Item 7.01 Regulation FD Disclosure.
Proposed Senior Notes.
On November 14, 2008, our company, ION Geophysical Corporation, issued a press release
pursuant to Rule 135c under the Securities Act of 1933, as amended, announcing our intention to
offer and sell, subject to market and other conditions, $175 million aggregate principal amount of
unsecured senior notes due 2013. The notes will be offered to qualified institutional investors under Rule
144A, to certain non-U.S. persons in transactions outside the United States under Regulation S and
to a limited number of institutional accredited investors.
The foregoing is qualified by reference to the press release that is attached as Exhibit 99.1
to this Current Report on Form 8-K, which is incorporated herein by reference.
The information contained in this Section 7.01 of this Current Report on Form 8-K, including
Exhibit 99.1 hereto, is neither an offer to sell nor a solicitation of an offer to purchase any of
the securities to be offered and shall not constitute an offer, solicitation or sale in any
jurisdiction in which such offer, solicitation or sale is unlawful. The securities to be offered
have not been registered under the Securities Act of 1933, as amended, or the securities or blue sky laws of any
jurisdiction and, unless registered, may not be offered or sold except pursuant to an applicable
exemption from the registration requirements of the Securities Act and applicable securities laws
of any other jurisdiction.
Risk Factors.
This report contains statements concerning our future results and performance and other
matters that are “forward-looking” statements within the meaning of Section 27A of the Securities
Act and Section 21E of the Securities Exchange Act of
1934, as amended. These statements involve known and unknown risks,
uncertainties and other factors that may cause our or our industry’s results, levels of activity,
performance or achievements to be materially different from any future results, levels of activity,
performance or achievements expressed or implied by those forward-looking statements. In some
cases, you can identify forward-looking statements by terminology such as “may,” “will,” “could,”
“should,” “intend,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential”
or “continue” or the negative of such terms or other comparable terminology.
Information regarding factors that may cause actual results to vary from our expectations,
called “risk factors,” appears in our Annual Report on Form 10-K for the year ended December 31,
2007 (as amended by Form 10-K/A) in Part I, Item 1A. “Risk Factors,” and in our Quarterly Reports
on Form 10-Q for the quarters ended June 30, 2008 and September 30, 2008, respectively, in Part II,
Item 1A. “Risk Factors” thereof. In addition, please consider the following risk factors:
A continued downturn in the global economy would likely
adversely affect the demand for our products and services and
our operations, and, as a result, may have a negative impact on
our future revenues and cash flow.
A continued downturn in the U.S. economy and in the local
economies of the countries or regions in which we sell our
products and services could negatively affect demand for our
products and services, which would negatively affect our
business and results of operations. Downturns in the global
economy have traditionally caused weakened demand and lower
prices for oil and gas on a worldwide basis, which have tended
to reduce the levels of exploration for oil and gas.
Historically, demand for our products and services has been
sensitive to the level of exploration spending by oil and gas
companies and seismic contractors; the demand for our products
and services will likely be reduced if the level of exploration
expenditures is reduced. During periods of reduced levels of
exploration for oil and gas, there have been oversupplies of
seismic data and downward pricing pressures on our seismic
products and services, which in turn, have limited our ability
to meet sales objectives and maintain profit margins for our
products and services. In the past, these negative industry
conditions have had the effect of reducing our revenues and
operating margins. The markets for oil and gas historically have
been volatile and are likely to continue to be so in the future.
Important factors that could cause demand for our products and
services to fluctuate include:
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changes in business and economic conditions;
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changes in consumer confidence caused by changes in market
conditions, including changes in the credit market;
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the risk of a recession;
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higher interest rates; and
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inflation.
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The current economic and credit environment may materially
adversely affect our business, results of operations, cash flows and financial
condition, and that of our customers.
Global market and economic conditions have been, and continue to
be, disrupted and volatile. Recently, concerns over inflation,
energy costs, geopolitical issues, the availability and cost of
credit, the U.S. mortgage market and a declining
residential real estate market in the U.S. have contributed
to this increased volatility and diminished expectations for the
economy and the financial markets going forward. These factors,
combined with volatile hydrocarbon prices, declining business
and consumer confidence and increased unemployment, have
precipitated an economic slowdown. Recent declines in global oil
prices and declines in North American natural gas prices have
contributed to lower expectations for 2009 for many energy
companies and energy service companies. The recent turmoil in
the credit markets and its impact on the liquidity of major
financial institutions may have an adverse effect on our ability
to fund our business strategy through borrowings under existing
or new debt facilities in the public or private markets,
particularly on terms we believe to be reasonable.
Interest rates have fluctuated recently, which could increase
the cost of financing and may reduce our and our customers’
profits and expected returns on investment. Given the current
credit environment, particularly the tightening of the credit
markets, there can be no assurance that our customers will be
able to borrow money on a timely basis or on reasonable terms,
which could have a negative impact on their demand for our
products and impair their ability to pay us for our products and
services on a timely basis. Our sales are affected by interest
rate fluctuations and the availability of liquidity, and we
would be adversely affected by increases in interest rates or
liquidity constraints. Rising interest rates may also make
certain alternative products and services provided by our
competitors more attractive to customers, which could also lead
to a decline in demand for our products and services. This would
have a material adverse effect on our business, results of
operations, financial condition and cash flows.
It is difficult to predict how long the current economic
conditions will persist, whether they will deteriorate further,
and which of our products and services will be adversely
affected. We may have impairment losses if events or changes in
circumstances occur which may reduce the fair value of an asset
below its carrying amount. As a result, these conditions could
adversely affect our financial condition and results of
operations, and we may be subject to increased disputes and
litigation because of these events and issues.
We depend on capital expenditures by the oil and gas
industry, and reductions in such expenditures may have a
material adverse effect on our business.
Demand for our products and services has historically been
dependent upon the level of capital expenditures by oil and gas
companies for exploration, production and development
activities. Our customers’ expenditures have a significant
direct relationship with current oil and gas prices and with
expectations regarding future oil and gas prices. Lower or
volatile oil and gas prices or the perception that the same are
imminent may tend to limit the demand for seismic services and
products. Oil and gas prices may fluctuate based on factors
beyond our control, including:
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worldwide demand for oil, natural gas and natural gas liquids;
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worldwide levels of oil and gas production;
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worldwide political, military and economic conditions;
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the ability of the Organization of Petroleum Exporting Countries
(“OPEC”) to set and maintain production levels of
member countries and to create expectations that directly
correspond with prices for oil; and
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refining capacity and its ability to meet consumer demand.
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Due to the international scope of our business activities,
our results of operations may be significantly affected by
currency fluctuations.
We derive a significant portion of our consolidated net revenues
from international sales, subjecting us to risks relating to
fluctuations in currency exchange rates. Currency variations can
adversely affect margins on sales of our products in countries
outside of the United States and margins on sales of products
that include components obtained from suppliers located outside
of the United States. Through our subsidiaries, we operate in a
wide variety of jurisdictions, including the United Kingdom,
Canada, the Netherlands, China, Venezuela, India, Russia, the
United Arab Emirates, and other countries. Certain of these
countries have experienced economic problems and uncertainties
from time to time. To the extent that world events or economic
conditions negatively affect our future sales to customers in
these and other regions of the world, or the collectibility of
receivables, our future results of operations, liquidity and
financial condition may be adversely affected. We currently
require customers in certain higher risk countries to provide
their own financing. In some cases, we have assisted our
customers in organizing international financing and
Export-Import credit guarantees provided by the United States
government. We do not currently extend long-term credit through
notes to companies in countries we consider to be too risky from
a credit risk perspective.
A majority of our foreign net working capital is within the
United Kingdom and Canada. The subsidiaries in those countries
receive their income and pay their expenses primarily in Great
British Pounds (“GBP”) and Canadian dollars
(“CAD”),
respectively. To the extent that transactions of these
subsidiaries are settled in GBP or CAD, a devaluation of these
currencies versus the U.S. dollar could reduce the
contribution from these subsidiaries to our consolidated results
of operations as reported in U.S. dollars. For financial
reporting purposes, such depreciation will negatively affect our
reported results of operations since GBP- and CAD-denominated
earnings that are converted to U.S. dollars are stated at a
decreased value. In addition, since we participate in
competitive bids for sales of certain of our products and
services that are denominated in U.S. dollars, a
depreciation of the U.S. dollar against the GBP and the CAD
harms our competitive position against companies whose financial
strength bears less correlation to the strength of the
U.S. dollar. While we have employed economic cash flow
hedges designed to minimize the risks associated with these
exchange rate fluctuations, the hedging activities may be
ineffective or may not offset more than a portion of the adverse financial
impact resulting from currency variations. Accordingly, we
cannot assure you that fluctuations in the values of the
currencies of countries in which we operate or currencies that
are applicable to contracts for sales, services or purchases
will not materially adversely affect our future results of
operations.
Our outstanding shares of Series D-1 Preferred Stock, Series D-2 Preferred Stock and
Series D-3 Preferred Stock are convertible into shares of our common stock and redeemable
for either cash or shares of our common stock, and could represent future dilution to our common stockholders.
The recent economic downturn and credit crisis have negatively impacted market prices for the stocks of many
oilfield services companies, including ours. The current conversion prices for our shares of Series D
Preferred Stock are higher, and in some cases considerably higher, than recently prevailing market prices
for our common stock. The current conversion prices for outstanding shares of our Series D-1 Preferred Stock, Series D-2
Preferred Stock and Series D-3 Preferred Stock (collectively, the “Series D Preferred Stock”) are $7.869 per share, $16.0429 per share and $14.7981
per share, respectively, and are subject to certain anti-dilution adjustments.
Holders of these shares of preferred stock also have the right to redeem, at any time, all
or any portion of their outstanding shares. We may satisfy our redemption obligations either in cash
or by the issuance of our common stock. Whether we pay cash or issue common stock in redemption of
shares of our Series D Preferred Stock, the total redemption amount we pay or issue will be based on
a 40-day trailing average market price of our common stock, which average price cannot be greater than
the average market prices for either the first three or the last three business days of the 40-day
calculation period. If we were currently required to redeem any such shares of our Series D
Preferred Stock, the redemption prices per share of common stock would be below the conversion prices per
share for our Series D Preferred Stock, and could represent a substantial use of our cash if we
elected to use the cash redemption alternative.
Additionally, the terms of our Series D Preferred Stock provide that if a 20-day average
trading price per share of our common stock is less than $4.4517, we will be required, following
such time, (i) to pay all dividends on the shares of Series D Preferred Stock in cash and
(ii) either elect to (a) satisfy our future redemption obligations by
distributing only cash or a combination of cash and our common stock, or
(b) reset the conversion prices of all of our outstanding shares of
Series D Preferred Stock to $4.4517 per share (in which event, the holder of such shares of Series D Preferred Stock would have no further right to cause
the redemption of such shares). We have, to date, paid all
dividends on our Series D Preferred Stock in cash, and we currently intend
to continue to pay dividends in cash on our shares of Series D Preferred Stock.
Slides.
On
November 14, 2008, we posted slides from a presentation on our website. These
slides are available in the Investor Relations section of our website at
http://ir.iongeo.com/phoenix.zhtml?c=101545&p=irol-presentations, commencing November 14, 2008 and will be archived there for
approximately 90 days.
Such
referenced information and any oral or written
statements made in connection therewith may contain certain forward-looking statements within the
meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. These
forward-looking statements may include statements concerning estimated revenues, expected timing of
future revenues and growth rates, estimated gross margins and operating expenses,
future sales and market growth, timing of product introduction and commercialization and other
statements that are not statements of historical fact. Actual results may vary materially from
those described in the forward-looking statements. All forward-looking statements will reflect
numerous assumptions and involve a number of risks and uncertainties. These risks and uncertainties
may include: unanticipated delays in the timing and development our products and services and
market acceptance of our new and revised product offerings; risks associated with competitors’
product offerings and pricing pressures resulting therefrom; the relatively small number of
customers that we currently rely upon; the fact that a significant portion of our revenues is
derived from foreign sales; the risks that sources of capital may not prove adequate; our inability
to produce products to preserve and increase market share; and technological and marketplace
changes affecting our product lines.
The information contained in this Item 7.01 of this Current Report on Form 8-K (i) is not to
be considered “filed” under the Exchange Act and (ii) shall not be incorporated by reference into
any previous or future filings made by or to be made by us with the Securities and Exchange
Commission under the Securities Act or the Exchange Act.
Item 9.01 Financial Statements and Exhibits.
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(a) |
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Financial statements of businesses acquired. |
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Not applicable. |
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(b) |
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Pro forma financial information. |
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Not applicable. |
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Shell company transactions. |
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Not applicable. |
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Exhibits. |
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Description |
99.1
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Press release dated November 14, 2008. |
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