Acquisition of ARAM

Audio Presentation on ARAM Acquisition - Learn more

Investor Conference Call - Wednesday July 9, 2008 - Click here to replay the call

Posted: July 9, 2008

ARAM Overview

• Founded in 1971 as Geo-X Systems, initially focused on seismic data processing with eventual expansion into seismic acquisition (with the company fielding five crews in the Canadian market during the 80's)

• In 1991, Geo-X introduced ARAM, a ‘contractor-oriented' seismic recording system that offered multi-thousand channel operations with unprecedented flexibility and the industry's first PC-based user interface

• Since then, ARAM has grown to be the second largest independent provider of land seismic systems

• On an unaudited basis, ARAM generated more than $120 million in revenues in 2007

• Geo-X sold its data processing business to a private equity firm in 2006.  The current transaction involves only the equipment manufacturing and rental businesses marketed under the ARAM brand name

Market Context

• We expect that more than 70% of the world's future hydrocarbon production will come from onshore reservoirs that have been or have yet-to-be discovered, driven by the Middle East and the former Soviet Union

• Onshore seismic activity in other mature hydrocarbon-producing areas, including the U.S. and Canada, remains robust as E&P firms attempt to maximize production from both conventional reservoirs and unconventional resource plays such as fractured shale, coal-bed methane, and heavy oil sands

• Geophysical activity to identify and characterize these reservoirs has increased significantly in recent years, with contractors adding new crews around the world and new contractors entering the market

• In addition, the amount of seismic instrumentation per crew has increased, driven by oil & gas companies' desire for high station count surveys that improve subsurface resolution and the utility of seismic data

• Adoption cycles for new technology are long in the E&P business
  
  
  • Cable-based recording systems, like ION's Scorpion® and ARAM's ARIES systems, still account for 90% of the acquisition instrumentation sold to seismic contractors
  • Analog-based sensors (geophones) still account for 90% of the receivers sold to contractors
  • While cableless systems (like FireFly®) and digital, full-wave receivers (like VectorSeis®) are gaining momentum, the transition to the cableless, full-wave era will evolve over several years.

Strategic Rationale

• ARAM has a reputation for designing and manufacturing highly reliable, cost-effective, contractor-oriented systems that have allowed it to profitably gain share in an expanding global market; ARAM is especially strong in the area of analog cabled systems, a market segment that has proven challenging to ION

• ARAM's expertise can be leveraged by ION as we continue long-term support for our Scorpion product line and begin to develop a next-generation, cable-based system

• ION will be able to access ARAM's customer network, which provides opportunities for cross-selling vibroseis vehicles, Sensor geophones, VectorSeis-enabled Scorpion systems, and FireFly

• ARAM will be able to access ION's global sales and support network, which will accelerate their penetration of international markets, especially in Russia, Central Asia, China, and the Middle East

• Integrating leading players in land seismic systems will enable the combined entity to be more competitive with improved economies of both scope and scale in areas like product development, manufacturing, and customer support

Financial Impacts

• Purchase price of CDN $350 million, funded:
  
  
  • US $275 million in cash
  • The remainder (~ US $75 million) in ION common stock

• The US $275 million cash component is expected to be funded via:
  
  
  • A term loan issued in conjunction with ION's existing line-of-credit
  • New, long-term debt
  • Terms and conditions on the cash-based financing elements have yet to be finalized

• Including anticipated interest expenses, the issuance of ION common stock to finance the non-cash portion of the transaction, and synergies, but excluding one-time charges, the deal is expected to be earnings neutral for the remainder of 2008 and accretive on a consolidated pro-forma basis in 2009

The information above may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.  These forward-looking statements include statements as to expectations, beliefs and future financial performance, such as statements relating to the Company's business prospects, future sales, market growth, gross margin and other statements that are not of historical fact.

Investors are cautioned that all forward-looking statements are based on management's current expectations and include known and unknown risks, uncertainties and other factors, many of which the Company is unable to predict or control, that may cause the Company's actual results or performance to materially differ from any future results or performance expressed or implied.  These risks and uncertainties include the timing and development of the Company's products and services and market acceptance of the Company's new and revised product offerings, and other risk factors disclosed by the Company from time to time in its filings with the SEC, including in its Annual Report on Form 10-K for the year ended December 31, 2007.