulative Convertible
Preferred Stock.
   Years Ended December 31,2008
    
    
    2007
    
    
    2006Net income (loss) applicable to common shares
    
    $
    (293,713
    )
    
    $
    40,256
    
    
    $
    26,912Income impact of assumed convertible debt conversion
    
    
    
    
    
    
    3,694
    
    
    
    4,027Net income (loss) after impact of assumed convertible debt conversion
    
    $
    (293,713
    )
    
    $
    43,950
    
    
    $
    30,939Weighted average number of common shares outstanding
    
    
    95,887
    
    
    
    81,941
    
    
    
    79,497Effect of dilutive stock awards
    
    
    
    
    
    
    2,629
    
    
    
    1,796Effect of assumed convertible debt conversion
    
    
    
    
    
    
    12,751
    
    
    
    13,889Weighted average number of diluted common shares outstanding
    
    
    95,887
    
    
    
    97,321
    
    
    
    95,182Net income (loss) per basic share before change in accounting principle
    
    $
    (3.06
    )
    
    $
    0.49
    
    
    $
    0.33Cumulative effect of change in accounting principle
    
    
    
    
    
    
    
    
    
    
    0.01Net income (loss) per basic share
    
    $
    (3.06
    )
    
    $
    0.49
    
    
    $
    0.34Net income (loss) per diluted share before change in accounting principle
    
    $
    (3.06
    )
    
    $
    0.45
    
    
    $
    0.32Cumulative effect of change in accounting principle
    
    
    
    
    
    
    
    
    
    
    0.01Net income (loss) per diluted share
    
    $
    (3.06
    )
    
    $
    0.45
    
    
    $
    0.33
 Foreign Currency Gains and Losses.
 Concentration of Credit and Foreign Sales Risks.
  F-13




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##### Table of Contents



Stock-Based Compensation. Share-Based Payment
 Recent Accounting Pronouncements. Determining the Fair Value of a Financial Asset
When the Market for That Asset Is Not Active
 Determining Whether an Instrument (or
Embedded Feature) is Indexed to a Entitys Own Stock
 , Determining Whether Instruments Granted
in Share-Based Payment Transactions Are Participating Securities
 Disclosures about Derivative Instruments and
Hedging Activities,
 Business Combinations
 The Fair Value Option for Financial Assets
and Financial Liabilities
 F-14




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##### Table of Contents



Reclassifications.
 (2) ARAM Acquisition
   Notes Payable, Long-term Debt and Lease Obligations
 Notes Payable, Long-term
Debt and Lease Obligations
   F-15




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##### Table of Contents



Notes
Payable, Long-term Debt and Lease Obligations
    
    
    terminate the $35.0 million purchase price escrow arrangements they had agreed to in the
Amended Purchase Agreement, and
    
    release Maison Mazel and the other Sellers from their obligations under the Amended
Purchase Agreement to indemnify ION, ION Sub and other ION-related indemnified persons for
breaches by the Sellers of certain of their representations and warranties contained in the
Amended Purchase Agreement.
 Notes Payable, Long-term Debt and Lease Obligations
  F-16




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##### Table of Contents



Fair values of assets and liabilities:Net current assets
    
    $
    69,827Property, plant and equipment
    
    
    24,026Net other long-term assets
    
    
    2,480Intangible assets
    
    
    101,800Goodwill
    
    
    173,836Deferred tax liability
    
    
    (31,723
    )Capital lease obligations
    
    
    (3,453
    )Total allocated purchase price
    
    
    336,793Less non-cash consideration  issuance of common stock
    
    
    (48,958
    )Less issuance of seller notes
    
    
    (45,000
    )Less cash of acquired business
    
    
    (10,677
    )Cash paid for acquisition, net of cash acquired
    
    $
    232,158
 Notes to Consolidated Financial Statements.
  Years ending December 312008
    
    2007Pro forma net revenues
    
    $
    741,982
    
    
    $
    838,022Pro forma income (loss) from operations
    
    $
    (201,603
    )
    
    $
    91,994Pro forma net income (loss)
    
    $
    (302,890
    )
    
    $
    42,931Pro forma basic net income (loss) per common share
    
    $
    (3.08
    )
    
    $
    0.50Pro forma diluted net income (loss) per common share
    
    $
    (3.08
    )
    
    $
    0.46
 (3) Accounts and Notes Receivable
  December 31,
    
    
    December 31,2008
    
    
    2007Accounts receivable, principally trade
    
    $
    156,250
    
    
    $
    190,704Less allowance for doubtful accounts
    
    
    (5,685
    )
    
    
    (2,675
    )Accounts receivable, net
    
    $
    150,565
    
    
    $
    188,029
 F-17




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##### Table of Contents



December 31,
    
    
    December 31,2008
    
    
    2007Notes receivable and accrued interest
    
    $
    16,103
    
    
    $
    8,805Less allowance for doubtful notes
    
    
    
    
    
    
    (3,351
    )Notes receivable, net
    
    
    16,103
    
    
    
    5,454Less current portion notes receivable, net
    
    
    11,665
    
    
    
    5,454Long-term notes receivable
    
    $
    4,438
    
    
    $
    
  Years Ended December 31,2008
    
    
    2007
    
    
    2006Balance at beginning of period
    
    $
    3,351
    
    
    $
    4,530
    
    
    $
    4,530Write-offs charged against the allowance
    
    
    (3,351
    )
    
    
    (1,179
    )
    
    
    Balance at end of period
    
    $
    
    
    
    $
    3,351
    
    
    $
    4,530
 (4) Inventories
  December 31,
    
    
    December 31,2008
    
    
    2007Raw materials and subassemblies
    
    $
    104,862
    
    
    $
    70,870Work-in-process
    
    
    20,698
    
    
    
    13,681Finished goods
    
    
    161,065
    
    
    
    55,945Reserve for excess and obsolete inventories
    
    
    (24,106
    )
    
    
    (11,535
    )Total
    
    $
    262,519
    
    
    $
    128,961
  (5) Supplemental Cash Flow Information and Non-Cash Activity
  Years Ended December 31,2008
    
    2007
    
    2006Net cash paid during the period for:Interest
    
    $
    5,251
    
    
    $
    3,370
    
    
    $
    2,047Income taxes
    
    
    14,894
    
    
    
    7,470
    
    
    
    5,314
 ARAM Acquisition above
  F-18




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##### Table of Contents



Notes
Payable, Long-term Debt and Lease Obligations .
  (6) Property, Plant and Equipment
  December 31,
    
    
    December 31,2008
    
    
    2007Land
    
    $
    25
    
    
    $
    25Buildings
    
    
    15,697
    
    
    
    13,620Machinery and equipment
    
    
    103,377
    
    
    
    90,223Lease and rental equipment
    
    
    18,329
    
    
    
    2,490Furniture and fixtures
    
    
    4,834
    
    
    
    3,994Other
    
    
    5,722
    
    
    
    1,882Total
    
    
    147,984
    
    
    
    112,234Less accumulated depreciation
    
    
    (88,855
    )
    
    
    (75,283
    )Property, plant and equipment, net
    
    $
    59,129
    
    
    $
    36,951
 Notes to
Consolidated Financial Statements
 (7) Investments
 Equity Method Investment. The Equity Method of Accounting for Investments in Common Stock
  Cost Method Investment.
  F-19




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##### Table of Contents



(8) Goodwill
   Land
    
    
    Marine
    
    
    DataImaging
    
    
    Imaging
    
    
    Management
    
    
    ION SolutionsSystems
    
    
    Systems
    
    
    Solutions
    
    
    Division
    
    
    TotalBalance at January 1, 2007
    
    $
    3,478
    
    
    $
    26,984
    
    
    $
    31,976
    
    
    $
    93,653
    
    
    $
    156,091Impact of acquisition net operating losses
    
    
    
    
    
    
    
    
    
    
    (345
    )
    
    
    (3,248
    )
    
    
    (3,593
    )Impact of foreign currency translation adjustments
    
    
    
    
    
    
    
    
    
    
    647
    
    
    
    
    
    
    
    647Balance at December 31, 2007
    
    
    3,478
    
    
    
    26,984
    
    
    
    32,278
    
    
    
    90,405
    
    
    
    153,145Goodwill acquired during the year
    
    
    173,836
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    173,836Impact of acquisition net operating losses
    
    
    
    
    
    
    
    
    
    
    (730
    )
    
    
    (3,496
    )
    
    
    (4,226
    )Impact of foreign currency translation adjustments
    
    
    (22,064
    )
    
    
    
    
    
    
    (8,760
    )
    
    
    
    
    
    
    (30,824
    )Impairment losses
    
    
    (155,250
    )
    
    
    
    
    
    
    
    
    
    
    (86,909
    )
    
    
    (242,159
    )Balance at December 31, 2008
    
    $
    
    
    
    $
    26,984
    
    
    $
    22,788
    
    
    $
    
    
    
    $
    49,772
  (9) Intangible Assets
  December 31, 2008Gross
    
    
    AccumulatedAmount
    
    
    Amortization
    
    
    Impairments
    
    
    NetProprietary technology
    
    $
    80,755
    
    
    $
    (11,997
    )
    
    $
    
    
    
    $
    68,758Customer relationships
    
    
    50,641
    
    
    
    (15,065
    )
    
    
    (5,130
    )
    
    
    30,446Trade names
    
    
    14,516
    
    
    
    (4,260
    )
    
    
    (4,207
    )
    
    
    6,049Patents
    
    
    3,689
    
    
    
    (2,735
    )
    
    
    
    
    
    
    954Intellectual property rights
    
    
    3,050
    
    
    
    (2,514
    )
    
    
    
    
    
    
    536Non-compete agreements
    
    
    1,575
    
    
    
    (89
    )
    
    
    (786
    )
    
    
    700Total
    
    $
    154,226
    
    
    $
    (36,660
    )
    
    $
    (10,123
    )
    
    $
    107,443
  December 31, 2007Gross
    
    
    AccumulatedAmount
    
    
    Amortization
    
    
    NetProprietary technology
    
    $
    14,242
    
    
    $
    (7,770
    )
    
    $
    6,472Customer relationships
    
    
    42,203
    
    
    
    (11,516
    )
    
    
    30,687Trade names
    
    
    4,171
    
    
    
    (2,980
    )
    
    
    1,191
 F-20




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##### Table of Contents



December 31, 2007Gross
    
    
    AccumulatedAmount
    
    
    Amortization
    
    
    NetPatents
    
    
    3,689
    
    
    
    (2,505
    )
    
    
    1,184Intellectual property rights
    
    
    3,050
    
    
    
    (1,677
    )
    
    
    1,373Total
    
    $
    67,355
    
    
    $
    (26,448
    )
    
    $
    40,907
  Years Ended December 31,2009
    
    $
    17,0992010
    
    $
    15,9832011
    
    $
    14,7832012
    
    $
    13,4322013
    
    $
    13,413
 (10) Accrued Expenses
  December 31,
    
    
    December 31,2008
    
    
    2007Compensation, including compensation-related taxes and commissions
    
    $
    24,446
    
    
    $
    27,142Product warranty
    
    
    10,526
    
    
    
    13,439Accrued taxes (primarily income taxes)
    
    
    6,143
    
    
    
    9,430Accrued multi-client data library acquisition costs
    
    
    17,654
    
    
    
    8,582Other
    
    
    18,277
    
    
    
    8,318Total accrued expenses
    
    $
    77,046
    
    
    $
    66,911
  Years Ended December 31,2008
    
    
    2007
    
    
    2006Balance at beginning of period
    
    $
    13,439
    
    
    $
    6,255
    
    
    $
    3,896Opening balance for accruals for warranties for acquired entity
    
    
    845
    
    
    
    
    
    
    
    Accruals for warranties issued during the period
    
    
    4,624
    
    
    
    13,074
    
    
    
    6,784Settlements made (in cash or in kind) during the period
    
    
    (8,382
    )
    
    
    (5,890
    )
    
    
    (4,425
    )Balance at end of period
    
    $
    10,526
    
    
    $
    13,439
    
    
    $
    6,255
 (11) Notes Payable, Long-term Debt and Lease Obligations
 December 31,
    
    
    December 31,Obligations
    
    2008
    
    
    2007$100.0 million revolving line of credit
    
    $
    66,000
    
    
    $
    Term loan facility
    
    
    120,313
    
    
    
    Bridge loan
    
    
    40,816
    
    
    
    Amended and restated subordinated seller note
    
    
    35,000
    
    
    
    Subordinated seller note
    
    
    10,000
    
    
    
    
 F-21




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##### Table of Contents



December 31,
    
    
    December 31,Obligations
    
    2008
    
    
    2007Convertible senior notes
    
    
    
    
    
    
    7,240Facility lease obligation
    
    
    4,610
    
    
    
    4,975Equipment capital leases and other notes payable
    
    
    15,170
    
    
    
    12,498Total
    
    
    291,909
    
    
    
    24,713Current portion of notes payable, long-term debt and lease obligations
    
    
    (38,399
    )
    
    
    (14,871
    )Non-current portion of notes payable, long-term debt and lease obligations
    
    $
    253,510
    
    
    $
    9,842
 Revolving Line of Credit and Term Facilities.
 ARAM Acquisition
    
    
    Incurring additional indebtedness (including capital lease obligations), granting or
incurring additional liens on the Companys properties, pledging shares of the Companys
subsidiaries, entering into certain merger or other similar transactions, entering into
transactions with affiliates, making certain sales or other dispositions of assets, making
certain investments, acquiring other businesses and entering into certain sale-leaseback
transactions with respect to certain of the Companys properties;
    
    Paying cash dividends on the Companys common stock and repurchasing and acquiring shares
of the Companys common stock unless (i) there is no event of default under the Amended
Credit Facility and (ii) the amount of cash used for cash dividends, repurchases and
acquisitions does not, in the aggregate, exceed an amount equal to the excess of 30% of
IONs domestic consolidated net income for the Companys most recently completed fiscal year
over $15.0 million.
 F-22




---



##### Table of Contents




    
    maintain a minimum fixed charge coverage ratio in an amount equal to 1.50 to 1 for each
fiscal quarter beginning in 2009;
    
    not exceed a maximum leverage ratio of 2.25 to 1 for each fiscal quarter beginning in
2009; and
    
    maintain a minimum tangible net worth of at least 80% of the Companys tangible net worth
as of September 18, 2008 (the date that the Company completed its acquisition of ARAM), plus
50% of the Companys consolidated net income for each quarter thereafter, and 80% of the
proceeds from any mandatorily convertible notes and preferred and common stock issuances for
each quarter thereafter.
  ,
     F-23




---



##### Table of Contents



Bridge Loan.
  1 2
     Amended and Restated Subordinated Seller Note.
  F-24




---



##### Table of Contents



.
  
    
    qualifies as Long Term Junior Financing (as defined in the Credit Agreement),
    
    results from a refinancing or replacement of the Amended Credit Facility such that the
aggregate principal indebtedness (including revolving commitments) thereunder would be in
excess of $275.0 million, or
    
    qualifies as unsecured indebtedness for borrowed money that is evidenced by notes or
debentures, has a maturity date of at least five years after the date of its issuance and
results in total gross cash proceeds to the Company of not less than $45.0 million ($40.0
million after the Bridge Loan has been paid in full),
   
    
    the Companys obligations under the Amended Credit Facility,
    
    the Companys obligations under the Bridge Loan Agreement,
    
    the Companys liabilities with respect to capital leases and obligations under its
facility sale-leaseback facility that qualify as a Sale/Leaseback Agreement (as that term
is defined in the Credit Agreement),
    
    guarantees of the indebtedness described above, and
    
    debentures, notes or other evidences of indebtedness issued in exchange for, or in the
refinancing of, the Senior Obligations described above, or any indebtedness arising from the
payment and satisfaction of any Senior Obligations by a guarantor.
 Subordinated Seller Note.
 Convertible Senior Notes.
 Facility Lease Obligation.
 F-25




---



##### Table of Contents



Equipment Capital Leases.
  Notes Payable and
    
    
    Capital LeaseYears Ended December 31,
    
    Long-Term Debt
    
    
    Obligations2009
    
    $
    31,353
    
    
    $
    7,6662010
    
    
    61,650
    
    
    
    3,9552011
    
    
    25,610
    
    
    
    2,1622012
    
    
    28,839
    
    
    
    2282013
    
    
    129,957
    
    
    
    2014 and thereafter
    
    
    1,500
    
    
    
    Total
    
    $
    278,909
    
    
    
    14,011Imputed interest
    
    
    
    
    
    
    (1,011
    )Net present value of equipment capital lease obligations
    
    
    
    
    
    
    13,000Current portion of equipment capital lease obligations
    
    
    
    
    
    
    7,046Long-term portion of equipment capital lease obligations
    
    
    
    
    
    $
    5,954
 (12) Cumulative Convertible Preferred Stock
 
  
    
    The conversion price for the Series D-1 Preferred Stock was $7.869 per share;
    
    The conversion price for the Series D-2 Preferred Stock was $16.0429 per share; and
    
    The conversion price for the Series D-3 Preferred Stock was $14.7981 per share.
  F-26




---



##### Table of Contents




    
    satisfy all future redemption obligations by distributing only cash, or a combination of
cash and common stock, or
    
    reset the conversion prices of all of the outstanding shares of Series D Preferred Stock
to the Minimum Price, in which event Fletcher would have no further rights to redeem its
shares of Series D Preferred Stock.
      
    
    Fletcher is no longer permitted to redeem its shares of Series D Preferred Stock,
    
    the Company is required to pay all future dividends on the Series D Preferred Stock in
cash and may not pay such dividends in shares of its common stock, and
    
    the Maximum Number of shares of common stock into which the shares of Series D Preferred
Stock may be converted is 9,669,434 shares.
   
    
    Beneficial conversion charge  The reset of the conversion prices triggered a contingent
beneficial conversion feature. Following the guidance of EITF 00-27, Application of Issue
No. 98-5 to Certain Convertible Instruments,the Company recorded a beneficial conversion
charge of $68.8 million. This charge was calculated at its intrinsic value at the original
commitment date. The total charge was limited to the amount of proceeds allocated to the
convertible instruments.
 F-27




---



##### Table of Contents




    
    Classification of preferred stock  The Company originally classified the preferred
stock outside of stockholders equity on the balance sheet below total liabilities. However,
with the termination of the redemption rights, there are no other provisions that could
require cash redemption. Therefore, in the fourth quarter of 2008, the Company reclassified
the preferred stock to stockholders equity.
    
    Elimination of rights of redemption  The outstanding shares of the Series D-2 Preferred Stock
and the Series D-3 Preferred Stock are subject to the accounting guidance contained in EITF Topic D-109: Determining the
Nature of a Host Contract Related to a Hybrid Financial Instrument Issued in the Form of a
Share under FASB Statement No. 133(Topic D-109). Topic D-109 became effective on a
prospective basis on July 1, 2007, and the additional guidance and clarification of Topic
D-109 applies to transactions occurring after July 1, 2007, including the issuances of the
Series D-2 Preferred Stock and the Series D-3 Preferred Stock. Under Topic D-109, the
redemption features of the Series D-2 Preferred Stock and the Series D-3 Preferred Stock were
embedded derivatives that were required to be bifurcated and accounted for separately at
their fair value. The fair value of the redemption features had been classified as a
liability on the balance sheet of the Company and, on a quarterly basis, changes in the fair
value of these redemption features had been reflected in the income statement below income
from operations. However, after the resetting of the conversion prices, Fletcher has no
further rights to redeem its shares. Therefore, the redemption obligation was eliminated,
resulting in a positive fair value adjustment of $1.2 million for the year ended December 31,
2008.
 (13) Stockholders Equity and Stock-Based Compensation
 Stockholder Rights Plan
  Stock Option Plans
    F-28




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##### Table of Contents



Option Price
    
    
    
    
    
    
    
    
    
    Availableper Share
    
    Outstanding
    
    Vested
    
    for GrantJanuary 1, 2006
    
    $
    1.73-$30.00
    
    
    
    7,047,127
    
    
    
    4,138,458
    
    
    
    474,582Increase in shares authorized
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,700,000Granted
    
    
    7.84-10.89
    
    
    
    1,333,500
    
    
    
    
    
    
    
    (1,333,500
    )Vested
    
    
    
    
    
    
    
    
    
    
    1,269,726
    
    
    
    Exercised
    
    
    1.73-11.10
    
    
    
    (778,921
    )
    
    
    (778,921
    )
    
    
    Cancelled/forfeited
    
    
    1.73-29.63
    
    
    
    (777,058
    )
    
    
    (293,676
    )
    
    
    457,704Restricted stock granted out of option plans
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (602,500
    )December 31, 2006
    
    
    1.73-30.00
    
    
    
    6,824,648
    
    
    
    4,335,587
    
    
    
    696,286Increase in shares authorized
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,400,000Granted
    
    
    13.52-16.03
    
    
    
    1,381,200
    
    
    
    
    
    
    
    (1,381,200
    )Vested
    
    
    
    
    
    
    
    
    
    
    968,250
    
    
    
    Exercised
    
    
    1.73-12.45
    
    
    
    (1,036,794
    )
    
    
    (1,036,794
    )
    
    
    Cancelled/forfeited
    
    
    3.35-30.00
    
    
    
    (329,413
    )
    
    
    (66,601
    )
    
    
    279,544Restricted stock granted out of option plans
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (473,708
    )Restricted stock cancelled for employee minimum
income taxes and returned to the plans
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    90,122December 31, 2007
    
    
    1.73-24.63
    
    
    
    6,839,641
    
    
    
    4,200,442
    
    
    
    1,611,044Increase in shares authorized
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,000,000Granted
    
    
    3.00-16.39
    
    
    
    1,886,950
    
    
    
    
    
    
    
    (1,886,950
    )Vested
    
    
    
    
    
    
    
    
    
    
    913,915
    
    
    
    Exercised
    
    
    1.73-13.52
    
    
    
    (656,166
    )
    
    
    (656,166
    )
    
    
    Cancelled/forfeited
    
    
    3.35-24.63
    
    
    
    (587,150
    )
    
    
    (308,850
    )
    
    
    378,800Restricted stock granted out of option plans
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (454,983
    )Issuance of inducement stock options in acquisition
    
    
    14.10
    
    
    
    410,000
    
    
    
    
    
    
    
    Restricted stock forfeited and cancelled for
employee minimum income taxes and returned to the
plans
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    187,496December 31, 2008
    
    $
    1.73-$16.39
    
    
    
    7,893,275
    
    
    
    4,149,341
    
    
    
    835,407
  WeightedAverage Exercise
    
    Weighted
    
    
    
    
    
    WeightedPrice of
    
    Average
    
    
    
    
    
    Average ExerciseOutstanding
    
    Remaining
    
    
    
    
    
    Price of VestedOption Price per Share
    
    Outstanding
    
    Options
    
    Contract Life
    
    Vested
    
    Options$1.73 $3.00
    
    
    1,911,584
    
    
    $
    2.94
    
    
    
    9.1
    
    
    
    202,634
    
    
    $
    2.413.35  5.81
    
    
    451,216
    
    
    $
    4.67
    
    
    
    3.7
    
    
    
    451,216
    
    
    $
    4.675.94  9.01
    
    
    2,427,975
    
    
    $
    6.62
    
    
    
    5.0
    
    
    
    2,214,350
    
    
    $
    6.539.08  14.03
    
    
    1,434,850
    
    
    $
    10.41
    
    
    
    6.8
    
    
    
    923,852
    
    
    $
    10.2414.10  16.39
    
    
    1,667,650
    
    
    $
    15.15
    
    
    
    9.2
    
    
    
    357,289
    
    
    $
    15.42Totals
    
    
    7,893,275
    
    
    $
    8.11
    
    
    
    7.1
    
    
    
    4,149,341
    
    
    $
    7.72
  Weighted AverageWeighted Average
    
    Remaining
    
    AggregateWeighted Average
    
    Grant Date Fair
    
    Contractual Life in
    
    IntrinsicNumber of Shares
    
    Exercise Price
    
    Value
    
    Years
    
    Value (000s)Total outstanding at January 1, 2008
    
    
    6,839,641
    
    
    $
    9.28
    
    
    
    
    
    
    
    6.6Options granted
    
    
    2,296,950
    
    
    $
    5.93
    
    
    $
    3.02Options exercised
    
    
    (656,166
    )
    
    $
    7.40Options cancelled
    
    
    (308,850
    )
    
    $
    15.04Options forfeited
    
    
    (278,300
    )
    
    $
    12.89Total outstanding at December 31, 2008
    
    
    7,893,275
    
    
    $
    8.11
    
    
    
    
    
    
    
    7.1
    
    
    $
    949Options exercisable and vested at
December 31, 2008
    
    
    4,149,341
    
    
    $
    7.72
    
    
    
    
    
    
    
    5.3
    
    
    $
    214
 F-29




---



##### Table of Contents



Restricted Stock and Restricted Stock Unit Plans
   Number of Shares/UnitsTotal nonvested at January 1, 2008
    
    
    1,058,477Granted
    
    
    460,883Vested
    
    
    (556,130
    )Forfeited
    
    
    (86,688
    )Total nonvested at December 31, 2008
    
    
    876,542
  Employee Stock Purchase Plan
  Stock Appreciation Rights Plan
   F-30




---



##### Table of Contents



Valuation Assumptions
  Years Ended December 312008
    
    2007
    
    2006Risk-free interest rates
    
    
    1.5% - 3.4
    %
    
    
    3.4% - 4.9
    %
    
    
    4.3% - 5.2
    %Expected lives (in years)
    
    
    4.7  5.0
    
    
    
    4.5  5.0
    
    
    
    4.5Expected dividend yield
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %Expected volatility
    
    
    44.7% - 83.2
    %
    
    
    45.0% - 53.3
    %
    
    
    47.5% - 52.8
    %
  (14) Segment and Geographic Information
   Years Ended December 31,2008
    
    
    2007
    
    
    2006Net revenues:ION Systems Division:Land Imaging Systems
    
    $
    200,493
    
    
    $
    325,037
    
    
    $
    205,779Marine Imaging Systems
    
    
    182,710
    
    
    
    177,685
    
    
    
    127,927Data Management Solutions
    
    
    37,240
    
    
    
    37,660
    
    
    
    23,198Total ION Systems Division
    
    
    420,443
    
    
    
    540,382
    
    
    
    356,904ION Solutions Division
    
    
    259,080
    
    
    
    172,729
    
    
    
    146,652Total
    
    $
    679,523
    
    
    $
    713,111
    
    
    $
    503,556Income (loss) from operations:ION Systems Division:Land Imaging Systems
    
    $
    (13,662
    )
    
    $
    28,681
    
    
    $
    13,463Marine Imaging Systems
    
    
    52,624
    
    
    
    44,727
    
    
    
    30,258Data Management Solutions
    
    
    22,298
    
    
    
    17,290
    
    
    
    7,461Total ION Systems Division
    
    
    61,260
    
    
    
    90,698
    
    
    
    51,182ION Solutions Division
    
    
    40,534
    
    
    
    21,646
    
    
    
    28,648Corporate and other
    
    
    (62,334
    )
    
    
    (48,450
    )
    
    
    (39,882
    )Impairment of goodwill and intangible assets
    
    
    (252,283
    )
    
    
    
    
    
    
    Total
    
    $
    (212,823
    )
    
    $
    63,894
    
    
    $
    39,948Depreciation and amortization (including multi-client data library):ION Systems Division:
 F-31




---



##### Table of Contents



Years Ended December 31,2008
    
    
    2007
    
    
    2006Land Imaging Systems
    
    $
    9,094
    
    
    $
    4,036
    
    
    $
    2,561Marine Imaging Systems
    
    
    1,655
    
    
    
    1,383
    
    
    
    825Data Management Solutions
    
    
    3,145
    
    
    
    3,329
    
    
    
    2,896Total ION Systems Division
    
    
    13,894
    
    
    
    8,748
    
    
    
    6,282ION Solutions Division
    
    
    96,995
    
    
    
    53,220
    
    
    
    38,677Corporate and other
    
    
    2,695
    
    
    
    2,461
    
    
    
    2,088Total
    
    $
    113,584
    
    
    $
    64,429
    
    
    $
    47,047
 December 31,
    
    
    December 31,2008
    
    
    2007Total assets:ION Systems Division:Land Imaging Systems
    
    $
    398,473
    
    
    $
    176,451Marine Imaging Systems
    
    
    146,877
    
    
    
    146,239Data Management Solutions
    
    
    41,293
    
    
    
    62,689Total ION Systems Division
    
    
    586,643
    
    
    
    385,379ION Solutions Division
    
    
    222,206
    
    
    
    270,211Corporate and other
    
    
    52,582
    
    
    
    53,559Total
    
    $
    861,431
    
    
    $
    709,149
  December 31,
    
    
    December 31,2008
    
    
    2007North America
    
    $
    644,165
    
    
    $
    577,079Europe
    
    
    63,560
    
    
    
    94,200Middle East
    
    
    113,324
    
    
    
    25,104Latin America
    
    
    34,608
    
    
    
    11,454Other
    
    
    5,774
    
    
    
    1,312Total
    
    $
    861,431
    
    
    $
    709,149
   Years Ended December 31,2008
    
    
    2007
    
    
    2006North America
    
    $
    272,567
    
    
    $
    267,673
    
    
    $
    162,261Europe
    
    
    202,170
    
    
    
    179,064
    
    
    
    119,398Asia Pacific
    
    
    57,470
    
    
    
    131,683
    
    
    
    86,245Commonwealth of Independent States (CIS)
    
    
    30,051
    
    
    
    52,247
    
    
    
    37,283Africa
    
    
    31,693
    
    
    
    37,116
    
    
    
    31,306Middle East
    
    
    32,872
    
    
    
    29,311
    
    
    
    51,796Latin America
    
    
    52,700
    
    
    
    16,017
    
    
    
    15,267Total
    
    $
    679,523
    
    
    $
    713,111
    
    
    $
    503,556
  (15) Income Taxes
  Years Ended December 31,2008
    
    
    2007
    
    
    2006Domestic
    
    $
    (82,811
    )
    
    $
    36,453
    
    
    $
    26,539Foreign
    
    
    (137,096
    )
    
    
    19,014
    
    
    
    7,518Total
    
    $
    (219,907
    )
    
    $
    55,467
    
    
    $
    34,057
 F-32




---



##### Table of Contents



Years Ended December 31,2008
    
    
    2007
    
    
    2006Current:Federal
    
    $
    58
    
    
    $
    2,499
    
    
    $
    687State and local
    
    
    208
    
    
    
    (222
    )
    
    
    1,798Foreign
    
    
    18,414
    
    
    
    7,586
    
    
    
    3,643Deferred (U.S. and foreign)
    
    
    (17,549
    )
    
    
    2,960
    
    
    
    (1,014
    )Total income tax expense
    
    $
    1,131
    
    
    $
    12,823
    
    
    $
    5,114
  Years Ended December 31,2008
    
    
    2007
    
    
    2006Expected income tax expense at 35%
    
    $
    (76,967
    )
    
    $
    19,414
    
    
    $
    11,920Alternate minimum tax
    
    
    58
    
    
    
    2,499
    
    
    
    687Foreign taxes (tax rate differential and foreign tax differences)
    
    
    4,467
    
    
    
    8,865
    
    
    
    2,883Nondeductible goodwill
    
    
    84,756
    
    
    
    
    
    
    
    State and local taxes
    
    
    269
    
    
    
    (282
    )
    
    
    1,798Deferred tax asset valuation allowance
    
    
    (11,713
    )
    
    
    (18,266
    )
    
    
    (12,538
    )Nondeductible expenses
    
    
    261
    
    
    
    593
    
    
    
    364Total income tax expense
    
    $
    1,131
    
    
    $
    12,823
    
    
    $
    5,114
  December 31,
    
    
    December 31,2008
    
    
    2007Current deferred:Deferred income tax assets:Accrued expenses
    
    $
    8,812
    
    
    $
    12,037Allowance accounts
    
    
    9,557
    
    
    
    5,544Inventory
    
    
    (103
    )
    
    
    985Total current deferred income tax asset
    
    
    18,266
    
    
    
    18,566Valuation allowance
    
    
    (4,401
    )
    
    
    (13,227
    )Net current deferred income tax asset
    
    
    13,865
    
    
    
    5,339Deferred income tax liabilities:Unbilled receivables
    
    
    (9,877
    )
    
    
    (8,131
    )Net current deferred income tax asset (liability)
    
    $
    3,988
    
    
    $
    (2,792
    )Noncurrent deferred:Deferred income tax assets:Net operating loss carryforward
    
    $
    4,632
    
    
    $
    3,688Basis in research and development
    
    
    26,674
    
    
    
    22,002Deferred income
    
    
    18,900
    
    
    
    21,000Basis in property, plant and equipment
    
    
    2,122
    
    
    
    Tax credit carryforwards and other
    
    
    9,533
    
    
    
    6,897Total deferred income tax asset
    
    
    61,861
    
    
    
    53,587Valuation allowance
    
    
    (43,597
    )
    
    
    (45,186
    )Net non-current deferred income tax asset
    
    
    18,264
    
    
    
    8,401Deferred income tax liabilities:Basis in identified intangibles
    
    
    (29,220
    )
    
    
    (9,063
    )Basis in property, plant and equipment
    
    
    
    
    
    
    151Net non-current deferred income tax asset (liability)
    
    $
    (10,956
    )
    
    $
    (511
    )
 F-33




---



##### Table of Contents



Accounting for
Income Taxes,
 Accounting for Uncertainty
in Income Taxes  an Interpretation of FASB Statement No. 109
    (16) Operating Leases
 Lessee.
  Years Ended December 31,2009
    
    $
    11,4872010
    
    
    11,2002011
    
    
    8,5232012
    
    
    6,4162013
    
    
    3,262Total
    
    $
    40,888
 (17) Benefit Plans
 4 01(k) .
 F-34




---



##### Table of Contents



Supplemental executive retirement plan.
 (18) Legal Matters
  (19) Restructuring Charges
  (20) Selected Quarterly Information  (Unaudited)
  Three Months EndedYear Ended December 31, 2008
    
    March 31
    
    
    June 30
    
    
    September 30
    
    
    December 31Product revenues
    
    $
    93,034
    
    
    $
    104,360
    
    
    $
    140,332
    
    
    $
    79,785Service revenues
    
    
    47,125
    
    
    
    76,305
    
    
    
    78,197
    
    
    
    60,385Total net revenues
    
    
    140,159
    
    
    
    180,665
    
    
    
    218,529
    
    
    
    140,170Gross profit
    
    
    48,394
    
    
    
    58,021
    
    
    
    72,621
    
    
    
    28,712Impairment of goodwill and intangible assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    252,283Income (loss) from operations
    
    
    10,295
    
    
    
    19,736
    
    
    
    31,574
    
    
    
    (274,428
    )Interest expense
    
    
    (487
    )
    
    
    (652
    )
    
    
    (1,592
    )
    
    
    (9,992
    )Fair value adjustment on preferred stock redemption features
    
    
    178
    
    
    
    (5
    )
    
    
    (1,147
    )
    
    
    2,189Interest and other income
    
    
    611
    
    
    
    798
    
    
    
    783
    
    
    
    2,232Income tax expense (benefit)
    
    
    2,059
    
    
    
    3,524
    
    
    
    3,760
    
    
    
    (8,212
    )Preferred stock dividends and accretion
    
    
    910
    
    
    
    908
    
    
    
    925
    
    
    
    1,146Preferred stock beneficial conversion charge
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    68,786Net income (loss) applicable to common shares
    
    $
    7,628
    
    
    $
    15,445
    
    
    $
    24,933
    
    
    $
    (341,719
    )Net income (loss) per basic share
    
    $
    0.08
    
    
    $
    0.16
    
    
    $
    0.26
    
    
    $
    (3.43
    )Net income (loss) per diluted share
    
    $
    0.08
    
    
    $
    0.16
    
    
    $
    0.25
    
    
    $
    (3.43
    )
 Three Months EndedYear Ended December 31, 2007
    
    March 31
    
    
    June 30
    
    
    September 30
    
    
    December 31Product revenues
    
    $
    123,480
    
    
    $
    135,861
    
    
    $
    126,246
    
    
    $
    152,104Service revenues
    
    
    41,565
    
    
    
    29,295
    
    
    
    47,306
    
    
    
    57,254Total net revenues
    
    
    165,045
    
    
    
    165,156
    
    
    
    173,552
    
    
    
    209,358Gross profit
    
    
    39,165
    
    
    
    46,207
    
    
    
    52,647
    
    
    
    68,564Income from operations
    
    
    5,944
    
    
    
    11,506
    
    
    
    16,864
    
    
    
    29,580Interest expense
    
    
    (1,453
    )
    
    
    (1,800
    )
    
    
    (1,764
    )
    
    
    (1,266
    )
 F-35




---



##### Table of Contents



Three Months EndedYear Ended December 31, 2007
    
    March 31
    
    
    June 30
    
    
    September 30
    
    
    December 31Loss of debt conversion
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,902
    )Interest and other income
    
    
    388
    
    
    
    104
    
    
    
    (550
    )
    
    
    816Income tax expense
    
    
    1,204
    
    
    
    2,145
    
    
    
    1,322
    
    
    
    8,152Preferred stock dividends and accretion
    
    
    602
    
    
    
    589
    
    
    
    589
    
    
    
    608Net income applicable to common shares
    
    $
    3,073
    
    
    $
    7,076
    
    
    $
    12,639
    
    
    $
    17,468Net income per basic share
    
    $
    0.04
    
    
    $
    0.09
    
    
    $
    0.16
    
    
    $
    0.20Net income per diluted share
    
    $
    0.04
    
    
    $
    0.08
    
    
    $
    0.14
    
    
    $
    0.18
 (21) Related Parties
   F-36




---



##### Table of Contents



SCHEDULE II
ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
 ChargedBalance at
    
    (Credited)Beginning
    
    to Costs and
    
    
    
    
    
    Balance atYear Ended December 31, 2006
    
    of Year
    
    Expenses
    
    Deductions
    
    End of Year(In thousands)Allowances for doubtful accounts
    
    $
    3,081
    
    
    $
    577
    
    
    $
    (857
    )
    
    $
    2,801Allowances for doubtful notes
    
    
    4,530
    
    
    
    
    
    
    
    
    
    
    
    4,530Warranty
    
    
    3,896
    
    
    
    6,784
    
    
    
    (4,425
    )
    
    
    6,255Allowance for net deferred tax assets
    
    
    78,860
    
    
    
    (12,538
    )
    
    
    10,002
    
    
    
    76,324
 ChargedBalance at
    
    (Credited)Beginning
    
    to Costs and
    
    
    
    
    
    Balance atYear Ended December 31, 2007
    
    of Year
    
    Expenses
    
    Deductions
    
    End of Year(In thousands)Allowances for doubtful accounts
    
    $
    2,801
    
    
    $
    437
    
    
    $
    (563
    )
    
    $
    2,675Allowances for doubtful notes
    
    
    4,530
    
    
    
    
    
    
    
    (1,179
    )
    
    
    3,351Warranty
    
    
    6,255
    
    
    
    13,074
    
    
    
    (5,890
    )
    
    
    13,439Allowance for net deferred tax assets
    
    
    76,324
    
    
    
    (18,266
    )
    
    
    355
    
    
    
    58,413
 Acquired
    
    ChargedBalance at
    
    Reserves
    
    (Credited)Beginning
    
    during the
    
    to Costs and
    
    
    
    
    
    Balance atYear Ended December 31, 2008
    
    of Year
    
    period
    
    Expenses
    
    Deductions
    
    End of Year(In thousands)Allowances for doubtful accounts
    
    $
    2,675
    
    
    $
    
    
    
    $
    4,852
    
    
    $
    (1,842
    )
    
    $
    5,685Allowances for doubtful notes
    
    
    3,351
    
    
    
    
    
    
    
    
    
    
    
    (3,351
    )
    
    
    Warranty
    
    
    13,439
    
    
    
    845
    
    
    
    4,624
    
    
    
    (8,382
    )
    
    
    10,526Allowance for net deferred tax assets
    
    
    58,413
    
    
    
    
    
    
    
    (11,713
    )
    
    
    1,298
    
    
    
    47,998
 S-1




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##### Table of Contents



3.1
    
    
    
    Restated Certificate of Incorporation dated September 24, 2007 filed on September 24,
2007 as Exhibit 3.4 to the Companys Current Report on Form 8-K and incorporated
herein by reference.3.2
    
    
    
    Amended and Restated Bylaws of ION Geophysical Corporation filed on September 24,
2007 as Exhibit 3.5 to the Companys Current Report on Form 8-K and incorporated
herein by reference.3.3
    
    
    
    Certificate of Ownership and Merger merging ION Geophysical Corporation with and into
Input/Output, Inc. dated September 21, 2007, filed on September 24, 2007 as Exhibit
3.1 to the Companys Current Report on Form 8-K and incorporated herein by reference.4.1
    
    
    
    Certificate of Rights and Designations of Series D-1 Cumulative Convertible Preferred
Stock, dated February 16, 2005 and filed on February 17, 2005 as Exhibit 3.1 to the
Companys Current Report on Form 8-K and incorporated herein by reference.4.2
    
    
    
    Certificate of Elimination of Series B Preferred Stock dated September 24, 2007,
filed on September 24, 2007 as Exhibit 3.2 to the Companys Current Report on Form
8-K and incorporated herein by reference.4.3
    
    
    
    Certificate of Elimination of Series C Preferred Stock dated September 24, 2007,
filed on September 24, 2007 as Exhibit 3.3 to the Companys Current Report on Form
8-K and incorporated herein by reference.4.4
    
    
    
    Certificate of Designation of Series D-2 Cumulative Convertible Preferred Stock dated
December 6, 2007, filed on December 6, 2007 as Exhibit 3.1 to the Companys Current
Report on Form 8-K and incorporated herein by reference.4.5
    
    
    
    Certificate of Designation of Series D-3 Cumulative Convertible Preferred Stock dated
February 20, 2008, filed on February 22, 2008 as Exhibit 3.1 to the Companys Current
Report on Form 8-K and incorporated herein by reference.4.6
    
    
    
    Certificate of Designations of Series A Junior Participating Preferred Stock of ION
Geophysical Corporation effective as of December 31, 2008, filed on January 5, 2009
as Exhibit 3.1 to the Companys Current Report on Form 8-K and incorporated herein by
reference.4.7
    
    
    
    Form of Senior Indenture, filed on December 19, 2008 as Exhibit 4.3 to the Companys
Registration Statement on Form S-3 (Registration No. 333-156362) and incorporated
herein by reference.4.8
    
    
    
    Form of Senior Note, filed on December 19, 2008 as Exhibit 4.4 to the Companys
Registration Statement on Form S-3 (Registration No. 333-156362) and incorporated
herein by reference.4.9
    
    
    
    Form of Subordinated Indenture, filed on December 19, 2008 as Exhibit 4.5 to the
Companys Registration Statement on Form S-3 (Registration No. 333-156362) and
incorporated herein by reference.4.10
    
    
    
    Form of Subordinated Note, filed on December 19, 2008 as Exhibit 4.6 to the Companys
Registration Statement on Form S-3 (Registration No. 333-156362) and incorporated
herein by reference.**10.1
    
    
    
    Amended and Restated 1990 Stock Option Plan, filed on June 9, 1999 as Exhibit 4.2 to
the Companys Registration Statement on Form S-8 (Registration No. 333-80299), and
incorporated herein by reference.10.2
    
    
    
    Office and Industrial/Commercial Lease dated June 2005 by and between Stafford Office
Park II, LP as Landlord and Input/Output, Inc. as Tenant, filed on March 31, 2006 as
Exhibit 10.2 to the Companys Annual Report on Form 10-K for the year ended December
31, 2005, and incorporated herein by reference.10.3
    
    
    
    Office and Industrial/Commercial Lease dated June 2005 by and between Stafford Office
Park District as Landlord and Input/Output, Inc. as Tenant, filed on March 31, 2006
as Exhibit 10.3 to the Companys Annual Report on Form 10-K for the year ended
December 31, 2005, and incorporated herein by reference.




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##### Table of Contents



**10.4
    
    
    
    Input/Output, Inc. Amended and Restated 1996 Non-Employee Director Stock Option Plan,
filed on June 9, 1999 as Exhibit 4.3 to the Companys Registration Statement on Form
S-8 (Registration No. 333-80299), and incorporated herein by reference.**10.5
    
    
    
    Amendment No. 1 to the Input/Output, Inc. Amended and Restated 1996 Non-Employee
Director Stock Option Plan dated September 13, 1999 filed on November 14, 1999 as
Exhibit 10.4 to the Companys Quarterly Report on Form 10-Q for the fiscal quarter
ended August 31, 1999 and incorporated herein by reference.**10.6
    
    
    
    Employment Agreement dated effective as of May 22, 2006, between Input/Output, Inc.
and R. Brian Hanson filed on May 1, 2006 as Exhibit 10.1 to the Companys Form 8-K,
and incorporated herein by reference.**10.7
    
    
    
    First Amendment to Employment Agreement dated as of August 20, 2007 between
Input/Output, Inc. and R. Brian Hanson, filed on August 21, 2007 as Exhibit 10.1 to
the Companys Current Report on Form 8-K and incorporated herein by reference.**10.8
    
    
    
    Second Amendment to Employment Agreement, dated as of December 1, 2008, between ION
Geophysical Corporation and R. Brian Hanson, filed on January 29, 2009 as Exhibit
10.2 to the Companys Current Report on Form 8-K and incorporated herein by
reference.**10.9
    
    
    
    Input/Output, Inc. Employee Stock Purchase Plan, filed on March 28, 1997 as Exhibit
4.4 to the Companys Registration Statement on Form S-8 (Registration No. 333-24125),
and incorporated herein by reference.**10.10
    
    
    
    Fourth Amended and Restated 2004 Long-Term Incentive Plan, filed as Appendix A to the
definitive proxy statement for the 2008 Annual Meeting of Stockholders of ION
Geophysical Corporation, filed on April 21, 2008, and incorporated herein by
reference.10.11
    
    
    
    Registration Rights Agreement dated as of November 16, 1998, by and among the Company
and The Laitram Corporation, filed on March 12, 2004 as Exhibit 10.7 to the Companys
Annual Report on Form 10-K for the year ended December 31, 2003, and incorporated
herein by reference.**10.12
    
    
    
    Input/Output, Inc. 1998 Restricted Stock Plan dated as of June 1, 1998, filed on June
9, 1999 as Exhibit 4.7 to the Companys Registration Statement on S-8 (Registration
No. 333-80297), and incorporated herein by reference.**10.13
    
    
    
    Input/Output Inc. Non-qualified Deferred Compensation Plan, filed on April 1, 2002 as
Exhibit 10.14 to the Companys Annual Report on Form 10-K for the year ended December
31, 2001, and incorporated herein by reference.**10.14
    
    
    
    Input/Output, Inc. 2000 Restricted Stock Plan, effective as of March 13, 2000, filed
on August 17, 2000 as Exhibit 10.27 to the Companys Annual Report on Form 10-K for
the fiscal year ended May 31, 2000, and incorporated herein by reference.**10.15
    
    
    
    Input/Output, Inc. 2000 Long-Term Incentive Plan, filed on November 6, 2000 as
Exhibit 4.7 to the Companys Registration Statement on Form S-8 (Registration No.
333-49382), and incorporated by reference herein.**10.16
    
    
    
    Employment Agreement dated effective as of March 31, 2003, by and between the Company
and Robert P. Peebler, filed on March 31, 2003, as Exhibit 10.1 to the Companys
Current Report on Form 8-K and incorporated herein by reference.**10.17
    
    
    
    First Amendment to Employment Agreement dated September 6, 2006, between
Input/Output, Inc. and Robert P. Peebler, filed on September 7, 2006, as Exhibit 10.1
to the Companys Current Report on Form 8-K, and incorporated herein by reference.**10.18
    
    
    
    Second Amendment to Employment Agreement dated February 16, 2007, between
Input/Output, Inc. and Robert P. Peebler, filed on February 16, 2007 as Exhibit 10.1
to the Companys Current Report on Form 8-K, and incorporated herein by reference.**10.19
    
    
    
    Third Amendment to Employment Agreement dated as of August 20, 2007 between
Input/Output, Inc. and Robert P. Peebler, filed on August 21, 2007 as Exhibit 10.2 to
the Companys Current Report on Form 8-K and incorporated herein by reference.**10.20
    
    
    
    Fourth Amendment to Employment Agreement, dated as of January 26, 2009, between ION




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##### Table of Contents



Geophysical Corporation and Robert P. Peebler, filed on January 29, 2009 as Exhibit
10.1 to the Companys Current Report on Form 8-K and incorporated herein by
reference.**10.21
    
    
    
    Employment Agreement dated effective as of June 15, 2004, by and between the Company
and David L. Roland, filed on August 9, 2004 as Exhibit 10.5 to the Companys
Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2004, and
incorporated herein by reference.**10.22
    
    
    
    Employment Agreement, dated as of December 1, 2008, between ION Geophysical
Corporation and James R. Hollis, filed on January 29, 2009 as Exhibit 10.3 to the
Companys Current Report on Form 8-K and incorporated herein by reference.**10.23
    
    
    
    GX Technology Corporation Employee Stock Option Plan, filed on August 9, 2004 as
Exhibit 10.1 to the Companys Quarterly Report on Form 10-Q for the quarterly period
ended June 30, 2004, and incorporated herein by reference.10.24
    
    
    
    Concept Systems Holdings Limited Share Acquisition Agreement dated February 23, 2004,
filed on March 5, 2004 as Exhibit 2.1 to the Companys Current Report on Form 8-K,
and incorporated herein by reference.10.25
    
    
    
    Registration Rights Agreement by and between ION Geophysical Corporation and 1236929
Alberta Ltd. dated September 18, 2008, filed on November 7, 2008 as Exhibit 10.1 to
the Companys Quarterly Report on Form 10-Q and incorporated herein by reference.**10.26
    
    
    
    Form of Employment Inducement Stock Option Agreement for the Input/Output, Inc. 
Concept Systems Employment Inducement Stock Option Program, filed on July 27, 2004 as
Exhibit 4.1 to the Companys Registration Statement on Form S-8 (Reg. No.
333-117716), and incorporated herein by reference.**10.27
    
    
    
    Form of Employee Stock Option Award Agreement for ARAM Systems Employee Inducement
Stock Option Program, filed on November 14, 2008 as Exhibit 4.4 to the Companys
Registration Statement on Form S-8 (Registration No. 333-155378) and incorporated
herein by reference.10.28
    
    
    
    Agreement dated as of February 15, 2005, between Input/Output, Inc. and Fletcher
International, Ltd., filed on February 17, 2005 as Exhibit 10.1 to the Companys
Current Report on Form 8-K and incorporated herein by reference.10.29
    
    
    
    First Amendment to Agreement, dated as of May 6, 2005, between the Company and
Fletcher International, Ltd., filed on May 10, 2005 as Exhibit 10.2 to the Companys
Current Report on Form 8-K, and incorporated herein by reference.**10.30
    
    
    
    Input/Output, Inc. 2003 Stock Option Plan, dated March 27, 2003, filed as Appendix B
of the Companys definitive proxy statement filed with the SEC on April 30, 2003, and
incorporated herein by reference.10.31
    
    
    
    Amended and Restated Credit Agreement dated as of July 3, 2008, by and among ION
Geophysical Corporation, ION International S.À R.L., HSBC Bank USA, N.A., as
administrative agent, joint lead arranger and joint bookrunner, ABN AMRO
Incorporated, as joint lead arranger and joint bookrunner, and CitiBank, N.A., as
syndication agent, filed on July 8, 2008 as Exhibit 10.1 to the Companys Current
Report on Form 8-K and incorporated herein by reference.10.32
    
    
    
    First Amendment to Amended and Restated Credit Agreement and Domestic Security
Agreement, dated as of September 17, 2008, by and among ION Geophysical Corporation,
ION International S.À R.L., HSBC Bank USA, N.A., as administrative agent, joint lead
arranger and joint bookrunner, ABN AMRO Incorporated, as joint lead arranger and
joint bookrunner, and CitiBank, N.A., as syndication agent, filed on September 23,
2008 as Exhibit 10.1 to the Companys Current Report on Form 8-K and incorporated
herein by reference.10.33
    
    
    
    Third Amendment to Amended and Restated Credit Agreement, dated as of December 29,
2008, by and among ION Geophysical Corporation, ION International S.À R.L., the
Guarantors and Lenders party thereto and HSBC Bank USA, N.A., as administrative
agent, filed on January 5, 2009 as Exhibit 10.3 to the Companys Current Report on
Form 8-K and incorporated herein by reference.10.34
    
    
    
    Fourth Amendment to Amended and Restated Credit Agreement and Foreign Security
Agreement, Limited Waiver and Release dated as of December 30, 2008, by and among ION
Geophysical Corporation, ION International S.À R.L., the Guarantors and Lenders party
thereto and HSBC




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##### Table of Contents



Bank USA, N.A., as administrative agent, filed on January 5, 2009 as
Exhibit 10.4 to the Companys Current Report on Form 8-K and incorporated herein by
reference.**10.35
    
    
    
    Form of Employment Inducement Stock Option Agreement for the Input/Output, Inc.  GX
Technology Corporation Employment Inducement Stock Option Program, filed on April 4,
2005 as Exhibit 4.1 to the Companys Registration Statement on Form S-8 (Reg. No.
333-123831), and incorporated herein by reference.**10.36
    
    
    
    Consulting Services Agreement dated as of October 19, 2006, by and between GX
Technology Corporation and Michael K. Lambert, filed on October 24, 2006 as Exhibit
10.2 to the Companys Current Report on Form 8-K, and incorporated herein by
reference.**10.37
    
    
    
    First Amendment to Consulting Services Agreement dated as of January 5, 2007, by and
between GX Technology Corporation and Michael K. Lambert, filed on January 8, 2007 as
Exhibit 10.1 to the Companys Current Report on Form 8-K, and incorporated herein by
reference.**10.38
    
    
    
    Letter agreement dated October 19, 2006, by and between the Company and Michael K.
Lambert, filed on October 24, 2006 as Exhibit 10.1 to the Companys Current Report on
Form 8-K, and incorporated herein by reference.**10.39
    
    
    
    Severance Agreement dated as of December 1, 2008, between ION Geophysical Corporation
and Charles J. Ledet, filed on December 5, 2008 as Exhibit 10.1 to the Companys
Current Report on Form 8-K and incorporated herein by reference.10.40
    
    
    
    Consulting Agreement dated as of December 1, 2008, between ION Geophysical
Corporation and Charles J. Ledet, filed on December 5, 2008 as Exhibit 10.2 to the
Companys Current Report on Form 8-K and incorporated herein by reference.10.41
    
    
    
    Rights Agreement, dated as of December 30, 2008, between ION Geophysical Corporation
and Computershare Trust Company, N.A., as Rights Agent, filed as Exhibit 4.1 to the
Companys Form 8-A (Registration No. 001-12691) and incorporated herein by reference.10.42
    
    
    
    Amended and Restated Share Purchase Agreement, dated as of September 17, 2008, by and
among ION Geophysical Corporation, Aram Systems Ltd., Canadian Seismic Rentals Inc.
and the Sellers party thereto, filed on September 23, 2008 as Exhibit 2.1 to the
Companys Current Report on Form 8-K and incorporated herein by reference.10.43
    
    
    
    Assignment Agreement dated as of December 30, 2008 by and among 3226509 Nova Scotia
Company, ARAM Systems Ltd., Canadian Seismic Rentals Inc., Maison Mazel Ltd. and ION
Geophysical Corporation, filed on January 5, 2009 as Exhibit 10.1 to the Companys
Current Report on Form 8-K and incorporated herein by reference.10.44
    
    
    
    Release Agreement dated as of December 30, 2008 by and among ION Geophysical
Corporation, 3226509 Nova Scotia Company, ARAM Systems Ltd., Canadian Seismic Rentals
Inc., Maison Mazel Ltd. and the Sellers party thereto, filed on January 5, 2009 as
Exhibit 10.2 to the Companys Current Report on Form 8-K and incorporated herein by
reference.10.45
    
    
    
    Bridge Loan Agreement dated as of December 30, 2008, by and among ION Geophysical
Corporation, the Guarantors and Lenders party thereto and Jefferies Finance LLC, as
administrative agent, sole bookrunner and sole lead arranger, filed on January 5,
2009 as Exhibit 10.5 to the Companys Current Report on Form 8-K and incorporated
herein by reference.10.46
    
    
    
    Amended and Restated Subordinated Promissory Note dated December 30, 2008, made by
3226509 Nova Scotia Company in favor of Maison Mazel Ltd., filed on January 5, 2009
as Exhibit 10.6 to the Companys Current Report on Form 8-K and incorporated herein
by reference.* **10.47
    
    
    
    ION Stock Appreciation Rights Plan dated November 17, 2008.*21.1
    
    
    
    Subsidiaries of the Company.*23.1
    
    
    
    Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm.*24.1
    
    
    
    The Power of Attorney is set forth on the signature page hereof.*31.1
    
    
    
    Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a).*31.2
    
    
    
    Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a).




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##### Table of Contents



*32.1
    
    
    
    Certification of Chief Executive Officer Pursuant to 18 U.S.C. §1350.*32.2
    
    
    
    Certification of Chief Financial Officer Pursuant to 18 U.S.C. §1350.
 
 *
    
    Filed herewith.**
    
    Management contract or compensatory plan or arrangement.