10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2011

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	22-2286646
incorporation or organization)	(I.R.S. Employer Identification No.)
2105 CityWest Blvd.
Suite 400
Houston, Texas	77042-2839
(Address of principal executive offices)	(Zip Code)

REGISTRANT’S TELEPHONE NUMBER, INCLUDING AREA CODE: (281) 933-3339

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes: þ No: o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o Accelerated filer þ Non-accelerated filer o (Do not check if a smaller reporting company) Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes: o No: þ

At October 28, 2011, there were 155,203,656 shares of common stock, par value $0.01 per share, outstanding.

ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS FOR FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2011

	PAGE
PART I. Financial Information
Item 1. Unaudited Financial Statements
Condensed Consolidated Balance Sheets as of September 30, 2011 and December 31, 2010	3
Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2011 and 2010	4
Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2011 and 2010	5
Notes to Unaudited Condensed Consolidated Financial Statements	6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	15
Item 3. Quantitative and Qualitative Disclosures about Market Risk	26
Item 4. Controls and Procedures	26
PART II. Other Information
Item 1. Legal Proceedings	27
Item 1A. Risk Factors	29
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	30
Item 6. Exhibits	31
EX-10.1
EX-31.1
EX-31.2
EX-32.1
EX-32.2
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements
ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

	September 30,			December 31,
	2011 (unaudited)			2010
	( In thousands, except share data)
ASSETS
Current assets:
Cash and cash equivalents	$	43,290		$	84,419
Short-term investments		28,000			—
Accounts receivable, net		87,923			77,576
Unbilled receivables		45,378			70,590
Inventories		94,240			66,882
Prepaid expenses and other current assets		13,021			13,165
Total current assets		311,852			312,632
Deferred income tax asset		13,180			8,998
Property, plant and equipment, net		22,478			20,145
Multi-client data library, net		146,781			112,620
Investment in INOVA Geophysical		86,894			95,173
Goodwill		51,576			51,333
Intangible assets, net		16,674			20,317
Other assets		10,754			3,224
Total assets	$	660,189		$	624,442
LIABILITIES AND EQUITY
Current liabilities:
Current maturities of long-term debt	$	4,859		$	6,073
Accounts payable		29,848			30,940
Accrued expenses		56,382			59,835
Accrued multi-client data library royalties		15,523			18,667
Deferred revenue		36,917			17,851
Total current liabilities		143,529			133,366
Long-term debt, net of current maturities		98,921			102,587
Other long-term liabilities		7,429			8,042
Total liabilities		249,879			243,995
Equity:
Cumulative convertible preferred stock		27,000			27,000
Common stock, $0.01 par value; authorized 200,000,000 shares; outstanding 155,195,407 and 152,870,679 shares at September 30, 2011 and December 31, 2010, respectively, net of treasury stock		1,552			1,529
Additional paid-in capital		839,161			822,399
Accumulated deficit		(435,963	)		(448,386	)
Accumulated other comprehensive loss		(15,064	)		(15,530	)
Treasury stock, at cost, 849,539 shares both at September 30, 2011 and December 31, 2010		(6,565	)		(6,565	)
Total stockholders’ equity		410,121			380,447
Noncontrolling interest		189			—
Total equity		410,310			380,447
Total liabilities and equity	$	660,189		$	624,442

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

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ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2011			2010			2011			2010
	(In thousands, except per share data)
Product revenues	$	41,760		$	34,299		$	113,163		$	113,974
Service revenues		73,894			87,295			181,575			171,725
Total net revenues		115,654			121,594			294,738			285,699
Cost of products		21,568			17,354			53,831			68,421
Cost of services		50,028			55,292			132,079			117,902
Gross profit		44,058			48,948			108,828			99,376
Operating expenses:
Research, development and engineering		6,325			5,532			18,070			19,748
Marketing and sales		8,199			7,768			23,079			21,323
General and administrative		11,038			12,279			34,312			39,929
Total operating expenses		25,562			25,579			75,461			81,000
Income from operations		18,496			23,369			33,367			18,376
Interest expense, net		(1,382	)		(1,861	)		(4,184	)		(28,877	)
Loss on disposition of land division		—			—			—			(38,115	)
Fair value adjustment of warrant		—			—			—			12,788
Equity in losses of INOVA Geophysical		(4,811	)		(8,004	)		(9,844	)		(8,183	)
Other income (expense)		199			(3,229	)		(2,303	)		(811	)
Income (loss) before income taxes		12,502			10,275			17,036			(44,822	)
Income tax expense (benefit)		3,484			(1,934	)		4,716			12,400
Net income (loss)		9,018			12,209			12,320			(57,222	)
Net income attributable to noncontrolling interest		34			—			103			—
Net income (loss) attributable to ION		9,052			12,209			12,423			(57,222	)
Preferred stock dividends		338			338			1,014			1,598
Net income (loss) applicable to common shares	$	8,714		$	11,871		$	11,409		$	(58,820	)
Net income (loss) per share:
Basic	$	0.06		$	0.08		$	0.07		$	(0.42	)
Diluted	$	0.06		$	0.08		$	0.07		$	(0.42	)
Weighted average number of common shares outstanding:
Basic		155,166			152,344			154,648			141,483
Diluted		162,227			152,690			156,095			141,483

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

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ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

	Nine Months Ended
	September 30,
	2011			2010
	(In thousands)
Cash flows from operating activities:
Net income (loss)	$	12,320		$	(57,222	)
Adjustments to reconcile net income (loss) to cash provided by operating activities:
Depreciation and amortization (other than multi-client library)		10,649			20,439
Amortization of multi-client library		55,166			54,358
Stock-based compensation expense related to stock options, nonvested stock and employee stock purchases		4,177			5,471
Amortization of debt discount		—			8,656
Write-off of unamortized debt issuance costs		—			10,121
Fair value adjustment of warrant		—			(12,788	)
Loss on disposition of land division		—			38,115
Equity in losses of INOVA Geophysical		9,844			8,183
Deferred income taxes		(7,254	)		9,269
Change in operating assets and liabilities:
Accounts receivable		(10,842	)		27,546
Unbilled receivables		25,212			(43,447	)
Inventories		(30,539	)		(867	)
Accounts payable, accrued expenses and accrued royalties		(1,108	)		(723	)
Deferred revenue		19,046			(428	)
Other assets and liabilities		(527	)		(11,929	)
Net cash provided by operating activities		86,144			54,754
Cash flows from investing activities:
Purchase of property, plant and equipment		(9,024	)		(7,014	)
Investment in multi-client data library		(91,594	)		(58,866	)
Purchase of short-term investments		(80,000	)		—
Proceeds from sale of short-term investments		52,000			—
Investment in a convertible note		(6,500	)		—
Proceeds from disposition of land division, net of fees paid		—			99,790
Other investing activities		50			(521	)
Net cash provided by (used in) investing activities		(135,068	)		33,389
Cash flows from financing activities:
Borrowings under revolving line of credit		—			101,000
Repayments under revolving line of credit		—			(190,429	)
Net proceeds from the issuance of debt		—			105,695
Net proceeds from the issuance of stock		—			38,039
Payments on notes payable and long-term debt		(4,880	)		(143,835	)
Payment of preferred dividends		(1,014	)		(1,598	)
Contribution from noncontrolling interest		313			—
Proceeds from exercise of stock options		13,047			—
Other financing activities		352			255
Net cash provided by (used in) financing activities		7,818			(90,873	)
Effect of change in foreign currency exchange rates on cash and cash equivalents		(23	)		2,479
Net decrease in cash and cash equivalents		(41,129	)		(251	)
Cash and cash equivalents at beginning of period		84,419			16,217
Cash and cash equivalents at end of period	$	43,290		$	15,966
Non-cash items from investing and financing activities:
Sale of rental equipment financed with a note receivable	$	3,578		$	—
Transfer of inventory to rental equipment		2,978			3,635
Reduction in multi-client data library related to finalization of accrued liabilities		1,888			—
Investment in multi-client data library financed through trade payables		—			3,429
Expiration of BGP Warrant		—			32,001
Conversion of BGP Domestic Convertible Note to equity		—			28,571
Investment in INOVA Geophysical		—			119,000
Exchange of RXT receivables into shares		—			9,516

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

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ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(1) Basis of Presentation

     The condensed consolidated balance sheet of ION Geophysical Corporation and its subsidiaries (collectively referred to as the “Company” or “ION,” unless the context otherwise requires) at December 31, 2010 has been derived from the Company’s audited consolidated financial statements at that date. The condensed consolidated balance sheet at September 30, 2011, the condensed consolidated statements of operations for the three and nine months ended September 30, 2011 and 2010, and the condensed consolidated statements of cash flows for the nine months ended September 30, 2011 and 2010 are unaudited. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. The results of operations for the three and nine months ended September 30, 2011 are not necessarily indicative of the operating results for a full year or of future operations.

     These condensed consolidated financial statements have been prepared using accounting principles generally accepted in the United States for interim financial information and the instructions to Form 10-Q and applicable rules of Regulation S-X of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in annual financial statements presented in accordance with accounting principles generally accepted in the United States have been omitted. The accompanying condensed consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2010, and the amendment thereto on Form 10-K/A that the Company filed in June 2011 that contains the separate consolidated financial statements of INOVA Geophysical Equipment Limited (“INOVA Geophysical”) for the fiscal year ended December 31, 2010.

(2) Segment Information

     The Company evaluates and reviews its results based on four segments: Systems, Software, Solutions and Legacy Land Systems (INOVA). The Company measures segment operating results based on income from operations. The Legacy Land Systems (INOVA) segment represents the Company’s disposed land division operations through March 25, 2010, the date of the formation of the INOVA Geophysical joint venture.

     A summary of segment information is as follows (in thousands):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2011		2010		2011		2010
Net revenues:
Systems:
Towed Streamer	$	22,219	$	20,185	$	60,000	$	50,096
Ocean Bottom		—		510		509		1,821
Other		10,065		5,036		25,210		19,721
Total	$	32,284	$	25,731	$	85,719	$	71,638
Software:
Software Systems	$	9,476	$	8,567	$	27,444	$	25,824
Services		715		561		1,545		1,409
Total	$	10,191	$	9,128	$	28,989	$	27,233
Solutions:
Data Processing	$	22,416	$	27,943	$	63,349	$	79,661
New Venture		35,597		49,971		67,819		62,314
Data Library		15,166		8,821		48,862		28,342
Total	$	73,179	$	86,735	$	180,030	$	170,317
Legacy Land Systems (INOVA)	$	—	$	—	$	—	$	16,511
Total	$	115,654	$	121,594	$	294,738	$	285,699

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	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2011			2010			2011			2010
Gross profit:
Systems	$	13,397		$	11,202		$	40,752		$	29,141
Software		8,061			6,074			20,970			18,254
Solutions		22,600			31,672			47,106			52,965
Legacy Land Systems (INOVA)		—			—			—			(984	)
Total	$	44,058		$	48,948		$	108,828		$	99,376
Gross margin:
Systems		41	%		44	%		48	%		41	%
Software		79	%		67	%		72	%		67	%
Solutions		31	%		37	%		26	%		31	%
Legacy Land Systems (INOVA)		—	%		—	%		—	%		(6	%)
Total		38	%		40	%		37	%		35	%
Income from operations:
Systems	$	6,852		$	5,693		$	21,989		$	13,833
Software		7,117			5,451			18,409			16,513
Solutions		13,897			22,556			22,751			30,669
Legacy Land Systems (INOVA)		—			—			—			(9,623	)
Corporate and other		(9,370	)		(10,331	)		(29,782	)		(33,016	)
Income from operations		18,496			23,369			33,367			18,376
Interest expense, net		(1,382	)		(1,861	)		(4,184	)		(28,877	)
Loss on disposition of land division		—			—			—			(38,115	)
Fair value adjustment of warrant		—			—			—			12,788
Equity in losses of INOVA Geophysical		(4,811	)		(8,004	)		(9,844	)		(8,183	)
Other income (expense)		199			(3,229	)		(2,303	)		(811	)
Income (loss) before income taxes	$	12,502		$	10,275		$	17,036		$	(44,822	)

     In September 2011, INOVA Geophysical announced the launch of its next-generation products. These products are in process of field testing with plan of commercial introduction in 2012. The Company expects to see a one-time write-down of inventory based upon previous technologies to occur in INOVA Geophysical’s third quarter and then reflected in the Company’s fourth quarter results, as the Company records its share of earnings of INOVA Geophysical on a one fiscal quarter lag. The Company estimates that its 49% share of this one-time write-down to be in the range of $6 million to $8 million.

(3) Investments

     Short-term Investments

     Short-term investments are comprised solely of bank certificates of deposit denominated in U.S. dollars with original maturities in excess of three months and represent the investment of excess cash that is available for current operations. The Company recorded these investments on its balance sheet at cost based on its intent and ability to hold these investments to maturity. These short-term investments were purchased at a cost, which approximates fair value based on Level 1 inputs, of $80.0 million and have scheduled maturities through January 2012. During the second quarter of 2011, the Company liquidated $41.0 million of its original investment to cover the working capital requirements of the Company’s multi-client projects. During the third quarter of 2011, $11.0 million of the remaining $39.0 million investment matured resulting in an investment of $28.0 million as of September 30, 2011.

     In addition, the Company believes that the carrying amount of its cash and cash equivalents approximates fair value as of September 30, 2011.

     Long-term Investment

     In May 2011, the Company purchased a convertible note from a private U.S-based technology company. The principal amount of the note is $6.5 million, and it bears interest at a rate of 4% per annum. The maturity date of the note is two years; however, the note will automatically convert into shares of common stock of the investee on the earlier to occur of (a) the maturity date of the note and (b) the date funds are invested into the investee by any venture capital firm or other investor. Upon the occurrence of a conversion event, the note will convert into a number of shares of common stock equal to 15% of the total post-conversion outstanding shares of common stock of the investee, excluding any shares issued after the date of the note to third party investors who have made equity investments in the investee. The investee does not have the right to prepay any principal on the note without the Company’s consent; therefore, it is expected that the note will automatically convert within two years. Interest on the note will be paid in cash upon the maturity date, or conversion, if sooner.

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     The Company classifies this investment as available-for-sale and has recorded the fair value of this investment as a noncurrent asset included in other assets on its condensed consolidated balance sheet with unrealized gains and losses reflected in accumulated other comprehensive income until realized. The Company uses a market approach to estimate the fair value of its investment in the convertible note using Level 3 inputs, including the investee’s expectations of the terms and likelihood of a future financing event, time to liquidity and stock price volatility. As of September 30, 2011, the fair value of this investment was approximately $5.8 million with $0.7 million of unrealized losses recorded in accumulated other comprehensive income.

(4) Inventories

     A summary of inventories is as follows (in thousands):

	September 30,			December 31,
	2011			2010
Raw materials and subassemblies	$	45,973		$	39,412
Work-in-process		5,869			4,605
Finished goods		55,395			35,741
Reserve for excess and obsolete inventories		(12,997	)		(12,876	)
Total	$	94,240		$	66,882

     The increase in finished goods is principally due to inventory build related to the Company’s contract to outfit a BGP twelve-streamer vessel with the Company’s DigiSTREAMER^TM data acquisition system and BGP is expected to deploy the system in the fourth quarter of this year.

(5) Net Income (Loss) per Share

     Basic net income (loss) per common share is computed by dividing net income (loss) applicable to common shares by the weighted average number of common shares outstanding during the period. Diluted net income per common share is determined based on the assumption that dilutive restricted stock and restricted stock unit awards have vested and outstanding dilutive stock options have been exercised and the aggregate proceeds were used to reacquire common stock using the average price of such common stock for the period. The total number of shares issued or committed for issuance under outstanding stock options at September 30, 2011 and 2010 was 5,572,300 and 7,157,990, respectively, and the total number of shares of restricted stock and shares reserved for restricted stock units outstanding at September 30, 2011 and 2010 was 1,009,217 and 906,408, respectively.

     There are 27,000 outstanding shares of the Company’s Series D Cumulative Convertible Preferred Stock, which may currently be converted, at the holder’s election, into up to 6,065,075 shares of the Company’s common stock. See further discussion of the Series D Preferred Stock conversion provisions at Note 7 “— Cumulative Convertible Preferred Stock.” The outstanding shares of all Series D Preferred Stock were anti-dilutive for all periods presented, except for the three months ended September 30, 2011.

     The following table summarizes the computation of basic and diluted net income (loss) per common share (in thousands, except per share amounts):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2011		2010		2011		2010
Net income (loss) applicable to common shares	$	8,714	$	11,871	$	11,409	$	(58,820	)
Impact of assumed Series D Preferred Stock conversion		338		—		—		—
Net income (loss) after impact of assumed preferred stock conversion	$	9,052	$	11,871	$	11,409	$	(58,820	)
Weighted average number of common shares outstanding		155,166		152,344		154,648		141,483
Effect of dilutive stock awards		996		346		1,447		—
Effect of assumed Series D Preferred Stock conversion		6,065		—		—		—
Weighted average number of diluted common shares outstanding		162,227		152,690		156,095		141,483
Basic net income (loss) per share	$	0.06	$	0.08	$	0.07	$	(0.42	)
Diluted net income (loss) per share	$	0.06	$	0.08	$	0.07	$	(0.42	)

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(6) Long-term Debt, Lease Obligations and Interest Rate Caps

	September 30,			December 31,
Obligations (in thousands)	2011			2010
$100.0 million revolving line of credit	$	—		$	—
Term loan facility		100,250			103,250
Facility lease obligation		3,209			3,657
Equipment capital leases		321			1,753
Total		103,780			108,660
Current portion of long-term debt and lease obligations		(4,859	)		(6,073	)
Non-current portion of long-term debt and lease obligations	$	98,921		$	102,587

     Revolving Line of Credit and Term Loan Facility

     In March 2010, ION, its Luxembourg subsidiary, ION International S.à r.l. (“ION Sàrl”), and certain of its other U.S. and foreign subsidiaries entered into a new credit facility (the “Credit Facility”). The terms of the Credit Facility are set forth in a credit agreement dated as of March 25, 2010 (the “Credit Agreement”), by and among ION, ION Sàrl and China Merchants Bank Co., Ltd., New York Branch (“CMB”), as administrative agent and lender. The obligations of ION under the Credit Facility are guaranteed by certain of ION’s material U.S. subsidiaries and the obligations of ION Sàrl under the Credit Facility are guaranteed by certain of ION’s material U.S. and foreign subsidiaries, in each case that are parties to the Credit Agreement. In addition, in June 2010, INOVA Geophysical also entered into an agreement to guarantee the indebtedness under the Credit Facility.

     The Credit Facility provides ION with a revolving line of credit of up to $100.0 million in borrowings (including borrowings for letters of credit) and refinanced ION’s outstanding term loan with a new term loan in the original principal amount of $106.3 million.

     The revolving credit sub-facility and term loan under the Credit Facility are each scheduled to mature on March 24, 2015. The principal amount under the term loan is subject to scheduled quarterly amortization payments that commenced on June 30, 2010, of $1.0 million per quarter until the maturity date, upon which the remaining unpaid principal amount of the term loan becomes due and payable. The indebtedness under the Credit Facility may sooner mature on a date that is 18 months after the earlier of (i) any dissolution of INOVA Geophysical, or (ii) the administrative agent determining in good faith that INOVA Geophysical is unable to perform its obligations under its guarantee.

     The interest rate per annum on borrowings under the Credit Facility will be, at ION’s option:

• An alternate base rate equal to the sum of (i) the greatest of (a) the prime rate of CMB, (b) a federal funds effective rate plus 0.50%, or (c) an adjusted LIBOR-based rate plus 1.0%, and (ii) an applicable interest margin of 2.5%; or

• For Eurodollar borrowings and borrowings in Euros, Pounds Sterling or Canadian Dollars, the sum of (i) an adjusted LIBOR-based rate, and (ii) an applicable interest margin of 3.5%.

     As of September 30, 2011, the $100.3 million in outstanding term loan indebtedness under the Credit Facility accrued interest at a rate of 3.7% per annum.

     The Credit Facility requires compliance with certain financial covenants. Certain of these financial covenants became effective on June 30, 2011, and will continue in effect for each fiscal quarter thereafter over the term of the Credit Facility. These financial covenants require ION and its U.S. subsidiaries to:

• Maintain a minimum fixed charge coverage ratio in an amount equal to at least 1.125 to 1;

• Not exceed a maximum leverage ratio of 3.25 to 1; and

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• Maintain a minimum tangible net worth of at least 60% of ION’s tangible net worth as of March 31, 2010, as defined in the Credit Agreement.

     The fixed charge coverage ratio is defined as the ratio of (i) ION’s consolidated EBITDA less cash income tax expense and non-financed capital expenditures, to the sum of (ii) scheduled payments of lease payments and payments of principal indebtedness, interest expense actually paid and cash dividends, in each case for the four consecutive fiscal quarters most recently ended. The leverage ratio is defined as the ratio of (x) total funded consolidated debt, capital lease obligations and issued letters of credit (net of cash collateral) to (y) consolidated EBITDA of ION for the four consecutive fiscal quarters most recently ended. As of September 30, 2011, the Company was in compliance with these financial covenants and expects to remain in compliance with these financial covenants through the remainder of 2011.

     The fair market value of the Company’s outstanding long-term debt was $107.3 million at September 30, 2011 compared to a carrying value of $103.8 million. The fair value of the long-term debt was calculated using an estimated interest rate reflecting current market conditions.

     Interest Rate Caps

     In August 2010, the Company entered into an interest rate cap agreement and purchased interest rate caps (the “August 2010 Caps”) having an initial notional amount of $103.3 million with a three-month average LIBOR cap of 2.0%. If and when the three-month average LIBOR rate exceeds 2.0%, the LIBOR portion of interest owed by the Company would be capped at 2.0%. The initial notional amount was set to equal the projected outstanding balance under the Company’s term loan facility at December 31, 2010. The notional amount was then set so as not to exceed the Company’s outstanding balance of its term loan facility over a period extending through March 29, 2013. The Company purchased these interest rate caps for approximately $0.4 million and designated the interest rate caps as cash flow hedges.

     In July 2011, the Company purchased additional interest rate caps (the “July 2011 Caps”) related to its term loan facility. The notional amounts of the July 2011 Caps, together with the notional amounts of the August 2010 Caps, were set so as not to exceed the outstanding balance of the Company’s term loan facility over a period that extends through March 31, 2014. The Company purchased these interest rate caps for an amount equal to approximately $0.3 million and designated the interest rate caps as cash flow hedges.

     As of September 30, 2011, the Company held interest rate caps as follows (amounts in thousands):

				Notional Amounts
Payment Date	Cap Rate			August 2010 Caps		July 2011 Caps		Total
December 29, 2011		2.0	%	$	90,225	$	—	$	90,225
March 29, 2012		2.0	%	$	89,325	$	—	$	89,325
June 29, 2012		2.0	%	$	68,775	$	18,850	$	87,625
September 28, 2012		2.0	%	$	68,075	$	18,650	$	86,725
December 31, 2012		2.0	%	$	67,375	$	18,450	$	85,825
March 29, 2013		2.0	%	$	66,675	$	18,250	$	84,925
June 28, 2013		2.0	%	$	—	$	63,175	$	63,175
September 30, 2013		2.0	%	$	—	$	62,475	$	62,475
December 31, 2013		2.0	%	$	—	$	61,775	$	61,775
March 31, 2014		2.0	%	$	—	$	61,075	$	61,075

     These interest rate caps have been designated as cash flow hedges according to ASC 815 (“Derivatives and Hedging”) and, accordingly, the effective portion of the change in fair value of these interest rate caps are recognized in other comprehensive income in the Company’s consolidated financial statements. The Company has recorded the fair value of these interest rate caps as a noncurrent asset included in other assets on its condensed consolidated balance sheet. As of September 30, 2011, the total fair value of the interest rate caps was $0.1 million, which was based on Level 2 inputs such as interest rates and yield curves that are observable at commonly quoted intervals. For the three and nine months ended September 30, 2011, there was approximately $0.2 million, net of tax, and $0.3 million, net of tax, respectively, related to the change in fair value included in other comprehensive income. Unrealized gains or losses included in other comprehensive income related to these interest rate caps will be reclassified into earnings as each interest rate caplet settles on the contractual payment dates as shown in the table above.

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(7) Cumulative Convertible Preferred Stock

     During 2005, the Company entered into an Agreement with Fletcher International, Ltd. (this Agreement, as amended to the date hereof, is referred to as the “Fletcher Agreement”) and issued to Fletcher 30,000 shares of Series D-1 Cumulative Convertible Preferred Stock (“Series D-1 Preferred Stock”) in a privately-negotiated transaction, receiving $29.8 million in net proceeds. The Fletcher Agreement also provided to Fletcher an option to purchase up to an additional 40,000 shares of additional series of preferred stock from time to time, with each series having a conversion price that would be equal to 122% of an average daily volume-weighted market price of the Company’s common stock over a trailing period of days at the time of issuance of that series. In 2007 and 2008, Fletcher exercised this option and purchased 5,000 shares of Series D-2 Cumulative Convertible Preferred Stock (“Series D-2 Preferred Stock”) for $5.0 million (in December 2007) and the remaining 35,000 shares of Series D-3 Cumulative Convertible Preferred Stock (“Series D-3 Preferred Stock”) for $35.0 million (in February 2008). The shares of Series D-1 Preferred Stock, Series D-2 Preferred Stock and Series D-3 Preferred Stock are sometimes referred to herein as the “Series D Preferred Stock.”

     Dividends on the shares of Series D Preferred Stock must be paid in cash on a quarterly basis. Dividends are payable at a rate equal to the greater of (i) 5.0% per annum or (ii) the three month LIBOR rate on the last day of the immediately preceding calendar quarter plus 2.5% per annum. The Series D Preferred Stock dividend rate was 5.0% at September 30, 2011.

     Under the Fletcher Agreement, if a 20-day volume-weighted average trading price per share of the Company’s common stock fell below $4.4517 (the “Minimum Price”), the Company was required to deliver a notice (the “Reset Notice”) to Fletcher. On November 28, 2008, the volume-weighted average trading price per share of the Company’s common stock on the New York Stock Exchange for the previous 20 trading days was calculated to be $4.328, and the Company delivered the Reset Notice to Fletcher in accordance with the terms of the Fletcher Agreement. In the Reset Notice, the Company elected to reset the conversion prices for the Series D Preferred Stock to the Minimum Price ($4.4517 per share), and Fletcher’s rights to redeem the Series D Preferred Stock were terminated. The adjusted conversion price resulting from this election was effective on November 28, 2008.

     In addition, under the Fletcher Agreement, the aggregate number of shares of common stock issued or issuable to Fletcher upon conversion or redemption of, or as dividends paid on, the Series D Preferred Stock could not exceed a designated maximum number of shares (the “Maximum Number”), and such Maximum Number could be increased by Fletcher providing the Company with a 65-day notice of increase, but under no circumstance could the total number of shares of common stock issued or issuable to Fletcher with respect to the Series D Preferred Stock ever exceed 15,724,306 shares. The Fletcher Agreement had designated 7,669,434 shares as the original Maximum Number. In November 2008, Fletcher delivered a notice to the Company to increase the Maximum Number to 9,669,434 shares, effective February 1, 2009. On November 8, 2010, Fletcher delivered a notice to the Company to increase the Maximum Number to the full 15,724,306 shares, effective January 12, 2011.

     On April 8, 2010, Fletcher converted 8,000 of its shares of the outstanding Series D-1 Preferred Stock and all of the outstanding 35,000 shares of the Series D-3 Preferred Stock into a total of 9,659,231 shares of the Company’s common stock. The conversion price for these shares was $4.4517 per share, in accordance with the terms of these series of preferred stock. Fletcher continues to own 22,000 shares of the Series D-1 Preferred Stock and 5,000 shares of the Series D-2 Preferred Stock. As a result of Fletcher’s delivery of its notice to increase the Maximum Number to the full 15,724,306 shares in November 2010, under the terms of the Fletcher Agreement, Fletcher’s remaining 27,000 shares of Series D Preferred Stock are convertible into 6,065,075 shares of the Company’s common stock. The conversion prices and number of shares of common stock to be acquired upon conversion are also subject to customary anti-dilution adjustments. Fletcher remains the sole holder of all of the outstanding shares of Series D Preferred Stock.

(8) Income Taxes

     The Company maintains a valuation allowance for a portion of its U.S. deferred tax assets. The valuation allowance is calculated in accordance with the provisions of ASC 740 “Income Taxes,” which requires that a valuation allowance be established or maintained when it is “more likely than not” that all or a portion of deferred tax assets will not be realized. In the event the Company’s expectations of future operating results change, the valuation allowance may need to be adjusted upward or downward. As of September 30, 2011, the Company’s unreserved U.S. deferred tax assets totaled $11.1 million. These existing unreserved deferred tax assets are currently considered to be “more likely than not” realized.

     The Company’s effective tax rates for the three months ended September 30, 2011 and 2010 were 27.9% (provision on income) and 18.8% (benefit on income), respectively. For the three months ended September 30, 2010, the Company recorded a benefit of $3.9

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million related to alternative minimum tax. Excluding the benefit related to alternative minimum tax included in the third quarter of 2010, the Company’s effective tax rate would have been 22.2% (provision on income). The increase in the Company’s effective tax rate for the three months ended September 30, 2011 was due to changes in the distribution of earnings between U.S. and foreign jurisdictions.

     The Company’s effective tax rate for the nine months ended September 30, 2011 was 27.7%, a provision on income, compared to a provision on a loss of 27.7% for the nine months ended September 30, 2010. The difference between these effective tax rates relates primarily to the transactions involved in the completion of the INOVA Geophysical joint venture transaction and to changes in the distribution of earnings between U.S. and foreign jurisdictions, partially offset by recognition of the benefit related to alternative minimum tax for the three months ended September 30, 2010.

     A reconciliation of the expected income tax expense (benefit) on income (loss) before income taxes using the statutory federal income tax rate of 35% for the nine months ended September 30, 2011 and 2010 to income tax expense is as follows (in thousands):

	Nine Months Ended
	September 30,
	2011			2010
Expected income tax expense (benefit) at 35%	$	5,963		$	(15,688	)
Alternative minimum tax (benefit) provision		—			(3,910	)
Foreign taxes (tax rate differential and foreign tax differences)		(3,212	)		348
Formation of INOVA Geophysical		—			10,507
Nondeductible expenses and other		5			118
Deferred tax asset valuation allowance on formation of INOVA Geophysical		—			20,213
Deferred tax asset valuation allowance on equity in losses of INOVA Geophysical		1,960			812
Total income tax expense	$	4,716		$	12,400

     The Company has no significant unrecognized tax benefits and does not expect to recognize significant increases in unrecognized tax benefits during the next twelve month period. Interest and penalties, if any, related to unrecognized tax benefits are recorded in income tax expense.

     The Company’s U.S. federal tax returns for 2007 and subsequent years remain subject to examination by tax authorities. The Company is no longer subject to IRS examination for periods prior to 2007, although carryforward attributes that were generated prior to 2007 may still be adjusted upon examination by the IRS if they either have been or will be used in an open year. In the Company’s foreign tax jurisdictions, tax returns for 2007 and subsequent years generally remain open to examination.

(9) Comprehensive Net Income (Loss)

     The components of comprehensive net income (loss) are as follows (in thousands):

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2011			2010			2011			2010
Net income (loss)	$	9,018		$	12,209		$	12,320		$	(57,222	)
Other comprehensive income (loss), net of taxes:
Foreign currency translation adjustments (ION)		(2,107	)		3,816			1,130			2,086
Foreign currency translation adjustments (noncontrolling interest)		32			—			21			—
Change in fair value of effective cash flow hedges (net of taxes)		(184	)		(131	)		(332	)		(131	)
Equity interest in INOVA Geophysical’s other comprehensive income		(17	)		(937	)		1,565			(937	)
Unrealized loss on available-for-sale securities		(1,412	)		(365	)		(1,918	)		(7,717	)
Total other comprehensive income (loss)		(3,688	)		2,383			466			(6,699	)
Comprehensive net income (loss)		5,330			14,592			12,786			(63,921	)
Comprehensive income attributable to noncontrolling interest		34			—			103			—
Comprehensive net income (loss) attributable to ION	$	5,364		$	14,592		$	12,889		$	(63,921	)

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(10) Litigation

     WesternGeco

     In June 2009, WesternGeco L.L.C. (“WesternGeco”) filed a lawsuit against the Company in the United States District Court for the Southern District of Texas, Houston Division. In the lawsuit, styled WesternGeco L.L.C. v. ION Geophysical Corporation, WesternGeco alleges that the Company has infringed several United States patents regarding marine seismic streamer steering devices that are owned by WesternGeco. WesternGeco is seeking unspecified monetary damages and an injunction prohibiting the Company from making, using, selling, offering for sale or supplying any infringing products in the United States. Based on the Company’s review of the lawsuit filed by WesternGeco and the WesternGeco patents at issue, the Company believes that its products do not infringe any WesternGeco patents, that the claims asserted against the Company by WesternGeco are without merit and that the ultimate outcome of the claims against it will not result in a material adverse effect on the Company’s financial condition or results of operations. The Company intends to defend the claims against it vigorously.

     In June 2009, the Company filed an answer and counterclaims against WesternGeco, in which the Company denies that it has infringed WesternGeco’s patents and asserts that the WesternGeco patents are invalid or unenforceable. The Company also asserted that WesternGeco’s Q-Marine system, components and technology infringe upon a United States patent owned by the Company related to marine seismic streamer steering devices. The claims by the Company also assert that WesternGeco tortiously interfered with the Company’s relationship with its customers. In addition, the Company claims that the lawsuit by WesternGeco is an illegal attempt by WesternGeco to control and restrict competition in the market for marine seismic surveys performed using laterally steerable streamers. In its counterclaims, the Company is requesting various remedies and relief, including a declaration that the WesternGeco patents are invalid or unenforceable, an injunction prohibiting WesternGeco from making, using, selling, offering for sale or supplying any infringing products in the United States, a declaration that the WesternGeco patents should be co-owned by the Company, and an award of unspecified monetary damages.

     In June 2010, WesternGeco filed a lawsuit against various subsidiaries and affiliates of Fugro N.V. (“Fugro”), a seismic contractor customer of the Company, accusing Fugro of infringing the same United States patents regarding marine seismic streamer steering devices by planning to use certain equipment purchased from the Company on a survey located outside of U.S. territorial waters. The court approved the consolidation of the Fugro case with the case against the Company. Fugro filed a motion to dismiss the lawsuit, and in March 2011 the presiding judge granted Fugro’s motion to dismiss in part, on the basis that the alleged activities of Fugro would occur more than 12 miles from the U.S. coast and therefore are not actionable under U.S. patent infringement law.

     Fletcher

     In November 2009, Fletcher, the holder of shares of the Company’s outstanding Series D Preferred Stock, filed a lawsuit against the Company and certain of its directors in the Delaware Court of Chancery. In the lawsuit, styled Fletcher International, Ltd. v. ION Geophysical Corporation, f/k/a Input/Output, Inc., ION International S.à r.l., James M. Lapeyre, Bruce S. Appelbaum, Theodore H. Elliott, Jr., Franklin Myers, S. James Nelson, Jr., Robert P. Peebler, John Seitz, G. Thomas Marsh And Nicholas G. Vlahakis, Fletcher alleged, among other things, that the Company violated Fletcher’s consent rights contained in the Series D Preferred Stock Certificates of Designation, by ION Sàrl’s issuance of a convertible promissory note to the Bank of China, New York Branch, in connection with a bridge loan funded in October 2009 by Bank of China, and that the directors violated their fiduciary duty to the Company by allowing ION Sàrl to issue the convertible note without Fletcher’s consent. A total of $10.0 million was advanced to ION Sàrl under the bridge loan, and ION Sàrl repaid $10 million on the following day. Fletcher sought a court order requiring ION Sàrl to repay the $10 million advanced to ION Sàrl under the bridge loan and unspecified monetary damages. On March 24, 2010, the presiding judge in the case denied Fletcher’s request for the court order. In a Memorandum Opinion issued on May 28, 2010 in response to a motion for partial summary judgment, the judge dismissed all of Fletcher’s claims against the named Company directors but also concluded that, because the bridge loan note issued by ION Sàrl was convertible into ION common stock, Fletcher technically had the right to consent to the issuance of the note and that the Company violated Fletcher’s consent right by ION Sàrl issuing the note without Fletcher’s consent. In December 2010, the presiding judge in the case recused himself from the case and a new presiding judge was appointed to the case. In March 2011, the judge dismissed certain of the claims asserted by Fletcher. The Company believes that the remaining claims asserted by Fletcher in the lawsuit are without merit. The Company further believes that the monetary damages suffered by Fletcher as a result of ION Sàrl issuing the bridge loan note without Fletcher’s consent are nonexistent or nominal, and that the ultimate outcome of the lawsuit will not result in a material adverse effect on the Company’s financial condition or results of operations. The Company intends to defend the remaining claims against it in this lawsuit vigorously.

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     Sercel

     On January 29, 2010, the jury in a patent infringement lawsuit filed by the Company against seismic equipment provider Sercel, Inc. in the United States District Court for the Eastern District of Texas returned a verdict in the Company’s favor. In the lawsuit, styled Input/Output, Inc. et al v. Sercel, Inc., (5-06-cv-00236), the Company alleged that Sercel’s 408, 428 and SeaRay digital seismic sensor units infringe the Company’s United States Patent No. 5,852,242, which is incorporated in the Company’s VectorSeis^® sensor technology. Products of the Company or INOVA Geophysical that use the VectorSeis technology include the System Four, Scorpion^®, FireFly^®, and VectorSeis Ocean seismic acquisition systems. After a two-week trial, the jury concluded that Sercel infringed the Company’s patent and that the Company’s patent was valid, and the jury awarded the Company $25.2 million in compensatory past damages. In response to post-verdict motions made by the parties, on September 16, 2010, the presiding judge issued a series of rulings that (a) granted the Company’s motion for a permanent injunction to be issued prohibiting the manufacture, use or sale of the infringing Sercel products, (b) confirmed that the Company’s patent was valid, (c) confirmed that the jury’s finding of infringement was supported by the evidence and (d) disallowed $5.4 million of lost profits that were based on infringing products that were manufactured and delivered by Sercel outside of the United States, but were offered for sale by Sercel in the United States and involved underlying orders and payments received by Sercel in the United States. In addition, the judge concluded that the evidence supporting the jury’s finding that the Company was entitled to be awarded $9.0 million in lost profits associated with certain infringing pre-verdict marine sales by Sercel was too speculative and therefore disallowed that award of lost profits. As a result of the judge’s ruling, the Company is now entitled to be awarded an additional amount of damages equal to a reasonable royalty on the infringing pre-verdict Sercel marine sales. After the Company learned that Sercel continued to make sales of infringing products after the January 2010 jury verdict was rendered, the Company filed motions with the court to seek additional compensatory damages for the post-verdict infringing sales and enhanced damages as a result of the willful nature of Sercel’s post-verdict infringement. On February 16, 2011, the Court entered a final judgment and permanent injunction in the case. The final judgment awarded the Company $10.7 million in damages, plus interest, and the permanent injunction prohibits Sercel and parties acting in concert with Sercel from making, using, offering to sell, selling, or importing in the United States (which includes territorial waters of the United States) Sercel’s 408UL, 428XL and SeaRay digital sensor units, and all other products that are only colorably different from those products. The Court ordered that the additional damages to be paid by Sercel as a reasonable royalty on the infringing pre-verdict Sercel marine sales and the additional damages to be paid by Sercel resulting from post-verdict infringing sales would be determined in a separate future proceeding. Sercel and the Company have each appealed portions of the final judgment. The Company has not recorded any amounts related to this gain contingency as of September 30, 2011.

     Other

     The Company has been named in various other lawsuits or threatened actions that are incidental to its ordinary business. Litigation is inherently unpredictable. Any claims against the Company, whether meritorious or not, could be time-consuming, cause the Company to incur costs and expenses, require significant amounts of management time and result in the diversion of significant operational resources. The results of these lawsuits and actions cannot be predicted with certainty. Management currently believes that the ultimate resolution of these matters will not have a material adverse impact on the financial condition, results of operations or liquidity of the Company.

(11) Noncontrolling Interest

     In February 2011, the Company established a new seismic data processing center in Rio de Janeiro, Brazil, with Brazilian energy consultancy Bratexco, to provide advanced imaging services to exploration and production (“E&P”) companies operating in basins off the coast of Brazil. The entity is named GX Technology Processamento de Dados Ltda. The Company owns a 70% interest, and Bratexco owns a 30% interest. Bratexco’s cash contributions were $0.3 million.

     The Company consolidates the assets, liabilities, revenues and expenses of all majority-owned subsidiaries over which the Company exercises control or for which the Company has a controlling financial interest. Bratexco’s interest in results of operations related to the entity is reflected in “Net income attributable to noncontrolling interest” in the condensed consolidated statements of operations and its interest in the assets and liabilities related to the entity is reflected in “Noncontrolling interest” in the condensed consolidated balance sheet.

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(12) Related Party Transactions

     BGP, Inc., China National Petroleum Corporation (“BGP”) owned approximately 15.3% of the Company’s outstanding common stock as of September 30, 2011. For the three months ended September 30, 2011 and 2010, the Company recorded revenues from BGP of $0.9 million and $1.7 million, respectively. For the nine months ended September 30, 2011 and 2010, the Company recorded revenues from BGP of $2.3 million and $4.8 million, respectively. Total receivables due from BGP were $2.0 million at September 30, 2011. As of September 30, 2011, BGP had paid the Company $14.8 million in cash related to the Company’s contract to outfit a BGP twelve-streamer vessel with the Company’s DigiSTREAMER data acquisition system, for which revenue has not yet been recognized.

(13) Restructuring Activities

     At December 31, 2010, the Company had a liability (reflected in “Other long-term liabilities”) of $6.7 million related to permanently ceasing to use certain leased facilities. During the nine months ended September 30, 2011, the Company made cash payments of $0.9 million and accrued $0.3 million related to accretion expense, resulting in a remaining liability of $6.1 million as of September 30, 2011.

(14) Recent Accounting Pronouncement

     In June 2011, the Financial Accounting Standards Board issued revised guidance on the presentation of comprehensive income that will be effective for the Company beginning in 2012. This guidance eliminates the option to present the components of comprehensive income as part of the statement of shareholders’ equity and also requires presentation of reclassification adjustments from other comprehensive income to net income on the face of the financial statements. The implementation of this revised guidance in 2012 will change the presentation of the Company’s financial statements, but will not have any impact on the Company’s financial position, results of operations or cash flows.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

     In this Item 2 and elsewhere in this Form 10-Q, the terms “we,” “our,” “ours” and “us” refer to ION Geophysical Corporation and its consolidated subsidiaries, except where the context otherwise requires or as otherwise indicated.

Executive Summary

     Our Business

     We are a leading provider of geophysical technology, services, and solutions for the global oil and gas industry, offering advanced acquisition equipment, software and planning and seismic processing services to the global energy industry. Our product and service offerings allow exploration and production (“E&P”) operators to obtain higher resolution images of the subsurface to reduce the risk of exploration and reservoir development, and to enable seismic contractors to acquire geophysical data more efficiently.

     We serve customers in all major energy-producing regions of the world from strategically located offices in 19 cities on five continents. In March 2010, we contributed most of our land seismic equipment business to a joint venture we formed with BGP Inc., China National Petroleum Corporation (“BGP”), a wholly-owned oil field service subsidiary of China National Petroleum Corporation (“CNPC”). The resulting joint venture company, organized under the laws of the People’s Republic of China, is named INOVA Geophysical Equipment Limited (“INOVA Geophysical”). We believe that this joint venture will provide us the opportunity to further extend the geographic scope of our business through the sales and service facilities of BGP, especially in Africa, the Middle East, China and Southeast Asia.

     Our products and services include the following:

• Marine seismic data acquisition equipment,

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• Navigation, command & control and data management software products,

• Planning services for survey design and optimization,

• Seismic data processing and reservoir imaging services,

• Seismic data libraries, and

• Land seismic data acquisition equipment (principally through our 49% ownership in INOVA Geophysical).

     We operate our company through four business segments: Systems, Software, Solutions and our INOVA Geophysical joint venture.

• 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) and analog geophone sensors.

• Software — software systems and related services for navigation and data management involving towed marine streamer and seabed operations.

• Solutions — advanced seismic data processing services for marine and land environments, seismic data libraries, and our GeoVentures (formerly Integrated Seismic Solutions, or ISS) services.

• INOVA Geophysical — cable-based, cableless and radio-controlled seismic data acquisition systems, digital sensors, vibroseis vehicles (i.e. vibrator trucks) and source controllers for detonator and energy sources business lines.

     Economic Conditions

     Demand for our seismic data acquisition products and services is cyclical and substantially dependent upon activity levels in the oil and gas industry, particularly our customers’ willingness and ability to expend their capital for oil and natural gas exploration and development projects. This demand is sensitive to current and expected future oil and natural gas prices. During 2011, West Texas Intermediate (“WTI”) spot crude oil prices initially rose above $100 per barrel, but have declined since then; since August 1, 2011, WTI spot crude oil prices have generally been in the range of $75 to $90 per barrel. Brent crude oil prices have remained above $100 per barrel during most of 2011 with prices ranging between $95 and $125 per barrel. Economic concerns and the ongoing debt crisis in Europe have contributed to lower price levels across multiple asset classes, as oil prices were affected by lower expectations about near and mid-term growth of oil demand around the world. However, Brent crude oil prices continue to exceed $100 per barrel suggesting that worldwide oil demand offsets the concerns regarding the European debt crisis. A notable price divergence persists between the Brent and WTI benchmarks, as Brent oil prices are decoupled from the impact of excess oil inventories in the U.S. and WTI oil prices are decoupled from the political unrest in North Africa and the Middle East. Energy price forecasts are by their nature highly uncertain, but external reports indicate that oil prices are expected to remain resilient in 2012 as demand outpaces supply, particularly in developing countries in the Asian market. Unlike the recovery in oil prices, U.S. natural gas prices have remained depressed relative to 2008 levels, due to the excess supply of natural gas in the North American market. However, demand for natural gas has not deteriorated and industry interest in natural gas and oil shale opportunities continues to increase, along with developments in the technologies employed to locate and extract shale reserves.

     For the first nine months of 2011, our Solutions segment experienced increased revenues compared to the comparable period in 2010, due to increased seismic data library sales (principally driven by customers’ demand for access to our multi-client programs in Greenland and Brazil) and new venture business revenues. In addition, we recently completed a scientific project for the Russian Government using our unique Arctic technology and know-how to survey large swatches of the Russian Arctic, positioning us to become a major player in future Russian Arctic multi-client business. Our footprint in the U.S. shale play is also expanding with three new venture programs in our backlog and more on the drawing board, as we increase our technical understanding of shale plays and leverage this to broaden our shale footprint in both the U.S. and international markets in 2012. Our Solutions segment’s data processing business has been negatively impacted by the slowdown in Gulf of Mexico exploration and production activities resulting

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from the Deepwater Horizon incident in April 2010. However, our pipeline for data processing work grew in the third quarter of 2011 and we expect the recovery of our data processing business to return to pre-Macondo levels in 2012.

     Our Software segment generated slightly higher revenues during the first nine months of 2011 compared to the same period in 2010, principally due to favorable foreign currency exchange rates. In terms of the segment’s functional currency (British Pounds Sterling), Software segment revenues remained consistent with the 2010 nine-month period.

     Revenues for our Systems segment increased for the first nine months of 2011 compared with the first nine months of 2010, as demand for our marine products offset decreased sales of our sensor geophone products. Also, we remain on track to recognize the revenue from the BGP twelve-streamer system (announced in August 2010) in the fourth quarter. Our land seismic business, particularly INOVA Geophysical’s business in North America and Russia, continues to show signs of recovery. However, due to the political unrest in North Africa and the Middle East in 2011, and the ongoing investment in INOVA Geophysical’s next-generation cable and cableless land acquisition systems (which are scheduled to be launched in 2012), we do not expect to see improvements in our land seismic business’s results until 2012.

     Although the U.S. economic recovery has been slower than initially expected and geopolitical tensions and regulatory uncertainties have adversely affected customers’ purchasing plans, we believe that our industry’s long-term prospects remain favorable because of the decreasing number of significant new discoveries of hydrocarbons and increasing interest in oil and natural gas shale opportunities based upon developments in the technology to locate and extract shale reserves. We believe that technologies that add a competitive advantage through cost reductions or improvements in productivity will continue to be valued in our marketplace. We believe that our newest technologies such as DigiFIN^®, DigiSTREAMER^TM, Orca^® and INOVA Geophysical’s recently announced technologies (including FireFly^® DR31, Hawk^TM SN11, UniVib^TM, VectorSeis^® ML21 and ARIES^® II with digital sensor capabilities), will continue to attract customer interest, because those technologies are designed to deliver improvements in image quality within more productive delivery systems.

     Key Financial Metrics

     The following table provides an overview of key financial metrics for our company as a whole and our four business segments during the three and nine months ended September 30, 2011, compared to those for the same period of 2010 (in thousands, except per share amounts):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2011		2010		2011		2010
Net revenues:
Systems:
Towed Streamer	$	22,219	$	20,185	$	60,000	$	50,096
Ocean Bottom		—		510		509		1,821
Other		10,065		5,036		25,210		19,721
Total	$	32,284	$	25,731	$	85,719	$	71,638
Software:
Software Systems	$	9,476	$	8,567	$	27,444	$	25,824
Services		715		561		1,545		1,409
Total	$	10,191	$	9,128	$	28,989	$	27,233
Solutions:
Data Processing	$	22,416	$	27,943	$	63,349	$	79,661
New Venture		35,597		49,971		67,819		62,314
Data Library		15,166		8,821		48,862		28,342
Total	$	73,179	$	86,735	$	180,030	$	170,317
Legacy Land Systems (INOVA)	$	—	$	—	$	—	$	16,511
Total	$	115,654	$	121,594	$	294,738	$	285,699

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	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2011			2010			2011			2010
Gross profit:
Systems	$	13,397		$	11,202		$	40,752		$	29,141
Software		8,061			6,074			20,970			18,254
Solutions		22,600			31,672			47,106			52,965
Legacy Land Systems (INOVA)		—			—			—			(984	)
Total	$	44,058		$	48,948		$	108,828		$	99,376
Gross margin:
Systems		41	%		44	%		48	%		41	%
Software		79	%		67	%		72	%		67	%
Solutions		31	%		37	%		26	%		31	%
Legacy Land Systems (INOVA)		—	%		—	%		—	%		(6	%)
Total		38	%		40	%		37	%		35	%
Income from operations:
Systems	$	6,852		$	5,693		$	21,989		$	13,833
Software		7,117			5,451			18,409			16,513
Solutions		13,897			22,556			22,751			30,669
Legacy Land Systems (INOVA)		—			—			—			(9,623	)
Corporate and other		(9,370	)		(10,331	)		(29,782	)		(33,016	)
Income from operations	$	18,496		$	23,369		$	33,367		$	18,376
Net income (loss) applicable to common shares	$	8,714		$	11,871		$	11,409		$	(58,820	)
Basic net income (loss) per common share	$	0.06		$	0.08		$	0.07		$	(0.42	)
Diluted net income (loss) per common share	$	0.06		$	0.08		$	0.07		$	(0.42	)

     We intend that the following discussion of our financial condition and results of operations will provide information that will assist in understanding our consolidated financial statements, the changes in certain key items in those financial statements from quarter to quarter, and the primary factors that accounted for those changes. Our results of operations for the nine months ended September 30, 2010 were materially affected by the disposition of our land systems businesses in forming INOVA Geophysical on March 25, 2010, which affects the comparability of certain of the financial information contained in this Form 10-Q. In order to assist with the comparability to our historical results of operations, certain of the financial tables and discussions below with respect to the nine months ended September 30, 2010 have been adjusted to exclude the results of operations of our disposed legacy land equipment segment, which we refer to below as our “Legacy Land Systems” segment. The term “as adjusted” as it appears in certain of such tables and discussions, reflects the exclusion of results from the Legacy Land Systems segment.

     We account for our 49% interest in our INOVA Geophysical joint venture as an equity method investment and record our share of earnings of INOVA Geophysical on a one fiscal quarter lag basis. Thus, for the three months ended September 30, 2011 and 2010, we recognized our share of losses in INOVA Geophysical of $4.8 million and $8.0 million, respectively, which reflected joint venture operating results for the three months ended June 30, 2011 and 2010. For the nine months ended September 30, 2011 and 2010, we recognized our share of losses in INOVA Geophysical of $9.8 million and $8.2 million; these sums were derived from INOVA Geophysical’s operating results for the nine-month period from October 1, 2010 through June 30, 2011, and the period from March 26, 2010 through June 30, 2010, respectively. See below for the summarized, unaudited financial information for INOVA Geophysical at “— Results of Operations — Three and Nine Months Ended September 30, 2011 Compared to the Three and Nine Months Ended September 30, 2010 — Equity in Losses of INOVA Geophysical.”

     We filed an amendment to our 2010 Annual Report on Form 10-K on Form 10-K/A in June 2011 that contained separate consolidated financial statements for INOVA Geophysical for the fiscal year ended December 31, 2010, as required under SEC Regulation S-X.

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     For a discussion of factors that could impact our future operating results and financial condition, see Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2010.

     References below to “Notes” are to Notes to Unaudited Condensed Consolidated Financial Statements appearing in Part I, Item 1 of this Form 10-Q.

     The information contained in this Quarterly Report on Form 10-Q contains references to our registered marks, as indicated. Except where stated otherwise or unless the context otherwise requires, the terms “DigiSTREAMER,” “VectorSeis,” “Scorpion,” “Orca,” “DigiFIN,” “Hawk,” “Univib,” “ARIES” and “FireFly” refer to our (or INOVA Geophysical’s (as applicable)) DigiSTREAMER^TM, VectorSeis^®, Scorpion^®, Orca^®, DigiFIN^®, Hawk^TM, Univib^TM, ARIES^® and FireFly^® registered marks.

Results of Operations

     Three Months Ended September 30, 2011 Compared to Three Months Ended September 30, 2010

     Our overall total net revenues of $115.7 million for the three months ended September 30, 2011 decreased $5.9 million, or 5%, compared to total net revenues for the three months ended September 30, 2010, principally due to lower revenues from our Solutions segment, which were partially offset by increased net revenues in our Systems segment for the quarter. Our overall gross profit percentage for the three months ended September 30, 2011 was 38%, compared to 40% for the same period of 2010. Total operating expenses as a percentage of net revenues for the three months ended September 30, 2011 and 2010 were 22% and 21%, respectively. For the three months ended September 30, 2011, we recorded income from operations of $18.5 million, compared to $23.4 million for the same prior-year period.

Net Revenues, Gross Profits and Gross Margins

     Systems — Net revenues for the three months ended September 30, 2011 increased by $6.6 million, or 25%, to $32.3 million, compared to $25.7 million for the three months ended September 30, 2010, due to strong demand for marine positioning equipment and improved sales of marine data acquisition systems and sensor geophones during the quarter. Gross profit for the three months ended September 30, 2011 increased by $2.2 million to $13.4 million, representing a 41% gross margin, compared to $11.2 million, representing a 44% gross margin, for the three months ended September 30, 2010. The decrease in gross margins in our Systems segment was primarily due to the relatively higher proportions of revenues from sales of lower-margin marine data acquisition systems and sensor geophones.

     Software — Net revenues for the three months ended September 30, 2011 increased by $1.1 million, or 12%, to $10.2 million compared to $9.1 million for the same prior-year period. Excluding the effects of foreign currency translation, revenues increased 8% due to continued demand for Orca and Gator software. Gross profit of $8.1 million for the three months ended September 30, 2011 increased $2.0 million over the comparative period and gross margins increased by 12% to 79% due to changes in product mix (there was a relative increase in software sales during the third quarter of 2011, which have higher margins than the associated hardware sales for this segment).

     Solutions — Net revenues for the three months ended September 30, 2011 decreased by $13.5 million, or 16%, to $73.2 million, compared to $86.7 million for the three months ended September 30, 2010. This decrease was predominantly driven by the timing of new venture revenues, with 2011 new venture projects being spread more evenly between the third and fourth quarters compared to 2010 new venture projects (mostly in the Arctic) where the majority of new venture activity was concentrated in the third quarter of the year, and by lower data processing revenues as the data processing business continues to be impacted by the lagging effects of the slowdown in the Gulf of Mexico. These decreases were partially offset by increased demand for access to our multi-client data libraries in the Arctic, East Africa and the Congo. Gross profit decreased by $9.1 million to $22.6 million compared to $31.7 million in 2010, and gross margins decreased 6% to 31% as a result of lower data processing revenues and the sales mix within the multi-client business.

Operating Expenses

     Research, Development and Engineering — Research, development and engineering expense was $6.3 million, or 5% of net revenues, for the three months ended September 30, 2011, an increase of $0.8 million compared to $5.5 million or 5% of net revenues,

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for the corresponding period of 2010. Research, development and engineering expense for both the 2011 and 2010 quarters related to our continuing investment in our next-generation seismic data acquisition products and services.

     Marketing and Sales — Marketing and sales expense of $8.2 million, or 7% of net revenues, for the three months ended September 30, 2011 increased $0.4 million compared to $7.8 million, or 6% of net revenues, for the corresponding period of 2010. The increase was primarily due to higher consulting fees and employment-related expenses.

     General and Administrative — General and administrative expenses of $11.0 million for the three months ended September 30, 2011 decreased $1.3 million compared to $12.3 million, for the corresponding period of 2010. General and administrative expenses as a percentage of net revenues for the three months ended September 30, 2011 and 2010 remained consistent at 10%.

Non-operating Items

     Interest Expense, net — Interest expense, net, was $1.4 million for the three months ended September 30, 2011 compared to $1.9 million for the three months ended September 30, 2010. We expect interest expense, net, for the fourth quarter of 2011 to be consistent with interest expense levels experienced during the first three quarters of 2011.

     Equity in Losses of INOVA Geophysical — We account for our 49% interest in INOVA Geophysical as an equity method investment and record our share of earnings of INOVA Geophysical on a one fiscal quarter lag basis. Thus, our share of INOVA Geophysical’s losses for the three months ended June 30, 2011 are included in our financial results for the three months ended September 30, 2011. For the three months ended September 30, 2011, we recorded approximately $4.8 million of equity in losses of INOVA Geophysical compared to equity in losses of $8.0 million for the third quarter of 2010 (which represented our 49% share of equity in losses of INOVA Geophysical for the three months ended June 30, 2010). The following table reflects the summarized financial information for INOVA Geophysical for the three months ended June 30, 2011 and 2010 (in thousands):

	Three Months			Three Months
	Ended			Ended
	June 30, 2011			June 30, 2010
Total net revenues	$	33,756		$	18,586
Gross profit	$	2,241		$	(3,268	)
Loss from operations	$	(8,326	)	$	(14,393	)
Net loss	$	(9,811	)	$	(16,336	)

     INOVA Geophysical’s revenues for the second quarter of 2011 improved by more than 80% compared to the prior year period. However, due to the political unrest in North Africa and the Middle East during 2011 and the launch of INOVA Geophysical’s next-generation cable and cableless land acquisition systems, we do not expect significant positive improvements to INOVA Geophysical’s results of operations until 2012. Additionally, due to INOVA Geophysical’s announced launch of its next-generation products, which are in process of field testing with plan of commercial introduction in 2012, we expect to see a one-time write-down of inventory based upon previous technologies to occur in INOVA Geophysical’s third quarter and then reflected in our fourth quarter results. We estimate that our 49% share of this one-time write-down to be in the range of $6 million to $8 million.

     Other Income (Expense) — Other income (expense) for the three months ended September 30, 2011 was $0.2 million compared to ($3.2) million for the comparative period of 2010. This difference primarily related to foreign currency exchange gains associated with our operations in the United Kingdom.

     Income Tax Expense — Income tax expense for the three months ended September 30, 2011 was $3.5 million compared to a tax benefit of $1.9 million for the comparative period of 2010. Our effective tax rates for the three months ended September 30, 2011 and 2010 were 27.9% (provision on income) and 18.8% (benefit on income), respectively. For the three months ended September 30, 2010, we recorded a benefit of $3.9 million related to alternative minimum tax. Excluding the benefit related to alternative minimum tax included in the third quarter of 2010, our effective tax rate would have been 22.2% (provision on income) for that quarter. The increase in our effective tax rate for the three months ended September 30, 2011 was due to changes in the distribution of earnings between U.S. and foreign jurisdictions.

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Nine Months Ended September 30, 2011 Compared to Nine Months Ended September 30, 2010

				Nine Months Ended
	Nine Months Ended			September 30, 2010
	September 30, 2011			As Reported			As Adjusted 1
				(In thousands)
Net revenues	$	294,738		$	285,699		$	269,188
Cost of sales		185,910			186,323			168,828
Gross profit		108,828			99,376			100,360
Gross margin		37	%		35	%		37	%
Operating expenses:
Research, development and engineering		18,070			19,748			15,567
Marketing and sales		23,079			21,323			19,764
General and administrative		34,312			39,929			37,030
Total operating expenses		75,461			81,000			72,361
Income from operations	$	33,367		$	18,376		$	27,999

¹ Excludes Legacy Land Systems (INOVA).

     Our total net revenues of $294.7 million for the nine months ended September 30, 2011 increased $9.0 million, or 3%, compared to total net revenues for the nine months ended September 30, 2010. Excluding the effect of Legacy Land Systems (INOVA) operations, total net revenues increased $25.6 million, or 9%, over revenues (as adjusted) for the comparable period in 2010. Our overall gross profit percentage for the nine months ended September 30, 2011 was 37%, consistent with the gross profit percentage (as adjusted) for the same period of 2010. Total operating expenses as a percentage of net revenues for the nine months ended September 30, 2011 and 2010 were, respectively, 26% and 27%, as adjusted. For the nine months ended September 30, 2011, we recorded income from operations of $33.4 million, compared to $28.0 million, as adjusted, for the same prior-year period.

Net Revenues, Gross Profits and Gross Margins (excluding Legacy Land Systems)

     Systems — Net revenues for the nine months ended September 30, 2011 increased by $14.1 million, or 20%, to $85.7 million, compared to $71.6 million for the nine months ended September 30, 2010. This increase was primarily due to higher revenues from towed streamer and other marine products partially offset by weak sales of sensor geophones. Gross profit for the nine months ended September 30, 2011 increased by $11.6 million to $40.8 million, representing a 48% gross margin, compared to $29.1 million, representing a 41% gross margin, for the nine months ended September 30, 2010. The increase in gross margins in our Systems segment was primarily due to sales mix including an increase in higher-margin marine positioning equipment sales.

     Software — Net revenues for the nine months ended September 30, 2011 increased by $1.8 million, or 6%, to $29.0 million, compared to $27.2 million for the nine months ended September 30, 2010. The increase was principally due to the favorable impact of foreign exchange rate changes. Excluding the effects of foreign currency translation, revenues were consistent between the periods of comparison. Gross profit of $21.0 million for the nine months ended September 30, 2011 increased $2.7 million over the comparative period and gross margins increased by 5% to 72% due to a relative increase in software sales during the first nine months of 2011, which have higher margins than the associated hardware sales.

     Solutions — Net revenues for the nine months ended September 30, 2011 increased by $9.7 million, or 6%, to $180.0 million, compared to $170.3 million for the nine months ended September 30, 2010. This increase was predominantly driven by demand for access to our multi-client data libraries in Greenland and Brazil and by increased marine new venture activity in Africa and Greenland and new venture land activity in the Marcellus shale, partially offset by lower data processing revenues resulting from the lagging effects of the slowdown in the Gulf of Mexico. Gross profit decreased by $5.9 million to $47.1 million compared to $53.0 million in 2010, while gross margins decreased 5% to 26% principally as a result of the lower volume of revenues from our data processing services.

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Operating Expenses (excluding Legacy Land Systems)

     Research, Development and Engineering — Research, development and engineering expense was $18.1 million, or 6% of net revenues, for the nine months ended September 30, 2011, an increase of $2.5 million compared to $15.6 million, as adjusted, or 6% of net revenues, for the corresponding period of 2010.

     Marketing and Sales — Marketing and sales expense of $23.1 million, or 8% of net revenues, for the nine months ended September 30, 2011 increased $3.3 million compared to $19.8 million, as adjusted, or 7% of net revenues, for the corresponding period of 2010. The increase was primarily due to higher employment-related expenses.

     General and Administrative — General and administrative expenses of $34.3 million for the nine months ended September 30, 2011 decreased $2.7 million compared to $37.0 million, as adjusted, for the corresponding period of 2010. General and administrative expenses as a percentage of net revenues for the nine months ended September 30, 2011 and 2010 were 12% and 14% (as adjusted), respectively. This decrease was predominantly due to lower legal costs.

Non-operating Items

     Interest Expense, net — Interest expense, net, was $4.2 million for the nine months ended September 30, 2011 compared to $28.9 million for the nine months ended September 30, 2010. As a result of our first quarter 2010 debt refinancing, our interest expense for the nine months ended September 30, 2010 included a $10.1 million write-off of deferred financing charges and an $8.7 million non-cash debt discount (which was fully amortized by March 31, 2010). After excluding these two non-cash items, our interest expense, net, for the nine months ended September 30, 2010 was $10.1 million. As of September 30, 2011, we had no amounts drawn on our revolving line of credit under our Credit Facility, and we had cash on hand and short-term investments of $71.3 million. We expect interest expense, net, for the fourth quarter of 2011 to be consistent with interest expense levels experienced during our first three quarters of 2011.

     Loss on Disposition of Land Division — Due to the formation of INOVA Geophysical in March 2010, we recorded a $38.1 million loss on the disposition of our land systems division for the first quarter of 2010. The majority of the loss recognized from this transaction related to accumulated foreign currency translation adjustments (effect of exchange rates) of our foreign subsidiaries, mainly in Canada.

     Fair Value Adjustment of Warrant — In October 2009, we issued to BGP a warrant to purchase shares of our common stock. BGP elected not to exercise the warrant and, on March 25, 2010, BGP terminated the warrant and surrendered it to us. Prior to its termination, the warrant was required to be accounted for as a liability at its fair value, resulting in a positive non-cash fair value adjustment of $12.8 million in the first quarter of 2010.

     Equity in Losses of INOVA Geophysical — For the nine months ended September 30, 2011, we recorded approximately $9.8 million of equity in losses of INOVA Geophysical, which represented our 49% share of INOVA Geophysical for the nine-month period from October 1, 2010 to June 30, 2011, compared to $8.2 million of equity in losses for the nine months ended September 30, 2010, which represented our 49% share of equity in losses of INOVA Geophysical for the period from March 26, 2010 to June 30, 2010. The following table reflects the summarized financial information for INOVA Geophysical for the nine month period from October 1, 2010 through June 30, 2011 and the period from the formation of INOVA Geophysical on March 26, 2010 through June 30, 2010 (in thousands):

	October 1, 2010			March 26, 2010
	through			through
	June 30, 2011			June 30, 2010
Total net revenues	$	111,747		$	19,655
Gross profit	$	17,680		$	(4,194	)
Loss from operations	$	(18,200	)	$	(15,579	)
Net loss	$	(20,589	)	$	(17,566	)

     INOVA Geophysical’s revenues for the first nine months of 2011 significantly improved compared to the prior year period. However, due to the political unrest in North Africa and the Middle East and the launch of INOVA Geophysical’s next-generation cable and cableless land acquisition systems, we do not expect significant positive improvements to INOVA Geophysical’s results of operations until 2012. Additionally, due to INOVA Geophysical’s announced launch of its next-generation products, which are in process of field testing with plan of commercial introduction in 2012, we expect to see a one-time write-down of inventory based upon previous technologies to occur in INOVA Geophysical’s third quarter and then reflected in our fourth quarter results. We estimate that our 49% share of this one-time write-down to be in the range of $6 million to $8 million.

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     Other Expense — Other expense for the nine months ended September 30, 2011 was $2.3 million compared to $0.8 million for the comparative period of 2010. This difference primarily related to foreign currency exchange losses primarily associated with our operations in the United Kingdom.

     Income Tax Expense — Income tax expense for the nine months ended September 30, 2011 was $4.7 million compared to $12.4 million for the comparative period of 2010. Our effective tax rate for the nine months ended September 30, 2011 was 27.7%, a provision on income, compared to a provision on a loss of 27.7%, for the nine months ended September 30, 2010. Income tax expense for the nine months ended September 30, 2010, included $16.4 million of expense related to the transactions involved in the formation of INOVA Geophysical, partially offset by a benefit related to alternative minimum tax. Excluding the impact of these transactions, our effective tax rate for the nine months ended September 30, 2010 would have been 29.7% (provision on a loss). The change in our effective tax rate for the nine months ended September 30, 2011 as compared to the corresponding period in 2010 was due to changes in the distribution of earnings between U.S. and foreign jurisdictions.

     Preferred Stock Dividends — The preferred stock dividend relates to our Series D Preferred Stock. Quarterly dividends must be paid in cash. Dividends are paid at a rate equal to the greater of (i) 5.0% per annum or (ii) the three month LIBOR rate on the last day of the immediately preceding calendar quarter plus 2.5% per annum. The Series D Preferred Stock dividend rate was 5.0% at September 30, 2011. The total amount of dividends paid on our preferred stock for the nine months ended September 30, 2011 was less than the comparative period of 2010 due to the conversion of 43,000 shares of preferred stock into 9,659,231 shares of common stock in April 2010.

Liquidity and Capital Resources

Capital Requirements and Sources of Capital

     Our cash requirements include our working capital requirements, and cash required for our debt service payments, seismic data acquisition projects for our seismic data libraries and capital expenditures. As of September 30, 2011, we had working capital of $168.3 million, which included $43.3 million of cash on hand and $28.0 million of short-term investments. Capital requirements are primarily driven by our continued investment in our multi-client seismic data library ($91.6 million in the nine months ended September 30, 2011) and, to a lesser extent, our inventory purchase obligations. Also, our headcount is a significant driver of our working capital needs. Because a significant portion of our business is involved in the planning, processing and interpretation of seismic data services, one of our largest investments is in our employees, which involves cash expenditures for their salaries, bonuses, payroll taxes and related compensation expenses. Our working capital requirements may change from time to time depending upon many factors, including our operating results and adjustments in our operating plan required in response to industry conditions, competition, acquisition opportunities and unexpected events. In recent years, our primary sources of funds have been cash flows generated from our operations, our existing cash balances, debt and equity issuances and borrowings under our revolving credit and term loan facilities (see “— Revolving Line of Credit and Term Loan Facility” below)

     At September 30, 2011, our principal credit facility consisted of:

• A revolving line of credit sub-facility providing for borrowings of up to $100.0 million; and

• A term loan sub-facility having an outstanding principal balance of $100.3 million.

     As of September 30, 2011, we had no indebtedness outstanding under the revolving line of credit.

     Revolving Line of Credit and Term Loan Facility — In March 2010, we, our Luxembourg subsidiary, ION International S.à r.l. (“ION Sàrl”), and certain of our other U.S. and foreign subsidiaries entered into a new credit facility (the “Credit Facility”). The terms of the Credit Facility are set forth in a credit agreement dated March 25, 2010 (the “Credit Agreement”), by and among us, ION Sàrl and China Merchants Bank Co., Ltd., New York Branch (“CMB”), as administrative agent and lender. Our obligations under the Credit Facility are guaranteed by certain of our material U.S. subsidiaries and the obligations of ION Sàrl under the Credit Facility are

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guaranteed by certain of our material U.S. and foreign subsidiaries, in each case that are parties to the Credit Agreement. In addition, in June 2010, INOVA Geophysical entered into an agreement to guarantee the indebtedness under the Credit Facility.

     The Credit Facility provides us with a revolving line of credit of up to $100.0 million in borrowings (including borrowings for letters of credit), and refinanced our outstanding term loan with a new term loan in the original principal amount of $106.3 million.

     The revolving credit sub-facility and term loan under the Credit Facility are each scheduled to mature on March 24, 2015. The principal amount under the term loan is subject to scheduled quarterly amortization payments of $1.0 million per quarter until the maturity date, upon which the remaining unpaid principal amount of the term loan becomes due and payable. The indebtedness under the Credit Facility may sooner mature on a date that is 18 months after the earlier of (i) any dissolution of INOVA Geophysical, or (ii) the administrative agent determining in good faith that INOVA Geophysical is unable to perform its obligations under its guarantee that it has provided under the Credit Facility.

     The interest rate per annum on borrowings under the Credit Facility will be, at our option:

• An alternate base rate equal to the sum of (i) the greatest of (a) the prime rate of CMB, (b) a federal funds effective rate plus 0.50%, or (c) an adjusted LIBOR-based rate plus 1.0%, and (ii) an applicable interest margin of 2.5%; or

• For Eurodollar borrowings and borrowings in Euros, Pounds Sterling or Canadian Dollars, the sum of (i) an adjusted LIBOR-based rate, and (ii) an applicable interest margin of 3.5%.

     As of September 30, 2011, the $100.3 million in outstanding term loan indebtedness under the Credit Facility accrued interest at a rate of 3.7% per annum.

     The Credit Facility requires us to be in compliance with certain financial covenants. Certain of these financial covenants became effective on June 30, 2011 and will continue in effect for each fiscal quarter thereafter over the term of the Credit Facility. These financial covenants require us and our subsidiaries to:

• Maintain a minimum fixed charge coverage ratio in an amount equal to at least 1.125 to 1;

• Not exceed a maximum leverage ratio of 3.25 to 1; and

• Maintain a minimum tangible net worth of at least 60% of ION’s tangible net worth as of March 31, 2010, as defined in the Credit Agreement.

     The fixed charge coverage ratio is defined as the ratio of (i) our consolidated EBITDA less cash income tax expense and non-financed capital expenditures, to the sum of (ii) scheduled payments of lease payments and payments of principal indebtedness, interest expense actually paid and cash dividends, in each case for the four consecutive fiscal quarters most recently ended. The leverage ratio is defined as the ratio of (x) total funded consolidated debt, capital lease obligations and issued letters of credit (net of cash collateral) to (y) our consolidated EBITDA for the four consecutive fiscal quarters most recently ended. We were in compliance with these financial covenants as of September 30, 2011, and we expect to remain in compliance with these covenants throughout the remainder of 2011.

     Interest Rate Caps — We use derivative financial instruments to manage our exposure to the interest rate risks related to the variable rate debt under our term loan indebtedness. We do not use derivatives for trading or speculative purposes and only enter into contracts with major financial institutions based on their credit rating and other factors.

     In August 2010, we entered into an interest rate cap agreement and purchased interest rate caps having an initial notional amount of $103.3 million with a three-month average LIBOR cap of 2.0%. If and when the three-month average LIBOR rate exceeds 2.0%, the LIBOR portion of interest owed by us would be effectively capped at 2.0%. This initial notional amount was set to equal the projected outstanding balance under our term loan facility at December 31, 2010. The notional amount was then set so as not to exceed the outstanding balance of our term loan facility over a period that extends through March 29, 2013. We purchased these interest rate caps for approximately $0.4 million and designated the interest rate caps as cash flow hedges.

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     In July 2011, we purchased additional interest rate caps related to our term loan facility. The notional amounts of these interest rate caps, together with the notional amounts of the interest rate caps purchased in August 2010, were set so as not to exceed the outstanding balance of our term loan facility over a period that extends through March 31, 2014. We purchased these interest rate caps for approximately $0.3 million and designated the interest rate caps as cash flow hedges. See further discussion regarding these interest rate caps at Note 6 “— Long-term Debt, Lease Obligations and Interest Rate Caps.”

Meeting our Liquidity Requirements

     As of September 30, 2011, our total outstanding indebtedness (including capital lease obligations) was approximately $103.8 million, primarily consisting of approximately $100.3 million outstanding under the term loan. As of September 30, 2011, we had no amounts drawn on our revolving line of credit under our Credit Facility, and we had approximately $43.3 million of cash on hand and $28.0 million in short-term investments.

     For the nine months ended September 30, 2011, total capital expenditures, including investments in our multi-client data library, were $100.6 million, and we are projecting additional capital expenditures for the fourth quarter of 2011 to be between $20 million and $40 million. A majority of our projected additional capital expenditures relate to our investment in our multi-client data library, and we anticipate that most of this investment will be underwritten by our customers.

Cash Flow from Operations

     We have historically financed our operations from internally generated cash and funds from equity and debt financings. Cash and cash equivalents were $43.3 million, which excludes $28.0 million of excess cash invested in short-term bank certificates of deposit, at September 30, 2011, compared to $84.4 million at December 31, 2010. Net cash provided by operating activities was $86.1 million for the nine months ended September 30, 2011, compared to $54.8 million for the comparative period of 2010. The increase in our cash flows from operations was primarily due to decreases in unbilled receivables and increases in deferred revenues, offset partially by increased accounts receivable and an increase in inventory in our Systems segment, which includes building inventory related to our contract to outfit a BGP twelve-streamer vessel with our DigiSTREAMER data acquisition system, announced in August 2010, and BGP is expected to deploy the system in the fourth quarter of this year.

Cash Flow from Investing Activities

     Net cash flow used in investing activities was $135.0 million for the nine months ended September 30, 2011, compared to net cash provided by investing activities of $33.4 million for the comparative period of 2010. The principal uses of cash in our investing activities during the nine months ended September 30, 2011 were our net investment of $28.0 million of excess cash in short-term bank certificates of deposit, $91.6 million of continued investment in our multi-client data library and our $6.5 million investment in a convertible note (see Note 3 "— Investments.”). The principal source of cash from our investing activities during the nine months ended September 30, 2010 was $99.8 million net proceeds received from BGP for their 51% interest in INOVA Geophysical and the use of cash of $58.9 million on investment in our multi-client data library.

Cash Flow from Financing Activities

     Net cash flow provided by financing activities was $7.8 million for the nine months ended September 30, 2011, compared to $90.9 million of net cash flow used in financing activities for the comparative period of 2010. The net cash flow provided by financing activities during the nine months ended September 30, 2011 was primarily related to proceeds from stock option exercises of $13.0 million, partially offset by payments on our long-term debt of $4.9 million. The net cash flow used in financing activities during the nine months ended September 30, 2010 was primarily related to net repayments on our prior revolving credit facility of $89.4 million and payments on our notes payable in connection with our long-term debt refinancing of $143.8 million. This cash outflow was partially offset by proceeds of $38.0 million from the issuance of our common stock to BGP in March 2010 and net proceeds of $105.7 million related to the issuance of the term loan under the Credit Facility.

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Inflation and Seasonality

     Inflation in recent years has not had a material effect on our costs of goods or labor, or the prices for our products or services. Traditionally, our business has been seasonal, with strongest demand in the fourth quarter of our fiscal year.

Critical Accounting Policies and Estimates

     Refer to our Annual Report on Form 10-K for the year ended December 31, 2010 for a complete discussion of our significant accounting policies and estimates. There have been no material changes in the current period regarding our critical accounting policies and estimates.

Recent Accounting Pronouncements

     See Note 14 of Notes to Unaudited Condensed Consolidated Financial Statements.

Credit and Foreign Sales Risks

     The majority of our foreign sales are denominated in United States dollars. Product revenues are allocated to geographical locations on the basis of the ultimate destination of the equipment, if known. If the ultimate destination of such equipment is not known, product revenues are allocated to the geographical location of initial shipment. Service revenues, which primarily relate to our Solutions division, are allocated based upon the billing location of the customer. For the nine months ended September 30, 2011 and 2010, international sales comprised 65% and 51%, respectively, of total net revenues.

     A summary of net revenues by geographic area follows (in thousands):

	Nine Months Ended
	September 30,
	2011		2010
North America	$	102,405	$	139,667
Europe		106,798		82,651
Asia Pacific		39,229		25,193
Middle East		21,784		6,292
Latin America		7,698		15,099
Africa		6,329		13,913
Commonwealth of Independent States (CIS)		10,495		2,884
Total	$	294,738	$	285,699

     To the extent that world events or economic conditions negatively affect our future sales to customers in certain geographic areas, the collectability of our existing receivables, our future results of operations, liquidity, and financial condition may be adversely affected. We currently require customers in higher risk countries to provide their own financing. We do not currently extend long-term credit through promissory notes or similar credit agreements to companies in countries we consider to be inappropriate for credit risk purposes.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

     Refer to Item 7A of our Annual Report on Form 10-K for the year ended December 31, 2010 for a discussion regarding the Company’s quantitative and qualitative disclosures about market risk. There have been no material changes to those disclosures during the nine months ended September 30, 2011.

Item 4. Controls and Procedures

     Disclosure Controls and Procedures. Disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports we file with or submit to the SEC under the Exchange Act is recorded, processed, summarized and reported within the time period specified by the SEC’s rules and forms. Disclosure controls and procedures, include, without limitation, controls and procedures designed to ensure that information required to be disclosed under the Exchange Act is accumulated and

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communicated to management, including the principal executive officer and the principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

     Our management carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of September 30, 2011. Based upon that evaluation, our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures were effective as of September 30, 2011.

     Changes in Internal Control over Financial Reporting. There was not any change in our internal control over financial reporting that occurred during the three months ended September 30, 2011, which has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

     WesternGeco

     In June 2009, WesternGeco L.L.C. (“WesternGeco”) filed a lawsuit against us in the United States District Court for the Southern District of Texas, Houston Division. In the lawsuit, styled WesternGeco L.L.C. v. ION Geophysical Corporation, WesternGeco alleges that we have infringed several United States patents regarding marine seismic streamer steering devices that are owned by WesternGeco. WesternGeco is seeking unspecified monetary damages and an injunction prohibiting us from making, using, selling, offering for sale or supplying any infringing products in the United States. Based on our review of the lawsuit filed by WesternGeco and the WesternGeco patents at issue, we believe that its products do not infringe any WesternGeco patents, that the claims asserted against us by WesternGeco are without merit and that the ultimate outcome of the claims against us will not result in a material adverse effect on our financial condition or results of operations. We intend to defend the claims against us vigorously.

     In June 2009, we filed an answer and counterclaims against WesternGeco, in which we deny that we have infringed WesternGeco’s patents and assert that the WesternGeco patents are invalid or unenforceable. We also asserted that WesternGeco’s Q-Marine system, components and technology infringe upon a United States patent owned by us related to marine seismic streamer steering devices. The claims by us also assert that WesternGeco tortiously interfered with our relationship with our customers. In addition, we claim that the lawsuit by WesternGeco is an illegal attempt by WesternGeco to control and restrict competition in the market for marine seismic surveys performed using laterally steerable streamers. In our counterclaims, we are requesting various remedies and relief, including a declaration that the WesternGeco patents are invalid or unenforceable, an injunction prohibiting WesternGeco from making, using, selling, offering for sale or supplying any infringing products in the United States, a declaration that the WesternGeco patents should be co-owned by us, and an award of unspecified monetary damages.

     In June 2010, WesternGeco filed a lawsuit against various subsidiaries and affiliates of Fugro N.V. (“Fugro”), one of our seismic contractor customers, accusing Fugro of infringing the same United States patents regarding marine seismic streamer steering devices by planning to use certain equipment purchased from us on a survey located outside of U.S. territorial waters. The court approved the consolidation of the Fugro case with the case against us. Fugro filed a motion to dismiss the lawsuit, and in March 2011 the presiding judge granted Fugro’s motion to dismiss in part, on the basis that the alleged activities of Fugro would occur more than 12 miles from the U.S. coast and therefore are not actionable under U.S. patent infringement law.

     Fletcher

     In November 2009, Fletcher, the holder of shares of our outstanding Series D Preferred Stock, filed a lawsuit against us and certain of our directors in the Delaware Court of Chancery. In the lawsuit, styled Fletcher International, Ltd. v. ION Geophysical Corporation, f/k/a Input/Output, Inc., ION International S.à r.l., James M. Lapeyre, Bruce S. Appelbaum, Theodore H. Elliott, Jr., Franklin Myers, S. James Nelson, Jr., Robert P. Peebler, John Seitz, G. Thomas Marsh And Nicholas G. Vlahakis, Fletcher alleged, among other things, that we violated Fletcher’s consent rights contained in the Series D Preferred Stock Certificates of Designation, by ION Sàrl’s issuance of a convertible promissory note to the Bank of China, New York Branch, in connection with a bridge loan funded in October 2009 by Bank of China, and that the directors violated their fiduciary duty to us by allowing ION Sàrl to issue the

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convertible note without Fletcher’s consent. A total of $10.0 million was advanced to ION Sàrl under the bridge loan, and ION Sàrl repaid $10.0 million on the following day. Fletcher sought a court order requiring ION Sàrl to repay the $10 million advanced to ION Sàrl under the bridge loan and unspecified monetary damages. On March 24, 2010, the presiding judge in the case denied Fletcher’s request for the court order. In a Memorandum Opinion issued on May 28, 2010 in response to a motion for partial summary judgment, the judge dismissed all of Fletcher’s claims against our named directors but also concluded that, because the bridge loan note issued by ION Sàrl was convertible into ION common stock, Fletcher technically had the right to consent to the issuance of the note and that we violated Fletcher’s consent right by ION Sàrl issuing the note without Fletcher’s consent. In December 2010, the presiding judge in the case recused himself from the case and a new presiding judge was appointed to the case. In March 2011, the judge dismissed certain of the claims asserted by Fletcher. We believe that the remaining claims asserted by Fletcher in the lawsuit are without merit. We further believe that the monetary damages suffered by Fletcher as a result of ION Sàrl issuing the bridge loan note without Fletcher’s consent are nonexistent or nominal, and that the ultimate outcome of the lawsuit will not result in a material adverse effect on our financial condition or results of operations. We intend to defend the remaining claims against us in this lawsuit vigorously.

     Sercel

     On January 29, 2010, the jury in a patent infringement lawsuit filed by us against seismic equipment provider Sercel, Inc. in the United States District Court for the Eastern District of Texas returned a verdict in our favor. In the lawsuit, styled Input/Output, Inc. et al v. Sercel, Inc., (5-06-cv-00236), we alleged that Sercel’s 408, 428 and SeaRay digital seismic sensor units infringe our United States Patent No. 5,852,242, which is incorporated in our VectorSeis sensor technology. Products of ION or INOVA Geophysical that use the VectorSeis technology include the System Four, Scorpion, FireFly, and VectorSeis Ocean seismic acquisition systems. After a two-week trial, the jury concluded that Sercel infringed our patent and that our patent was valid, and the jury awarded us $25.2 million in compensatory past damages. In response to post-verdict motions made by the parties, on September 16, 2010, the presiding judge issued a series of rulings that (a) granted our motion for a permanent injunction to be issued prohibiting the manufacture, use or sale of the infringing Sercel products, (b) confirmed that our patent was valid, (c) confirmed that the jury’s finding of infringement was supported by the evidence and (d) disallowed $5.4 million of lost profits that were based on infringing products that were manufactured and delivered by Sercel outside of the United States, but were offered for sale by Sercel in the United States and involved underlying orders and payments received by Sercel in the United States. In addition, the judge concluded that the evidence supporting the jury’s finding that we were entitled to be awarded $9.0 million in lost profits associated with certain infringing pre-verdict marine sales by Sercel was too speculative and therefore disallowed that award of lost profits. As a result of the judge’s ruling, we are now entitled to be awarded an additional amount of damages equal to a reasonable royalty on the infringing pre-verdict Sercel marine sales. After we learned that Sercel continued to make sales of infringing products after the January 2010 jury verdict was rendered, we filed motions with the court to seek additional compensatory damages for the post-verdict infringing sales and enhanced damages as a result of the willful nature of Sercel’s post-verdict infringement. On February 16, 2011, the Court entered a final judgment and permanent injunction in the case. The final judgment awarded us $10.7 million in damages, plus interest, and the permanent injunction prohibits Sercel and parties acting in concert with Sercel from making, using, offering to sell, selling, or importing in the United States (which includes territorial waters of the United States) Sercel’s 408UL, 428XL and SeaRay digital sensor units, and all other products that are only colorably different from those products. The Court ordered that the additional damages to be paid by Sercel as a reasonable royalty on the infringing pre-verdict Sercel marine sales and the additional damages to be paid by Sercel resulting from post-verdict infringing sales would be determined in a separate future proceeding. Sercel and we have each appealed portions of the final judgment. We have not recorded any amounts related to this gain contingency as of September 30, 2011.

     Other

     We have been named in various other lawsuits or threatened actions that are incidental to our ordinary business. Such lawsuits and actions could increase in number as our business expands and we grow larger. Litigation is inherently unpredictable. Any claims against us, whether meritorious or not, could be time consuming, cause us to incur costs and expenses, require significant amounts of management time and result in the diversion of significant operational resources. The results of these lawsuits and actions cannot be predicted with certainty. We currently believe that the ultimate resolution of these matters will not have a material adverse impact on our financial condition, results of operations or liquidity.

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Item 1A. Risk Factors

     This report contains or incorporates by reference 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 of 1933, as amended (“Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (“Exchange Act”). 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 such forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “would,” “should,” “intend,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” or “continue” or the negative of such terms or other comparable terminology. Examples of other forward-looking statements contained or incorporated by reference in this report include statements regarding:

• the effects of current and future worldwide economic conditions and demand for oil and natural gas and seismic equipment and services;

• the effects of current and future unrest in the Middle East, North Africa and other regions;

• future benefits to be derived from INOVA Geophysical;

• future increases of capital expenditures for seismic activities;

• the expected outcome of litigation and other claims against us;

• the timing of anticipated sales and associated realized revenues;

• future levels of spending by our customers;

• expected improved revenues and the timing of future revenue realization of anticipated orders for seismic data processing work in our Solutions segment;

• future oil and gas commodity prices;

• the duration of the slowdown in exploration and development activities in the Gulf of Mexico resulting from the April 2010 Deepwater Horizon incident, which affects us and our customers;

• expected net revenues, income from operations and net income;

• expected improved revenues from data processing services in our Solutions segment;

• expected gross margins for our products and services;

• future benefits to our customers to be derived from new products and services;

• future benefits to be derived from our investments in technologies and acquired companies;

• future growth rates for our products and services;

• the degree and rate of future market acceptance of our new products and services;

• our expectations regarding oil and gas exploration and production companies and contractor end-users purchasing our more technologically-advanced products and services;

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• anticipated timing and success of commercialization and capabilities of products and services under development and start-up costs associated with their development;

• future cash needs and future availability of cash to fund our operations and pay our obligations;

• potential future acquisitions;

• future levels of capital expenditures;

• our ability to maintain our costs at consistent percentages of our revenues in the future;

• future demand for seismic equipment and services;

• future seismic industry fundamentals;

• future opportunities for new products and projected research and development expenses;

• future success in integrating our acquired businesses;

• sufficient future profits to fully utilize our net operating losses;

• future compliance with our debt financial covenants;

• expectations regarding realization of deferred tax assets; and

• anticipated results regarding accounting estimates we make.

     These forward-looking statements reflect our best judgment about future events and trends based on the information currently available to us. Our results of operations can be affected by inaccurate assumptions we make or by risks and uncertainties known or unknown to us. Therefore, we cannot guarantee the accuracy of the forward-looking statements. Actual events and results of operations may vary materially from our current expectations and assumptions.

     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, 2010 in Part II, Item 1A. “Risk Factors.” There have been no material changes from the risk factors previously disclosed in that Form 10-K.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

     (c) During the three months ended September 30, 2011, in connection with the vesting of (or lapse of restrictions on) shares of our restricted stock held by certain employees, we acquired shares of our common stock in satisfaction of tax withholding obligations that were incurred on the vesting date. The date of cancellation, number of shares and average effective acquisition price per share were as follows:

						(d) Maximum Number
						(or Approximate
						Dollar
					(c) Total Number of	Value) of Shares
					Shares Purchased as	That
	(a)		(b)		Part of Publicly	May Yet Be Purchased
	Total Number of		Average Price		Announced Plans or	Under the Plans or
Period	Shares Acquired		Paid Per Share		Program	Program
July 1, 2011 to July 31, 2011		—	$	—	Not applicable	Not applicable
August 1, 2011 to August 31, 2011		—	$	—	Not applicable	Not applicable
September 1, 2011 to September 30, 2011		526	$	6.78	Not applicable	Not applicable
Total		526	$	6.78

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Item 6. Exhibits

10.1	Employment Agreement dated August 2, 2011, to become effective on January 1, 2012, between ION Geophysical Corporation and R. Brian Hanson.
31.1	Certification of Chief Executive Officer Pursuant to Rule 13a-14(a).
31.2	Certification of Chief Financial Officer Pursuant to Rule 13a-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.
101	The following materials are formatted in Extensible Business Reporting Language (XBRL): (i) Condensed Consolidated Balance Sheets at September 30, 2011 and December 31, 2010, (ii) Condensed Consolidated Statements of Operations for the three-month and nine-month periods ended September 30, 2011 and 2010, (iii) Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2011 and 2010, and (iv) Notes to Condensed Consolidated Financial Statements tagged as block text.*

* In accordance with Rule 406T of Regulation S-T, the XBRL-related information in Exhibit 101 to this Quarterly Report on Form 10-Q is deemed not filed or part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act, is deemed not filed for purposes of section 18 of the Exchange Act, and otherwise is not subject to liability under these sections.

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SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

ION GEOPHYSICAL CORPORATION
By	/s/ R. Brian Hanson
	R. Brian Hanson
	President, Chief Operating Officer and Chief Financial Officer (Duly authorized executive officer and principal financial officer)

Date: November 3, 2011

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EXHIBIT INDEX

Exhibit No.	Description
10.1	Employment Agreement dated August 2, 2011, to become effective on January 1, 2012, between ION Geophysical Corporation and R. Brian Hanson.
31.1	Certification of Chief Executive Officer Pursuant to Rule 13a-14(a).
31.2	Certification of Chief Financial Officer Pursuant to Rule 13a-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.
101	The following materials are formatted in Extensible Business Reporting Language (XBRL): (i) Condensed Consolidated Balance Sheets at September 30, 2011 and December 31, 2010, (ii) Condensed Consolidated Statements of Operations for the three-month and nine-month periods ended September 30, 2011 and 2010, (iii) Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2011 and 2010, and (iv) Notes to Condensed Consolidated Financial Statements tagged as block text.*

* In accordance with Rule 406T of Regulation S-T, the XBRL-related information in Exhibit 101 to this Quarterly Report on Form 10-Q is deemed not filed or part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act, is deemed not filed for purposes of section 18 of the Exchange Act, and otherwise is not subject to liability under these sections.

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EX-10.1

Exhibit 10.1

EMPLOYMENT AGREEMENT

     This Employment Agreement (this “Agreement”) is made and entered into by and between ION Geophysical Corporation, a Delaware corporation (hereinafter referred to as “Employer” or “Company”), and R. Brian Hanson (hereinafter referred to as “Employee”), effective as of January 1, 2012 (the “Effective Date”).

     WHEREAS, Employee desires to enter into the employment of Employer, and Employer desires to employ Employee, subject to the terms set out in this Agreement;

     NOW, THEREFORE, in consideration of the mutual promises and covenants contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Employer and Employee agree as follows:

Section 1. General Duties of Employer and Employee.

          (a) Employer agrees to employ Employee, and Employee agrees to accept employment by Employer and to serve Employer, as its President and Chief Executive Officer (“CEO”). Employee shall report to the Board of Directors of the Employer (“Board”) throughout his employment with Employer. The powers, duties, authority and responsibilities of Employee include those powers, duties, authority and responsibilities that are the usual and customary powers, duties, authority and responsibilities of the President and Chief Executive Officer in the year 2012 and thereafter, including but not limited to those powers, duties, authority and responsibilities specified in Employer’s Bylaws, and such other and further duties, authority and responsibilities appropriate to such position as may from time to time be assigned to Employee by the Board. All aspects of Employee’s positions and powers, duties, authority, responsibilities and reporting relationship to the Board are material to this Agreement.

          (b) While employed hereunder, Employee will devote substantially all reasonable and necessary time, efforts, skills and attention for the benefit of and with Employee’s primary attention to the affairs of Employer in order that he may faithfully perform his duties and obligations. The preceding sentence will not, however, be deemed to restrict Employee from attending to matters or engaging in activities not directly related to the business of Employer, provided that (i) such activities or matters are reasonable in scope and time commitment and not otherwise in violation of this Agreement, and (ii) Employee will not become a director or officer of (or hold any substantially similar responsibility with) any corporation or other entity (excluding charitable or other non-profit organizations) without prior written disclosure to, and consent of, Employer.

          (c) At the commencement of Employee’s employment by Employer, Employee will be based at Employer’s corporate headquarters located at 2105 CityWest Blvd, Suite 400, Houston, Texas 77042-2839 (the “Place of Employment”).

          (d) Employee agrees and acknowledges that as an officer and employee of Employer, and consistent with the terms hereof, he owes a fiduciary duty of loyalty, fidelity and allegiance to act at all times in the best interests of Employer and to do no act which Employee knows at the time of the act would injure Employer’s business, its interests or its reputation.

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Section 2. Compensation and Benefits.

          (a) Employer will pay to Employee during the term of this Agreement a base salary at the rate of $450,000 per annum (such base salary as adjusted from time to time by the Board or the Compensation Committee of the Board as hereinafter provided is referred to herein as the “Base Salary”). The Compensation Committee of the Board will review the Base Salary at least annually and, during the term of this Agreement, may increase, but may not decrease, the Base Salary as it deems to be in the best interest of Employer. The Base Salary will be paid to Employee in equal installments every two weeks or on such other schedule as Employer may establish from time to time for its key executives.

          (b) Employee will be eligible to participate in the incentive compensation plan established by the Board or Compensation Committee for Employer’s key employees for the fiscal year 2012, with target plan incentive compensation at 75% of Base Salary (“Target Bonus”) and with an opportunity to earn plan incentive compensation up to 150% of Base Salary (“Bonus”). During each fiscal year during the term of this Agreement, Employee will be eligible to participate in that year’s incentive compensation plan or other replacement incentive or bonus plan the Board or Compensation Committee establishes for Employer’s key executives, at the above target and maximum figures. If in any fiscal year Employee is employed less than the full year, Employee’s Target Bonus shall be prorated and paid based on Employee’s actual period of employment during such fiscal year. Employee need not be employed at the time Bonuses are paid or determined to receive the Bonus, Target Bonus or prorated Target Bonus, notwithstanding anything to the contrary.

          (c) For each calendar year during the term of this Agreement, Employee shall be entitled to receive grant(s) of options to purchase shares of common stock of Employer and shares of restricted stock of Employer, in each case in the sole discretion of the Compensation Committee or the Board. Such equity awards shall be granted on December 1 of each such year during the term, or such other date each year that the other executive officers of the Employer are awarded annual equity grants. For the avoidance of doubt, Employee will be eligible for participation in equity compensation plans that are established for key executives of Employer; such grants to be made in the sole discretion of the Compensation Committee or the Board.

          (d) Employee will accrue vacation pay of 6.154 hours per two-week pay period. Vacation may be taken by Employee at the time and for such periods as may be mutually agreed upon between Employer and the Board.

          (e) Employee will be reimbursed in accordance with Employer’s normal expense reimbursement policies for all of the actual and reasonable costs and expenses incurred by him in the performance of his services and duties hereunder, including, but not limited to, reasonable travel expenses. Employee will furnish Employer with all invoices and vouchers reflecting amounts for which Employee seeks Employer’s reimbursement.

          (f) Employee will be entitled to participate in all insurance and retirement plans, incentive compensation plans (at a level appropriate to his position) and such other benefit plans or programs as may be in effect from time to time for the employees of Employer, including, without limitation, those related to savings and thrift, retirement, welfare, medical,

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dental, disability, salary continuance, accidental death, travel accident, life insurance, incentive bonus, membership in business and professional organizations, and reimbursement of business and entertainment expenses.

          (g) Employer, during the term of this Agreement and thereafter without limit of time, will indemnify Employee for claims and expenses to the extent provided in Employer’s Certificate of Incorporation and Bylaws. Employer will also provide Employee coverage under Employer’s policy or policies of directors’ and officers’ liability insurance to the same extent as other executive officers of Employer during the term of this Agreement and thereafter.

          (h) All Base Salary, bonus and other payments made by Employer to Employee pursuant to this Agreement will be subject to such payroll and withholding deductions as may be required by law and other deductions applied generally to employees of Employer for insurance and other employee benefit plans in which Employee participates.

          (i) Any incentive compensation pay or Bonus so determined under any such plan will be paid to Employee not later than the date such pay or Bonus shall be paid to other participants in the plan.

          (j) Compensation under this Section 2 shall be subject to recoupment in accordance with the terms of Employer’s Compensation Recoupment Policy applicable to executive officers as such policy shall be amended from time to time as required by applicable law or regulation or as otherwise amended with regard to all covered executives in the discretion of the Board or a committee of the Board.

          (k) No reduction in Employee’s compensation and benefits as provided in this Agreement may be made by the Compensation Committee or the Board (or any successor Board or committee) except in the event of Employee’s approval or written consent or as otherwise permitted or provided for under the terms of this Agreement.

Section 3. Fiduciary Duty; Confidentiality.

          (a) In keeping with Employee’s fiduciary duties to Employer, Employee agrees that he will not take any action that he knows at the time of the act would create a conflict of interest with Employer, or upon discovery thereof, allow such a conflict to continue. In the event that Employee discovers that such a conflict exists, Employee agrees that he will disclose to the Board any facts which might involve a conflict of interest that has not been approved by the Board, said disclosure to be made in writing by the Employee as soon as it is reasonably possible.

          (b) As part of Employee’s fiduciary duties to Employer, Employee agrees to protect and safeguard Employer’s information, ideas, concepts, improvements, discoveries, and inventions and any proprietary, confidential and other information relating to Employer or its business (collectively, “Confidential Information”) and, except as may be required by Employer, Employee will not knowingly, at the time of the action, either during his employment by Employer or thereafter, directly or indirectly, use for his own benefit or for the benefit of another, or disclose to another, any Confidential Information, except (i) with the prior written consent of Employer; (ii) in the course of the proper performance of Employee’s duties under

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this Agreement; (iii) for information that becomes generally available to the public other than as a result of the unauthorized disclosure by Employee; (iv) for information that becomes available to Employee on a non-confidential basis from a source other than Employer or its affiliated companies who is not bound by a duty of confidentiality to Employer; or (v) as may be required by any applicable law, rule, regulation or order.

          (c) Upon termination of his employment with Employer, Employee will immediately (i) deliver to Employer all paper and electronic documents and information in Employee’s possession or under his control which embody any of Employer’s Confidential Information; and (ii) resign from any officer or director positions of the Employer, to the extent the Employer at any time ever requests such resignation.

          (d) In addition to the foregoing provisions of this Section 3, and effective as of the Effective Date, Employee reaffirms the duties imposed upon Employee by that certain Employee Proprietary Information Agreement (or similar agreement) by and between Employer and Employee signed in conjunction with Employee’s commencement of employment.

          (e) Employee will comply with Employer’s Code of Ethics, and any amendments or replacement policies adopted by the Board (the “Code of Ethics”).

Section 4. Term of Agreement.

     The term of this Agreement will commence effective as of the Effective Date, and, subject to the terms and conditions hereof and except as may be affected by a Change in Control, will continue for a three-year period ending on December 31, 2014 (the “Initial Term”), and thereafter the term will be automatically extended for successive periods of two year(s) unless prior to the end of the original three-year period (or, if applicable, any such successive two-year period), Employer gives Employee at least ninety (90) days prior written notice that Employer has decided not to extend the term of this Agreement. Notwithstanding any provision contained herein to the contrary, Employee acknowledges that Employer may terminate his employment at any time and for any reason or for no reason at the discretion of Employer, but subject to any rights Employee has under Sections 2, 5, 6, 7, 8, 9, 10 and 11 of this Agreement.

Section 5. Termination.

          (a) Employee’s employment with Employer hereunder will terminate upon the following:

     (1) The death or “Disability” (as defined in Section 5(b) hereof) of Employee;

     (2) Employer terminates such employment for “Cause” (as defined in Section 5(c) hereof);

     (3) Employee terminates such employment for “Good Reason” (as defined in Section 5(d) hereof);

     (4) Employer terminates such employment for any reason other than

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Cause, or for no reason at all; or

     (5) Employee terminates such employment for any reason other than Good Reason, or for no reason at all.

          (b) As used in this Agreement, “Disability” means a physical or mental incapacity or disability which renders Employee unable to render the services required hereunder under this Agreement for a period of at least 180 consecutive days.

          (c) As used in this Agreement, “Cause” means:

     (1) the willful and continued failure by Employee to substantially perform his obligations under this Agreement (other than any such failure resulting from his Disability) after a demand for substantial performance has been delivered to him by the Board which specifically identifies the manner in which the Board believes Employee has not substantially performed such provisions and Employee has failed to remedy the situation within ten (10) days after such demand;

     (2) Employee’s willfully engaging in conduct materially and demonstrably injurious to the property or business of Employer, including without limitation, fraud, misappropriation of funds or other property of Employer, other willful misconduct, gross negligence or conviction of a felony or any crime of moral turpitude; or

     (3) Employee’s material breach of this Agreement or the Employer’s Code of Ethics which breach has not been remedied by Employee within ten (10) days after receipt by Employee of written notice from the Board that he is in material breach of the Agreement or the Employer’s Code of Ethics, specifying the particulars of such breach.

For purposes of this Agreement, no act, or failure to act, on the part of Employee shall be deemed “willful” or engaged in “willfully” if it was due primarily to an error in judgment or negligence, but shall be deemed “willful” or engaged in “willfully” only if done, or omitted to be done, by Employee not in good faith and without reasonable belief that his action or omission was in the best interest of Employer. Notwithstanding the foregoing, Employee shall not be deemed to have been terminated as a result of “Cause” hereunder unless and until there shall have been delivered to Employee a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the Board then in office at a meeting of the Board called and held for such purpose (after reasonable notice of at least fifteen (15) days to Employee and an opportunity for Employee, together with his counsel, to be heard before the Board), finding that, in the good faith opinion of the Board of Directors, Employee has committed an act set forth above in this Section 5(c) and specifying the particulars thereof in detail. Nothing herein shall limit the right of Employee or his or her legal representatives to contest the validity or propriety of any such determination or the action of the Board or any committee thereof.

          (d) As used in this Agreement, “Good Reason” means:

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     (1) Employer’s failure, or the failure of any successor, to comply with any of the provisions of Sections 2, 4, 5, 6, 7, 8, 10, 11(c), or 13 of this Agreement, which failure is not remedied within ten (10) days after the Chairman of the Board’s receipt of written notice from Employee specifying the particulars of such breach;

     (2) Employer’s or a successor’s breach of any other material provision of this Agreement which is not remedied within ten (10) days after receipt by the Chairman of the Board of written notice from Employee specifying the particulars of such breach;

     (3) the assignment to Employee by the Board, any committee of the Board, or any successor or its board of any duties materially inconsistent with Employee’s positions, duties, functions, responsibilities, authority or reporting relationship to the Board, in each case as contemplated by Section 1 of this Agreement, or the diminution in any respect of any of the positions, duties, functions, responsibilities, authority or reporting relationship to the Board of Employee pursuant to Section 1 and as assigned by the Board or any successor or successor’s board;

     (4) the relocation of Employee’s principal place of performance of his duties and responsibilities under this Agreement to a location more than fifty (50) miles from the Place of Employment, without Employee’s approval or agreement;

     (5) any purported termination of Employee’s employment by Employer or a successor which is not effected pursuant to a Notice of Termination satisfying the requirements of Section 5(e) hereof;

     (6) Employer elects not to extend the Initial Term or any subsequent term of this Agreement under Section 4; or

     (7) any material reduction by the Board, a successor of Employer or the successor’s Board, in the budgetary authority of Employee not due to fiscal circumstances of the Employer.

          (e) Any termination by Employer or a successor or Employee of Employee’s employment with Employer shall be communicated by written notice (a “Notice of Termination”) to the other party that shall:

     (1) indicate the specific provision of this Agreement relied upon for such termination;

     (2) indicate the specific provision of this Agreement pursuant to which Employee is to receive compensation and other benefits as a result of such termination; and

     (3) otherwise comply with the provisions of this Section 5 and Section 13(a).

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If a Notice of Termination states that Employee’s employment with Employer has been terminated as a result of Employee’s Disability, the notice shall (i) specifically describe the basis for the determination of Employee’s Disability, and (ii) state the date of the determination of Employee’s Disability, which date shall be not more than ten (10) days before the date such notice is given. If the notice is from Employer and states that Employee’s employment with Employer is terminated by Employer as a result of the occurrence of Cause, the Notice of Termination shall specifically describe the action or inaction of Employee that Employer believes constitutes Cause and shall be accompanied by a copy of the resolution satisfying Section 5(c). If the Notice of Termination is from Employee and states that Employee’s employment with Employer is terminated by Employee as a result of the occurrence of Good Reason, the Notice of Termination shall specifically describe the action or inaction of Employer that Employee believes constitutes Good Reason, and shall be communicated within ninety (90) days of the date when Employee learns of the facts constituting Good Reason. Any purported termination by Employer of Employee’s employment with Employer shall be ineffective unless such termination shall have been communicated by Employer to Employee by a Notice of Termination that meets the requirements of Section 5 and the provisions of Section 13(a).

          (f) As used in this Agreement, “Date of Termination” means:

     (1) if Employee’s employment with Employer is terminated for Disability, at least sixty (60) days after Notice of Termination is received by Employee or any date later than sixty (60) days after receipt specified therein, provided that within such period Employee shall not have returned to full-time performance of Employee’s duties;

     (2) if Employee’s employment with Employer is terminated as a result of Employee’s death, the date of death of Employee;

     (3) if Employee’s employment with Employer is terminated for Cause, the date Notice of Termination, accompanied by a copy of the resolution satisfying Section 5, is received by Employee or any later date specified therein, provided that Employer may, in its discretion, condition Employee’s continued employment upon such considerations or requirements as may be reasonable under the circumstances and place a reasonable limitation of no less than ten (10) days upon the time within which Employee will comply with such considerations or requirements; or

     (4) if Employee’s employment with Employer is terminated for any reason other than Employee’s Disability, Employee’s death or Cause, or for no reason, the date that is fourteen (14) days after the date of receipt of the Notice of Termination.

Section 6. Effect of Termination of Employment.

          (a) Upon termination of Employee’s employment during the Initial Term, by Employer for Cause, or by Employee for no reason or any reason other than Good Reason, all compensation and benefits will cease upon the Date of Termination other than: (i) those benefits

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that are provided by retirement and benefit plans and programs specifically adopted and approved by Employer for Employee that are earned and vested by the Date of Termination; (ii) as provided in Section 10; (iii) Employee’s Base Salary through the Date of Termination; (iv) any incentive compensation due Employee if, under the terms of the relevant incentive compensation arrangement, such incentive compensation was due and payable to Employee on or before the Date of Termination; (v) medical and similar benefits the continuation of which is required by applicable law or provided by the applicable benefit plan; and (vi) any payments due Employee pursuant to Sections 2(d), (e), (f), (g), and (i) of this Agreement.

          (b) Upon termination of Employee’s employment due to the death of Employee or upon termination by Employer due to the Disability of Employee, all compensation and benefits will cease upon the Date of Termination other than: (i) those benefits that are provided by retirement and benefit plans and programs specifically adopted and approved by Employer for Employee that are earned and vested by the Date of Termination; (ii) as provided in Section 10; (iii) Employee’s Base Salary through the Date of Termination; (iv) any incentive compensation due Employee if, under the terms of the relevant incentive compensation arrangement, such incentive compensation was due and payable to Employee on or before the Date of Termination; (v) medical and similar benefits the continuation of which is required by applicable law or provided by the applicable benefit plan; and (vi) any payments due Employee pursuant to Sections 2(d), (e), (f), (g), and (i) of this Agreement.

          (c) If Employee’s employment with Employer is terminated (i) by Employer for no reason or for any reason other than Cause, or (ii) by Employee for Good Reason, the obligations of Employer and Employee under Sections 1 and 2 will terminate as of the Date of Termination and Employer will pay or provide to Employee or his heirs the following:

     (1) Employee’s Base Salary earned and payable through the Date of Termination;

     (2) the pro rata portion of Employee’s unpaid Target Bonus for the year of the Date of Termination;

     (3) an aggregate amount (the “Severance Payment”) consisting of (i) two-times the Employee’s annual Base Salary at the highest annual rate in effect on or before the Date of Termination (but prior to giving effect to any reduction therein which precipitated such termination); and (ii) two-times the Employee’s Target Bonus amount in effect for the year of the Date of Termination. The Severance Payment shall be payable to Employee in substantially equal installments in accordance with the Employer’s normal payroll practices over the two-year period beginning on the Date of Termination; provided, however, that (A) the portion of the Severance Payment for the first six (6) months after the Date of Termination shall be paid to Employee in a lump sum on the first business day following the expiration of the six-month period following the Date of Termination and (B) the remaining portion of the Severance Payment shall be paid on Employee’s regular payroll dates in substantially equal installments over the remainder of the two-year period;

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     (4) if immediately prior to the Date of Termination, Employee (and, if applicable, his spouse and/or dependents) was covered under Employer’s group medical, dental, health and hospital plan in effect at such time, then Employer shall provide to Employee for a 24-month period after the Date of Termination continuation coverage under such plan at no cost or expense to Employee, provided that Employee has timely elected to continue coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”); and

     (5) the vesting period for all of Employee’s unvested equity awards granted on or after the Effective Date, however granted and in whatever form, with a remaining vesting period of two years or less as of the Date of Termination, shall all immediately accelerate to vest in full and all restrictions shall be immediately removed, and the exercise period of all outstanding vested stock options (including any accelerated stock option awards) granted on or after the Effective Date shall continue for the earlier of (a) two years from the Date of Termination or (b) the expiration of the full original term specified in each applicable stock option agreement. Employee’s vesting and exercise rights with regard to stock options, restricted stock, performance shares and other equity grants shall be controlled by the LTIP (or other applicable equity plan) and by the governing grant agreement, and, to the extent not inconsistent with the LTIP or such grant agreement, by this Agreement.

Except as otherwise provided above and in Sections 2(d), (e), (f), (g), and (i) and Section 10, all other compensation and benefits will cease upon the Date of Termination other than those benefits that are provided by retirement and benefit plans and programs specifically adopted and approved by Employer for Employee that are earned and vested by the Date of Termination. Notwithstanding any other provision of this Agreement to the contrary, except for payments and benefits required to made as provided by law or pursuant to the terms of a plan, the severance payments and benefits to be paid and provided to Employee pursuant to this Section 6(c) shall be conditioned upon (I) Employee’s execution and delivery of a valid waiver and release of all claims that Employee may have against Employer prior to his receiving such payment or benefit, and (II) such release not having been revoked within the time, if any, required by law for the revocation of a release (the “Release Requirements”). Such severance payments and benefits shall be paid or provided beginning on the later of (A) the 60^th day following the Date of Termination or (B) the payment date otherwise specified in this Section 6(c) (the “Payment Start Date”), provided that any payments or benefits that are not subject to Section 409A of the Internal Revenue Code of 1986, as amended (“Section 409A”) (after taking into account the foregoing payment provisions) may be paid or provided as soon as practicable following the date on which the Release Requirements are satisfied and such date shall be the Payment Start Date, and provided further that, in any case, that the Release Requirements have been satisfied as of the Payment Start Date. If the Release Requirements are not satisfied as of the Payment Start Date, all such payments and benefits shall be forfeited and Employee shall have no further rights to such payments or benefits. The agreed form of release is attached hereto as Exhibit A, except that such form shall be subject to such changes as shall be necessary to render such form valid, binding and enforceable under then-current applicable law.

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Section 7. Change in Control.

          (a) If (i) a “Change in Control” (as defined in Section 7(b) hereof) shall have occurred, and (ii) within twelve (12) months following such Change in Control either (A) Employer or its successor terminates Employee’s employment or (B) Employee terminates his employment with Employer or its successor after Employer or such successor (1) elects not to extend the Initial Term or any subsequent term of this Agreement under Section 4, (2) assigns to Employee any duties inconsistent with Employee’s position, duties, functions, responsibilities, authority or reporting relationship to the Board, in each case as contemplated by Section 1 of this Agreement, (3) is rendered a privately-held company in a transaction in which Employee does not participate within the acquiring group, (4) is rendered a subsidiary or division or other unit of another company; or (5) takes any action that would constitute “Good Reason” under Section 5(d) of this Agreement, such termination under (A) or (B) above shall be treated as a termination for Good Reason in accordance with Section 6(c) above. In the event a Severance Payment is due to Employee under this Section 7(a) after a Change in Control, the payment schedule for such Severance Payment shall be as set forth in Section 6(c), except that promptly after the Date of Termination, Employer or its successor shall establish a rabbi trust and deposit into the trust the amount, if any, that Employer reasonably believes in good faith that Employee is entitled to receive as a Severance Payment under Section 6(c). In the event of a Change in Control after the first anniversary of the Effective Date, the then remaining term of this Agreement shall automatically adjust to three (3) years, commencing on the effective date of the Change in Control.

          (b) For purposes of this Agreement, a “Change in Control” shall mean the occurrence of any of the following after the Effective Date:

     (1) the acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended from time to time (the “Exchange Act”), or any successor statute) (a “Covered Person”) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 40% or more of either (i) the then outstanding shares of Common Stock (the “Outstanding Company Common Stock”), or (ii) the combined voting power of the then outstanding voting securities of Employer entitled to vote generally in the election of directors (the “Outstanding Company Voting Securities”); provided, however, that for purposes of this Section 7(b)(1), the following acquisitions shall not constitute a Change in Control: (i) any acquisition directly from Employer or any subsidiary of Employer, (ii) any acquisition by Employer or any subsidiary of Employer, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by Employer or any entity controlled by Employer, or (iv) any acquisition by any corporation pursuant to a reorganization, merger, consolidation or similar business combination involving Employer (a “Merger”), if, following such Merger, the conditions described in Section 7(b)(3)(i) and(ii) are satisfied; or

     (2) individuals who, as of the Effective Date, constitute the Board of Directors (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director

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subsequent to the Effective Date whose election, or nomination for election by Employer’s stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest (a solicitation by any person or group of persons for the purpose of opposing a solicitation of proxies or consents by the Board with respect to the election or removal of Directors at any annual or special meetings of stockholders) or other actual or threatened solicitation of proxies or consents by or on behalf of a Covered Person other than the Board; or

     (3) consummation of a Merger, unless immediately following such Merger, (i) substantially all of the holders of the Outstanding Company Voting Securities immediately prior to the Merger beneficially own, directly or indirectly, more than 50% of the common stock of the corporation resulting from such Merger (or its parent corporation) in substantially the same proportion as their ownership of Outstanding Company Voting Securities immediately prior to such Merger and (ii) at least a majority of the members of the board of directors of the corporation resulting from such Merger (or its parent corporation) were members of the Incumbent Board at the time of the execution of the initial agreement providing for such Merger; or

     (4) the sale or other disposition of all or substantially all of the assets of Employer.

          (c) The parties agree that the terms of this Section 7 shall be amended by the parties from time to time to the extent required or advisable to comply with any applicable law or regulation made effective during the term.

Section 8. Section 409A.

     It is the intention of the parties to this Agreement that no payment or entitlement pursuant to this Agreement will give rise to any adverse tax consequences to Employee under Section 409A. The Agreement shall be interpreted and administered to that end and, consistent with that objective and notwithstanding any provision herein to the contrary, the Employer shall be required to provide any payments or benefits hereunder in accordance with the terms of this Agreement and in a manner that is consistent with Section 409A. Employer may take any action it deems necessary or desirable to amend any provision herein to the minimum extent necessary avoid excise tax under Section 409A and any such amendment shall preserve, to the extent possible, the intended benefits of the Agreement to Employer and Employee. Notwithstanding any other provision of this Agreement to the contrary, if (i) any payment or benefit hereunder is subject to Section 409A, (ii) such payment or benefit is to be paid or provided on account of the Employee’s separation from service within the meaning of Section 409A, (iii) Employee is a “specified employee” (within the meaning of Section 409A), and (iv) any such payment or benefit is required to be made or provided prior to the following Employee’s Date of Termination or

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other separation from service, such payment or benefit shall be delayed until the first business day following the six-month anniversary of Employee’s Date of Termination or other separation from service. The determination as to whether Employee has had a separation from service within the meaning of Section 409A shall be made in accordance with the provisions of Section 409A without application of any alternative levels of reductions of bona fide services permitted thereunder. If and to the extent that any payment or benefit to Employee is delayed pursuant to the foregoing provisions, such payment or benefit instead shall be made or provided on the first business day following the expiration of the six-month period referred to above. The Employer shall consult with Employee in good faith regarding implementation of this Section 8 provided, however, that without limiting Employee’s rights under this Agreement or applicable law, neither the Employer nor its employees or representatives shall have liability to the Employee with respect hereto.

Section 9. No Obligation to Mitigate; No Rights of Offset.

          (a) Employee shall not be required to mitigate the amount of any payment or other benefit required to be paid to Employee pursuant to this Agreement, whether by seeking other employment or otherwise, nor shall the amount of any such payment or other benefit be reduced on account of any compensation earned by Employee as a result of employment by another person.

          (b) Employer’s obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which Employer may have against Employee or others.

Section 10. No Effect on Other Rights.

     Subject to Sections 2(k) and 2(l), nothing in this Agreement shall prevent or limit Employee’s continuing or future participation in any plan, program, policy or practice of or provided by Employer or any of its affiliates and for which Employee may qualify, nor shall anything herein limit or otherwise affect such rights as Employee may have under any long term incentive compensation plan, stock option or other agreements with Employer or any of its affiliates. Amounts which are vested benefits or which Employee is otherwise entitled to receive under any plan, program, policy or practice of or provided by, or any other contract or agreement with Employer or any of its affiliates at or subsequent to the Date of Termination shall be payable or otherwise provided in accordance with such plan, program, policy or practice or contract or agreement except as explicitly modified by this Agreement.

Section 11. Successors; Binding Agreement.

          (a) This Agreement is personal to Employee and without the prior written consent of Employer shall not be assignable by Employee otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by Employee’s personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees.

          (b) This Agreement shall inure to the benefit of and be binding upon Employer and its successors and assigns.

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          (c) Employer will require any successor (whether direct or indirect, by purchase, merger, amalgamation, consolidation or otherwise) to all or substantially all of the shares, business and/or assets of Employer, by agreement in form and substance reasonably satisfactory to Employee, to expressly assume and agree to perform this Agreement in the same manner and to the same extent that Employer would be required to perform it if no such succession had taken place. As used in this Agreement, “Employer” shall mean Employer as hereinbefore defined and any successor to its shares, business and/or assets as aforesaid which assumes and agrees to perform this Agreement by execution and delivery of the agreement provided for in this Section 11(c) or which otherwise becomes bound by the terms and provisions of this Agreement by operation of law or otherwise.

Section 12. Non-Competition; Non-Solicitation; No Hire.

          (a) Employee agrees that, effective as of the Effective Date and for a period of twenty-four (24) months after the Date of Termination (such applicable period being referred to herein as the “Non-Compete Period”), Employee shall not, without the prior written consent of Employer, directly or indirectly, anywhere in the world, engage, invest, own any interest, or participate in, consult with, render services to, or be employed by any business, person, firm or entity that is in competition with the “Business” (as defined in Section 12(d)) of Employer or any of its subsidiaries or affiliates, except for the account of Employer and its subsidiaries and affiliates; provided, however, that during the Non-Compete Period Employee may acquire, solely as a passive investment, not more than two percent (2%) of the outstanding shares or other units of any security of any entity subject to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended. Employee acknowledges that a remedy at law for any breach or attempted breach of this covenant not to compete may be inadequate and further agrees that any breach of this covenant not to compete may result in irreparable harm to Employer, and, accordingly, Employer may, in addition to any other remedy that may be available to it, be entitled to seek specific performance and temporary and permanent injunctive and other equitable relief in case of any such breach or attempted breach. Employee acknowledges that this covenant not to compete is being provided as an inducement to Employer to enter into this Agreement. Whenever possible, each provision of this covenant not to compete shall be interpreted in such a manner as to be effective and valid under applicable law but if any provision of this covenant not to compete shall be prohibited by or invalid under applicable law, such provision of this covenant not to compete shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remaining provisions of this covenant not to compete. If any provision of this covenant not to compete shall, for any reason, be judged by any court of competent jurisdiction or duly appointed arbitrator to be invalid or unenforceable, such judgment shall not affect, impair or invalidate the remainder of this covenant not to compete but shall be confined in its operation to the provision of this covenant not to compete directly involved in the controversy in which such judgment shall have been rendered. In the event that the provisions of this covenant not to compete should ever be deemed to exceed the time or geographic limitations permitted by applicable laws, then such provision shall be reformed by the court or arbitrator to the maximum time or geographic limitations permitted by applicable law.

          (b) In addition to the restrictions set forth in Section 12(a), Employee agrees that, during the Non-Compete Period, Employee will not, either directly or indirectly, (i) make

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known to any person, firm or entity that is in competition with the Business of Employer or any of its subsidiaries or affiliates the names and addresses of any of the suppliers or customers of Employer or any of its subsidiaries or affiliates, potential customers of Employer or any of its subsidiaries or affiliates upon whom Employer or any of its subsidiaries or affiliates has called upon in the twelve (12) months preceding the Date of Termination, or (ii) call on, solicit, or take away, or attempt to call on, solicit or take away any of the suppliers or customers of Employer or any of its subsidiaries or affiliates, whether for Employee or for any other person, firm or entity.

          (c) Regardless of the reason for any termination of Employee’s employment, effective as of the Effective Date and for twenty-four (24) months following the Date of Termination, Employee will not, either on his or her own account or for any other person, firm, partnership, corporation, or other entity (i) solicit or induce any employee of Employer or any of its subsidiaries or affiliates to leave such employment or (ii) hire or participate in the hiring of any such employee of Employer or any of its subsidiaries or affiliates.

          (d) As used in this Agreement, “Business” means the business of (i) design, manufacture, marketing and sale of equipment for seismic acquisition, (ii) seismic processing (iii) seismic navigation and data management software or (iv) planning, performing or licensing multi-client seismic surveys.

          (e) In the event that Employee breaches or violates any of the terms and conditions of Section 12(a) during the Non-Compete Period, then in addition to the other rights and remedies available to Employer hereunder, Employer’s obligations to pay to Employee any remaining installments of the Severance Payment otherwise due and owing pursuant to Section 6(c)(3) or 7(a) hereof, shall cease and terminate.

Section 13. Miscellaneous.

          (a) All notices and other communications required or permitted hereunder or necessary or convenient in connection herewith will be in writing and will be delivered by hand or by registered or certified mail, return receipt requested to the addresses set forth below in this Section 13(a):

          If to Employer, to:

ION Geophysical Corporation

2105 CityWest Blvd, Suite 400

Houston, TX 77042-2839

Attention: General Counsel

          If to Employee, to:

Mr. R. Brian Hanson

c/o ION Geophysical Corporation

2105 CityWest Blvd, Suite 400

Houston, TX 77042-2839

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or to such other names or addresses as Employer or Employee, as the case may be, designate by notice to the other party hereto in the manner specified in this Section.

          (b) This Agreement supersedes, replaces and merges all previous agreements and discussions relating to the same or similar subject matters between Employee and Employer and constitutes the entire agreement between Employee and Employer with respect to the subject matter of this Agreement, except for any other agreements expressly referred to in this Agreement, each of which shall remain in full force and effect. This Agreement may not be modified in any respect by any verbal statement, representation or agreement made by any employee, officer, or representative of Employer or by any written agreement unless signed by an officer of Employer who is expressly authorized by the Board to execute such document.

          (c) If any provision of this Agreement or application thereof to any one or under any circumstances should be determined to be invalid or unenforceable, such invalidity or unenforceability will not affect any other provisions or applications of this Agreement which can be given effect without the invalid or unenforceable provision or application. In addition, if any provision of this Agreement is held by an arbitration panel or a court of competent jurisdiction to be invalid, unenforceable, unreasonable, unduly restrictive or overly broad, the parties intend that such arbitration panel or court modify said provision so as to render it valid, enforceable, reasonable and not unduly restrictive or overly broad.

          (d) The laws of the State of Texas will govern the interpretation, validity, enforcement and effect of this Agreement without regard to the place of execution or the place for performance thereof.

          (e) The covenants, agreements, rights and obligations of Employer under this Agreement, and the covenants, agreements, rights and obligations of Employee under this Agreement, shall survive the termination of this Agreement for any reason including, but not limited to, the termination of Employee’s employment with Employer. All covenants, agreements, indemnities, warranties, rights and obligations contained herein shall continue for so long as necessary in order for Employer and Employee to enforce their rights hereunder.

Section 14. Arbitration.

          (a) Employer and Employee agree to submit to final and binding arbitration any and all disputes or disagreements concerning the interpretation, enforcement or application of this Agreement, including without limitation any claim by Employee against Employer or its successor after a Change in Control to enforce or seek to enforce the payment of any amount or other benefit to which Employee shall have become entitled under Section 7(a) of this Agreement. Any such dispute or disagreement will be resolved by arbitration in accordance with the National Rules for the Resolution of Employment Disputes of the American Arbitration Association (the “AAA Rules”). Arbitration will take place in Houston, Texas, unless the parties mutually agree to a different location. Within thirty (30) calendar days of the initiation of arbitration hereunder, each party will designate an arbitrator. The appointed arbitrators will then appoint a third neutral arbitrator. Employee and Employer agree that the decision of the arbitrators will be final and binding on both parties. Any court having jurisdiction may enter a judgment upon the award rendered by the arbitrators. Each party shall be responsible for its own

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legal fees and expenses. Each party shall share equally all AAA fees and expenses and all fees and expenses of the arbitrators, and for the hearing room. In the event the arbitration is decided on balance in favor of Employee, Employer will reimburse Employee for his reasonable costs and expenses of the arbitration (including reasonable attorneys’ fees), unless Employee is otherwise entitled to advancement of fees under Section 14(c) below or in connection with a proceeding pursuant to law or the bylaws of Employer or a successor. In that event, those provisions shall control over the payment provisions in this Section 14(a). In no event shall Employee be required to pay the litigation or arbitration costs, expenses or attorneys’ fees of Employer or its successor.

          (b) Notwithstanding the provisions of Section 14(a), Employer may, if it so chooses, bring an action in any court of competent jurisdiction for injunctive relief to enforce Employee’s obligations under Sections 3(b), 3(c), 3(d), and 3(e). The payment provisions of Section 14(a) will control regarding such a proceeding.

          (c) Reasonable costs and expenses (including reasonable attorneys’ fees) incurred by Employee in an arbitration, suit or proceeding against Employer or its successor after a Change in Control to enforce or seek to enforce the payment of any amount or other benefit to which Employee shall have become entitled under Section 7(a) of this Agreement shall be paid by Employer or its successor upon demand by Employee in advance of the final disposition of such action upon receipt of a written undertaking by Employee to repay such amounts if it shall ultimately be determined that he is not entitled to be reimbursed such amounts under Section 14(a).

Section 15. Reimbursements.

     Notwithstanding any provision of this Agreement to the contrary,to the extent that any reimbursements to be provided to Employee hereunder are taxable to Employee, such reimbursements shall be paid to Employee only if the expenses are incurred and reimbursable pursuant to a reimbursement plan that provides an objectively determinable nondiscretionary definition of the expenses that are eligible for reimbursement (to the extent not otherwise specified herein). With respect to any expenses that are described in the preceding sentence, the amount of the expenses that are eligible for reimbursement during one calendar year may not affect the amount of reimbursements to be provided in any subsequent calendar year, the reimbursement of an eligible expense shall be made on or before the last day of the calendar year following the calendar year in which the expense was incurred, and the right to reimbursement of the expenses shall not be subject to liquidation or exchange for any other benefit.

     IN WITNESS WHEREOF, the undersigned, intending to be legally bound, have executed this Agreement as to be effective as of the Effective Date.

EMPLOYER: ION GEOPHYSICAL CORPORATION
By:	/s/ James M. Lapeyre, Jr.
	Chairman of the Board

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EMPLOYEE:
 

/s/ R. Brian Hanson  

R. Brian Hanson 

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EXHIBIT A

RELEASE

Mr. R. Brian Hanson
[Address]

     Re: Separation Agreement

Dear Mr. Hanson:

     This letter, upon your signature, will constitute the Agreement between you and ION Geophysical Corporation (hereinafter “Employer”) regarding the terms of your separation from employment with Employer. This Agreement acknowledges the parties’ desire to end the employment relationship on amicable terms.

1. Your employment will be terminated effective on _______________.

2. You have received or will receive by separate cover information regarding your rights to health insurance continuation and your retirement benefits. To the extent that you have such rights, nothing in this Agreement will impair those rights; more specifically, you waive no rights to bring an action pursuant to 29 U.S.C. §1132(a)(1)(B) of the Employee Retirement Income Security Act or the provisions of the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) related to providing eligible employees the opportunity for continuation of participation in the employer’s group health insurance plan under certain circumstances.

3. You have returned or will immediately return to Employer any company property and any trade secrets or other confidential information belonging to Employer, including Employer computer equipment, documents and electronic files, employee identification, keys, building access cards, and other property.

4. In consideration of your acceptance of this Agreement, on or before __________, or a subsequent date agreed by the parties, but in no event earlier than the effective date of this Agreement, the Employer will provide you with payments and benefits (the “Payments”), minus applicable taxes and withholdings, which Payments will be paid to you as determined by the circumstances of your termination of employment and as described in Section 2 and Section 4 through 9 of that certain Employment Agreement between you and Employer dated August 2, 2011 and effective January 1, 2012. If you do not sign and return this Agreement, you will not receive any of the additional consideration outlined above because you would not otherwise be entitled to such consideration, except in the event that death or disability makes your signing this Agreement not possible, in which event it may be signed by your legal representative.

5. Unless required or otherwise permitted by law, you will not disclose to others any information regarding the following:

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A. Any information regarding Employer’s trade secrets or any other confidential information.

B. The terms of this Agreement, the benefit being paid under it and the fact of payment (except that you may disclose this information to your spouse, attorney, accountant or other professional advisor to whom you must make the disclosure in order for them to render professional services to you, and as required by law; provided that you instruct such persons to maintain the confidentiality of the information just as you must).

6. Complete Release, Waiver of Claims and Covenant Not to Sue.

A. Release and Waiver: On behalf of yourself and your heirs, executors, successors and assigns, except as provided in Section 6(D) of this Agreement, you hereby irrevocably and unconditionally release Employer and its predecessors, subsidiaries, related entities, officers, directors, shareholders, parent companies, agents, attorneys, employees, successors and assigns (for purposes of this Section 6, hereinafter collectively referred to as “Employer”), from all claims or demands you have, may have, or may have had based on or in any way related to your employment with Employer, the termination of that employment, or based on any previous act or omission by or on behalf of Employer. You further agree to waive any right you may have with respect to the claims or demands from which Employer is herewith released. This release and waiver includes, but is not limited to, any rights or claims you may have under the Age Discrimination in Employment Act (which prohibits age discrimination in employment), Title VII of the Civil Rights Acts of 1964, as amended (which prohibits discrimination in employment based on race, color, national origin, religion or sex, including claims of sexual harassment), 42 U.S.C. §1981 (which prohibits race discrimination), claims under the Family and Medical Leave Act, and the federal Equal Pay Act (which prohibits paying men and women unequal pay for equal work), the Rehabilitation Act of 1973 and the Americans with Disabilities Act (which prohibit discrimination on the basis of handicap or disability), the Employee Retirement Income Security Act, claims for discrimination under the Texas Commission on Human Rights Act as codified in the Texas Labor Code, claims for discrimination or retaliation under the Texas Workers’ Compensation Act, and any other federal, state or local laws or regulations prohibiting employment discrimination. This release and waiver also includes any claims for wrongful discharge, whether based on claimed violations of statutes, regulations or public policy, or based on claims in contract or tort. This release and waiver also includes any claims that you suffered any harm by or through the actions or omissions of Employer, including, but not limited to, negligence claims and any other tort or contract claims, including but not limited to defamation, invasion of privacy, and wrongful discharge.

B. Scope of Release/Non-release of Future Claims based on subsequent acts or omissions: This release and waiver, to which you voluntarily agree, covers all claims or demands based on any facts or events, whether known or unknown by you that occurred on or before the effective date of this release. You fully understand that if any of the facts or circumstances on which you premise your execution of this release and waiver be found, suspected or claimed hereafter to be other than or different from the facts and

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circumstances now believed by you to be true, you nonetheless expressly accept and assume the risk of such possible differences in fact or circumstances and agree that this release and waiver shall be and remain effective notwithstanding any such difference in any such fact or circumstances. Employer acknowledges that you have not released any rights or claims that you may have under the Age Discrimination in Employment Act that arise after the date this release and waiver is executed.

C. No Future Lawsuits, Complaints, or Claims: You hereby waive your right to file any claim or complaint against Employer arising out of your employment with or separation from employment before any federal, state or local court or any federal, state or local administrative agency, except where such waivers are prohibited by law and except for breach of this Agreement and your Employment Agreement. This Agreement does not prevent you from filing a timely charge with the EEOC (or with any other agency with similar provisions or regulations concerning the regulation of releases between private parties) concerning claims of discrimination, including a challenge to the validity of the waiver contained in this Agreement; although you hereby waive your right to recover any damages or other relief in any claim or suit brought by or through the EEOC or any other federal, state, or local agency on your behalf.

As part of this Agreement, you also promise not to make any disparaging remarks about Employer, directly or indirectly. The officers of Employer and members of the Board of Directors of Employer promise not to make any disparaging remarks about you.

D. Provided however, notwithstanding anything to the contrary is this Separation Agreement, you do not release and you expressly preserve all your rights, payments and benefits and all rights of, payments to and benefits of your spouse, family, heirs and devisees provided by your Employment Agreement with ION Geophysical, as determined by that Employment Agreement and the by circumstances of your termination from employment. Those rights, benefits and payments may include cash payments at the time of termination and thereafter, existing rights to vested welfare benefits and vested incentive compensation, including newly accelerated vesting and newly defined exercise periods; and deferred compensation, if you have any, plus business and travel expenses not yet paid at the time of your termination but incurred while you were employed and that would have been paid under Employer’s procedures if you were still employed; unpaid medical charges and expenses payable under the Employer’s plan despite your termination, and payable pursuant to your Employment Agreement and COBRA; plus all your rights to indemnity, contribution and a defense under any law, statute, agreement or Employer document, and all insurance coverage relating to those rights, as well as all existing continuing coverage under any liability insurance, including but not limited to directors and officers coverage, fiduciary liability coverage, errors and omissions coverage, professional liability insurance coverage, general and other liability coverage, pursuant to the terms of those insurance policies, as well as your rights as a shareholder option holder and as a holder of restricted stock and your right to unemployment compensation; your rights under this Separation Agreement; and the rights and obligations under the Employment Agreement relating to Tax code 409A; and claims for breach of this Agreement and breach of the Employment Agreement; and rights pursuant

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to Art. 38.001 et sequitur, Texas Civil Practices & Remedies Code and similar provisions providing for the recovery of reasonable attorney’s fees, and your rights, if any, pursuant to the Employer’s retirement plan.

E. At the time of your termination, Employer shall consider whether to provide a full or partial release to you, the decision on whether or not to provide said release being in Employer’s sole discretion.

7. Period for Review and Consideration of Release and Waiver of Claims: You acknowledge receipt of the original version of this Agreement, including release and waiver of claims and covenant not to sue. You have been given up to 21 days to review and consider this Agreement, including the release and waiver of claims and covenant not to sue, before signing it. You understand that you can sign this Agreement at any time during the 21-day period or an extension thereof. You agree that any changes to this Agreement restart the running of the 21-day consideration period.

8. Denial of Liability: The parties agree that no statement or consideration given in this Agreement or the execution of this Agreement by any party is intended to or will constitute any evidence of wrongdoing or liability by any of them, any such admission being expressly denied.

9. Encouragement to Consult with an Attorney: You are encouraged, at your own expense, to consult with an attorney before signing this Agreement, including release and waiver of claims and covenant not to sue.

10. Right to Revoke Release and Waiver of Claims: This Agreement, including release and waiver of claims and covenant not to sue, will be effective on the eighth day after you sign the Agreement. For a period of seven (7) days following the execution of this Agreement by you, you may revoke this Agreement, including the release and waiver of claims and covenant not to sue, and this Agreement will not become effective or enforceable until the revocation period has expired. You may revoke this Agreement by delivering a written notice of revocation to Employer at 2105 CityWest Blvd., Suite 400, Houston, TX 77042-2839. Attention General Counsel. If you revoke this Agreement, including the release and waiver of claims and covenant not to sue, the Agreement shall not be effective or enforceable and you will not receive the payment(s) and/or benefit(s) described herein to which you are not otherwise entitled under the law, including, without limitation, the Payment(s) and other benefits described in Section 4 of this Agreement. Revocation of this Agreement will have no effect on your termination of employment.

11. Entire Agreement/Severability: This Agreement, including release, waiver and covenant not to sue, and your Employment Agreement contain all of the promises and covenants exchanged by the parties, and would not have been agreed upon but for the inclusion of every one of its conditions. The terms and conditions of this Agreement and your Employment Agreement together constitute the entire Agreement between Employer and you and supersede all other previous and contemporaneous statements, communications, representations or agreements, either written or oral, by or between Employer and you with respect to the subject matter hereof (except for the terms of any confidentiality, non-competition, non-solicitation,

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no-hire and/or proprietary information agreements entered by you with or for the benefit of Employer in connection with your employment). No contemporaneous or subsequent agreement or understanding modifying, varying or expanding this Agreement or your Employment Agreement shall be binding upon either party unless in writing and signed by a duly authorized representative of Employer and you. The release and waiver of claims and covenant not to sue contained in Paragraph 6 of this Agreement are essential and material parts of this Agreement.

12. Applicable Law and Venue: This Agreement shall be interpreted and construed in accordance with and shall be governed by the laws of the State of Texas, except to the extent that federal law may apply and have preemptive effect. All disputes arising under or relating to this Agreement shall be brought by the parties in a court of competent jurisdiction in Houston, Harris County, Texas.

I KNOWINGLY AND VOLUNTARILY CHOOSE TO ACCEPT THE TERMS OF THIS AGREEMENT AND MY EMPLOYMENT AGREEMENT IN CONNECTION WITH THE TERMINATION OF MY EMPLOYMENT.

[Employee Name] Date

ION GEOPHYSICAL CORPORATION

By:
	Date

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EX-31.1

EXHIBIT 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO RULE 13a-14(a) OR RULE 15d-14(a)

I, Robert P. Peebler, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q for the period ended September 30, 2011, of ION Geophysical Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 3, 2011	/s/ Robert P. Peebler
	Robert P. Peebler
	Chief Executive Officer

EX-31.2

EXHIBIT 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO RULE 13a-14(a) OR RULE 15d-14(a)

I, R. Brian Hanson, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q for the period ended September 30, 2011, of ION Geophysical Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 3, 2011	/s/ R. Brian Hanson
	R. Brian Hanson
	President, Chief Operating Officer and Chief Financial Officer

EX-32.1

EXHIBIT 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. §1350

     In connection with the Quarterly Report of ION Geophysical Corporation (the “Company”) on Form 10-Q for the period ended September 30, 2011, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Robert P. Peebler, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to my knowledge that:

1. The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: November 3, 2011	/s/ Robert P. Peebler
	Robert P. Peebler
	Chief Executive Officer

EX-32.2

EXHIBIT 32.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. §1350

     In connection with the Quarterly Report of ION Geophysical Corporation (the “Company”) on Form 10-Q for the period ended September 30, 2011, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, R. Brian Hanson, President, Chief Operating Officer and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to my knowledge, that:

1. The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: November 3, 2011	/s/ R. Brian Hanson
	R. Brian Hanson
	President, Chief Operating Officer and Chief Financial Officer

XML

Condensed Consolidated Balance Sheets (Parenthetical) (USD $)	Sep. 30, 2011	Dec. 31, 2010
Equity:
Common stock, par value	$ 0.01	$ 0.01
Common stock, shares authorized	200,000,000	200,000,000
Common stock, shares outstanding	155,195,407	152,870,679
Treasury stock, shares	849,539	849,539

XML

Condensed Consolidated Statements of Operations (Unaudited) (USD $) In Thousands, except Per Share data	3 Months Ended		9 Months Ended
	Sep. 30, 2011	Sep. 30, 2010	Sep. 30, 2011	Sep. 30, 2010
Condensed Consolidated Statements of Operations [Abstract]
Product revenues	$ 41,760	$ 34,299	$ 113,163	$ 113,974
Service revenues	73,894	87,295	181,575	171,725
Total net revenues	115,654	121,594	294,738	285,699
Cost of products	21,568	17,354	53,831	68,421
Cost of services	50,028	55,292	132,079	117,902
Gross profit	44,058	48,948	108,828	99,376
Operating expenses:
Research, development and engineering	6,325	5,532	18,070	19,748
Marketing and sales	8,199	7,768	23,079	21,323
General and administrative	11,038	12,279	34,312	39,929
Total operating expenses	25,562	25,579	75,461	81,000
Income from operations	18,496	23,369	33,367	18,376
Interest expense, net	(1,382)	(1,861)	(4,184)	(28,877)
Loss on disposition of land division				(38,115)
Fair value adjustment of warrant				12,788
Equity in losses of INOVA Geophysical	(4,811)	(8,004)	(9,844)	(8,183)
Other income (expense)	199	(3,229)	(2,303)	(811)
Income (loss) before income taxes	12,502	10,275	17,036	(44,822)
Income tax expense (benefit)	3,484	(1,934)	4,716	12,400
Net income (loss)	9,018	12,209	12,320	(57,222)
Net income attributable to noncontrolling interest	34		103
Net income (loss) attributable to ION	9,052	12,209	12,423	(57,222)
Preferred stock dividends	338	338	1,014	1,598
Net income (loss) applicable to common shares	$ 8,714	$ 11,871	$ 11,409	$ (58,820)
Net income (loss) per share:
Basic	$ 0.06	$ 0.08	$ 0.07	$ (0.42)
Diluted	$ 0.06	$ 0.08	$ 0.07	$ (0.42)
Weighted average number of common shares outstanding:
Basic	155,166	152,344	154,648	141,483
Diluted	162,227	152,690	156,095	141,483

XML

Document and Entity Information (USD $) In Millions, except Share data	9 Months Ended
	Sep. 30, 2011	Oct. 28, 2011	Jun. 30, 2010
Document and Entity Information [Abstract]
Entity Registrant Name	ION GEOPHYSICAL CORP
Entity Central Index Key	0000866609
Document Type	10-Q
Document Period End Date	Sep. 30, 2011
Amendment Flag	false
Document Fiscal Year Focus	2011
Document Fiscal Period Focus	Q3
Current Fiscal Year End Date	--12-31
Entity Well-known Seasoned Issuer	Yes
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Filer Category	Accelerated Filer
Entity Public Float			$ 495.25
Entity Common Stock, Shares Outstanding		155,203,656

XML

Cumulative Convertible Preferred Stock

9 Months Ended

Sep. 30, 2011

Cumulative Convertible Preferred Stock and Comprehensive Net Income (Loss) [Abstract]

Cumulative Convertible Preferred Stock

(7) Cumulative Convertible Preferred Stock

     During 2005, the Company entered into an Agreement with Fletcher International, Ltd. (this Agreement, as amended to the date hereof, is referred to as the “Fletcher Agreement”) and issued to Fletcher 30,000 shares of Series D-1 Cumulative Convertible Preferred Stock (“Series D-1 Preferred Stock”) in a privately-negotiated transaction, receiving $29.8 million in net proceeds. The Fletcher Agreement also provided to Fletcher an option to purchase up to an additional 40,000 shares of additional series of preferred stock from time to time, with each series having a conversion price that would be equal to 122% of an average daily volume-weighted market price of the Company’s common stock over a trailing period of days at the time of issuance of that series. In 2007 and 2008, Fletcher exercised this option and purchased 5,000 shares of Series D-2 Cumulative Convertible Preferred Stock (“Series D-2 Preferred Stock”) for $5.0 million (in December 2007) and the remaining 35,000 shares of Series D-3 Cumulative Convertible Preferred Stock (“Series D-3 Preferred Stock”) for $35.0 million (in February 2008). The shares of Series D-1 Preferred Stock, Series D-2 Preferred Stock and Series D-3 Preferred Stock are sometimes referred to herein as the “Series D Preferred Stock.”

     Dividends on the shares of Series D Preferred Stock must be paid in cash on a quarterly basis. Dividends are payable at a rate equal to the greater of (i) 5.0% per annum or (ii) the three month LIBOR rate on the last day of the immediately preceding calendar quarter plus 2.5% per annum. The Series D Preferred Stock dividend rate was 5.0% at September 30, 2011.

     Under the Fletcher Agreement, if a 20-day volume-weighted average trading price per share of the Company’s common stock fell below $4.4517 (the “Minimum Price”), the Company was required to deliver a notice (the “Reset Notice”) to Fletcher. On November 28, 2008, the volume-weighted average trading price per share of the Company’s common stock on the New York Stock Exchange for the previous 20 trading days was calculated to be $4.328, and the Company delivered the Reset Notice to Fletcher in accordance with the terms of the Fletcher Agreement. In the Reset Notice, the Company elected to reset the conversion prices for the Series D Preferred Stock to the Minimum Price ($4.4517 per share), and Fletcher’s rights to redeem the Series D Preferred Stock were terminated. The adjusted conversion price resulting from this election was effective on November 28, 2008.

     In addition, under the Fletcher Agreement, the aggregate number of shares of common stock issued or issuable to Fletcher upon conversion or redemption of, or as dividends paid on, the Series D Preferred Stock could not exceed a designated maximum number of shares (the “Maximum Number”), and such Maximum Number could be increased by Fletcher providing the Company with a 65-day notice of increase, but under no circumstance could the total number of shares of common stock issued or issuable to Fletcher with respect to the Series D Preferred Stock ever exceed 15,724,306 shares. The Fletcher Agreement had designated 7,669,434 shares as the original Maximum Number. In November 2008, Fletcher delivered a notice to the Company to increase the Maximum Number to 9,669,434 shares, effective February 1, 2009. On November 8, 2010, Fletcher delivered a notice to the Company to increase the Maximum Number to the full 15,724,306 shares, effective January 12, 2011.

     On April 8, 2010, Fletcher converted 8,000 of its shares of the outstanding Series D-1 Preferred Stock and all of the outstanding 35,000 shares of the Series D-3 Preferred Stock into a total of 9,659,231 shares of the Company’s common stock. The conversion price for these shares was $4.4517 per share, in accordance with the terms of these series of preferred stock. Fletcher continues to own 22,000 shares of the Series D-1 Preferred Stock and 5,000 shares of the Series D-2 Preferred Stock. As a result of Fletcher’s delivery of its notice to increase the Maximum Number to the full 15,724,306 shares in November 2010, under the terms of the Fletcher Agreement, Fletcher’s remaining 27,000 shares of Series D Preferred Stock are convertible into 6,065,075 shares of the Company’s common stock. The conversion prices and number of shares of common stock to be acquired upon conversion are also subject to customary anti-dilution adjustments. Fletcher remains the sole holder of all of the outstanding shares of Series D Preferred Stock.

XML

Related Party Transactions

9 Months Ended

Sep. 30, 2011

Related Party Transactions [Abstract]

Related Party Transactions

(12) Related Party Transactions

     BGP, Inc., China National Petroleum Corporation (“BGP”) owned approximately 15.3% of the Company’s outstanding common stock as of September 30, 2011. For the three months ended September 30, 2011 and 2010, the Company recorded revenues from BGP of $0.9 million and $1.7 million, respectively. For the nine months ended September 30, 2011 and 2010, the Company recorded revenues from BGP of $2.3 million and $4.8 million, respectively. Total receivables due from BGP were $2.0 million at September 30, 2011. As of September 30, 2011, BGP had paid the Company $14.8 million in cash related to the Company’s contract to outfit a BGP twelve-streamer vessel with the Company’s DigiSTREAMER data acquisition system, for which revenue has not yet been recognized.

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Investments

9 Months Ended

Sep. 30, 2011

Investments [Abstract]

Investments

(3) Investments

     Short-term Investments

     Short-term investments are comprised solely of bank certificates of deposit denominated in U.S. dollars with original maturities in excess of three months and represent the investment of excess cash that is available for current operations. The Company recorded these investments on its balance sheet at cost based on its intent and ability to hold these investments to maturity. These short-term investments were purchased at a cost, which approximates fair value based on Level 1 inputs, of $80.0 million and have scheduled maturities through January 2012. During the second quarter of 2011, the Company liquidated $41.0 million of its original investment to cover the working capital requirements of the Company’s multi-client projects. During the third quarter of 2011, $11.0 million of the remaining $39.0 million investment matured resulting in an investment of $28.0 million as of September 30, 2011.

     In addition, the Company believes that the carrying amount of its cash and cash equivalents approximates fair value as of September 30, 2011.

     Long-term Investment

     In May 2011, the Company purchased a convertible note from a private U.S-based technology company. The principal amount of the note is $6.5 million, and it bears interest at a rate of 4% per annum. The maturity date of the note is two years; however, the note will automatically convert into shares of common stock of the investee on the earlier to occur of (a) the maturity date of the note and (b) the date funds are invested into the investee by any venture capital firm or other investor. Upon the occurrence of a conversion event, the note will convert into a number of shares of common stock equal to 15% of the total post-conversion outstanding shares of common stock of the investee, excluding any shares issued after the date of the note to third party investors who have made equity investments in the investee. The investee does not have the right to prepay any principal on the note without the Company’s consent; therefore, it is expected that the note will automatically convert within two years. Interest on the note will be paid in cash upon the maturity date, or conversion, if sooner.

     The Company classifies this investment as available-for-sale and has recorded the fair value of this investment as a noncurrent asset included in other assets on its condensed consolidated balance sheet with unrealized gains and losses reflected in accumulated other comprehensive income until realized. The Company uses a market approach to estimate the fair value of its investment in the convertible note using Level 3 inputs, including the investee’s expectations of the terms and likelihood of a future financing event, time to liquidity and stock price volatility. As of September 30, 2011, the fair value of this investment was approximately $5.8 million with $0.7 million of unrealized losses recorded in accumulated other comprehensive income.

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Comprehensive Net Income (Loss)

9 Months Ended

Sep. 30, 2011

Cumulative Convertible Preferred Stock and Comprehensive Net Income (Loss) [Abstract]

Comprehensive Net Income (Loss)

(9) Comprehensive Net Income (Loss)

     The components of comprehensive net income (loss) are as follows (in thousands):

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2011			2010			2011			2010
Net income (loss)	$	9,018		$	12,209		$	12,320		$	(57,222	)
Other comprehensive income (loss), net of taxes:
Foreign currency translation adjustments (ION)		(2,107	)		3,816			1,130			2,086
Foreign currency translation adjustments (noncontrolling interest)		32			—			21			—
Change in fair value of effective cash flow hedges (net of taxes)		(184	)		(131	)		(332	)		(131	)
Equity interest in INOVA Geophysical’s other comprehensive income		(17	)		(937	)		1,565			(937	)
Unrealized loss on available-for-sale securities		(1,412	)		(365	)		(1,918	)		(7,717	)
Total other comprehensive income (loss)		(3,688	)		2,383			466			(6,699	)
Comprehensive net income (loss)		5,330			14,592			12,786			(63,921	)
Comprehensive income attributable to noncontrolling interest		34			—			103			—
Comprehensive net income (loss) attributable to ION	$	5,364		$	14,592		$	12,889		$	(63,921	)

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Recent Accounting Pronouncement

9 Months Ended

Sep. 30, 2011

Recent Accounting Pronouncement [Abstract]

Recent Accounting Pronouncement

(14) Recent Accounting Pronouncement

     In June 2011, the Financial Accounting Standards Board issued revised guidance on the presentation of comprehensive income that will be effective for the Company beginning in 2012. This guidance eliminates the option to present the components of comprehensive income as part of the statement of shareholders’ equity and also requires presentation of reclassification adjustments from other comprehensive income to net income on the face of the financial statements. The implementation of this revised guidance in 2012 will change the presentation of the Company’s financial statements, but will not have any impact on the Company’s financial position, results of operations or cash flows.

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Litigation

9 Months Ended

Sep. 30, 2011

Litigation [Abstract]

Litigation

(10) Litigation

     WesternGeco

     In June 2009, WesternGeco L.L.C. (“WesternGeco”) filed a lawsuit against the Company in the United States District Court for the Southern District of Texas, Houston Division. In the lawsuit, styled WesternGeco L.L.C. v. ION Geophysical Corporation, WesternGeco alleges that the Company has infringed several United States patents regarding marine seismic streamer steering devices that are owned by WesternGeco. WesternGeco is seeking unspecified monetary damages and an injunction prohibiting the Company from making, using, selling, offering for sale or supplying any infringing products in the United States. Based on the Company’s review of the lawsuit filed by WesternGeco and the WesternGeco patents at issue, the Company believes that its products do not infringe any WesternGeco patents, that the claims asserted against the Company by WesternGeco are without merit and that the ultimate outcome of the claims against it will not result in a material adverse effect on the Company’s financial condition or results of operations. The Company intends to defend the claims against it vigorously.

     In June 2009, the Company filed an answer and counterclaims against WesternGeco, in which the Company denies that it has infringed WesternGeco’s patents and asserts that the WesternGeco patents are invalid or unenforceable. The Company also asserted that WesternGeco’s Q-Marine system, components and technology infringe upon a United States patent owned by the Company related to marine seismic streamer steering devices. The claims by the Company also assert that WesternGeco tortiously interfered with the Company’s relationship with its customers. In addition, the Company claims that the lawsuit by WesternGeco is an illegal attempt by WesternGeco to control and restrict competition in the market for marine seismic surveys performed using laterally steerable streamers. In its counterclaims, the Company is requesting various remedies and relief, including a declaration that the WesternGeco patents are invalid or unenforceable, an injunction prohibiting WesternGeco from making, using, selling, offering for sale or supplying any infringing products in the United States, a declaration that the WesternGeco patents should be co-owned by the Company, and an award of unspecified monetary damages.

     In June 2010, WesternGeco filed a lawsuit against various subsidiaries and affiliates of Fugro N.V. (“Fugro”), a seismic contractor customer of the Company, accusing Fugro of infringing the same United States patents regarding marine seismic streamer steering devices by planning to use certain equipment purchased from the Company on a survey located outside of U.S. territorial waters. The court approved the consolidation of the Fugro case with the case against the Company. Fugro filed a motion to dismiss the lawsuit, and in March 2011 the presiding judge granted Fugro’s motion to dismiss in part, on the basis that the alleged activities of Fugro would occur more than 12 miles from the U.S. coast and therefore are not actionable under U.S. patent infringement law.

     Fletcher

     In November 2009, Fletcher, the holder of shares of the Company’s outstanding Series D Preferred Stock, filed a lawsuit against the Company and certain of its directors in the Delaware Court of Chancery. In the lawsuit, styled Fletcher International, Ltd. v. ION Geophysical Corporation, f/k/a Input/Output, Inc., ION International S.à r.l., James M. Lapeyre, Bruce S. Appelbaum, Theodore H. Elliott, Jr., Franklin Myers, S. James Nelson, Jr., Robert P. Peebler, John Seitz, G. Thomas Marsh And Nicholas G. Vlahakis, Fletcher alleged, among other things, that the Company violated Fletcher’s consent rights contained in the Series D Preferred Stock Certificates of Designation, by ION Sàrl’s issuance of a convertible promissory note to the Bank of China, New York Branch, in connection with a bridge loan funded in October 2009 by Bank of China, and that the directors violated their fiduciary duty to the Company by allowing ION Sàrl to issue the convertible note without Fletcher’s consent. A total of $10.0 million was advanced to ION Sàrl under the bridge loan, and ION Sàrl repaid $10 million on the following day. Fletcher sought a court order requiring ION Sàrl to repay the $10 million advanced to ION Sàrl under the bridge loan and unspecified monetary damages. On March 24, 2010, the presiding judge in the case denied Fletcher’s request for the court order. In a Memorandum Opinion issued on May 28, 2010 in response to a motion for partial summary judgment, the judge dismissed all of Fletcher’s claims against the named Company directors but also concluded that, because the bridge loan note issued by ION Sàrl was convertible into ION common stock, Fletcher technically had the right to consent to the issuance of the note and that the Company violated Fletcher’s consent right by ION Sàrl issuing the note without Fletcher’s consent. In December 2010, the presiding judge in the case recused himself from the case and a new presiding judge was appointed to the case. In March 2011, the judge dismissed certain of the claims asserted by Fletcher. The Company believes that the remaining claims asserted by Fletcher in the lawsuit are without merit. The Company further believes that the monetary damages suffered by Fletcher as a result of ION Sàrl issuing the bridge loan note without Fletcher’s consent are nonexistent or nominal, and that the ultimate outcome of the lawsuit will not result in a material adverse effect on the Company’s financial condition or results of operations. The Company intends to defend the remaining claims against it in this lawsuit vigorously.

     Sercel

     On January 29, 2010, the jury in a patent infringement lawsuit filed by the Company against seismic equipment provider Sercel, Inc. in the United States District Court for the Eastern District of Texas returned a verdict in the Company’s favor. In the lawsuit, styled Input/Output, Inc. et al v. Sercel, Inc., (5-06-cv-00236), the Company alleged that Sercel’s 408, 428 and SeaRay digital seismic sensor units infringe the Company’s United States Patent No. 5,852,242, which is incorporated in the Company’s VectorSeis^® sensor technology. Products of the Company or INOVA Geophysical that use the VectorSeis technology include the System Four, Scorpion^®, FireFly^®, and VectorSeis Ocean seismic acquisition systems. After a two-week trial, the jury concluded that Sercel infringed the Company’s patent and that the Company’s patent was valid, and the jury awarded the Company $25.2 million in compensatory past damages. In response to post-verdict motions made by the parties, on September 16, 2010, the presiding judge issued a series of rulings that (a) granted the Company’s motion for a permanent injunction to be issued prohibiting the manufacture, use or sale of the infringing Sercel products, (b) confirmed that the Company’s patent was valid, (c) confirmed that the jury’s finding of infringement was supported by the evidence and (d) disallowed $5.4 million of lost profits that were based on infringing products that were manufactured and delivered by Sercel outside of the United States, but were offered for sale by Sercel in the United States and involved underlying orders and payments received by Sercel in the United States. In addition, the judge concluded that the evidence supporting the jury’s finding that the Company was entitled to be awarded $9.0 million in lost profits associated with certain infringing pre-verdict marine sales by Sercel was too speculative and therefore disallowed that award of lost profits. As a result of the judge’s ruling, the Company is now entitled to be awarded an additional amount of damages equal to a reasonable royalty on the infringing pre-verdict Sercel marine sales. After the Company learned that Sercel continued to make sales of infringing products after the January 2010 jury verdict was rendered, the Company filed motions with the court to seek additional compensatory damages for the post-verdict infringing sales and enhanced damages as a result of the willful nature of Sercel’s post-verdict infringement. On February 16, 2011, the Court entered a final judgment and permanent injunction in the case. The final judgment awarded the Company $10.7 million in damages, plus interest, and the permanent injunction prohibits Sercel and parties acting in concert with Sercel from making, using, offering to sell, selling, or importing in the United States (which includes territorial waters of the United States) Sercel’s 408UL, 428XL and SeaRay digital sensor units, and all other products that are only colorably different from those products. The Court ordered that the additional damages to be paid by Sercel as a reasonable royalty on the infringing pre-verdict Sercel marine sales and the additional damages to be paid by Sercel resulting from post-verdict infringing sales would be determined in a separate future proceeding. Sercel and the Company have each appealed portions of the final judgment. The Company has not recorded any amounts related to this gain contingency as of September 30, 2011.

     Other

     The Company has been named in various other lawsuits or threatened actions that are incidental to its ordinary business. Litigation is inherently unpredictable. Any claims against the Company, whether meritorious or not, could be time-consuming, cause the Company to incur costs and expenses, require significant amounts of management time and result in the diversion of significant operational resources. The results of these lawsuits and actions cannot be predicted with certainty. Management currently believes that the ultimate resolution of these matters will not have a material adverse impact on the financial condition, results of operations or liquidity of the Company.

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Income Taxes

9 Months Ended

Sep. 30, 2011

Income Taxes [Abstract]

Income Taxes

(8) Income Taxes

     The Company maintains a valuation allowance for a portion of its U.S. deferred tax assets. The valuation allowance is calculated in accordance with the provisions of ASC 740 “Income Taxes,” which requires that a valuation allowance be established or maintained when it is “more likely than not” that all or a portion of deferred tax assets will not be realized. In the event the Company’s expectations of future operating results change, the valuation allowance may need to be adjusted upward or downward. As of September 30, 2011, the Company’s unreserved U.S. deferred tax assets totaled $11.1 million. These existing unreserved deferred tax assets are currently considered to be “more likely than not” realized.

     The Company’s effective tax rates for the three months ended September 30, 2011 and 2010 were 27.9% (provision on income) and 18.8% (benefit on income), respectively. For the three months ended September 30, 2010, the Company recorded a benefit of $3.9 million related to alternative minimum tax. Excluding the benefit related to alternative minimum tax included in the third quarter of 2010, the Company’s effective tax rate would have been 22.2% (provision on income). The increase in the Company’s effective tax rate for the three months ended September 30, 2011 was due to changes in the distribution of earnings between U.S. and foreign jurisdictions.

     The Company’s effective tax rate for the nine months ended September 30, 2011 was 27.7%, a provision on income, compared to a provision on a loss of 27.7% for the nine months ended September 30, 2010. The difference between these effective tax rates relates primarily to the transactions involved in the completion of the INOVA Geophysical joint venture transaction and to changes in the distribution of earnings between U.S. and foreign jurisdictions, partially offset by recognition of the benefit related to alternative minimum tax for the three months ended September 30, 2010.

     A reconciliation of the expected income tax expense (benefit) on income (loss) before income taxes using the statutory federal income tax rate of 35% for the nine months ended September 30, 2011 and 2010 to income tax expense is as follows (in thousands):

	Nine Months Ended
	September 30,
	2011			2010
Expected income tax expense (benefit) at 35%	$	5,963		$	(15,688	)
Alternative minimum tax (benefit) provision		—			(3,910	)
Foreign taxes (tax rate differential and foreign tax differences)		(3,212	)		348
Formation of INOVA Geophysical		—			10,507
Nondeductible expenses and other		5			118
Deferred tax asset valuation allowance on formation of INOVA Geophysical		—			20,213
Deferred tax asset valuation allowance on equity in losses of INOVA Geophysical		1,960			812
Total income tax expense	$	4,716		$	12,400

     The Company has no significant unrecognized tax benefits and does not expect to recognize significant increases in unrecognized tax benefits during the next twelve month period. Interest and penalties, if any, related to unrecognized tax benefits are recorded in income tax expense.

     The Company’s U.S. federal tax returns for 2007 and subsequent years remain subject to examination by tax authorities. The Company is no longer subject to IRS examination for periods prior to 2007, although carryforward attributes that were generated prior to 2007 may still be adjusted upon examination by the IRS if they either have been or will be used in an open year. In the Company’s foreign tax jurisdictions, tax returns for 2007 and subsequent years generally remain open to examination.

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Basis of Presentation

9 Months Ended

Sep. 30, 2011

Basis of Presentation [Abstract]

Basis of Presentation

(1) Basis of Presentation

     The condensed consolidated balance sheet of ION Geophysical Corporation and its subsidiaries (collectively referred to as the “Company” or “ION,” unless the context otherwise requires) at December 31, 2010 has been derived from the Company’s audited consolidated financial statements at that date. The condensed consolidated balance sheet at September 30, 2011, the condensed consolidated statements of operations for the three and nine months ended September 30, 2011 and 2010, and the condensed consolidated statements of cash flows for the nine months ended September 30, 2011 and 2010 are unaudited. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. The results of operations for the three and nine months ended September 30, 2011 are not necessarily indicative of the operating results for a full year or of future operations.

     These condensed consolidated financial statements have been prepared using accounting principles generally accepted in the United States for interim financial information and the instructions to Form 10-Q and applicable rules of Regulation S-X of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in annual financial statements presented in accordance with accounting principles generally accepted in the United States have been omitted. The accompanying condensed consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2010, and the amendment thereto on Form 10-K/A that the Company filed in June 2011 that contains the separate consolidated financial statements of INOVA Geophysical Equipment Limited (“INOVA Geophysical”) for the fiscal year ended December 31, 2010.

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Inventories

9 Months Ended

Sep. 30, 2011

Inventories [Abstract]

Inventories

(4) Inventories

     A summary of inventories is as follows (in thousands):

	September 30,			December 31,
	2011			2010
Raw materials and subassemblies	$	45,973		$	39,412
Work-in-process		5,869			4,605
Finished goods		55,395			35,741
Reserve for excess and obsolete inventories		(12,997	)		(12,876	)
Total	$	94,240		$	66,882

     The increase in finished goods is principally due to inventory build related to the Company’s contract to outfit a BGP twelve-streamer vessel with the Company’s DigiSTREAMER^TM data acquisition system and BGP is expected to deploy the system in the fourth quarter of this year.

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Net Income (Loss) per Share

9 Months Ended

Sep. 30, 2011

Earnings Per Share [Abstract]

Net Income (Loss) per Share

(5) Net Income (Loss) per Share

     Basic net income (loss) per common share is computed by dividing net income (loss) applicable to common shares by the weighted average number of common shares outstanding during the period. Diluted net income per common share is determined based on the assumption that dilutive restricted stock and restricted stock unit awards have vested and outstanding dilutive stock options have been exercised and the aggregate proceeds were used to reacquire common stock using the average price of such common stock for the period. The total number of shares issued or committed for issuance under outstanding stock options at September 30, 2011 and 2010 was 5,572,300 and 7,157,990, respectively, and the total number of shares of restricted stock and shares reserved for restricted stock units outstanding at September 30, 2011 and 2010 was 1,009,217 and 906,408, respectively.

     There are 27,000 outstanding shares of the Company’s Series D Cumulative Convertible Preferred Stock, which may currently be converted, at the holder’s election, into up to 6,065,075 shares of the Company’s common stock. See further discussion of the Series D Preferred Stock conversion provisions at Note 7 “— Cumulative Convertible Preferred Stock.” The outstanding shares of all Series D Preferred Stock were anti-dilutive for all periods presented, except for the three months ended September 30, 2011.

     The following table summarizes the computation of basic and diluted net income (loss) per common share (in thousands, except per share amounts):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2011		2010		2011		2010
Net income (loss) applicable to common shares	$	8,714	$	11,871	$	11,409	$	(58,820	)
Impact of assumed Series D Preferred Stock conversion		338		—		—		—
Net income (loss) after impact of assumed preferred stock conversion	$	9,052	$	11,871	$	11,409	$	(58,820	)
Weighted average number of common shares outstanding		155,166		152,344		154,648		141,483
Effect of dilutive stock awards		996		346		1,447		—
Effect of assumed Series D Preferred Stock conversion		6,065		—		—		—
Weighted average number of diluted common shares outstanding		162,227		152,690		156,095		141,483
Basic net income (loss) per share	$	0.06	$	0.08	$	0.07	$	(0.42	)
Diluted net income (loss) per share	$	0.06	$	0.08	$	0.07	$	(0.42	)

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Restructuring Activities

9 Months Ended

Sep. 30, 2011

Restructuring Activities [Abstract]

Restructuring Activities

(13) Restructuring Activities

     At December 31, 2010, the Company had a liability (reflected in “Other long-term liabilities”) of $6.7 million related to permanently ceasing to use certain leased facilities. During the nine months ended September 30, 2011, the Company made cash payments of $0.9 million and accrued $0.3 million related to accretion expense, resulting in a remaining liability of $6.1 million as of September 30, 2011.

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Long-term Debt, Lease Obligations and Interest Rate Caps

9 Months Ended

Sep. 30, 2011

Long-term Debt, Lease Obligations and Interest Rate Caps [Abstract]

Long-term Debt, Lease Obligations and Interest Rate Caps

(6) Long-term Debt, Lease Obligations and Interest Rate Caps

	September 30,			December 31,
Obligations (in thousands)	2011			2010
$100.0 million revolving line of credit	$	—		$	—
Term loan facility		100,250			103,250
Facility lease obligation		3,209			3,657
Equipment capital leases		321			1,753
Total		103,780			108,660
Current portion of long-term debt and lease obligations		(4,859	)		(6,073	)
Non-current portion of long-term debt and lease obligations	$	98,921		$	102,587

     Revolving Line of Credit and Term Loan Facility

     In March 2010, ION, its Luxembourg subsidiary, ION International S.à r.l. (“ION Sàrl”), and certain of its other U.S. and foreign subsidiaries entered into a new credit facility (the “Credit Facility”). The terms of the Credit Facility are set forth in a credit agreement dated as of March 25, 2010 (the “Credit Agreement”), by and among ION, ION Sàrl and China Merchants Bank Co., Ltd., New York Branch (“CMB”), as administrative agent and lender. The obligations of ION under the Credit Facility are guaranteed by certain of ION’s material U.S. subsidiaries and the obligations of ION Sàrl under the Credit Facility are guaranteed by certain of ION’s material U.S. and foreign subsidiaries, in each case that are parties to the Credit Agreement. In addition, in June 2010, INOVA Geophysical also entered into an agreement to guarantee the indebtedness under the Credit Facility.

     The Credit Facility provides ION with a revolving line of credit of up to $100.0 million in borrowings (including borrowings for letters of credit) and refinanced ION’s outstanding term loan with a new term loan in the original principal amount of $106.3 million.

     The revolving credit sub-facility and term loan under the Credit Facility are each scheduled to mature on March 24, 2015. The principal amount under the term loan is subject to scheduled quarterly amortization payments that commenced on June 30, 2010, of $1.0 million per quarter until the maturity date, upon which the remaining unpaid principal amount of the term loan becomes due and payable. The indebtedness under the Credit Facility may sooner mature on a date that is 18 months after the earlier of (i) any dissolution of INOVA Geophysical, or (ii) the administrative agent determining in good faith that INOVA Geophysical is unable to perform its obligations under its guarantee.

     The interest rate per annum on borrowings under the Credit Facility will be, at ION’s option:

• An alternate base rate equal to the sum of (i) the greatest of (a) the prime rate of CMB, (b) a federal funds effective rate plus 0.50%, or (c) an adjusted LIBOR-based rate plus 1.0%, and (ii) an applicable interest margin of 2.5%; or

• For Eurodollar borrowings and borrowings in Euros, Pounds Sterling or Canadian Dollars, the sum of (i) an adjusted LIBOR-based rate, and (ii) an applicable interest margin of 3.5%.

     As of September 30, 2011, the $100.3 million in outstanding term loan indebtedness under the Credit Facility accrued interest at a rate of 3.7% per annum.

     The Credit Facility requires compliance with certain financial covenants. Certain of these financial covenants became effective on June 30, 2011, and will continue in effect for each fiscal quarter thereafter over the term of the Credit Facility. These financial covenants require ION and its U.S. subsidiaries to:

• Maintain a minimum fixed charge coverage ratio in an amount equal to at least 1.125 to 1;

• Not exceed a maximum leverage ratio of 3.25 to 1; and

• Maintain a minimum tangible net worth of at least 60% of ION’s tangible net worth as of March 31, 2010, as defined in the Credit Agreement.

     The fixed charge coverage ratio is defined as the ratio of (i) ION’s consolidated EBITDA less cash income tax expense and non-financed capital expenditures, to the sum of (ii) scheduled payments of lease payments and payments of principal indebtedness, interest expense actually paid and cash dividends, in each case for the four consecutive fiscal quarters most recently ended. The leverage ratio is defined as the ratio of (x) total funded consolidated debt, capital lease obligations and issued letters of credit (net of cash collateral) to (y) consolidated EBITDA of ION for the four consecutive fiscal quarters most recently ended. As of September 30, 2011, the Company was in compliance with these financial covenants and expects to remain in compliance with these financial covenants through the remainder of 2011.

     The fair market value of the Company’s outstanding long-term debt was $107.3 million at September 30, 2011 compared to a carrying value of $103.8 million. The fair value of the long-term debt was calculated using an estimated interest rate reflecting current market conditions.

     Interest Rate Caps

     In August 2010, the Company entered into an interest rate cap agreement and purchased interest rate caps (the “August 2010 Caps”) having an initial notional amount of $103.3 million with a three-month average LIBOR cap of 2.0%. If and when the three-month average LIBOR rate exceeds 2.0%, the LIBOR portion of interest owed by the Company would be capped at 2.0%. The initial notional amount was set to equal the projected outstanding balance under the Company’s term loan facility at December 31, 2010. The notional amount was then set so as not to exceed the Company’s outstanding balance of its term loan facility over a period extending through March 29, 2013. The Company purchased these interest rate caps for approximately $0.4 million and designated the interest rate caps as cash flow hedges.

     In July 2011, the Company purchased additional interest rate caps (the “July 2011 Caps”) related to its term loan facility. The notional amounts of the July 2011 Caps, together with the notional amounts of the August 2010 Caps, were set so as not to exceed the outstanding balance of the Company’s term loan facility over a period that extends through March 31, 2014. The Company purchased these interest rate caps for an amount equal to approximately $0.3 million and designated the interest rate caps as cash flow hedges.

     As of September 30, 2011, the Company held interest rate caps as follows (amounts in thousands):

				Notional Amounts
Payment Date	Cap Rate			August 2010 Caps		July 2011 Caps		Total
December 29, 2011		2.0	%	$	90,225	$	—	$	90,225
March 29, 2012		2.0	%	$	89,325	$	—	$	89,325
June 29, 2012		2.0	%	$	68,775	$	18,850	$	87,625
September 28, 2012		2.0	%	$	68,075	$	18,650	$	86,725
December 31, 2012		2.0	%	$	67,375	$	18,450	$	85,825
March 29, 2013		2.0	%	$	66,675	$	18,250	$	84,925
June 28, 2013		2.0	%	$	—	$	63,175	$	63,175
September 30, 2013		2.0	%	$	—	$	62,475	$	62,475
December 31, 2013		2.0	%	$	—	$	61,775	$	61,775
March 31, 2014		2.0	%	$	—	$	61,075	$	61,075

     These interest rate caps have been designated as cash flow hedges according to ASC 815 (“Derivatives and Hedging”) and, accordingly, the effective portion of the change in fair value of these interest rate caps are recognized in other comprehensive income in the Company’s consolidated financial statements. The Company has recorded the fair value of these interest rate caps as a noncurrent asset included in other assets on its condensed consolidated balance sheet. As of September 30, 2011, the total fair value of the interest rate caps was $0.1 million, which was based on Level 2 inputs such as interest rates and yield curves that are observable at commonly quoted intervals. For the three and nine months ended September 30, 2011, there was approximately $0.2 million, net of tax, and $0.3 million, net of tax, respectively, related to the change in fair value included in other comprehensive income. Unrealized gains or losses included in other comprehensive income related to these interest rate caps will be reclassified into earnings as each interest rate caplet settles on the contractual payment dates as shown in the table above.

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Condensed Consolidated Statements of Cash Flows (Unaudited) (USD $) In Thousands	9 Months Ended
	Sep. 30, 2011	Sep. 30, 2010
Cash flows from operating activities:
Net income (loss)	$ 12,320	$ (57,222)
Adjustments to reconcile net income (loss) to cash provided by operating activities:
Depreciation and amortization (other than multi-client library)	10,649	20,439
Amortization of multi-client library	55,166	54,358
Stock-based compensation expense related to stock options, nonvested stock and employee stock purchases	4,177	5,471
Amortization of debt discount		8,656
Write-off of unamortized debt issuance costs		10,121
Fair value adjustment of warrant		(12,788)
Loss on disposition of land division		38,115
Equity in losses of INOVA Geophysical	9,844	8,183
Deferred income taxes	(7,254)	9,269
Change in operating assets and liabilities:
Accounts receivable	(10,842)	27,546
Unbilled receivables	25,212	(43,447)
Inventories	(30,539)	(867)
Accounts payable, accrued expenses and accrued royalties	(1,108)	(723)
Deferred revenue	19,046	(428)
Other assets and liabilities	(527)	(11,929)
Net cash provided by operating activities	86,144	54,754
Cash flows from investing activities:
Purchase of property, plant and equipment	(9,024)	(7,014)
Investment in multi-client data library	(91,594)	(58,866)
Purchase of short-term investments	(80,000)
Proceeds from sale of short-term investments	52,000
Investment in a convertible note	(6,500)
Proceeds from disposition of land division, net of fees paid		99,790
Other investing activities	50	(521)
Net cash provided by (used in) investing activities	(135,068)	33,389
Cash flows from financing activities:
Borrowings under revolving line of credit		101,000
Repayments under revolving line of credit		(190,429)
Net proceeds from the issuance of debt		105,695
Net proceeds from the issuance of stock		38,039
Payments on notes payable and long-term debt	(4,880)	(143,835)
Payment of preferred dividends	(1,014)	(1,598)
Contribution from noncontrolling interest	313
Proceeds from exercise of stock options	13,047
Other financing activities	352	255
Net cash provided by (used in) financing activities	7,818	(90,873)
Effect of change in foreign currency exchange rates on cash and cash equivalents	(23)	2,479
Net decrease in cash and cash equivalents	(41,129)	(251)
Cash and cash equivalents at beginning of period	84,419	16,217
Cash and cash equivalents at end of period	43,290	15,966
Non-cash items from investing and financing activities:
Sale of rental equipment financed with a note receivable	3,578
Transfer of inventory to rental equipment	2,978	3,635
Reduction in multi-client data library related to finalization of accrued liabilities	1,888
Investment in multi-client data library financed through trade payables		3,429
Expiration of BGP Warrant		32,001
Conversion of BGP Domestic Convertible Note to equity		28,571
Investment in INOVA Geophysical		119,000
Exchange of RXT receivables into shares		$ 9,516

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Segment Information

9 Months Ended

Sep. 30, 2011

Segment Information [Abstract]

Segment Information

(2) Segment Information

     The Company evaluates and reviews its results based on four segments: Systems, Software, Solutions and Legacy Land Systems (INOVA). The Company measures segment operating results based on income from operations. The Legacy Land Systems (INOVA) segment represents the Company’s disposed land division operations through March 25, 2010, the date of the formation of the INOVA Geophysical joint venture.

     A summary of segment information is as follows (in thousands):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2011		2010		2011		2010
Net revenues:
Systems:
Towed Streamer	$	22,219	$	20,185	$	60,000	$	50,096
Ocean Bottom		—		510		509		1,821
Other		10,065		5,036		25,210		19,721
Total	$	32,284	$	25,731	$	85,719	$	71,638
Software:
Software Systems	$	9,476	$	8,567	$	27,444	$	25,824
Services		715		561		1,545		1,409
Total	$	10,191	$	9,128	$	28,989	$	27,233
Solutions:
Data Processing	$	22,416	$	27,943	$	63,349	$	79,661
New Venture		35,597		49,971		67,819		62,314
Data Library		15,166		8,821		48,862		28,342
Total	$	73,179	$	86,735	$	180,030	$	170,317
Legacy Land Systems (INOVA)	$	—	$	—	$	—	$	16,511
Total	$	115,654	$	121,594	$	294,738	$	285,699

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2011			2010			2011			2010
Gross profit:
Systems	$	13,397		$	11,202		$	40,752		$	29,141
Software		8,061			6,074			20,970			18,254
Solutions		22,600			31,672			47,106			52,965
Legacy Land Systems (INOVA)		—			—			—			(984	)
Total	$	44,058		$	48,948		$	108,828		$	99,376
Gross margin:
Systems		41	%		44	%		48	%		41	%
Software		79	%		67	%		72	%		67	%
Solutions		31	%		37	%		26	%		31	%
Legacy Land Systems (INOVA)		—	%		—	%		—	%		(6	%)
Total		38	%		40	%		37	%		35	%
Income from operations:
Systems	$	6,852		$	5,693		$	21,989		$	13,833
Software		7,117			5,451			18,409			16,513
Solutions		13,897			22,556			22,751			30,669
Legacy Land Systems (INOVA)		—			—			—			(9,623	)
Corporate and other		(9,370	)		(10,331	)		(29,782	)		(33,016	)
Income from operations		18,496			23,369			33,367			18,376
Interest expense, net		(1,382	)		(1,861	)		(4,184	)		(28,877	)
Loss on disposition of land division		—			—			—			(38,115	)
Fair value adjustment of warrant		—			—			—			12,788
Equity in losses of INOVA Geophysical		(4,811	)		(8,004	)		(9,844	)		(8,183	)
Other income (expense)		199			(3,229	)		(2,303	)		(811	)
Income (loss) before income taxes	$	12,502		$	10,275		$	17,036		$	(44,822	)

     In September 2011, INOVA Geophysical announced the launch of its next-generation products. These products are in process of field testing with plan of commercial introduction in 2012. The Company expects to see a one-time write-down of inventory based upon previous technologies to occur in INOVA Geophysical’s third quarter and then reflected in the Company’s fourth quarter results, as the Company records its share of earnings of INOVA Geophysical on a one fiscal quarter lag. The Company estimates that its 49% share of this one-time write-down to be in the range of $6 million to $8 million.

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Noncontrolling Interest

9 Months Ended

Sep. 30, 2011

Noncontrolling Interest [Abstract]

Noncontrolling Interest

(11) Noncontrolling Interest

     In February 2011, the Company established a new seismic data processing center in Rio de Janeiro, Brazil, with Brazilian energy consultancy Bratexco, to provide advanced imaging services to exploration and production (“E&P”) companies operating in basins off the coast of Brazil. The entity is named GX Technology Processamento de Dados Ltda. The Company owns a 70% interest, and Bratexco owns a 30% interest. Bratexco’s cash contributions were $0.3 million.

     The Company consolidates the assets, liabilities, revenues and expenses of all majority-owned subsidiaries over which the Company exercises control or for which the Company has a controlling financial interest. Bratexco’s interest in results of operations related to the entity is reflected in “Net income attributable to noncontrolling interest” in the condensed consolidated statements of operations and its interest in the assets and liabilities related to the entity is reflected in “Noncontrolling interest” in the condensed consolidated balance sheet.

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Condensed Consolidated Balance Sheets (USD $) In Thousands	Sep. 30, 2011	Dec. 31, 2010
Current assets:
Cash and cash equivalents	$ 43,290	$ 84,419
Short-term investments	28,000	0
Accounts receivable, net	87,923	77,576
Unbilled receivables	45,378	70,590
Inventories	94,240	66,882
Prepaid expenses and other current assets	13,021	13,165
Total current assets	311,852	312,632
Deferred income tax asset	13,180	8,998
Property, plant and equipment, net	22,478	20,145
Multi-client data library, net	146,781	112,620
Investment in INOVA Geophysical	86,894	95,173
Goodwill	51,576	51,333
Intangible assets, net	16,674	20,317
Other assets	10,754	3,224
Total assets	660,189	624,442
Current liabilities:
Current maturities of long-term debt	4,859	6,073
Accounts payable	29,848	30,940
Accrued expenses	56,382	59,835
Accrued multi-client data library royalties	15,523	18,667
Deferred revenue	36,917	17,851
Total current liabilities	143,529	133,366
Long-term debt, net of current maturities	98,921	102,587
Other long-term liabilities	7,429	8,042
Total liabilities	249,879	243,995
Equity:
Cumulative convertible preferred stock	27,000	27,000
Common stock, $0.01 par value; authorized 200,000,000 shares; outstanding 155,195,407 and 152,870,679 shares at September 30, 2011 and December 31, 2010, respectively, net of treasury stock	1,552	1,529
Additional paid-in capital	839,161	822,399
Accumulated deficit	(435,963)	(448,386)
Accumulated other comprehensive loss	(15,064)	(15,530)
Treasury stock, at cost, 849,539 shares both at September 30, 2011 and December 31, 2010	(6,565)	(6,565)
Total stockholders' equity	410,121	380,447
Noncontrolling interest	189	0
Total equity	410,310	380,447
Total liabilities and equity	$ 660,189	$ 624,442