Condensed Consolidating Financial Information | Condensed Consolidating Financial Information The Second Lien Notes were issued by ION Geophysical Corporation, and are guaranteed by the Company’s current material U.S. subsidiaries: GX Technology Corporation, ION Exploration Products (U.S.A.), Inc. and I/O Marine Systems, Inc. (“the Guarantors”), all of which are wholly-owned subsidiaries. The Guarantors have fully and unconditionally guaranteed the payment obligations of ION Geophysical Corporation with respect to these debt securities. In August 2018, as part of the Company entering into the Third Amendment to its Credit Agreement, the Company joined the Mexican Subsidiary as a guarantor with respect to the Second Lien Notes. All periods period presented below have been updated to include the Mexican Subsidiary within The Guarantors column. The following condensed consolidating financial information presents the results of operations, financial position and cash flows for: • ION Geophysical Corporation and the Guarantors (in each case, reflecting investments in subsidiaries utilizing the equity method of accounting). • All other subsidiaries of ION Geophysical Corporation that are non-guarantors. • The consolid ating adjustments necessary to present ION Geophysical Corporation’s results on a consolidated basis. This condensed consolidating financial information should be read in conjunction with the accompanying consolidated financial statements and footnotes. For additional information pertaining to the Notes, see Item 7. “ Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part 2 of this Form 10-K. December 31, 2018 Balance Sheet ION Geophysical Corporation The Guarantors All Other Subsidiaries Consolidating Adjustments Total Consolidated (In thousands) ASSETS Current assets: Cash and cash equivalents $ 13,782 $ 47 $ 19,722 $ — $ 33,551 Accounts receivable, net 8 17,349 8,771 — 26,128 Unbilled receivables — 12,697 31,335 — 44,032 Inventories — 8,721 5,409 — 14,130 Prepaid expenses and other current assets 3,891 1,325 2,566 — 7,782 Total current assets 17,681 40,139 67,803 — 125,623 Deferred income tax asset 805 6,261 125 — 7,191 Property, plant, equipment and seismic rental equipment, net 489 8,922 3,630 — 13,041 Multi-client data library, net — 70,380 3,164 — 73,544 Investment in subsidiaries 836,002 247,359 — (1,083,361 ) — Goodwill — — 22,915 — 22,915 Intercompany receivables — 305,623 66,021 (371,644 ) — Other assets 1,723 643 69 — 2,435 Total assets $ 856,700 $ 679,327 $ 163,727 $ (1,455,005 ) $ 244,749 LIABILITIES AND EQUITY Current liabilities: Current maturities of long-term debt $ 1,159 $ 1,069 $ — $ — $ 2,228 Accounts payable 2,407 29,602 2,904 — 34,913 Accrued expenses 7,011 10,036 14,364 — 31,411 Accrued multi-client data library royalties — 29,040 216 — 29,256 Deferred revenue — 6,515 1,195 — 7,710 Total current liabilities 10,577 76,262 18,679 — 105,518 Long-term debt, net of current maturities 117,644 1,869 — — 119,513 Intercompany payables 721,817 — — (721,817 ) — Other long-term liabilities 430 5,698 5,766 — 11,894 Total liabilities 850,468 83,829 24,445 (721,817 ) 236,925 Equity: Common stock 140 290,460 47,776 (338,236 ) 140 Additional paid-in capital 952,626 180,700 203,908 (384,608 ) 952,626 Accumulated earnings (deficit) (926,092 ) 390,691 (12,475 ) (378,216 ) (926,092 ) Accumulated other comprehensive income (loss) (20,442 ) 4,324 (22,023 ) 17,699 (20,442 ) Due from ION Geophysical Corporation — (270,677 ) (79,496 ) 350,173 — Total stockholders’ equity 6,232 595,498 137,690 (733,188 ) 6,232 Noncontrolling interests — — 1,592 — 1,592 Total equity 6,232 595,498 139,282 (733,188 ) 7,824 Total liabilities and equity $ 856,700 $ 679,327 $ 163,727 $ (1,455,005 ) $ 244,749 December 31, 2017 Balance Sheet ION Geophysical Corporation The Guarantors All Other Subsidiaries Consolidating Adjustments Total Consolidated (In thousands) ASSETS Current assets: Cash and cash equivalents $ 39,344 $ 66 $ 12,646 $ — $ 52,056 Accounts receivable, net 50 12,496 6,932 — 19,478 Unbilled receivables — 34,484 2,820 — 37,304 Inventories — 8,686 5,822 — 14,508 Prepaid expenses and other current assets 2,427 4,530 686 — 7,643 Total current assets 41,821 60,262 28,906 — 130,989 Deferred income tax asset 1,264 336 153 — 1,753 Property, plant, equipment and seismic rental equipment, net 511 7,170 44,472 — 52,153 Multi-client data library, net — 81,442 7,858 — 89,300 Investment in subsidiaries 693,679 321,934 — (1,015,613 ) — Goodwill — — 24,089 — 24,089 Intercompany receivables — 162,017 60,394 (222,411 ) — Other assets 686 1,811 288 — 2,785 Total assets $ 737,961 $ 634,972 $ 166,160 $ (1,238,024 ) $ 301,069 LIABILITIES AND EQUITY Current liabilities: Current maturities of long-term debt $ 39,774 $ 250 $ — $ — $ 40,024 Accounts payable 1,774 20,982 2,195 — 24,951 Accrued expenses 12,284 16,957 9,456 — 38,697 Accrued multi-client data library royalties — 26,824 211 — 27,035 Deferred revenue — 7,231 1,679 — 8,910 Total current liabilities 53,832 72,244 13,541 — 139,617 Long-term debt, net of current maturities 116,691 29 — — 116,720 Intercompany payables 537,417 — — (537,417 ) — Other long-term liabilities 454 6,084 7,388 — 13,926 Total liabilities 708,394 78,357 20,929 (537,417 ) 270,263 Equity: Common stock 120 290,460 49,394 (339,854 ) 120 Additional paid-in capital 903,247 180,701 202,290 (382,991 ) 903,247 Accumulated earnings (deficit) (854,921 ) 317,324 (9,247 ) (308,077 ) (854,921 ) Accumulated other comprehensive income (loss) (18,879 ) 4,372 (19,681 ) 15,309 (18,879 ) Due from ION Geophysical Corporation — (236,242 ) (78,764 ) 315,006 — Total stockholders’ equity 29,567 556,615 143,992 (700,607 ) 29,567 Noncontrolling interests — — 1,239 — 1,239 Total equity 29,567 556,615 145,231 (700,607 ) 30,806 Total liabilities and equity $ 737,961 $ 634,972 $ 166,160 $ (1,238,024 ) $ 301,069 Year Ended December 31, 2018 Income Statement ION Geophysical Corporation The Guarantors All Other Subsidiaries Consolidating Adjustments Total Consolidated (In thousands) Total net revenues $ — $ 96,649 $ 83,396 $ — $ 180,045 Cost of goods sold — 85,186 35,239 — 120,425 Gross profit — 11,463 48,157 — 59,620 Total operating expenses 32,888 29,235 51,769 — 113,892 Loss from operations (32,888 ) (17,772 ) (3,612 ) — (54,272 ) Interest expense, net (13,010 ) (136 ) 174 — (12,972 ) Intercompany interest, net 1,124 (12,137 ) 11,013 — — Equity in earnings (losses) of investments (26,446 ) 37,219 — (10,773 ) — Other income (expense) (196 ) 116 (356 ) — (436 ) Income (loss) before income taxes (71,416 ) 7,290 7,219 (10,773 ) (67,680 ) Income tax expense (benefit) (245 ) (6,711 ) 9,674 — 2,718 Net income (loss) (71,171 ) 14,001 (2,455 ) (10,773 ) (70,398 ) Net income attributable to noncontrolling interests — — (773 ) — (773 ) Net income (loss) attributable to ION $ (71,171 ) $ 14,001 $ (3,228 ) $ (10,773 ) $ (71,171 ) Comprehensive net income (loss) $ (72,734 ) $ 13,953 $ (4,797 ) $ (8,383 ) $ (71,961 ) Comprehensive income attributable to noncontrolling interest — — (773 ) — (773 ) Comprehensive net income (loss) attributable to ION $ (72,734 ) $ 13,953 $ (5,570 ) $ (8,383 ) $ (72,734 ) Year Ended December 31, 2017 Income Statement ION Geophysical Corporation The Guarantors All Other Subsidiaries Consolidating Adjustments Total Consolidated (In thousands) Total net revenues $ — $ 148,590 $ 48,964 $ — $ 197,554 Cost of goods sold — 90,754 31,161 — 121,915 Gross profit — 57,836 17,803 — 75,639 Total operating expenses 39,000 28,020 17,318 — 84,338 Income (loss) from operations (39,000 ) 29,816 485 — (8,699 ) Interest expense, net (16,729 ) (107 ) 127 — (16,709 ) Intercompany interest, net 1,084 (6,613 ) 5,529 — — Equity in earnings (losses) of investments 27,696 67,290 — (94,986 ) — Other income (expense) (4,610 ) (407 ) 1,072 — (3,945 ) Income (loss) before income taxes (31,559 ) 89,979 7,213 (94,986 ) (29,353 ) Income tax expense (benefit) (1,317 ) (1,427 ) 2,768 — 24 Net income (loss) (30,242 ) 91,406 4,445 (94,986 ) (29,377 ) Net income attributable to noncontrolling interests — — (865 ) — (865 ) Net income (loss) attributable to ION $ (30,242 ) $ 91,406 $ 3,580 $ (94,986 ) $ (30,242 ) Comprehensive net income (loss) $ (27,373 ) $ 91,358 $ 6,550 $ (97,043 ) $ (26,508 ) Comprehensive income attributable to noncontrolling interest — — (865 ) — (865 ) Comprehensive net income (loss) attributable to ION $ (27,373 ) $ 91,358 $ 5,685 $ (97,043 ) $ (27,373 ) Year Ended December 31, 2016 Income Statement ION Geophysical Corporation The Guarantors All Other Subsidiaries Consolidating Adjustments Total Consolidated (In thousands) Total net revenues $ — $ 91,465 $ 81,343 $ — $ 172,808 Cost of goods sold — 87,660 49,116 — 136,776 Gross profit — 3,805 32,227 — 36,032 Total operating expenses 31,438 27,279 20,486 — 79,203 Income (loss) from operations (31,438 ) (23,474 ) 11,741 — (43,171 ) Interest expense, net (18,406 ) (173 ) 94 — (18,485 ) Intercompany interest, net 978 (4,397 ) 3,419 — — Equity in earnings (losses) of investments (19,756 ) 23,368 — (3,612 ) — Other income (expense) 3,528 723 (2,901 ) — 1,350 Income (loss) before income taxes (65,094 ) (3,953 ) 12,353 (3,612 ) (60,306 ) Income tax expense 54 1,337 3,030 — 4,421 Net income (loss) (65,148 ) (5,290 ) 9,323 (3,612 ) (64,727 ) Net income attributable to noncontrolling interests — — (421 ) — (421 ) Net income (loss) attributable to ION $ (65,148 ) $ (5,290 ) $ 8,902 $ (3,612 ) $ (65,148 ) Comprehensive net income (loss) $ (72,331 ) $ (5,290 ) $ 1,719 $ 4,208 $ (71,694 ) Comprehensive income attributable to noncontrolling interest — — (421 ) — (421 ) Comprehensive net income (loss) attributable to ION $ (72,331 ) $ (5,290 ) $ 1,298 $ 4,208 $ (72,115 ) Year Ended December 31, 2018 Statement of Cash Flows ION Geophysical Corporation The Guarantors All Other Subsidiaries Total Consolidated (In thousands) Cash flows from operating activities: Net cash provided by (used in) operating activities $ (37,659 ) $ 39,407 $ 5,350 $ 7,098 Cash flows from investing activities: Investment in multi-client data library — (25,307 ) (2,969 ) (28,276 ) Purchase of property, plant, equipment and seismic rental equipment (392 ) (959 ) (163 ) (1,514 ) Net cash used in investing activities (392 ) (26,266 ) (3,132 ) (29,790 ) Cash flows from financing activities: Repayments under revolving line of credit (10,000 ) — — (10,000 ) Payments on notes payable and long-term debt (30,169 ) (638 ) — (30,807 ) Cost associated with issuance of debt (1,247 ) — — (1,247 ) Intercompany lending 7,983 (12,522 ) 4,539 — Proceeds from employee stock purchases and exercise of stock options 214 — — 214 Net proceeds from issuance of stocks 46,999 — — 46,999 Dividend payment to noncontrolling interest (200 ) — — (200 ) Other financing activities (1,151 ) — — (1,151 ) Net cash provided by (used in) financing activities 12,429 (13,160 ) 4,539 3,808 Effect of change in foreign currency exchange rates on cash, cash equivalents and restricted cash — — 319 319 Net increase (decrease) in cash and cash equivalents (25,622 ) (19 ) 7,076 (18,565 ) Cash, cash equivalents and restricted cash at beginning of period 39,707 66 12,646 52,419 Cash, cash equivalents and restricted cash at end of period $ 14,085 $ 47 $ 19,722 $ 33,854 . The following table is a reconciliation of cash, cash equivalents and restricted cash: December 31, 2018 ION Geophysical Corporation The Guarantors All Other Subsidiaries Total Consolidated (In thousands) Cash and cash equivalents $ 13,782 $ 47 $ 19,722 $ 33,551 Restricted cash included in other long-term assets 303 — — 303 Total cash, cash equivalents, and restricted cash shown in statements of cash flows $ 14,085 $ 47 $ 19,722 $ 33,854 Year Ended December 31, 2017 Statement of Cash Flows ION Geophysical Corporation The Guarantors All Other Subsidiaries Total Consolidated (In thousands) Cash flows from operating activities: Net cash provided by (used in) operating activities $ (22,315 ) $ 73,154 $ (23,227 ) $ 27,612 Cash flows from investing activities: Investment in multi-client data library — (23,710 ) — (23,710 ) Purchase of property, plant, equipment and seismic rental equipment (165 ) (817 ) (81 ) (1,063 ) Net cash used in investing activities (165 ) (24,527 ) (81 ) (24,773 ) Cash flows from financing activities: Payments on notes payable and long-term debt (1,591 ) (3,167 ) (58 ) (4,816 ) Cost associated with issuance of debt (53 ) — — (53 ) Intercompany lending 38,732 (45,609 ) 6,877 — Proceeds from employee stock purchases and exercise of stock options 1,619 — — 1,619 Payments to repurchase bonds — — — — Dividend payment to noncontrolling interest (100 ) — — (100 ) Other financing activities (243 ) — — (243 ) Net cash provided by (used in) financing activities 38,364 (48,776 ) 6,819 (3,593 ) Effect of change in foreign currency exchange rates on cash, cash equivalents and restricted cash — — (260 ) (260 ) Net increase (decrease) in cash and cash equivalents 15,884 (149 ) (16,749 ) (1,014 ) Cash, cash equivalents and restricted cash at beginning of period 23,823 215 29,395 53,433 Cash, cash equivalents and restricted cash at end of period $ 39,707 $ 66 $ 12,646 $ 52,419 The following table is a reconciliation of cash, cash equivalents and restricted cash: December 31, 2017 ION Geophysical Corporation The Guarantors All Other Subsidiaries Total Consolidated (In thousands) Cash and cash equivalents $ 39,344 $ 66 $ 12,646 $ 52,056 Restricted cash included in prepaid expenses and other current assets 60 — — 60 Restricted cash included in other long-term assets 303 — — 303 Total cash, cash equivalents, and restricted cash shown in statements of cash flows $ 39,707 $ 66 $ 12,646 $ 52,419 Year Ended December 31, 2016 Statement of Cash Flows ION Geophysical Corporation The Guarantors All Other Subsidiaries Total Consolidated (In thousands) Cash flows from operating activities: Net cash provided by (used in) operating activities $ (30,732 ) $ 53,107 $ (21,382 ) $ 993 Cash flows from investing activities: Investment in multi-client data library — (14,884 ) — (14,884 ) Purchase of property, plant and equipment (73 ) (313 ) (1,072 ) (1,458 ) Proceeds from sale of a cost-method investment 2,698 — — 2,698 Net cash provided by (used in) investing activities 2,625 (15,197 ) (1,072 ) (13,644 ) Cash flows from financing activities: Payments under revolving line of credit (5,000 ) — — (5,000 ) Borrowings under revolving line of credit 15,000 — — 15,000 Payments on notes payable and long-term debt (17,070 ) (6,316 ) (248 ) (23,634 ) Cost associated with issuance of debt (6,744 ) — — (6,744 ) Repurchase of common stock (964 ) — — (964 ) Intercompany lending 31,867 (34,771 ) 2,904 — Other financing activities (252 ) — — (252 ) Net cash provided by (used in) financing activities 16,837 (41,087 ) 2,656 (21,594 ) Effect of change in foreign currency exchange rates on cash, cash equivalents and restricted cash — — 1,386 1,386 Net decrease in cash and cash equivalents (11,270 ) (3,177 ) (18,412 ) (32,859 ) Cash, cash equivalents and restricted cash at beginning of period 35,093 3,392 47,807 86,292 Cash, cash equivalents and restricted cash at end of period $ 23,823 $ 215 $ 29,395 $ 53,433 The following table is a reconciliation of cash, cash equivalents and restricted cash: December 31, 2016 ION Geophysical Corporation The Guarantors All Other Subsidiaries Total Consolidated (In thousands) Cash and cash equivalents $ 23,042 $ 215 $ 29,395 $ 52,652 Restricted cash included in prepaid expenses and other current assets 260 — — 260 Restricted cash included in other long-term assets 521 — — 521 Total cash, cash equivalents, and restricted cash shown in statements of cash flows $ 23,823 $ 215 $ 29,395 $ 53,433 |