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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): FEBRUARY 12, 2004
INPUT/OUTPUT, INC.
(Exact Name of Registrant As Specified In Its Charter)
DELAWARE 1-12691 22-2286646
(State or Other Jurisdiction (Commission File No.) (I.R.S. Employer
of Incorporation) Identification No.)
12300 PARC CREST DRIVE
STAFFORD, TEXAS 77477
(Address of Principal Executive Offices) (Zip Code)
(281) 933-3339
(Registrant's Telephone Number, Including Area Code)
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ITEM 9. REGULATION FD DISCLOSURE.
A. LIMITATION ON INCORPORATION BY REFERENCE
In accordance with General Instruction B.2 of Form 8-K, the information set
forth in this Item 9 shall not be deemed to be "filed" for purposes of
Section 18 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), or otherwise subject to the liabilities of that section, nor shall such
information be deemed incorporated by reference in any filing under the
Securities Act of 1933, as amended, or the Exchange Act, except as shall be
expressly set forth by specific reference in such a filing.
B. GENERAL
In this Current Report on Form 8-K, "Input/Output," "I/O," "company," "we,"
"our," "ours" and "us" refer to Input/Output, Inc. and its consolidated
subsidiaries, except where the context otherwise requires or as otherwise
indicated.
The information contained in this Current Report contains references to
trademarks, service marks and registered marks of Input/Output and our
subsidiaries, as indicated. Except where stated otherwise or unless the context
otherwise requires, the terms "VectorSeis," "Tescorp," "DigiCourse" and
"VectorSeis System Four" refer to our VectorSeis(R), Tescorp(R), DigiCourse(R)
and VectorSeis System Four(R) registered marks, and the terms "AZIM," "True
Digital," "VIBROSEIS," "DigiShot," "Applied MEMS," "MRX," "RSR," "Vib Pro" and
"Image" refer to our AZIM(TM), True Digital(TM), VIBROSEIS(TM), DigiShot(TM),
Applied MEMs(TM), MRX(TM), RSR(TM), Vib Pro(TM) and Image(TM) trademarks and
service marks.
C. DESCRIPTION OF BUSINESS
INTRODUCTORY NOTE. Beginning in 2003, we have significantly modified certain
aspects of our business strategy, changing the description of our business. The
following should be read in conjunction with our other recent disclosures,
including those contained in our Current Report on Form 8-K filed with the
Securities and Exchange Commission on December 4, 2003.
PRODUCTS AND SERVICES
VECTORSEIS PRODUCTS
Our VectorSeis digital seismic data acquisition products offer
high-resolution compression-wave (P-wave) data collection, as well as shear wave
multi-component acquisition. Digital sensors, when compared with traditional
analog geophones, provide increased response linearity and bandwidth and
preserve a higher degree of vector fidelity. In addition, one digital sensor can
replace a string of six or more analog geophones, providing users with
significant operating efficiencies. We believe that these advantages enable
improved location and characterization of reservoir structure and fluids and
more accurate identification of rock properties at reduced total costs. We are
utilizing VectorSeis for new seismic data acquisition systems for (i) land
surface applications, (ii) ocean-bottom applications and (iii) in-well
applications.
Land surface. We began VectorSeis land acquisition field tests in 1999
and we have acquired data throughout Canada, Mexico, the United States, France,
Eastern Europe and the Commonwealth of Independent States (CIS). In May 2002, we
commercialized our VectorSeis System Four radio-based land acquisition system,
and in the second quarter of 2003, we commercialized our cable-based telemetry
system.
Ocean-bottom. We have increased our focus on reservoir applications
using VectorSeis. We believe that our VectorSeis ocean-bottom product line
addresses many of the shortcomings of current multi-component ocean-bottom
systems. VectorSeis modules can operate at any angle which eliminates the need
for gimbal receiver units that distort data and add cost. In addition, our
patented cable de-coupler design further reduces data distortions and improves
sea-bottom coupling. In 2002, we completed the first test of our VectorSeis
ocean-bottom acquisition system in the Ekofisk Field in the North Sea. This test
was supported by ConocoPhillips and delivered higher frequency and better vector
fidelity than previous
ocean-bottom cable surveys. Based on this success, we have been negotiating with
a number of companies regarding the funding or purchase of both retrievable and
permanent VectorSeis ocean-bottom systems.
In-well. For in-well environments, we delivered our first mixed
geophone and VectorSeis systems last year for collecting passive, micro-seismic
and 4-D reservoir data. These projects place VectorSeis sensors downhole to
monitor fluid fronts and other dynamic reservoir processes using natural
formation noise as an energy source. We believe that VectorSeis simplifies some
of the complex data processing procedures, since VectorSeis sensors measure
their vertical deployment angle directly. Because VectorSeis sensors are smaller
and provide improved vector fidelity compared to traditional analog sensors, we
believe that VectorSeis sensors are more suitable for permanently emplaced
sensor arrays.
INTERPRETATION-READY PROCESSING INCORPORATING AZIM TECHNOLOGY
In July 2002, we acquired AXIS Geophysics, Inc. AXIS is a seismic data
service company based in Denver, Colorado that provides specialized data
processing and integration services to major and independent exploration and
production companies. The AXIS Interpretation-Ready Process integrates seismic
and subsurface geological data to provide customers accurate and high quality
data that can result in improved reservoir characterizations. In addition, AXIS
has developed proprietary AZIM data processing techniques. Most processors make
a simplifying assumption that seismic energy travels at the same velocity
through a geological structure regardless of the path that the energy takes
through that structure. In reality, the earth is "anisotropic," which means that
energy will travel at different velocities through the same structure depending
on the direction of the energy. AZIM accounts for the anisotropy effects of the
earth, which allows for clearer, more accurate images, particularly in complex
reservoirs. We have combined AXIS with our geophysical software operations,
Green Mountain Geophysics. Green Mountain offers a wide range of geophysical
software used in seismic survey panning and design. Together, these groups allow
us to provide oil and gas companies a custom-designed survey addressing
particular imaging problems while accounting for the actual geophysical
properties encountered in a survey.
ANALOG LAND PRODUCTS
Data acquisition products for our Land Division include the following:
Data Acquisition Systems: Our Image land data acquisition system
consists of a central electronics unit and multiple remote ground equipment
modules, which are either connected by cable or utilize radio transmission and
retrievable data storage. The central electronics unit, which acts as the
control center of our data acquisition system, is typically mounted within a
vehicle or helicopter transportable enclosure. The central electronics unit
receives digitized data, stores the data on storage media for subsequent
processing and displays the data on optional monitoring devices. The central
electronics unit also provides calibration, status and test functionality. The
remote ground equipment of the I/O Image system consists of multiple remote
modules (MRX) and line taps positioned over the survey area. Seismic signals
from geophones are collected by the MRX modules, which collect multiple channels
of analog seismic data. The MRX modules filter and digitize the data, which is
then transmitted by the MRX modules via cable to a line tap. Alternatively, our
radio telemetry system (RSR) records data across a variety of environments,
including transition zones, swamps, mountain ranges, jungles and other
environments. RSRs are radio controlled and do not require cables for data
transmission since the information is stored at the unit source and subsequently
retrieved.
Geophones: Geophones are analog electro-mechanical seismic sensor
devices that measure acoustic energy reflected from rock layers in the earth's
subsurface. We market a full suite of geophones and geophone test equipment that
operate in all environments including land, marine, ocean-bottom and
downhole. Our flagship geophone product, the SM-24, provides low distortion and
wide bandwidth for greater realization of the potential of 24 bit seismic
recording systems.
Vibrators and Traditional Energy Sources: Vibrators are devices carried
by large vehicles and are used as energy sources for land seismic acquisition.
We market and sell the AHV-IV, an articulated vibrator vehicle with simplified
hydraulics and superior maneuverability. In addition, we offer a low impact,
tracked vibrator, the X-Vib, for use in environmentally sensitive areas like the
Arctic tundra and desert environments.
Our acquisition of The Pelton Company in 2001 added energy source
control and positioning technology to our suite of products. The Vib Pro control
system provides digital technology energy control, and integrates global
positioning satellite (GPS) technology for navigation and positioning of
vibrator vehicles. Our Shot Pro dynamite firing system is the equivalent
technology for seismic operations using dynamite energy sources. We believe that
integrated GPS technology and compatibility with the Vib Pro control system
streamline field operations and thereby improve operational efficiencies.
Specialty Cables and Connectors: Cables and connectors are used in
conjunction with most seismic equipment. Our Tescorp cables not only offer a
replacement option to correct for ordinary wear, but also feature performance
improvements and specialization for different environments and applications.
Reliability Issues: System reliability is an important competitive
consideration for seismic data acquisition systems. Even though I/O attempts to
assure that our systems are always reliable in the field, the many technical
variables related to actual field operations can cause a combination of factors
that can and has from time to time caused service issues. We believe that our
new VectorSeis System Four land data acquisition system has made significant
improvements in both field troubleshooting and reliability compared to our
analog products, but until we have significantly more field experience we can't
be certain that problems may arise. Even though we have a large installed base
of customers using our analog products without reported problems, we may have
customers who have experienced problems and therefore may believe our new
products may also suffer from similar issues. In that case, acceptance of our
new products could be delayed and our results of operations and financial
condition could be adversely affected.
MARINE PRODUCTS
Products for our Marine Division include the following:
Marine Positioning Systems: Our DigiCourse positioning systems include
streamer cable depth control devices, compasses, acoustic positioning systems
and other auxiliary sensors. Marine positioning equipment controls the depth of
the streamer cables and provides acoustic, compass and depth measurements so
that processors can tie navigation and location data with geophysical data to
determine the location of potential hydrocarbon reserves for their drilling
operations.
Data Acquisition Systems: Our marine data acquisition system consists
primarily of towed marine streamers and shipboard electronics that collect
seismic data in marine environments below 30 meters. Marine streamers, which
contain hydrophones, electronic modules and cabling, may measure up to 12,000
meters in length and are towed behind a seismic acquisition vessel. Seismic
sensors installed in the cable (hydrophones) detect acoustical energy
transmitted through water from the earth's subsurface structure.
Airguns: Airguns are the primary seismic energy source used in marine
environments to initiate the acoustic energy transmitted through the earth's
subsurface. An airgun fires a high compression burst of air under water to
create an energy wave for seismic measurement. Additionally, we offer a digital
source control system, which allows for improvements in quality control of
airgun arrays.
APPLIED MEMS
Our Applied MEMS, Inc. subsidiary holds our MEMS technology development
and manufacturing capabilities. In addition to producing the accelerometers for
our VectorSeis digital sensor, this business unit also seeks market
opportunities for sales of accelerometer products for non-seismic applications,
and provides an outsourcing foundry service for third parties.
PRODUCT RESEARCH AND DEVELOPMENT
Our focus for research and development is driven by our desire to
improve the quality of the subsurface image and the overall acquisition
economics of our customers. Our ability to compete effectively in the
manufacture and sale of seismic instruments and data acquisition systems depends
principally upon continued technological innovation. Development cycles, from
initial conception through product introduction, may extend over several years.
During 2002, our primary research and development efforts focused on
field testing and commercialization of a land-based seismic data acquisition
recording system incorporating VectorSeis digital sensors for single and
multi-component recording. In 2003, our principal research and development
efforts have involved the further migration of our VectorSeis platform into
ocean-bottom systems, refinements of our VectorSeis System Four land acquisition
system, and a new marine positioning system. We have a number of other products
under development, including reservoir monitoring applications.
Because these new products are under development, their commercial
feasibility or degree of commercial acceptance, if any, is not yet known. No
assurance can be given concerning the successful development of any new products
or enhancements, the specific timing of their release or their level of
acceptance in the market place.
MARKETS AND CUSTOMERS
Our principal customers are seismic contractors that operate seismic
data acquisition systems and related equipment to collect data in accordance
with their customers' specifications or for their own seismic data libraries. In
addition, we market and sell products directly to oil and gas companies,
particularly for reservoir monitoring applications. We have traditionally relied
on a relatively small number of significant customers. Consequently, our
business is exposed to the risks related to customer concentration. In 2002, two
of our largest customers, Western-Geco and Laboratory of Regional Geo Dynamics,
were responsible for approximately 21% of our consolidated net sales. For the
nine months ended September 30, 2003, BGP, an international seismic contractor
and subsidiary of the China National Petroleum Corporation, accounted for
approximately 36% of our consolidated net sales. In recent years, many of our
customers have been consolidating, shrinking the demand for our products. The
loss of any of our significant customers or a deterioration in our relations
with any of them could materially and adversely affect our results of operations
and financial condition.
A significant part of our marketing efforts is focused on areas
outside the United States. Contractors from China and the (CIS) are increasingly
active not only in their own countries, but also in other international areas.
Foreign sales are subject to special risks
inherent in doing business outside of the United States, including the risk of
armed conflict, civil disturbances, currency fluctuations, embargo and
governmental activities, as well as risks of non-compliance with U.S. and
foreign laws, including tariff regulations and import/export restrictions. We
sell products through a direct sales force consisting of our employees and
through several international third-party sales representatives responsible for
key geographic areas. During the year ended December 31, 2002, and the nine
months ended September 30, 2003, sales to destinations outside of North America
accounted for approximately 71% and 79% of net sales, respectively. Further,
systems sold to domestic customers are frequently deployed internationally and,
from time to time, certain foreign sales require export licenses.
During 2003, we signed a memorandum of understanding for the formation
of a strategic technology alliance with Apache Corporation, a leading
independent oil and gas producer. We anticipate that the multi-year alliance
contemplated by this memorandum of understanding will allow Apache and I/O to
cooperate in accelerating the adoption of advanced seismic imaging technologies
that will be used by Apache to explore, develop and produce hydrocarbons more
efficiently from its global portfolio. Although this proposed alliance covers
additional I/O technologies, we plan to focus our initial efforts on the System
Four land acquisition platform utilizing digital, full-wave VectorSeis sensors
and the AZIM processing technique for anisotropic subsurface imaging. Our
proposed alliance with Apache will enable us to work directly with an upstream
oil and gas company to gain a better sense of its seismic challenges and
opportunities and use that knowledge to make recommendations regarding
technology deployment. We believe this proposed alliance represents a shift in
our business model as oil companies align themselves with those who can deliver
discernable bottom-line value through the appropriate deployment of technology.
Sales to customers are normally made on standard net 30-day terms. We
also provide financing arrangements to customers through long-term notes
receivable. Notes receivable, which are generally collateralized by the products
sold, bear interest at contractual rates up to 12.7% per year and are due at
various dates through 2005. The weighted average interest rate of these
outstanding notes receivable at September 30, 2003 was 7.9% per year.
SUPPLIERS
As part of our strategic direction, we are increasing our use of
contract manufacturers as an alternative to our own manufactured products. We
may experience supply interruptions, cost escalations and competitive
disadvantages if we do not monitor these relationships properly.
We and our contract manufacturers purchase a substantial portion of the
components used in our systems and products from third-party vendors. Certain
items, such as integrated circuits used in our systems, are purchased from sole
source vendors. Although we and our contract manufacturers attempt to maintain
an adequate inventory of these single source items, the loss of ready access to
any of these items could temporarily disrupt our ability to manufacture and sell
certain products. Since our components are designed for use with these single
source items, replacing the single source items with functional equivalents
could require a redesign of our components and costly delays could result.
COMPETITION
The market for seismic data acquisition systems and seismic
instrumentation is highly competitive and is characterized by industry-wide
consolidation, as well as continual and rapid changes in technology. Our
principal competitor for land and marine seismic equipment is Societe d'Etudes
Recherches et Construction Electroniques (Sercel), an affiliate of Compagnie
General de Geophysique.
Unlike I/O, Sercel possesses an advantage of selling to an affiliated seismic
contractor. In addition, we compete with other companies on a product-by-product
basis. Our ability to compete effectively in the manufacture and sale of seismic
instruments and data acquisition systems depends principally upon continued
technological innovation, as well as our reputation for quality, our ability to
deliver on schedule and the price of our products and services.
INTELLECTUAL PROPERTY
We rely on a combination of trade secrets, patents, copyrights and
technical measures to protect our proprietary hardware and software
technologies. Although patents are considered important to our operations, no
one patent is considered essential to our success. Copyright and trade secret
protection may be unavailable in certain foreign countries in which we sell
products. In addition, we seek to protect trade secrets through confidentiality
agreements with employees and agents. We also protect our marks by applying for,
obtaining and maintaining a number of federal trademark registrations.
REGULATORY MATTERS
Our operations are subject to laws, regulations, government policies
and product certification requirements worldwide. Changes in such laws,
regulations, policies or requirements could affect the demand for our products
or result in the need to modify products, which may involve substantial costs or
delays in sales and could have an adverse effect on our future operating
results. Our export activities are also subject to extensive and evolving trade
regulations. Certain countries are subject to trade restrictions, embargoes and
sanctions imposed by the U.S. government. These restrictions and sanctions
prohibit or limit us from participating in certain business activities in those
countries.
Our operations are subject to numerous local, state and federal laws
and regulations in the United States and in foreign jurisdictions concerning the
containment and disposal of hazardous materials, the remediation of contaminated
properties and the protection of the environment. We do not currently foresee
the need for significant expenditures to ensure our continued compliance with
current environmental protection laws. Regulations in this area are subject to
change, and there can be no assurance that future laws or regulations will not
have a material adverse effect on us. Our customers' operations are also
significantly impacted by laws and regulations concerning the protection of the
environment and endangered species. For instance, many of our marine contractors
have been affected by new regulations protecting marine mammals in the Gulf of
Mexico. To the extent that our customers' operations are disrupted by future
laws and regulations, our business and results of operations may be materially
and adversely affected.
EMPLOYEES
At September 30, 2003, we had 472 full-time employees worldwide, 348 of
whom were employed in the United States. Also, at September 30, 2003, we had 176
temporary employees. Our temporary employee base fluctuates based upon our level
of manufacturing activity, as a majority of these positions are manufacturing
related. U.S. employees are not subject to any collective bargaining agreements
and we have never experienced a work stoppage.
PROPERTIES
Primary manufacturing facilities at September 30, 2003 were as follows:
SQUARE
MANUFACTURING FACILITIES FOOTAGE
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Stafford, Texas* ............................ 110,000
Alvin, Texas*** ............................. 240,000
Harahan, Louisiana* ......................... 40,000
Voorschoten, The Netherlands* ............... 30,000
Jebel Ali, Dubai, United Arab Emirates* ..... 11,000
Ponca City, Oklahoma** ...................... 26,000
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457,000
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* Leased
** Owned
*** Owned, vacated and held for sale.
In addition to the facilities listed above, we lease facilities in
Denver, Colorado, Norwich, England, Beijing, China and Moscow, Russia to support
our processing operations and our global sales force. Our executive headquarters
(utilizing approximately 25,000 square feet) are located at 12300 Parc Crest
Drive, Stafford, Texas. The machinery, equipment, buildings and other facilities
leased are considered by management to be sufficiently maintained and adequate
for current operations.
Our principal executive and manufacturing facilities in Stafford, Texas
are subject to certain sale-leaseback arrangements we entered into in August
2001. Under U.S. generally accepted accounting principles, the carrying value of
our land and buildings at these facilities must be included as assets, and the
value of the related lease obligations must be included as liabilities, on our
consolidated balance sheets. As of September 30, 2003, the carrying value of the
facilities on our consolidated balance sheet was approximately $12.9 million.
Since these facilities are assets owned by our landlord, they would not be
available to satisfy claims of our creditors or other claims against us.
PRODUCT WARRANTY LIABILITIES
We generally warrant that all manufactured equipment will be free from
defects in workmanship, materials and parts. Warranty periods typically range
from 90 days to three years from the date of original purchase, depending on the
product. We provide for estimated warranty as a charge to cost of sales at the
time of sale, which is when estimated future expenditures associated with any
such contingency become probable and reasonably estimated. However, new
information may become available, or circumstances (such as applicable laws and
regulations) may change, thereby resulting in an increase or decrease in the
amount required to be accrued for such matters (and therefore a decrease or
increase in reported net income in the period of such change). A summary of
warranty activity is as follows (dollars in thousands):
Balance at December 31, 2002 ................................ $ 2,914
Accruals for warranties issued during the period ............ 2,024
Settlements made (in cash or in kind) during the period ..... (1,743)
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Balance at September 30, 2003 ............................... $ 3,195
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SIGNIFICANT 2002 AND 2003 CHARGES
In 2002, we recorded significant charges in connection with our ongoing
corporate restructuring program. The related reserves reflected many estimates,
including those pertaining to severance costs of $3.5 million, facility related
charges (primarily future, non-cancelable lease obligations of $1.3 million),
and inventory revaluation charges of $4.3 million. In addition, during 2002, we
recorded charges of $15.1 million relating to the impairment of goodwill and
$6.9 million for the impairment of long-lived assets. For the nine months ended
September 30, 2003, we recorded severance costs of $2.0 million, inventory
revaluation charges of $0.6 million, $1.1 million for the impairment of
long-lived assets and $2.5 million related to the write-down of rental equipment
associated with our first generation radio-based VectorSeis land acquisition
systems. We will continually reassess the requirements necessary to complete our
restructuring program, which may result in additional charges recorded in future
periods. However, we currently do not anticipate any significant future charges
or adjustments to our restructuring accruals.
In 2002, we recorded a net charge of $60.0 million to income tax
expense to establish an additional valuation allowance for our net deferred tax
assets. In accordance with SFAS No. 109 "Accounting for Income Taxes," we
established an additional valuation allowance for our net deferred tax assets
based on our cumulative operating results in the three-year period ended
December 31, 2002. Our results in this period were heavily affected by both
industry conditions and deliberate and planned business restructuring activities
in response to the prolonged downturn in the seismic equipment market, as well
as heavy expenditures on research and development. Nevertheless, recent losses
represented sufficient negative evidence to establish an additional valuation
allowance. We have continued to reserve all of our net deferred tax assets and
will continue until we have sufficient evidence to warrant reversal. This
valuation allowance does not affect our ability to reduce future tax expense
through utilization of net operating losses.
LIQUIDITY AND CAPITAL RESOURCES
We are significantly more leveraged after the consummation in December
2003 of the offering and sale of our 5.50% Convertible Senior Notes due 2008.
As of September 30, 2003, after giving effect to the sale of the notes in that
offering and our repayment of $16.0 million of outstanding indebtedness under an
unsecured promissory note payable to SCF-IV, L.P. (the SCF Note), our
outstanding indebtedness would have been $82.2 million. As a result, our
interest expense is expected to increase for 2004 and the foreseeable future.
Our ability to make scheduled payments of principal or interest on, or to
refinance, our indebtedness depends on our future business performance, which is
subject to many economic, financial, competitive and other factors beyond our
control.
We may seek a revolving line of credit to support our working capital
requirements. Whether we will enter into such a credit arrangement will depend
on the terms then available to us from lenders. We can give no assurances as to
whether such a line of credit will be arranged, and, if so, whether the terms
will be advantageous to us or the amounts available for borrowing will be
sufficient for our purposes.
We spent approximately $2.9 million for capital expenditures for the
nine months ended September 30, 2003, and we estimate that we made approximately
$1.7 million in additional capital expenditures for the last quarter of 2003. We
presently estimate that our capital expenditures for 2004 will be approximately
$5.8 million.
Based upon our management's internal revenue forecast, our liquidity
requirements in the near term and our estimate of a projected increase in
seismic activity primarily outside of North America, we currently believe that
the combination of our projected internally generated cash and our working
capital (including
cash and cash equivalents on hand), will be adequate to meet our anticipated
capital and liquidity requirements for the next twelve months. We also
anticipate that a larger percentage of our future sales will be to foreign
customers, particularly those in China and the CIS. As a result of this change
in customer mix, our collections cycle may be longer than we have traditionally
experienced.
As noted above, we anticipate an increase in worldwide seismic activity
in 2004. However, this anticipated increase may not materialize. As a result,
our internal revenue forecast may not be realized, resulting in lower cash flows
available for our future capital needs. In order to meet these future capital
requirements, we may need to issue additional debt or equity securities. We
cannot assure you that we would be able to issue additional equity or debt
securities in the future on terms that would be acceptable to us, or at all.
To the extent we make any future acquisitions, we may require new
sources of funding, including additional debt which could further increase our
leverage. There can be no assurances that any additional sources of funding for
acquisitions will be available to us on acceptable terms.
CREDIT RISK
During the nine months ended September 30, 2003, we recognized $9.4
million of sales to customers in the CIS, $14.1 million of sales to customers in
Latin American countries, $15.0 million of sales to customers in Europe and
$32.7 million of sales to customers in Asia. The majority of our foreign sales
are denominated in U.S. dollars. In recent years, the CIS and certain Latin
American countries have experienced economic problems and uncertainties as well
as devaluations of their currencies. To the extent that economic conditions
negatively affect our future sales to customers in those regions or the
collectibility of our existing receivables, our future results of operations,
liquidity and financial condition may be adversely affected.
D. MANAGEMENT
The following table sets forth information regarding our directors and
executive officers:
NAME AGE POSITION
---- --- --------
James M. Lapeyre, Jr. .............. 51 Chairman of the Board of Directors and Director
Robert P. Peebler .................. 56 President, Chief Executive Officer and Director
Bruce S. Appelbaum, Ph.D ........... 56 Director
Theodore H. Elliott, Jr. ........... 68 Director
Franklin Myers ..................... 51 Director
Sam K. Smith ....................... 71 Director
John N. Seitz ...................... 51 Director
Jorge Machnizh ..................... 47 Executive Vice President and Chief Operating Officer
J. Michael Kirksey ................. 48 Executive Vice President and Chief Financial Officer
Bjarte Fageraas .................... 43 Vice President -- Chief Technology Officer
Christopher M. Friedemann .......... 39 Vice President -- Commercial Development
James R. Hollis .................... 42 Vice President -- Land Imaging Systems
Laura D. Guthrie ................... 44 Vice President -- Human Resources
Michael L. Morrison ................ 33 Controller and Director of Accounting
JAMES M. LAPEYRE, JR.
James M. Lapeyre, Jr. has been Chairman of our Board of Directors since
1999 and a Director since 1998. Mr. Lapeyre has been President of Laitram
L.L.C., a privately held New Orleans based manufacturer of food processing
equipment and modular conveyor belts, and its predecessors since 1989. Mr.
Lapeyre joined our Board of Directors when we bought the DigiCourse marine
positioning products business from Laitram. Mr. Lapeyre is Chairman of the
Governance Committee and a member of the Audit and Compensation Committees of
our Board of Directors.
ROBERT P. PEEBLER
Robert P. Peebler has been our President and Chief Executive Officer
since April 2003 and a member of our Board of Directors since 1999. Prior to
joining I/O on a full-time basis, Mr. Peebler was the founder, President and
Chief Executive Officer of Energy Virtual Partners, an asset development and
management company for oil and gas properties. Prior to founding Energy Virtual
Partners in April 2001, Mr. Peebler was Vice President of e-Business Strategy
and Ventures of the Halliburton Company, a leading provider of products and
services to the petroleum and energy industries. Mr. Peebler joined Halliburton
in 1996 when Halliburton acquired Landmark Graphics Corporation, a leading
provider of workstation-based software for oil and gas exploration and
production, where he had served as CEO since 1992. Mr. Peebler began his career
with Schlumberger, a global oilfield and information services company, in
wireline operations, and spent 17 years with Schlumberger in various positions,
including head of U.S. wireline operations and executive in charge of strategic
marketing for the corporate energy services group.
BRUCE S. APPELBAUM, PH.D.
Bruce S. Appelbaum joined our Board of Directors in 2003. He is
currently the Chairman of Mosaic Natural Resources Ltd., a newly formed oil and
gas exploration and production company focusing on opportunities in the North
Sea. Prior to co-founding Mosaic, Dr. Appelbaum was President of Worldwide
Exploration and New Ventures for Texaco, Inc. and a Vice President of Texaco.
Dr. Appelbaum joined Texaco in 1990 as Division Manager of Texaco U.S.A.'s
offshore exploration division and was elected as an officer of Texaco in 2000.
Dr. Appelbaum is a Trustee of the American Geological Institute Foundation and
serves on the Advisory Board to the Department of Oceanography at Texas A&M
University. He previously served on the Advisory Board of the School of Earth
Sciences at Stanford University. Dr. Appelbaum is a member of the Audit
Committee of our Board of Directors.
THEODORE H. ELLIOTT, JR.
Theodore H. Elliott, Jr. joined our Board of Directors in 1987. He has
been Chairman of Prime Capital Management Co., Inc., a Darien, Connecticut-based
venture capital company since 1987. Prior to joining Prime Capital Management,
Mr. Elliott was Vice President of General Electric's venture capital subsidiary
and head of investment banking at Clark, Dodge & Co. Inc. He is a Director of
Casio Gavazzi Holding AG, a Swiss-based producer of automation components and
computer sub-systems that is listed on the Zurich Stock Exchange and National
Interstate, a specialty property and casualty insurance company based in Ohio.
Mr. Elliott is Chairman of the Audit Committee of our Board of Directors.
FRANKLIN MYERS
Franklin Myers joined our Board of Directors in 2001. He is currently
the Senior Vice President and Chief Financial Officer of Cooper Cameron
Corporation, a leading international manufacturer of oil and gas pressure
control equipment. Mr. Myers has been Senior Vice President at Cooper Cameron
since
1995 and served as General Counsel and Corporate Secretary from 1995 to 1999, as
well as President of the Cooper Energy Services Division from 1998 until 2002.
Prior to joining Cooper Cameron, Mr. Myers was Senior Vice President and General
Counsel of Baker Hughes Incorporated, a leading oilfield services and equipment
provider, and an attorney and partner with the law firm of Fulbright & Jaworski
L.L.P. in Houston, Texas. Mr. Myers is Chairman of the Compensation Committee
and member of the Governance Committees of our Board of Directors.
SAM K. SMITH
Sam K. Smith joined our Board of Directors in 1999. He also served as
our Chief Executive Officer from 1999 until 2000. From 1989 to 1996, Mr. Smith
was Chairman of the Board of Landmark Graphics Corporation. Prior to that time,
Mr. Smith was a special limited partner at Sevin-Rosen Management, a Texas-based
venture capital firm that has backed high technology firms, including Compaq,
Lotus Development, and Silicon Graphics. Mr. Smith began his career at Texas
Instruments where he held positions of increasing responsibility such as Group
Vice President for the Equipment Group, Texas Instruments' defense business.
Mr. Smith is a non-voting member of our Compensation Committee.
JOHN N. SEITZ
John N. Seitz joined our Board of Directors in 2003. He is the co-CEO
and founder of North Sea New Ventures, a company focused on exploration and
development opportunities in the North Sea. From 1977 to 2003, Mr. Seitz held
positions of increasing responsibility at Anadarko Petroleum Company, serving
most recently as a Director and as President and Chief Executive Officer. Mr.
Seitz is a member of the Compensation and Governance Committees of our Board of
Directors.
JORGE MACHNIZH
Jorge Machnizh has been our Executive Vice President and Chief
Operating Officer since May 2003. Previously, he was employed by Landmark
Graphics Corporation, where he worked in a variety of positions, most recently
serving as Vice President -- Operations for North and South America. Prior to
joining Landmark in 1997, Mr. Machnizh held senior management appointments with
large geophysical contractors, including Geco-Prakla (a division of
Schlumberger) and Petty-Ray Geophysical (a division of Geosource, Inc.). Mr.
Machnizh started his career as a crew chief for United Geophysical.
J. MICHAEL KIRKSEY
J. Michael Kirksey joined our company as Executive Vice President and
Chief Financial Officer in January 2004. Before then, Mr. Kirksey had been the
Chief Financial Officer, and then the Chief Executive Officer, of Metals USA, a
leading metals processor and distributor based in Houston, Texas. Following the
departure of Metals USA's Chief Executive Officer, he was appointed CEO
by the Metals USA board of directors and charged with restructuring the
company's operations and finances, and leading the company through an industry
recession. Mr. Kirksey led the company through bankruptcy reorganization and
succeeded in obtaining confirmation of a plan of reorganization in eleven
months. Prior to joining Metals USA in 1997, Mr. Kirksey was Senior Vice
President of Corporate Strategic Planning and the Chief Financial Officer -
Europe for Keystone International Inc., a manufacturer of industrial valves and
systems. Before joining Keystone, Mr. Kirksey worked for Arthur Andersen for
thirteen years where he focused on growth strategies and technology companies.
BJARTE FAGERAAS
Bjarte Fageraas has been our Vice President and Chief Technology
Officer since May 2001. Prior to joining I/O, Mr. Fageraas was President of and
a stockholder in Geophysical Instruments AS, a Norwegian seismic technology
company that we acquired in May 2001. From 1998 to 1999, Mr. Fageraas was Vice
President-Research & Development of Aker Geo ASA, a Norwegian seismic
contractor. Previously, Mr. Fageraas was Technical Manager of PGS Reservoir, a
provider of seismic contracting services. Mr. Fageraas started his career at
Geco-Prakla where he held several research and development positions.
CHRISTOPHER M. FRIEDEMANN
Christopher M. Friedemann has been our Vice President -- Commercial
Development since August 2003 Mr. Friedemann's accountabilities encompass
corporate marketing, strategic planning and corporate development. Before
joining I/O, Mr. Friedemann served as the Managing Director of RiverBend
Associates, a privately held management consulting firm based in Texas. Prior to
founding RiverBend in January 2002, he served as President of Tradeum, a
venture-backed software company that was sold to VerticalNet in April 2000 at
which time Mr. Friedemann assumed the role of managing Director-Europe. Before
joining Tradeum in January 2000, Mr. Friedemann was Principal and Partner at the
management consulting firm McKinsey & Company. Mr. Friedemann also has
experience as a Senior Reservoir Engineer with Exxon, in field operations with
Unocal and in energy merchant banking with Bankers Trust.
JAMES R. HOLLIS
James R. Hollis has been Vice President -- Land Imaging Systems since
November 2003 and Business Unit Manager -- Land Surface Systems since July 2003.
Prior to joining I/O, Mr. Hollis served in various positions at Landmark
Graphics, most recently as General Manager -- Exploration and Development
Solutions. Mr. Hollis joined Landmark Graphics in 1996 when Landmark acquired
Western Atlas Software, where Mr. Hollis had managed the Seismic Modeling
Software Product line for Western Atlas. Mr. Hollis joined Western Atlas in 1993
when Western Atlas acquired Sierra Geophysics, where Mr. Hollis led the depth
imaging and velocity modeling support and consulting services.
LAURA D. GUTHRIE
Laura D. Guthrie has been our Vice President -- Human Resources since
March 2002. Prior to joining I/O, Ms. Guthrie had been an independent management
consultant specializing in executive coaching and compensation and organization
development. From July 1999 until March 2000, Ms. Guthrie served as Vice
President -- Human Resources for Splitrock Services, Inc., a broadband
communications company, until the company was sold to McCleod USA. Before
joining Splitrock in July 1999, Ms. Guthrie was a management consultant with
Sterling Consulting Group, a boutique firm specializing in strategy development
for the oil and gas industry. Prior to joining Sterling in 1998, she was the HR
Planning Manager for Unocal Corporation. Before joining Unocal in 1996, Ms.
Guthrie served as the Region HR Manager for the Americas Division of BHP
Petroleum, an Australian oil and gas company, where she held a variety of HR
roles during her 11 year tenure.
MICHAEL L. MORRISON
Michael L. Morrison has been our Controller and Director of Accounting
since November 2002, and our Assistant Controller from June 2002. Prior to
joining I/O, Mr. Morrison held several positions at
Enron Corp., an energy trading and pipeline company, most recently as Director
of Transaction Support. Mr. Morrison had held a variety of positions at Deloitte
& Touche, LLP, a public accounting firm, from January 1994 until he joined Enron
in June 2000.
E. PRINCIPAL STOCKHOLDERS
The following table sets forth certain information as of February 5,
2004 with regard to the ownership of our common stock by the following persons:
o Each person known by us to be a beneficial owner of more than 5% of
our common stock;
o Each of our directors; and
o All of our directors and executive officers as a group.
RIGHTS TO RESTRICTED PERCENT OF
NAME OF OWNER COMMON STOCK(1) ACQUIRE(2) STOCK(3) COMMON STOCK(4)
------------- --------------- ---------- ---------- --------------
Royce & Associates, Inc.(5) ............ 6,306,200 -- -- 12.2%
Laitram, L.L.C.(6) ..................... 6,941,044 -- -- 13.5%
Dimensional Fund Advisors Inc.(7) ...... 3,433,050 -- -- 6.7%
PRIMECAP Management Company(8) ......... 3,333,896 -- -- 6.5%
Steinberg Priest & Sloane
Capital Management, LLC(9) ........... 3,290,414 -- -- 6.4%
Daruma Asset Management, Inc.(10) ...... 2,954,400 -- -- 5.7%
Barclays Global Investors, N.A.(11) .... 2,895,285 -- -- 5.6%
ICM Asset Management, Inc.(12) ......... 2,794,345 -- -- 5.4%
James M. Lapeyre, Jr.(13) .............. 7,762,540 70,000 -- 15.2%
Bruce S. Appelbaum ..................... 3,000 -- -- *
Theodore H. Elliott, Jr.(14) ........... 19,000 167,000 -- *
Franklin Myers ......................... 12,666 53,333 -- *
Robert P. Peebler ...................... 35,340 50,000 -- *
John N. Seitz .......................... 5,000 -- -- *
Sam K. Smith ........................... 24,007 100,000 -- *
All directors and executive
officers as a group (14 Persons) ..... 7,885,487 503,014 94,029 16.2%
------------
* Less than 1%
(1) Includes shares for which the named person (a) has sole voting and
investment power or (b) has shared voting and investment power.
Excludes shares that (i) are restricted stock holdings or (ii) may be
acquired through stock option or warrant exercises.
(2) Shares of common stock that can be acquired through stock options
exercised through April 5, 2004.
(3) Shares subject to a vesting schedule, forfeiture risk and other
restrictions. Although these shares are subject to forfeiture
provisions, the holder has the right to vote the shares until they are
forfeited.
(4) Assumes shares that such person has rights to acquire are outstanding.
(5) The address for Royce & Associates, Inc. is 1414 Avenue of the
Americas, New York, New York 10019.
(6) The address for Laitram, L.L.C. is 220 Laitram Lane, Harahan,
Louisiana 70123. Mr. Lapeyre is the President and a Director of
Laitram, L.L.C. Mr. Lapeyre disclaims beneficial ownership of any
shares held by Laitram, L.L.C.
(7) The address for Dimensional Fund Advisors Inc. is 1229 Ocean Avenue,
11th Floor, Santa Monica, California 90401. The shares of common stock
are held by investment companies, trusts and accounts for which
Dimensional Fund Advisors Inc. serves as the investment advisor.
Dimensional Fund Advisors Inc. disclaims beneficial ownership of all
such shares.
(8) The address for PRIMECAP Management Company is 225 S. Lake Avenue
#400, Pasadena, California 91101-3005. PRIMECAP Management Company has
sole voting power over only 2,039,652 of the shares of common stock.
(9) The address for Steinberg, Priest & Sloane Capital Management, LLC is
12 East 49th Street, New York, New York 10017. Steinberg Priest &
Sloane Capital Management, LLC has sole voting power over only
1,202,004 shares.
(10) The address for Daruma Asset Management, Inc. is 80 West 40th Street,
9th Floor, New York, New York 10018. The shares reported be Daruma
Asset Management, Inc. are held by investment advisory clients whose
accounts are managed by Daruma Asset Management, Inc. Mariko O.
Gordon, who owns in excess of 50% of the outstanding voting stock and
is the President of Daruma Asset Management, Inc., may also be
considered a beneficial owner of the shares reported by Daruma Asset
Management, Inc. Daruma Asset Management, Inc. has sole voting
discretion over only 1,689,900 shares.
(11) The address for Barclays Global Investors, N.A. is 45 Fremont Street,
San Francisco, California 94105. The shares reported are owned by
Barclays Global Investors, N.A. (2,135,957 shares) and Barclays Global
Fund Advisors (759,328 shares) in trust accounts for the economic
beneficiaries of those accounts.
(12) The address for ICM Asset Management, Inc. is W. 601 Main Avenue,
Suite 600, Spokane, Washington 99201. ICM Asset Management, Inc. has
shared voting power over only 1,760,626 shares and shared dispositive
power over 2,794,345 shares. James M. Simmons is the President of
ICM Asset Management, Inc. and may also be deemed to be the beneficial
owner of the shares reported by ICM Asset Management, Inc.
(13) The shares of common stock include 10,500 shares over which Mr.
Lapeyre holds joint voting and investment control with his wife,
33,280 shares that Mr. Lapeyre holds as a custodian or trustee for the
benefit of his children and 6,941,044 shares owned by Laitram L.L.C.,
of which Mr. Lapeyre disclaims any beneficial interest. See note 6
above. The shares of common stock exclude 30,000 shares of common
stock owned by Mr. Lapeyre's wife who exercises sole voting and
investment control over such shares.
(14) The shares of common stock include 8,000 shares owned by Mr. Elliott's
wife, of which Mr. Elliott disclaims beneficial interest.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
INPUT/OUTPUT, INC.
(Registrant)
/s/ J. Michael Kirksey
--------------------------------------------
J. Michael Kirksey
Executive Vice President and
Chief Financial Officer
Date: February 12, 2004