ION Systems had an outstanding year. Revenues increased to $540 million, a 51% increase versus 2006. Moreover, Systems’ operating income margin increased by 250 basis points during the year as we better leveraged our operating expenses, including the investments we have been making in game-changing products such as VectorSeis. For the year, ION Systems delivered $91 million in operating income, an increase of 77% versus 2006. Financial performance improvements were delivered by almost every business line within ION Systems, with strong fundamentals in both marine and land arenas.

On the marine front, ION Systems is benefiting from a broad portfolio of hardware and software offerings for both streamer and seabed acquisition and a dynamic marine seismic marketplace. The streamer market has been especially robust lately, driven by the commissioning of new streamer acquisition vessels and technology upgrades throughout the global fleet. One noteworthy trend is the move toward complex acquisition geometries, which are designed to deliver improved seismic images in challenging subsurface environments such as sub-salt. We believe that our marine streamer toolkit – including our Orca® command & control software system and products such as DigiRANGE II® and DigiFIN™ – is well positioned to capitalize on the tough technology requirements of complex acquisition.

Against this backdrop, Concept Systems had a record year driven by increasing adoption of Orca on the global streamer vessel fleet. We continued to work with PGS on further commercializing our DigiFIN streamer steering system and, in the fourth quarter, sold PGS the largest DigiRANGE II positioning system in ION history. We also made good progress with DigiSTREAMER™; late in the year, we signed a launch partner agreement with Fugro Geoteam. After open-water sea trials with our launch partner, we expect to commercialize DigiSTREAMER during the second quarter of 2008. Once DigiSTREAMER is added to our portfolio, we believe we will have a unique, highly integrated system for marine streamer acquisition.

On the seabed front, ION Systems delivered its fourth VectorSeis Ocean (VSO) system to our exclusive operating partner, Reservoir Exploration Technology ASA (RXT). RXT continues to attract significant interest from oil & gas companies that are seeking more efficient ways to acquire full-wave seismic images from the seabed. The demand for VSO and RXT acquisition services is coming from some of the largest E&P firms in the world, in a variety of regions, and for some of their most important reservoirs, including Kashagan in the Caspian Sea. Since first deploying VSO in 2004, RXT has been adding an average of one VSO system to its fleet per year. By the end of 2008, we expect RXT to have a 50% share in a $500 million (and growing) seabed imaging market.

On the land front, ION Systems performed well. The land engineering team was busy working to refine our two major acquisition platforms – Scorpion® and FireFly – and made substantial progress on each. On the Scorpion side, two major imperatives were cost of goods sold and reliability. Our engineers made good progress on the cost of goods side throughout the year and continue to refine our design, procurement, and manufacturing approaches. While some benefits were obtained in 2007, we expect to capture even greater uplift in 2008. We believe we have addressed the field reliability issue through a series of software updates and some changes to the ground electronics and central recorder. Based upon the metrics we track, customer problems seem to have diminished significantly.

We incorporated many of the Scorpion learnings into the 14 systems we delivered to ONGC, the national oil company of India. We believe that the systems ONGC received in 2007 – all VectorSeis equipped – provide them with the greatest full-wave acquisition capability in the world. In December, we delivered a 10,000 station Scorpion system to Sinopec, the second largest energy company in China. This system represents the largest single VectorSeis-equipped recording platform ever sold by ION.

The Sinopec sale embodies two important trends within land acquisition. The first is the move toward higher station counts. The more stations deployed on the surface, the better the quality of the recorded seismic energy. When combined with the second trend – the transition to full-wave recording sensors such as VectorSeis – the result should be a much improved image at the ‘reservoir level,’ which means detecting subtle changes in rock types, fracture patterns, and fluid distributions. As a consequence, seismic technologies generally – and ION technologies such as VectorSeis, Scorpion, and FireFly – should find themselves in increasing demand as they prove themselves not only in exploration situations, but also in reservoir appraisal, development, and production applications.

If one considers the multi-system ONGC sale, the Scorpion sale to Sinopec, and the FireFly system that was used by BP and Apache earlier in the year, nearly 50,000 VectorSeis stations were committed to by ION land customers in 2007. This roughly equates to all the VectorSeis stations that have ever been sold by ION and is, I believe, a sign that the full-wave era is beginning to take hold.