10-K 1 f10k_042914.htm FORM 10-K f10k_042914.htm
c
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
Form 10-K
 
(Mark One)
 
x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2013
or
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from            to
 
Commission file number: 001-34709
 
GLOBAL GEOPHYSICAL SERVICES, INC.
(Exact name of registrant as specified in its charter)
 
Delaware
(State or other jurisdiction of
incorporation or organization)
05-0574281
(I.R.S. Employer
Identification No.)
13927 South Gessner Road
Missouri City, Texas
(Address of principal executive offices)
77489
(Zip Code)
 
(Telephone Number) (713) 972-9200
 
Securities registered pursuant to Section 12(b) of the Act:
 
Common Stock, $0.01 par value
Depositary Shares, Each Representing a 1/1000th Interest in a Share
Of 11.5% Series A Cumulative Preferred Stock
(Title of Each Class)
The New York Stock Exchange
The New York Stock Exchange
(Name of Each Exchange on Which Registered)
 
Securities registered pursuant to Section 12(g) of the Act: None
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o  No x
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes o  No x
 
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 x  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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x  No o
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. 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.
 
Large Accelerated filer o
Accelerated filer x
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 x
 
The aggregate market value of the stock held by non-affiliates of the registrant, as of June 28, 2013, computed by reference to the closing sale price of the registrant’s common stock on the NYSE on such date, was $111.9 million.
 
For purposes of this disclosure, shares of common stock held by persons who hold more than 10% of the outstanding shares of common stock and shares held by executive officers and directors of the registrant have been excluded because such persons may be deemed to be affiliates. This determination of executive officer or affiliate status is not necessarily a conclusive determination for other purposes.
 
39,699,417 shares of common stock were outstanding as of April 23, 2014.

 
 

 
GLOBAL GEOPHYSICAL SERVICES, INC.
 
FORM 10-K
 
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2013
 
TABLE OF CONTENTS
 
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant’s Common and Preferred Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operation
Quantitative and Qualitative Disclosures About Market Risks
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions and Director Independence
Principal Accountant Fees and Services
Exhibits and Financial Statement Schedules
 
 
 
1

 
EXPLANATORY NOTE – RESTATEMENT OF FINANCIAL INFORMATION
 
This Annual Report on Form 10-K for the year ended December 31, 2013 includes (1) a restated balance sheet as of December 31, 2012, (2) restated consolidated statements of operations, consolidated statements of stockholders’ equity (deficit), and consolidated statements of cash flows for the years ended December 31, 2012 and 2011, (3) restated quarterly financial information for the quarters ended March 31, 2013 and 2012, June 30, 2013 and 2012 and September 30, 2013 and 2012, and December 31, 2012, and (4) restated selected financial data for the years ended December 31, 2011, 2010 and 2009. See Item 6, “Selected Financial Data,” Item 8, “Financial Statements and Supplementary Data,” and Item 9A, “Controls and Procedures,” in Part II of this Annual Report on Form 10-K, including Notes 21 and 22 within the notes to the Consolidated Financial Statements, for more information concerning these restatements.
 
We do not plan to amend previously filed reports in connection with the restatement. The financial information that has been previously filed or otherwise reported for these periods is superseded by the information in this 2013 Form 10-K. Unless otherwise stated, all financial and accounting information contained in this Annual Report on Form 10-K is presented on a restated basis.
 
FORWARD-LOOKING STATEMENTS
 
References in this Form 10-K to “GGS,” “Global Geophysical,” “Global,” the “Company,” ‘‘our company,’’ “we,” “us” or “our” refer to Global Geophysical Services, Inc. and its subsidiaries included in the Consolidated Financial Statements, except as otherwise indicated or the context otherwise requires. Our fiscal year ends on December 31, and references herein to “fiscal 2013,” “this year” and “fiscal year 2013” refer to our fiscal year ended December 31, 2013.
 
We have made in this Annual Report on Form 10-K, and may from time to time otherwise make in other public filings, press releases and discussions with our management, forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 concerning our operations, economic performance and financial condition.  Many of the forward-looking statements are located in “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” These forward-looking statements are often accompanied by words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “predict,” “project,” “continue,” “potential,” “scheduled,” “seek,” “goal,” “may” and similar expressions.  These statements include, without limitation, statements about our Bankruptcy Case (as defined below under Part I, “Voluntary Reorganization under Chapter 11”), our ability to meet our short-term liquidity needs, our market opportunity, our growth strategy, competition, expected activities, future acquisitions and investments, and the adequacy of our available cash resources.  We urge you to read these statements carefully and caution you that matters subject to forward-looking statements involve risks and uncertainties, including economic, regulatory, competitive and other factors that may affect our business.  For such statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.  Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements.  Our actual results in future periods may differ materially from those projected or contemplated within the forward-looking statements as a result of, but not limited to, the following factors:
 
 
·
the magnitude of the potential adverse impacts of the filing of the Bankruptcy Case on our business, results of operations and financial condition, including the risk that the automatic stay in the Bankruptcy Case will not be respected in jurisdictions where the Debtors operate outside the United States and that creditors in one or more of such jurisdictions will attempt to seize assets located in such jurisdictions;
 
 
·
our ability to obtain approval of the Bankruptcy Court with respect to motions in the Bankruptcy Case prosecuted from time to time and to develop, prosecute, confirm, and consummate one or more plans of reorganization with respect to the Bankruptcy Case and to consummate all of the transactions contemplated by one or more such plans or upon which consummation of such plans may be conditioned;
 
 
·
the timing of confirmation and consummation of one or more plans of reorganization in accordance with its terms;
 
 
·
the anticipated future performance of a reorganized company;
 
 
·
general economic conditions;
 
 
·
a decline in capital expenditures by oil and gas exploration and production companies;
 
 
·
our ability to convert backlog into revenues and realize higher margins and improved cash flows;
 
 
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·
market developments affecting, and other changes in, the demand for seismic data and related services;
 
 
·
the timing and extent of changes in the price of oil and natural gas and expectations on about future prices;
 
 
·
our future capital requirements and availability of financing on satisfactory terms;
 
 
·
availability or increases in the price of seismic equipment;
 
 
·
availability of crew personnel and technical personnel;
 
 
·
our competition;
 
 
·
technological obsolescence of our seismic data acquisition equipment;
 
 
·
the condition of the capital markets generally, which will be affected by interest rates, foreign currency fluctuations, and general economic conditions;
 
 
·
the effects of weather or other events that delay our operations;
 
 
·
cost and other effects of uncertainties inherent in legal proceedings, settlements, investigations, and claims, including liabilities that may not be covered by indemnity or insurance;
 
 
·
governmental regulation;
 
 
·
the political and economic climate in the foreign or domestic jurisdictions in which we conduct business, including civil unrest, wars, regime changes, and strikes;
 
 
·
the financial condition of our service providers; and
 
 
·
other risks described herein and from time to time in our filings with the Securities and Exchange Commission (the “SEC”).
 
We have also discussed the risks to our business under the caption “Risk Factors” disclosed under Item 1A.  Given these risks and uncertainties, we can give no assurances that results projected in any forward-looking statements will in fact occur and therefore caution investors not to place undue reliance on them.  We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.  In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this Annual Report on Form 10-K might not occur.
 
 
Voluntary Reorganization under Chapter 11
 
On March 25, 2014, the Company and certain of its subsidiaries, including Autoseis, Inc.; Global Geophysical EAME, Inc.; GGS International Holdings, Inc.; Accrete Monitoring, Inc.; and Autoseis Development Company (the Company and such subsidiaries, collectively, the “Debtors”) filed voluntary petitions for reorganization (the “Voluntary Petitions”) under Chapter 11 of the United States Bankruptcy Code (the “Bankruptcy Code”), in the United States Bankruptcy Court for the Southern District of Texas, Corpus Christi Division (the “Bankruptcy Court”). The filing by the Debtors is jointly administered under Case No. 14-20130 (the “Bankruptcy Case”). The Debtors are operating their business as “debtors-in-possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court.  Bankruptcy Court filings and other documents related to the Bankruptcy Case are available on a separate website administered by the Debtor’s claims agent, Prime Clerk.
 
For additional information regarding the events leading to the Debtors seeking protection under Chapter 11 and regarding the Bankruptcy Case, see Item 1. Business -- “Events Leading to Seeking Protection under Chapter 11” below. The disclosures in this Annual Report on Form 10-K should be read in the context of the Bankruptcy Case.  For a discussion of risk factors relating to the Bankruptcy Case, see Item 1A.  Risk Factors -- “Risks Relating to Our Bankruptcy Proceedings.”
 
Item 1.  Business
 
(a)
General Development of Business
 
 
3

 
We provide an integrated suite of seismic data solutions to the global oil and gas industry, including our high resolution RG-3D Reservoir GradeSM (“RG3D”) seismic solutions. Our seismic data solutions consist primarily of seismic data acquisition, microseismic monitoring, data processing and interpretation services, as well as seismic data recording equipment known as the AUTOSEIS® High Definition Recorder (“HDR”) system. Together with our AUTOSEIS® HDR system, the services we offer deliver data that enables the creation of high resolution images of the earth’s subsurface and reveals complex structural and stratigraphic details. These images are used primarily by oil and gas companies to identify geologic structures favorable to the accumulation of hydrocarbons, to reduce risk associated with oil and gas exploration, to optimize well completion techniques and to monitor changes in hydrocarbon reservoirs. We integrate seismic survey design, data acquisition, processing and interpretation to deliver enhanced services to our clients. In addition, we own and market, directly and indirectly, a seismic data library and the AUTOSEIS® HDR system to customers in markets across the breadth of our operating footprint. Seismic data library sales occur as a result of licenses being issued to clients on a non-exclusive basis.
 
We provide land seismic data acquisition on a worldwide basis, including challenging environments such as marshes, forests, jungles, arctic climates, mountains and deserts worldwide. Our seismic solutions are used by many of the world’s largest and most technically advanced oil and gas exploration and production companies, including national oil companies (“NOCs”), major integrated oil companies (“IOCs”), and large independent oil and gas companies. We believe our experience positions us well to serve our customers as they expand their involvement in shale and tight reservoir plays outside the U.S.
 
As of December 31, 2013, we owned approximately 130,000 recording channels which are primarily comprised of our AUTOSEIS® HDR system. Our AUTOSEIS® HDR recording channels and systems are interoperable which provides operational scalability and efficiency. This operational scalability and efficiency enables us to execute on large and technologically complex projects.
 
Our company is a Delaware corporation incorporated on June 18, 2003.
 
Events Leading to Seeking Protection under Chapter 11
 
Prior to 2013, we placed a substantial emphasis on our Multi-client Services and building up our Multi-client library with external sources of financing.  In fiscal years 2010, 2011 and 2012, our net cash used in investing activities exceeded our net cash provided by operating activities by $96.9 million, $64.8 million and $45.1 million, respectively.  In those periods, we invested $201.2 million in 2010, $199.4 million in 2011 and $179.6 million in 2012, respectively, in our Multi-client library.  We financed these investing activities, including our investments in our Multi-client library, primarily from issuances of long-term debt, borrowings under our revolving credit facility and, for 2010, also issuances of our common stock.  Our net investment in Multi-client library increased from $145.9 million at year end 2010 to $232.5 million at year end 2011 and to $309.2 million at year end 2012.
 
We reported net losses of $42.2 million in 2010 and $15.6 million in 2012.  We reported net income of $4.9 million in 2011.  At year end 2012, we had liquidity (available cash and undrawn borrowing capacity under our revolving credit facility) of $29.3 million and backlog of $101.3 million, as compared with backlog of $200.7 million at the end of 2011.
 
In the latter part of 2012, following a change in executive leadership at the Company, the Company made a strategic decision to increase its emphasis on Proprietary Services in what it viewed to be a more lucrative international market and decrease its emphasis on Multi-client Services in the increasingly competitive U.S. market.  While this transition continued during 2013, we increased our  backlog to $180.0 million at March 31, 2013 ($136.0 million Proprietary Services), $200.3 million at June 30, 2013 ($173.3 million Proprietary Services) and $184.3 million at September 30, 2013 ($174.7 million Proprietary Services.)
 
This change in emphasis to international Proprietary Services impacted our liquidity during 2013 and continues to impact our liquidity.  Historically, our primary internal sources of liquidity have been cash generated by the Proprietary Services and Multi-Client Services provided to our clients, and, from time to time, we receive proceeds from sales of non-core assets. Our primary external sources of liquidity have been borrowings under our credit facilities, debt and equity offerings and equipment financings such as operating and capital leases. Our primary uses of capital include the acquisition of seismic data recording equipment, seismic vehicles, other equipment needed to outfit new crews and to enhance the capabilities of and maintain existing crews' energy sources, and investments in our Multi-client library.  With the increased emphasis on international Proprietary Services as described above also came increased expenses and working capital needs for mobilizing personnel and equipment to various foreign locations and increased costs of complying with local regulatory requirements, which expenses and working capital needs are difficult to forecast and require expenditures in advance, in some cases months in advance, of when project revenues are received.
 
 
4

 
Our internal sources of liquidity, including our cash position, depend to a large extent on the level of demand for our services. Historically, we have periodically supplemented our internal sources of liquidity with external sources, including borrowings under our previous revolving credit facility, as the need arises.  However, limitations in our debt agreements became increasingly restrictive during 2013, including a scheduled reduction in available capacity under our prior revolving credit facility from $80.0 million to $67.5 million at September 30, 2013.  We were able to refinance the entire outstanding principal amount of our prior revolving credit facility with a new Financing Agreement that we entered into as of September 30, 2013 (the “September 2013 Financing Agreement”), but this agreement (i) provided for a term facility with scheduled amortization, (ii) provided no available borrowing capacity in addition to the initial $82.8 million of initial advances (other than an additional amount contingent on certain possible acquisitions that did not materialize), and (iii) imposed further limitations and restrictions, including more restrictions on our ability to incur or guarantee additional indebtedness or to grant additional liens on our assets.  When considered in combination with our low share price, these events began to severely limit our access to additional debt and equity capital, resulting in our being almost exclusively dependent on our internal sources of liquidity. For this reason, during 2013 we increased our focus on enhancing operating cash flows, remaining fully pre-funded on investments in our Multi-client library, increasing the weighting of Proprietary Services revenues as a percentage of total revenues and pursuing selective asset sales as means of providing liquidity. During 2013, we also explored several asset sale or other transactions that would have, if consummated, improved our balance sheet and liquidity.  However, we were not able to consummate these transactions.  While we focused on improving our liquidity during 2013, we previously reported that events beyond our control could affect our results of operations, financial condition and liquidity.  While our liquidity fluctuated during the year, at June 30, 2013 we reported our liquidity was $10.8 million, with only $0.1 million of borrowing capacity under our prior revolving credit facility.  At year end, our liquidity was $18.9 million, with no available borrowing capacity under our September 2013 Financing Agreement.
 
While we increased our backlog to $145.7 million by the end of February 2014 ($138.9 million for Proprietary Services), we experienced a number of adverse developments that, taken together, materially and adversely impacted our liquidity in the first part of 2014.  These developments included higher than anticipated working capital requirements associated with project start-up costs for new international projects; reduced revenues attributable to reductions in programs in Colombia; higher than anticipated project costs and increases in estimated taxes; slower than anticipated production in Kenya; and project cancellations in Libya due to security concerns.  Contracts for providing our international proprietary services generally require us to incur working capital for start-up expenditures well in advance of when we receive revenues and cash flows under such contracts, which negatively impacts our liquidity during the early phases of such contracts. We also recorded in the fourth quarter of 2013 an impairment of our Multi-client library in the amount of $75.2 million, reflecting a decrease in the expected cash flow generation potential of certain portions of such library.
 
While focused on improving liquidity through the actions described above, in March 2014 we retained and began working with financial advisors to evaluate our financial condition and to assist us in reviewing financial and strategic alternatives for addressing our liquidity needs, including obtaining additional capital and/or a financial restructuring. In this connection, we and our financial advisors began discussions with certain of our creditors, including discussions leading to entering into a Forbearance Agreement with our senior secured lenders under which such lenders agreed to forbear from exercising any rights and remedies in connection with certain then existing or possible future defaults and events of default.  During March 2014, however, our liquidity continued to deteriorate.
 
By letter dated March 24, 2014, our senior secured lenders accelerated the payment of our obligations under the September 2013 Financing Agreement. The aggregate principal amount of debt outstanding under the September 2013 Financing Agreement as of the date of acceleration was $81.8 million.  Under the indentures governing our 10 1/2% Senior Notes due 2017 (the “Senior Notes”) and some of our other debt obligations, the acceleration of our obligations under the September 2013 Financing Agreement constituted a cross default and would have allowed the holders of such debt to accelerate the respective obligations.
 
The combination of these events led us to seek protection from our creditors under the Bankruptcy Code by filing the Voluntary Petitions on March 25, 2014.
 
We are committed to an orderly resolution of our liquidity situation and financial restructuring that will permit us to continue our operations and to attempt to preserve the value of our assets and our overall enterprise value. However, there can be no assurance that we will be successful in doing so, and we are dependent on a financial restructuring to continue as a going concern. For additional information relating to our debtor-in-possession financing and related matters, see Item 7.  “Management’s Discussion and Analysis of Financial Condition and Results of Operation -- Liquidity and Capital Resources -- Capital Resources -- Debtor-in-Possession Financing.”
 
 
5

 
Delisting from the New York Stock Exchange
 
On March 26, 2014, we received notice that the New York Stock Exchange, Inc. (the “NYSE”) had determined that the listing of our common stock should be suspended immediately as a result of the filing of the Voluntary Petitions by the Debtors.  The NYSE announced that it had determined to commence proceedings to delist the common stock and our depositary shares (the “Depositary Shares”), each representing a 1/1000th interest in a share of our 11.5% Series A Cumulative Preferred Stock, based on NYSE Regulation Inc.’s determination that our securities are no longer suitable for listing
 
The last day that the common stock traded on the NYSE was March 25, 2014. The Company does not intend to take further action to appeal the NYSE’s decision. It is therefore expected that the common stock and Depositary Shares will be delisted after the completion of the NYSE’s application for delisting filed with the Securities and Exchange Commission.
 
On March 27, 2014, the OTCQB market operated by OTC Markets Group, Inc. (www.otcmarkets.com) and the OTC Bulletin Board (www.otcbb.com) began quoting our common stock under the symbol “GEGSQ.”
 
Going Concern
 
The consolidated financial statements included in this Form 10-K have been prepared assuming that we will continue as a going concern and contemplate the realization of assets and the satisfaction of liabilities in the normal course of business. Our ability to continue as a going concern, however, is contingent upon, among other factors, our ability to comply with the provisions in our debtor-in-possession financing, the Bankruptcy Court’s approval of a plan of reorganization in our Bankruptcy Case and our ability to implement such a plan of reorganization, including obtaining any exit financing. As a result of the Bankruptcy Case, the realization of assets and the satisfaction of liabilities are subject to uncertainty. While operating as debtors-in-possession under Chapter 11, the Debtors may sell or otherwise dispose of or liquidate assets or settle liabilities, subject to the approval of the Bankruptcy Court or as otherwise permitted in the ordinary course of business (and subject to restrictions contained in our debtor-in-possession financing), for amounts other than those reflected in the accompanying consolidated financial statements, and any plan of reorganization that emerges in our Bankruptcy Case could materially change the amounts and classifications of assets and liabilities reported in our consolidated financial statements. Accordingly, uncertainties in the bankruptcy process raise substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial statements included in this Form 10-K do not include any adjustments related to the recoverability and classification of assets or the amounts and classification of liabilities or any other adjustments that might be necessary if we are unable to continue as a going concern or as a consequence of the Bankruptcy Case.
 
Fresh Start Accounting
 
As required by Accounting Standards Codification (“ASC”) 852 “Reorganizations”, we intend to adopt fresh start accounting upon emergence from Chapter 11.
 
Our Strengths
 
We believe that the strengths described below provide us with significant competitive advantages.
 
Our high resolution RG3D seismic solutions
 
As a result of our extensive experience designing and implementing seismic data acquisition programs in a variety of environments, combined with our use of our AUTOSEIS® HDR system, we maintain substantial flexibility to provide our clients with high resolution seismic data in a wide array of environments. We have an interoperable technology platform comprised of our proprietary AUTOSEIS® HDR systems along with cabled systems. We use our experience together with our AUTOSEIS® HDR system to design and perform high channel count seismic data acquisition projects which increase the resolution, or “trace density”, and other advanced attributes of the data. We believe that, as our customers move to higher and higher channel counts for land 3D projects, our low cost, high resolution RG3D and HDR seismic solutions can help our clients more effectively and efficiently identify and develop oil and gas reserves.
 
 
6

 
International footprint with extensive experience operating in challenging environments
 
Our operations management team has experience operating in the majority of the significant oil and gas basins worldwide. We operate globally in many challenging environments including marshes, forests, jungles, arctic climates, mountains and deserts. Our experience includes projects in Kenya, Mexico, Colombia, Paraguay, Argentina, Chile, Peru, Georgia, Uganda, Algeria, Iraq, Oman, India, Poland and Brazil.
 
Operational efficiency and flexibility
 
We manage our crews and projects with a focus on efficiency so that our projects may be completed in less time and at a lower cost, thereby improving our margins. The equipment we employ is an important factor in our success, as our common platform allows us to more efficiently allocate components and people to meet specific project objectives while also maximizing utilization. Our operational flexibility also allows us to quickly reallocate our equipment and crews across our global operations in response to our business or client needs. This can be particularly important to our clients who face lease expiration deadlines. In addition, our integrated product offering provides us with flexibility to be responsive to the specific needs of our clients.
 
Blue chip client base
 
Members of our management team have long-standing relationships with blue chip clients including many NOCs and IOCs. Our technology platform and global operating ability allows us to leverage these relationships throughout the world. Although the terms of our master service agreements with our clients do not guarantee future business, we believe that our status as an approved service provider with numerous industry participants and our past performance with these clients enhances our ability to win new business. Historically, our NOC and IOC clients have represented a significant percentage of our revenues.
 
Strong operations management team with extensive industry experience and relationships
 
Our operations management team has extensive industry experience in a variety of roles and senior positions at other seismic companies as well as energy and petroleum companies. We believe that the knowledge base, experience and relationships that our management team has built over the years extends our operating capabilities, improves the quality of our services, facilitates access to clients and underlies our strong reputation in the industry.
 
Multi-client library
 
As of December 31, 2013, we have grown our Multi-client library to approximately 9,800 square miles. Our library includes data available to license in the Bakken, Eagle Ford, Niobrara, Haynesville and Marcellus shale plays, along with several frontier basins in Brazil. Although the current focus of data licensing in most of  these surveys are the unconventional resources previously noted, we believe, as oil and gas leases continue to change ownership, the data will be of value as other prospective zones are identified within the same sedimentary column.
 
Our Strategies
 
We intend to continue to use our competitive strengths to advance our corporate strategy. The following are key elements of our strategy:
 
Continue to advance our high resolution RG3D seismic solutions
 
We intend to continue providing our clients with high resolution seismic acquisition, processing, and interpretation services in order to help our clients make more informed decisions regarding their exploration and development programs. We are committed to providing our clients the most advanced seismic technologies in the market. We have made investments in the design and development of advanced seismic technology such as our proprietary AUTOSEIS® HDR land nodal recording system. Our land nodal recording systems are intended to operate autonomously and record continuously. To complement our investment in equipment technology, we expect to continue to develop and expand our processing and interpretation capabilities.
 
 
7

 
Enhance and expand client relationships
 
We intend to continue enhancing our relationships with our existing clients by seeking to perform services for them in new geographic regions, providing the latest seismic technologies and an integrated suite of seismic services solutions. Additionally, we intend to build relationships with new clients by continuing to provide high quality service, focused on operational efficiency, flexibility, and an integrated suite of seismic service solutions in select markets worldwide.
 
Expand our Multi-client seismic data library

We intend to continue investing in seismic data surveys for our Multi-client seismic data library. Our focus is on oil and gas basins that our clients believe have the highest potential for development. However, in order to better manage the risks associated with the highly speculative nature of Multi-client projects, consistent with changes we began to implement during 2013 we generally intend to require 100% of the projected survey costs in pre-commitments from customers prior to commencing the acquisition of Multi-client projects.
 
Attract and retain talented, experienced employees
 
Our management and employees have an established track record of successfully executing seismic data projects. Since our inception, we have focused on hiring industry experts with a broad experience base and extensive client relationships. We believe this valuable mix of skills and relationships will continue to improve our service offerings and facilitate our growth.
 
 
8

 
Industry Overview
 
Seismic data are acquired by introducing acoustic energy into the earth through controlled seismic energy sources. Seismic energy sources can consist of truck mounted vibration equipment in accessible terrain, explosives such as dynamite in more difficult terrain, or boat mounted air guns in shallow water and certain marsh environments. In environments requiring the use of explosives, shot holes are drilled to the necessary depth and an explosive charge is placed securely in the hole. Vibroseis is a method used to propagate energy signals into the earth over an extended period of time as opposed to the near instantaneous energy provided by impulsive sources such as dynamite. The sound waves created by vibration equipment or dynamite are reflected back to the surface and collected by seismic sensors referred to as “geophones”, which measure ground displacement. One or more strategically positioned seismic sensors are connected to a recording channel. Generally speaking, the higher the number of recording channels employed in a given survey, the richer the data set that is produced. A typical project, which in our industry is referred to as a “shoot” or a “seismic shoot”, involves the use of thousands, and sometimes tens of thousands, of channels recording simultaneously over the survey area. Seismic data is used to pinpoint and determine the locations of subsurface features favorable for the accumulation of hydrocarbons, as well as define the make-up of the sedimentary rock layers and their corresponding fluids.
 
A seismic survey is acquired with a surface geometry—a grid of seismic energy sources and receivers extending over very large areas. The size of this grid varies with and depends on the size, depth and geophysical characteristics of the target to be imaged. The lines must be accurately positioned, so the location of each source and receiver point is obtained using either GPS, inertial, or conventional optical survey methods depending upon the vegetation and environment in the prospect area. Seismic receivers are deployed on the surface of the area being surveyed at regular intervals and patterns to measure, digitize and transmit reflected seismic energy to a set of specialized recording instruments. The transportation of cables, geophones and field recording equipment can be by truck, boat or helicopter depending upon the terrain and environment within the area to be imaged.
 
Two-dimensional (“2D”) seismic data is recorded using single lines of receivers crossing the earth’s surface, and, once processed, allows geophysicists to see only a profile of the earth. Commercial development of three-dimensional (“3D”) imaging technology began in the early 1980s and was a significant milestone for the industry. 2D seismic data surveys are generally used only to identify gross structural features; 3D seismic data surveys, which provide information continuously through the subsurface volume within the bounds of a survey, have proven effective in providing detailed views of subsurface structures. The increased use of 3D seismic data by the oil and gas industry in the 1980s helped drive significant increases in drilling success rates as better data quality allowed operators to optimize well locations and results. Prior to 1980 all seismic data acquired was 2D; today the vast majority of seismic data acquired is 3D, of which high density 3D is a growing component.
 
More recently, the seismic industry has seen the development of four-dimensional (“4D”) imaging technology. Also known as time lapse seismic, 4D seismic data incorporates numerous 3D seismic surveys over the same reservoir at specified intervals of time. 4D seismic data is a production tool that can help determine changes in flow, pressure and saturation. By scanning a reservoir over a given period of time, the flow of the hydrocarbons within can be traced and better understood. This is beneficial because, as hydrocarbons are depleted from a field, the pressure and composition of the fluids may change. Additionally, 4D seismic data can help geologists understand how a reservoir reacts to gas injection or water flooding and can help locate untapped pockets of oil or gas within the reservoir.
 
Microseismic monitoring consists of data acquisition, processing, analysis and interpretation services associated with the seismic energy emitted during the hydraulic fracturing stimulation of oil and natural gas wells or by recording the mircoseismic events in the earth’s subsurface resulting from naturally occurring earth tides.  Monitoring and mapping microseismic events better enables our customers to evaluate the effectiveness of their planned hydraulic fracture treatments and associated fracture generation. Continued and coordinated monitoring and mapping efforts can provide an understanding of the interdependency of stimulation effects between wells and aid field development, reservoir management and production optimization.
 
 
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Seismic data processing operations use complex mathematical algorithms to transform seismic data acquired in the field into 2D profiles, 3D volumes of the earth’s subsurface or 4D time-lapse seismic data. These images are then interpreted by geophysicists and geologists for use by oil and gas companies in evaluating prospective areas, designing drilling programs, selecting drilling sites and managing producing reservoirs.
 
Seismic data acquisition can be further delineated by the environment of operation as set forth below:
 
Land seismic data acquisition
 
For land applications, geophones are buried, or partially buried, to ensure good coupling with the surface and to reduce wind noise. Burying geophones in the ground is a manual process and may involve anywhere from a few to more than 100 people depending on the size of the seismic crew and the terrain involved. Cables that connect the geophones to cabled recording systems may also be deployed manually, or in some cases, automatically from a vehicle depending on the terrain. The acoustic source for land seismic data acquisition is typically a fleet of large hydraulic vibrator trucks, but may also be explosives detonated in holes drilled for such purposes.
 
On a typical land seismic survey, the seismic recording crew is supported by a permitting and surveying crew along with a vibroseis and/or drilling crew. The permitting crew secures permission from the landowner and mineral owner or lease to gain access to the surface and subsurface rights to conduct the seismic program.  The surveying crew lays out the receiver locations to be recorded and, in a survey using an explosive source, identifies the sites where the drilling crew creates the holes for the explosive charges that produce an acoustical impulse. In other surveys, a mechanical vibrating unit, such as a vibrator truck, is used as the seismic energy source. The seismic crew lays out the geophones and recording instruments, directs shooting operations and records the acoustical signal reflected from subsurface strata. A fully staffed seismic land crew typically consists of at least one party manager, one instrument operator, head linesman and crew laborers. The number of individuals on each crew is dependent upon the size and nature of the seismic survey.
 
Microseismic monitoring consists of data acquisition, processing, analysis and interpretation services associated with the seismic energy emitted during the hydraulic fracturing stimulation of oil and natural gas wells or by recording the mircoseismic events in the earth’s subsurface resulting from naturally occurring earth tides.  Monitoring and mapping microseismic events better enables our customers to evaluate the effectiveness of their planned hydraulic fracture treatments and associated fracture generation. Continued and coordinated monitoring and mapping efforts can provide an understanding of the interdependency of stimulation effects between wells and aid field development, reservoir management and production optimization.
 
Transition zone seismic data acquisition
 
In the transition zone area where land and water come together, elements of both land data acquisition and shallow marine data acquisition are employed. Transition zone seismic data acquisition is similar to ocean bottom cable applications in that both hydrophones and geophones are lowered to the ocean floor. However, due to the shallow water depths, only small vessels and manual labor can be used to deploy and retrieve the cables. Additionally, the source vessels and source arrays must be configured to run in shallow water. In transition zone areas consisting of swamps and marshes, explosives must be used as an acoustic source in addition to air guns. Our equipment allows us to record a seamless line from land, through the transition zone, and into the shallow marine environment.
 
We believe the industry trends described below should benefit our business and provide the basis for our long-term growth.
 
 
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Demand for new energy resources combined with increasing difficulty of locating and producing new oil and gas reserves
 
According to the International Energy Agency, worldwide oil demand is expected to grow by approximately 14% by 2035. To meet growing world demand and to offset steep decline rates from existing proved oil and gas resources, significant quantities of new oil and gas reserves must be discovered. Accordingly, exploration and production companies are increasingly required to access reservoirs that are typically smaller, deeper or have other complex characteristics. In addition, existing fields which have previously been surveyed with older seismic technologies are being re-surveyed with newer, high resolution seismic technology in an effort to increase production, identify previously bypassed reserves, and locate new prospective drilling locations.
 
Increased industry focus on unconventional plays, including shales and tight reservoirs in North America and internationally
 
Technical advances in horizontal drilling and new well completion techniques have greatly enhanced the ability of oil and gas companies to produce oil, natural gas liquids and natural gas from unconventional resource plays such as the shales and other tight reservoir plays across the U.S. As a result, domestic shale resources have become a significant contributor to recent increases in oil and natural gas production and reserves. In particular, seismic data is useful in designing drilling programs to avoid unfavorable geologic formations or zones that may increase drilling costs. Using the experience derived from the development of domestic shales, exploration and production companies have also begun to focus on shale and tight reservoir resources on a global scale. Because many of these resources are located in areas that have not experienced significant historical oil and gas production, large amounts of new seismic data will be required as companies delineate the extent of shales and evaluate drilling inventories and leasing opportunities. High resolution 3D seismic data, such as that obtained through our RG3D seismic solutions, is also commonly used to formulate and implement completion techniques in shale reservoirs.  The skill-set, experience, knowledge, and technology advances for shale and tight reservoir development in the U.S. are easily transferrable to similar plays around the globe.
 
Significant advances in seismic data technologies
 
We believe that recent advances in seismic data equipment, technologies and processing capabilities, such as those that enable our high resolution RG3D seismic solutions, have improved not only the efficiency of seismic data acquisition but also the usefulness of the data provided. We believe that advances in nodal seismic recording technologies, such as our AUTOSEIS® HDR system, are expanding the feasibility of certain seismic data acquisition programs that were previously not commercially viable. We believe that demand for our services will increase as clients become familiar with the benefits of more advanced seismic technologies, including higher density 3D and multi-component seismic data which uses multiple geophones or accelerometers to record all components of reflected acoustic energy. While seismic data historically has been used primarily as an exploration tool, higher resolution seismic images are now used in applications such as designing drilling programs, formulating well completion techniques and for 4D reservoir monitoring.
 
Many large NOCs and IOCs continue to project higher levels of exploration and production capital expenditures
 
Large and well capitalized oil and gas companies continue to project higher levels of capital spending driven by increasing demand for energy worldwide. The expected demand increases are driving an outlook for relative stability in oil and gas exploration and production activity for the next several years which should positively impact the demand for seismic related services.
 
(b)
Financial Information about Segments
 
We have two business segments: Proprietary Services and Multi-client Services. The contribution of each business segment to net sales and operating income (loss), as well as the identifiable assets attributable to each business segment are set forth in Note 12 of the Notes to Consolidated Financial Statements and are incorporated herein by reference.
 
 
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(c)
Narrative Description of Business
 
Description of Business Segments
 
Proprietary Services
 
We provide our clients seismic data acquisition, microseismic monitoring, data processing, and interpretation services on a proprietary basis where our clients ultimately own the output of our efforts. For our seismic data acquisition services, our clients typically request a bid for a seismic survey based on their survey design specifications. In some cases, we are shown a prospect area and asked to propose and bid on a survey of our own design. In other cases, we may be able to propose modifications in the process or scope of a proposed project in ways intended to create value for our customers, in which case we are able to propose and bid on an alternative survey design. Once the scope of the work is defined, either we or the client will undertake to obtain the required land access consents and permits. Once the required consents and permits are obtained, we survey the prospect area to determine where the energy sources and receivers would be best located. Our crews then place the geophones and energy sources into position, activate the energy sources, collect the data generated and deliver the data sets to the client. In some cases, data interpretation and processing is included in the bid package, and in others it is bid separately. Where possible, we seek to combine our seismic data acquisition with processing and interpretation services. Throughout the entire process, we coordinate with our client in an effort to add value at each stage of seismic data acquisition, processing and interpretation. We believe that this integrated offering of seismic data services allows us to sell multiple or bundled services that offer our clients greater value and helps us to capture the highest available margins. During fiscal years 2013, 2012 and 2011, revenues from our Proprietary Services accounted for 52%, 54% and 54% of total revenues, respectively. Based on our announced strategy to increase our emphasis on our Proprietary Services segment, we expect the percentage of revenues derived from Proprietary Services to be higher going forward than in recent years.
 
 
Multi-client Services
 
We also offer seismic data acquisition services in a Multi-client structure. Our Multi-client Services projects differ from our Proprietary Services projects in that we set the specifications of the program (with some input from our clients), generally handle all aspects of the acquisition, from permitting to processing, and maintain ownership of the seismic data and associated rights after the project is completed, including any future revenue stream. In return for their participation in a Multi-client Services project, our customers receive a non-exclusive license to a designated portion of the underlying seismic data acquired.
 
We include the seismic data sets that we have acquired through our Multi-client shoots in our seismic data library. The seismic data sets are then licensed to clients on a non-exclusive basis. Our seismic data licenses are typically transferable only under limited circumstances and only upon payment to us of a specified transfer fee. Substantially all costs directly incurred in acquiring, processing and otherwise completing seismic surveys are capitalized into the Multi-client surveys.
 
In addition to acquiring seismic data sets through our Multi-client seismic acquisition programs, in certain cases we will grant a non-exclusive license to a specific seismic data set to a client in exchange for ownership of complementary proprietary seismic data owned by that client.
 
We believe that offering seismic data acquisition projects in a Multi-client structure and licensing the data from our library is not only an effective business strategy in times of high capital spending, but also during times of industry-wide reductions in capital expenditures. The efficiencies we create by acquiring Multi-client seismic surveys allow oil and gas companies to acquire seismic data quickly, at a lower cost and with less risk. Through our Multi-client library, we can also offer clients the opportunity to acquire data over a larger area than would otherwise be readily available to them. By acquiring data that relates to areas beyond the scope of their current holdings, our clients are better able to understand the attributes of the subsurface formations contained in their current holdings. This additional data may also assist our clients in assessing whether to acquire adjacent, but not yet leased properties. Additionally, by purchasing a final product, our clients avoid the risk of incurring cost over-runs or liability as a result of the occupational health and safety hazards inherent in the process of seismic data acquisition.
 
Prior to 2013, we achieved pre-funding commitment (“pre-commitments”) levels on average approximately of 70% or more of our cash investment in the portfolio. In 2013, the pre-commitment levels were approximately 90%. For programs commencing in 2013, our targeted pre-commitment levels were 100% or greater to reduce further our risk exposure in new Multi-client Services projects. The cash inflows from these pre-commitments generally correspond to the timing of our cash expenses on a project and are generally payable as project milestones are reached.  We expect to continue to target 100% or greater pre-commitment levels for the foreseeable future.
 
 
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Sources and Availability of Equipment

We have developed and source our own AUTOSEIS® HDR land nodal seismic recording instrumentation through our subsidiary, Autoseis, Inc. The AUTOSEIS® HDR system, which we use in both our Proprietary Services and Multi-client Services segments, has become our primary recording platform for seismic data acquisition, and we expect this to continue going forward. The AUTOSEIS® HDR is also the primary recording platform for our microseismic services business.

The AUTOSEIS® HDR system is interoperable with cabled recording systems. Its deployment, combined with a unique and targeted survey design, has enabled the recording of higher fidelity data. We leverage the continuous recording capability of the AUTOSEIS® HDR to provide ambient monitoring capabilities, complementing active source seismic programs.

In addition, we obtain our seismic vibrator equipment from INOVA Geophysical, a joint venture between Bureau of Geophysical Prospecting Limited (“BGP”), a competitor and wholly owned subsidiary of China National Petroleum Company, and ION Geophysical Corporation (“ION”).

Patents and Trademarks

We own or have licenses under patents and registered trademarks that are used in connection with our activity in all business segments. Some of the patents or licenses cover significant processes used to provide our services. The trademarks we use relate to the overall marketing and branding of our business. The majority of our trademarks are registered.
 
Seasonal Variation in Business
 
In North America, we generally have our highest utilization rates in the cooler months when the weather is more favorable for seismic data acquisition. Our operations can also be impacted by the Atlantic hurricane season from the months of June through November.
 
In addition, operations in our Europe, Africa, and Middle East (“EAME”) region are impacted by the monsoon season, which moves across certain areas of the region between September and early March. Accordingly, the results of any one quarter are not necessarily indicative of annual results or continuing trends.
 
Customer Base
 
In fiscal year 2013, one NOC represented 11% of our total sales. No other customers represented more than 10% of our sales. In 2013, we had 46 customers that each represented more than $1 million in revenues. Three customers each represented more than 10% of our Proprietary Services segment revenues at 15%, 12% and 11%, respectively. Two customers represented more than 10% of Multi-client Services segment revenues at 23% and 13%, respectively. By the nature of our business, it is common for our top customers to change from year to year.
 
Backlog
 
Our backlog represents contracts for services that have been entered into but which have not yet been completed. At December 31, 2013, we had a backlog of work to be completed on contracts of approximately $113.8 million. Of this amount, approximately $75.7 million is international and $38.1 million is North America. Of the $113.8 million in backlog, approximately $101.9 million is for Proprietary Services and $11.9 million is for Multi-client Services. At December 31, 2012, we had a backlog of work to be completed of $101.3 million. Of this amount, approximately $35.3 million was for Proprietary Services and $66.0 million was for Multi-client Services.
 
Backlog at any point in time is affected by the timing of award of new contracts. Due to the timing of our contracts and the long-term nature of some of our projects, portions of our backlog may not be completed in the fiscal year 2014. Most projects we perform can be completed in a short period of time, typically several months. Larger projects may take a year or more to be completed. Generally, mobilization starts shortly after the signing of a customer contract. Additionally, contracts for services are occasionally modified by mutual consent of the parties and in some instances may be cancelled under certain circumstances by the customer on short notice without penalty. As a result, along with projects extending beyond fiscal year 2014, our backlog as of any particular date may not be indicative of our actual operating results for any succeeding fiscal period. See “Item 1A. Risk Factors—Our backlog estimates are based on certain assumptions and are subject to unexpected adjustments and cancellations and thus may not be timely converted to revenues in any particular fiscal period, if at all, or be indicative of our actual operating results for any future period.”
 
 
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Service Contracts
 
Our seismic data acquisition contracts generally provide for payment for mobilization, data acquisition and demobilization. Mobilization payments are intended to cover, or partially offset, the costs of moving equipment and personnel to a new job location. Demobilization payments are intended to cover, or partially offset, the costs of returning equipment and personnel from the job location.
 
Seismic data acquisition is generally paid for on a turnkey or term rate (also referred to as “day-rate”) basis or on a combination of both methods. A turnkey contract provides for a fixed fee to be paid generally on a per mile for 2D or per square mile of 3D data acquired. Term rate contracts provide for payments based on agreed rates per units of time, which are typically expressed in number of days. Our contracts, including our turnkey contracts, generally contain provisions that require our clients to pay a standby rate for periods during which a project is delayed for weather or circumstances outside our control. However, these provisions may not cover all instances of delay, or may be limited in duration.
 
Our contracts generally permit our clients to terminate a contract and, in some instances, require the payment of a fee upon termination. Our contracts generally provide for a lesser fee if a client elects to terminate before we have mobilized.
 
Our international agreements generally require arbitration for contract dispute resolution. We endeavor to have these international arbitrations conducted in London under English law and in English. We have been generally successful in obtaining such provisions, except in contracts for services in Latin America which tend to require arbitration in the local country and in Spanish.
 
Most of our contracts provide for payment in U.S. dollars. Often we elect to receive a portion of a contract payment in the local currency for use in paying local payroll and other local expenses.
 
Competitive Conditions
 
Seismic data services for the oil and gas industry have historically been highly competitive. Success in marketing seismic services is based on several factors, including price, crew experience, equipment availability, technological expertise, reputation for quality, dependability and health, safety and environmental performance.
 
As of December 31, 2013, we considered our principal competitors to be BGP, a subsidiary of Chinese National Petroleum Corporation, Compagnie Générale de Géophysique (“CGG”), Dawson Geophysical Company, Geokinetics, Inc., Seitel, Inc., TGC Industries, Inc., and WesternGeco (a business segment of Schlumberger).
 
Environmental Disclosures and Regulation
 
Our operations are subject to a variety of federal, state and local laws and regulations governing various aspects of our operations. Our use of explosives is regulated in the United States by the Bureau of Alcohol, Tobacco, Firearms and Explosives (“BATFE”), which has issued us a license to use explosives. We are also subject to certain environmental laws regarding removal and clean-up of materials that may harm the environment. In countries outside the United States, we are subject to similar requirements, and also rely on customer requirements and industry guidelines either in addition to or in lieu of applicable legal requirements. We believe we conduct our operations in substantial compliance with applicable laws and regulations governing our business.
 
 
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We developed our Health, Safety, Environment and Quality (“HSEQ”) Management System in accordance with the guidelines of the International Association of Oil and Gas Producers (“OGP”), as set forth in OGP Report Number 210, “Guidelines for the Development and Application of Health, Safety and Environmental Management Systems”. Our HSEQ Management System describes how we manage health and safety risk, process risk, environmental matters relating to our business, including the impact our operations may have on the communities in which we operate and our relationships with customers, contractors and suppliers. We have designed our HSEQ Management System to complement our clients’ HSEQ management systems so that we may achieve a seamless structure for managing projects.
 
Employees
 
Our management team and employees have an established track record of successfully executing seismic data projects. Since our inception, we have focused on hiring industry experts with a broad experience base and extensive client relationships. We believe this valuable mix of skills and relationships will continue to improve our service offerings and facilitate our continued growth. As of December 31, 2013, we had approximately 1,500 employees serving in various capacities worldwide.
 
(d)
Financial Information about Domestic and Foreign Operations
 
Revenues within the United States accounted for approximately 64% of our total revenues in 2013. Operations outside the  United States are generally characterized by the same conditions discussed in the description of the business above and may also be affected by additional factors including changing currency values, different rates of inflation, taxes, economic growth and political and economic uncertainties and disruptions. Revenues and assets within the United States and internationally were as follows for the fiscal years ended and as of December 31, 2013, 2012 and 2011 (in millions):
 
    Revenues     Assets  
   
2013
   
2012
(Restated)
   
2011
(Restated)
   
2013
   
2012
(Restated)
   
2011
(Restated)
 
United States
  $ 186.0     $ 176.1     $ 205.3     $ 361.9     $ 511.9     $ 427.8  
International
    102.7       163.3       179.5       31.0       35.8       78.8  
Total
  $ 288.7     $ 339.4     $ 384.8     $ 392.9     $ 547.7     $ 506.6  
 
(e)           Available Information
 
We file with the SEC our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all required amendments to those reports, proxy statements and registration statements. You may read and copy any material we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. You may also obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an internet site at www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers, including us, that file electronically.
 
All of our reports and materials filed with the SEC are available free of charge through our website, www.globalgeophysical.com, as soon as reasonably practical, after we have electronically filed such material with the SEC. Information about our Board members, the Board’s Standing Committee Charters, and Code of Business Conduct and Ethics is also available, free of charge, through our website. We reserve the right to satisfy the disclosure requirement under Item 5.05 of Form 8-K regarding an amendment to, or a waiver from, a provision of our Code of Business Conduct and Ethics that applies to the principal executive officer, principal financial officer, principal accounting officer or controller or persons performing similar functions and that relates to any element of the code of ethics definition enumerated in Item 406(b) of Regulations S-K (17 CFR 228.406(b)), by posting such amendment or waiver on our website within four business days following the date of the amendment or waiver. The contents of our website are not, however, a part of this Form 10-K.
 
 
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Item 1A.  Risk Factors
 
The following discussion of risk factors contains “forward-looking statements,” as discussed immediately preceding Item 1A. of this Form 10-K. These risk factors may be important to understanding any statement in this Form 10-K or elsewhere. The risk factors should also be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and our Consolidated Financial Statements and related notes incorporated by reference in this Form 10-K. Because of the following risk factors, as well as other factors affecting our financial condition and operating results, past financial performance should not be considered to be a reliable indicator of future performance, and investors should not use historical trends to anticipate results or trends in future periods.

Risks Relating to Our Bankruptcy Proceedings
 
There are risks and uncertainties associated with the Bankruptcy Case.
 
We have filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code. For the duration of the Bankruptcy Case, our business and operations will be subjected to various risks, including but not limited to:
 
 
·
our ability to maintain commercial relationships on competitive terms with customers and maintain contracts that are critical to our operations;
 
 
·
our ability to maintain credit to retain and attract necessary suppliers and service providers that are critical to our operations;
 
 
·
our ability to retain and motivate key employees through the process of the proceedings, and to attract qualified new employees; and
 
 
·
the ability of our management team to focus exclusively on business operations due to the significant amount of time and effort be required in dealing with restructuring related activities.
 
Our ability to execute our business strategy will be subjected to certain risks and uncertainties associated with bankruptcy, including but not limited to:
 
 
·
our ability to continue as a going concern;
 
 
·
our ability to develop, confirm and consummate a plan of reorganization under the Bankruptcy Code;
 
 
·
our ability to complete definitive restructuring documents and obtain approval of the Bankruptcy Court with respect to the motions filed in Bankruptcy Case from time to time;
 
 
·
our ability to operate within the restrictions and liquidity limitations of our debtor-in-possession financing; and
 
 
·
our ability to comply with and operate under any cash management orders entered by the Bankruptcy Court from time to time.
 
These risks and uncertainties could affect our business and operations in various ways and can ultimately affect our ability to emerge from bankruptcy. For example, negative events or publicity associated with the Bankruptcy Case could adversely affect our relationships with our suppliers, employees and customers, which in turn could adversely affect our business, results of operations and financial condition. Also, transactions outside the ordinary course of business are subject to the prior approval of the Bankruptcy Court, which may limit our ability to respond timely to certain events or take advantage of opportunities. Because of the risks and uncertainties associated with the Bankruptcy Case, we cannot predict or quantify the ultimate impact that events occurring during the Chapter 11 reorganization process may have on our business, results of operations and financial condition, and there is no certainty as to our ability to continue as a going concern.
 
We may have a significant amount of indebtedness upon emergence and may require funding after emergence.
 
While no plan of reorganization under our Bankruptcy Case has yet been formulated, we may have a significant amount of indebtedness upon emergence from bankruptcy.  Such indebtedness could have important consequences because:
 
 
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·
a portion of the cash flow from operations of the reorganized Debtors will be dedicated to debt service and will be unavailable to support operations, working capital, capital expenditures, expansion, acquisitions, or general corporate or other purposes;
 
 
·
the reorganized Debtors’ ability to obtain additional financing in the future may be limited;
 
 
·
the reorganized Debtors’ flexibility in planning for, or reacting to, changes in its business may be limited; and
 
 
·
the reorganized Debtors may be more vulnerable in the event of a downturn in their business or the economy in general.
 
There can be no assurance that the reorganized Debtors will be able to generate sufficient cash flow from operations or that sufficient future borrowings will be available to pay off the reorganized Debtors’ debt obligations. The reorganized Debtors’ ability to make payments on, and to refinance, their debt will depend on their ability to generate cash in the future. This, to a certain extent, will be subject to general economic, business, financial, competitive, legislative, regulatory, and other factors that will be beyond the control of the reorganized Debtors. The reorganized Debtors may need to refinance all or a portion of their debt on or before maturity; however, there can be no assurance that the reorganized Debtors will be able to refinance any of their debt on commercially reasonable terms or at all.
 
The seismic data acquisition services industry is capital intensive, and sources of cash to finance our capital expenditures may not always be available. Seismic data acquisition equipment is continually being improved with new technology. In order to remain competitive, we must continue to invest additional capital to maintain, upgrade, and expand our seismic data acquisition capabilities. Seismic data acquisition equipment is expensive, and our ability to operate and expand our business operations depends upon the availability of internally generated cash flow and financing alternatives. If financing is not available, our results of operations will be negatively affected.
 
While we believe our debtor-in-possession financing will be sufficient to fund our operations in the near term, there can be no assurance that we will be successful in obtaining sufficient additional capital to upgrade and expand our current operations through cash from operations or additional financing or other transactions, if and when required, on acceptable terms. Due to the uncertainties surrounding the changing market for seismic services, increases in capital and technological requirements, and other matters associated with operations, we are unable to estimate the amount or terms of any financing that we may need to acquire, upgrade, and maintain seismic equipment. If we are unable to obtain such financing, if and when needed, we may be forced to curtail business objectives and to finance our business activities with only such internally generated funds as may then be available.
 
We have assets located around the world, and creditors in some jurisdictions outside the United States may not respect the automatic stay in the Bankruptcy Case and may attempt to seize assets located in such jurisdictions.
 
 The Debtors in the Bankruptcy Case, including Global Geophysical Services, Inc., have assets located in various jurisdictions around the world, including Colombia, Dubai, Paraguay and Kenya, and have trade and other creditors in such jurisdictions. While the United States takes the position that the effect of the automatic stay in a Chapter 11 proceeding extends to assets and creditors outside the United States, there is some risk that creditors in jurisdictions where the Debtors operate outside the United States will not respect the automatic stay applicable under U.S. law and will attempt to seize assets located in one or more of those jurisdictions as we have recently experienced from one of our creditors outside of the United States.  In any such situation, we might elect to take steps as needed to seek recognition of the Bankruptcy Case and/or confirm the application of the automatic stay or its equivalent (including injunctive relief) to such creditors. However, there is no assurance that ‎any such steps will be effective and to the extent that such steps are not effective, such actions could have a material adverse effect on our business, results of operations or financial condition.
 
The pursuit of the Bankruptcy Case has occupied and will continue to occupy a substantial portion of the time and attention of our management and will impact how our business is conducted, which may have an adverse effect on our business, results of operations and financial condition.
 
A long period of operating under Chapter 11 could adversely affect our business, results of operations and financial condition. While the Bankruptcy Case continues, our management and certain of our employees will be required to spend a significant amount of time and effort focusing on the Bankruptcy Case. This diversion of attention from other matters may materially adversely affect the conduct of our business, and, as a result, our results of operations and financial condition, particularly if the Bankruptcy Case is protracted.
 
 
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We may experience increased levels of employee attrition.
 
During the term of the Bankruptcy Case, our employees will face considerable distraction and uncertainty and we may experience increased levels of employee attrition. A loss of key personnel or material erosion of employee morale could have a material adverse effect on our ability to meet customer and supplier expectations, thereby adversely affecting our business, results of operations and financial condition. Our ability to engage, motivate and retain key employees or take other measures intended to motivate and incentivize key employees to remain with us through the term of the Bankruptcy Case is limited during the Bankruptcy Case by restrictions on implementation of retention programs and the uncertain value of our equity compensation. The failure to retain or attract members of our management team and other key personnel could impair our ability to execute our strategy and implement operational initiatives, thereby having a material adverse effect on our business, results of operations and financial condition.
 
If we are not be able to obtain confirmation of a plan of reorganization or if sufficient debtor-in-possession financing is not available, we could be required to seek a sale of the Debtors or certain of their material assets pursuant to Section 363 of the Bankruptcy Code or liquidate under Chapter 7 of the Bankruptcy Code.
 
We have not yet formulated or proposed a plan of reorganization to the Bankruptcy Court in our Bankruptcy Case. In order to successfully emerge from Chapter 11 bankruptcy protection, we must develop and obtain court and creditor approval of a plan of reorganization. This process requires us to meet statutory requirements with respect to adequacy of disclosure with respect to a plan, soliciting and obtaining creditor acceptance of a plan, and fulfilling other statutory conditions for plan confirmation. We may not receive the requisite acceptances to confirm a plan. Even if the requisite acceptances of a plan are received, the Bankruptcy Court may not confirm it or there may not be sufficient exit financing available to finance the emergence of the Debtors from Chapter 11 under a plan. In addition, our debtor-in-possession financing may not be sufficient to meet our liquidity requirements or may be restricted or terminated by the lenders under the debtor-in-possession financing if we breach the terms of such financing. If any of these events were to occur, we could be forced to sell the Company or certain of its material assets pursuant to Section 363 of the Bankruptcy Code or liquidate under Chapter 7 of the Bankruptcy Code.
 
We have not made any final determinations with respect to reorganizing our capital structure, and any changes to our capital structure may have a material adverse effect on existing debt and other security holders.
 
Any reorganization of our capital structure that we may engage in may include exchanges of new debt or equity securities for our existing debt and equity securities, and such new debt or equity securities may be issued at different interest rates, payment schedules, and maturities than our existing debt and equity securities. We may also modify our existing debt or equity securities to the same effect. Such exchanges or modifications are inherently complex to implement. The success of a reorganization through any such exchanges or modifications will depend on approval by the Bankruptcy Court and the willingness of existing debt and security holders to agree to the exchange or modification, and there can be no guarantee of success. If such exchanges or modifications are successful, the existing holders of common stock or Depositary Shares may find that their holdings no longer have any value, are materially reduced in value or are severely diluted. Also, holders of our debt may find their holdings no longer have any value or are materially reduced in value, or they may be converted to equity and be diluted or receive debt with a principal amount that is less than the outstanding principal amount, longer maturities, and reduced interest rates. There can be no assurance that any new debt or equity securities will maintain their value at the time of issuance. Also, if the existing debt or equity security holders are adversely affected by a reorganization, it may adversely affect our ability to issue new debt or equity in the future.
 
The volatility of the financial markets may prevent us from obtaining financing to complete the reorganization.
 
In order to reorganize, we may require access to the financial markets. Financial markets are heavily influenced by government policies and interventions, which may ultimately limit the terms, availability and affordability of financing necessary for us to reorganize.
 
Any plan of reorganization that we may formulate and implement will be based in large part upon assumptions and analyses developed by us. If these assumptions and analyses prove to be incorrect, our plan may be unsuccessful in its execution.
 
Any plan of reorganization that we may formulate and implement could affect both our capital structure and the ownership, structure and operation of our businesses and will reflect assumptions and analyses based on our experience and perception of historical trends, current conditions and expected future developments, as well as other factors that we consider appropriate under the circumstances. Whether actual future results and developments will be consistent with our expectations and assumptions depends on a number of factors, including but not limited to (i) our ability to substantially change our capital structure; (ii) our ability to obtain adequate liquidity and financing sources; (iii) our ability to maintain customers’ confidence in our viability as a continuing entity and to attract and retain sufficient business from them; (iv) our ability to retain key employees; and (v) the overall strength and stability of general economic conditions  and conditions in the oil and gas exploration and production and service industries, both in the U.S. and in global markets. The failure of any of these factors could materially adversely affect the successful reorganization of our businesses.
 
 
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In addition, any plan of reorganization will rely upon financial projections, including with respect to revenues, EBITDA, capital expenditures, debt service and cash flow. Financial forecasts are necessarily speculative, and it is likely that one or more of the assumptions and estimates that are the basis of these financial forecasts will not be accurate. In our case, the forecasts will be even more speculative than normal, because they may involve fundamental changes in the nature of our capital structure. Accordingly, we expect that our actual financial condition and results of operations will differ, perhaps materially, from what we have anticipated. Consequently, there can be no assurance that the results or developments contemplated by any plan of reorganization we may implement will occur or, even if they do occur, that they will have the anticipated effects on us and our subsidiaries or our businesses or operations. The failure of any such results or developments to materialize as anticipated could materially adversely affect the successful execution of any plan of reorganization.
 
Operating under Chapter 11 may restrict our ability to pursue strategic and operational initiatives.
 
Under Chapter 11, transactions outside the ordinary course of business are subject to the prior approval of the Bankruptcy Court, which may limit our ability to respond in a timely manner to certain events or take advantage of certain opportunities. Additionally, the terms of our debtor-in-possession financing limit our ability to undertake certain business initiatives. These limitations include, among other things, our ability to:
 
 
·
sell assets outside the ordinary course of business;
 
 
·
consolidate, merge, sell or otherwise dispose of all or substantially all of our assets;
 
 
·
grant liens; and
 
 
·
finance our operations, investments or other capital needs or to engage in other business activities that might be in our interest.
 
As a result of the Bankruptcy Case, realization of assets and liquidation of liabilities are subject to uncertainty.
 
While operating under the protection of the Bankruptcy Code, and subject to Bankruptcy Court approval or otherwise as permitted in the normal course of business, we may sell or otherwise dispose of assets and liquidate or settle liabilities for amounts other than those reflected in our consolidated financial statements. Further, a plan of reorganization could materially change the amounts and classifications reported in our consolidated historical financial statements, which do not currently give effect to any adjustments to the carrying value of assets or amounts of liabilities that might be necessary as a consequence of confirmation of a plan of reorganization.
 
As a result of the Bankruptcy Case, our historical financial information may not be indicative of our future financial performance.
 
Our capital structure will likely be significantly altered under any plan of reorganization ultimately confirmed by the Bankruptcy Court. Under fresh-start reporting rules that may apply to us upon the effective date of a plan of reorganization, our assets and liabilities would be adjusted to fair values and our accumulated deficit would be restated to zero. Accordingly, if fresh-start reporting rules apply, our results of operations and financial condition following our emergence from Chapter 11 would not be comparable to the results of operations and financial condition reflected in our historical financial statements. In connection with the Bankruptcy Case and the development of a plan of reorganization, it is also possible that additional restructuring and related charges may be identified and recorded in future periods. Such charges could be material to our business, results of operations and financial condition in any given period.
 
Third parties may propose competing Chapter 11 plans of reorganization.
 
Chapter 11 gives us the exclusive right to file a plan of reorganization during the first 120 days after filing. That period can be extended for cause up to a total of 18 months from the date we filed the Voluntary Petitions with approval of the Bankruptcy Court. While we intend to conclude our Bankruptcy Case during this so-called “exclusivity period” as it may be extended, there can be no assurance that we will be able to do so. After the expiration of the exclusivity period, third parties can file one or more Chapter 11 plans for the Debtors. An alternative plan of reorganization could contemplate the Debtors continuing as a going concern, the Debtors being broken up, the Debtors or their assets being acquired by a third party, the Debtors being merged with a competitor, or some other proposal. We may not believe that such an alternative plan of reorganization is in our stakeholders’ best interests or fully values the benefits to be achieved by our reorganization. If we cannot successfully obtain approval of our plan of reorganization during the exclusivity period, we may have limited ability to prevent an alternative plan of reorganization from being approved by the Bankruptcy Court.
 
 
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Risks Relating to Our Common Stock and Depositary Shares
 
Trading in our securities during the term of the Bankruptcy Case is highly speculative and poses substantial risks.
 
Trading in securities of an issuer in bankruptcy is extremely speculative, and there is a very significant risk that investors will lose their entire investment. It is impossible to predict at this time whether our equity or other securities will be canceled or if holders of such equity or other securities will receive any distribution with respect to, or be able to recover any portion of, their investments. Trading prices for our equity or other securities may bear little or no relationship to actual recovery, if any, by holders thereof during the term of the Bankruptcy Case.
 
We caution and urge existing and future investors to carefully consider the significant risks with respect to investments in our equity and other securities.
 
Our common stock and Depositary Shares are no longer traded on a national securities exchange. Our common stock is traded only in the over-the-counter market, which could negatively affect our stock price and liquidity.
 
The shares of our common stock were historically listed on the New York Stock Exchange under the symbol “GGS.” In connection with the commencement of the Bankruptcy Case, effective March 26, 2014, the NYSE suspended the trading of our shares and Depositary Shares and is taking action to remove our shares and Depositary Shares from listing and registration on the NYSE. Our common stock is now trading over-the-counter and is quoted on the OTC Market. The extent of the public market for our common stock and the continued availability of quotations depends upon such factors as the aggregate market value of the common stock, the interest in maintaining a market in our common stock on the part of securities firms and other factors. The OTC Market is a significantly more limited market than the NYSE, and the quotation of our common stock on the OTC Market may result in a less liquid market available for existing and potential shareholders to trade shares of our common stock. This could further depress the trading price of our common stock and could also have a long-term adverse effect on our ability to raise capital. There can be no assurance that any public market for our common stock will exist in the future or that we will be able to relist our common stock on a national securities exchange. In connection with the delisting of our common stock, there may also be other negative implications, including the potential loss of confidence in us by suppliers, customers and employees and the loss of institutional investors.
 
Risks Relating to Our Business
 
Our results of operations could be materially adversely affected by economic conditions.
 
Prices for oil and natural gas have been volatile. During the most recent period of depressed commodity prices, many oil and gas exploration and production companies significantly reduced their levels of capital spending, including amounts dedicated to the purchase of seismic data services. Historically, demand for our services has depended significantly on the level of exploration spending by oil and gas companies. A return of depressed commodity prices, or a decline in existing commodity prices or other economic factors, could have a material adverse affect on demand for the services we provide, and therefore affect our business, results of operations, financial condition and cash flows.
 
Industry spending on our services is subject to rapid and material change.
 
The willingness of our clients to explore, develop and produce depends largely upon prevailing industry conditions that are influenced by numerous factors over which we have no control, such as:
 
 
demand for oil and natural gas, especially in the United States, China and India;
 
 
the ability of oil and gas exploration and production companies to generate funds or otherwise obtain external capital for exploration, development, construction and production operations;
 
 
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the sale and expiration dates of leases and concessions in the United States and the international markets where we operate;
 
 
domestic and foreign tax and environmental policies;
 
 
the cost of exploring for, developing, producing and delivering oil and natural gas;
 
 
the expected rates of decline related to current production;
 
 
the availability and discovery rates of new oil and gas reserves;
 
 
technical advances affecting energy exploration, production, transportation and consumption;
 
 
weather conditions, including hurricanes and monsoons that can affect oil and gas operations over a wide area as well as less severe inclement weather that can preclude or delay seismic data acquisition;
 
 
political and economic instability in oil and gas producing countries;
 
 
government and other organizational policies, including those of the Organization of the Petroleum Exporting Countries, regarding the exploration, production and development of oil and gas reserves; and
 
 
merger and divestiture activity among oil and gas producers.
 
In addition, increases in oil and natural gas prices may not have a positive effect on our results of operations or financial condition. Although demand for our services may decrease when depressed economic conditions are present, including lower oil and natural gas prices, the reverse is not necessarily true due to the factors listed in this Form 10-K as well as other factors beyond our control.
 
We have identified material weaknesses in our disclosure controls and procedures and our internal control over financial reporting, and we may be unable to develop, implement and maintain appropriate controls in future periods.
 
The Sarbanes-Oxley Act of 2002 and SEC rules require that management report annually on the effectiveness of our internal control over financial reporting and our disclosure controls and procedures. Among other things, management must conduct an assessment of our internal control over financial reporting to allow management to report on, and our independent registered public accounting firm to audit, the effectiveness of our internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act. As more fully described in Note 21 of the Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K, we have restated our consolidated financial statements for prior periods to correct certain errors. Accordingly, based on our management’s assessment, we believe that, as of December 31, 2013, our internal controls over financial reporting were not effective. The specific material weaknesses are described in Item 9A, “Controls and Procedures” of this 2013 Form 10-K in “Management’s Annual Report on Internal Control over Financial Reporting”. A “material weakness” is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim consolidated financial statements would not be prevented or detected. We cannot assure you that additional material weaknesses in our internal control over financial reporting will not be identified in the future. Any failure to maintain or implement required new or improved controls, or any difficulties we encounter in their implementation, could result in additional material weaknesses, or could result in material misstatements in our financial statements. These misstatements could result in additional restatements of our financial statements, cause us to fail to meet our reporting obligations or cause investors to lose confidence in our reported financial information.
 
We have work remaining to remedy the material weaknesses in our internal control over financial reporting. We are in the process of developing and implementing our remediation plan for the identified material weaknesses, and this work will continue during fiscal year 2014. There can be no assurance as to when the remediation plan will be fully developed, when it will be fully implemented and the aggregate cost of implementation. Until our remediation plan is fully implemented, we will continue to devote time and attention to these efforts. If we do not complete our remediation in a timely fashion, or at all, or if our remediation plan is inadequate, there will continue to be an increased risk that we will be unable to timely file future periodic reports with the SEC and that our future financial statements could contain errors that will be undetected. We will rely upon additional interim control procedures prescribed by management, including the use of manual mitigating control procedures, to fairly state our financial statements in all material respects. However, the establishment of these interim controls does not provide the same degree of assurance as a remediated control environment. Further and continued determinations that there are material weaknesses in the effectiveness of our internal controls could also reduce our ability to obtain financing or could increase the cost of any financing we obtain and require additional expenditures of resources to comply with applicable requirements. For more information relating to our internal control over financial reporting and disclosure controls and procedures, and the remediation plan undertaken by us, see “Item 9A, Controls and Procedures” of this 2013 Form 10-K.
 
 
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Our revenues are subject to fluctuations that are beyond our control, which could adversely affect our results of operations in any financial period.
 
Our operating results may vary in material respects from quarter to quarter and may continue to do so in the future. Factors that cause variations include the timing of the receipt and commencement of contracts for seismic data acquisition, processing or interpretation and clients’ budgetary cycles, which matters are beyond our control. Furthermore, in any given period, we could have idle crews that result in a significant portion of our revenues, cash flows and earnings coming from a relatively small number of crews. Additionally, due to location, service line or particular project, some of our individual crews may achieve results that are a significant percentage of our consolidated operating results. Should one or more of these crews experience significant changes in timing or delays, our financial results could be subject to significant variations from period to period. Combined with our high fixed costs, these revenue fluctuations could have a material adverse effect on our results of operations or financial condition in any financial period.
 
Our working capital needs are difficult to forecast and may vary significantly, which could require us to seek additional financing that we may not be able to obtain on satisfactory terms, or at all.
 
Our working capital needs are difficult to predict with certainty. This difficulty is due primarily to working capital requirements related to our seismic data services where our revenues vary in material respects as a result of, among other things, the timing of our projects, our clients’ budgetary cycles and our receipt of payment. As a result, we may be subjected to significant and rapid increases in our working capital needs that could require us to seek additional financing sources. The Bankruptcy Case and restrictions in our debtor-in-possession financing will impair our ability to obtain other sources of financing, and access to additional sources of financing may not be available on terms acceptable to us, or at all.
 
We face intense competition in our business that could result in downward pricing pressure and the loss of market share.
 
Competition among seismic contractors historically has been, and likely will continue to be, intense. Competitive factors have in recent years included price, crew experience, equipment availability, Health, Safety and Environmental ("HSE") performance, technological expertise and reputation for quality and dependability. We also face increasing competition from nationally owned companies in various international jurisdictions that operate under less significant financial constraints than those we experience. Many of our competitors have greater financial and other resources, more clients, greater market recognition and more established relationships and alliances in the industry than we do. They and other competitors may be better positioned to withstand and adjust more quickly to volatile market conditions, such as fluctuations in oil and natural gas prices and production levels, as well as changes in government regulations. Additionally, the seismic data acquisition business is extremely price competitive and has a history of protracted periods of months or years where seismic contractors under financial duress bid jobs at unattractive pricing levels and therefore adversely affect industry pricing. Competition from these and other competitors could result in downward pricing pressure, which could adversely affect our EBITDA margins, and the loss of market share.
 
We have had losses and there is no assurance of our profitability for the future.
 
We experienced a net loss of $153.5 million in 2013 and $15.6 million in 2012. We cannot assure you that we will be profitable in future periods.
 
We have supply arrangements with a limited number of key suppliers, the loss of any one of which could have a material adverse effect on our results of operations and financial condition.
 
Beginning in 2011, we sourced our principal nodal seismic recording systems from Autoseis, Inc., our wholly owned subsidiary. The systems are manufactured under an exclusive arrangement with Creation Technologies, a U.S. supplier of electronics. If our key supplier discontinues operations or otherwise refuses to honor its supply arrangements with us, we may be required to enter into agreements with alternative suppliers on terms less favorable to us, which could result in increased product costs, longer delivery lead times, and other risks.
 
 
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Key suppliers or their affiliates may compete with us.
 
We purchase seismic vibrator equipment manufactured by ION, which directly or indirectly through a joint venture with BGP, competes with us. There are a limited number of companies which manufacture this equipment in addition to ION. If ION chooses to no longer sell this equipment to us, or to no longer sell such equipment to us on commercially reasonable terms, whether as a result of competitive pressures or otherwise, we may be required to use less suitable replacement equipment which could impair our ability to execute our business solutions for customers.
 
We are dependent upon a relatively small number of significant clients. Additionally, from time to time a significant portion of our revenues are generated by a single project.
 
We derive a significant amount of our revenues at any one time from a relatively small number of oil and gas exploration and development companies. During the year ended December 31, 2013, we had one client that accounted for 11% of our revenues. While our revenues are derived from a concentrated client base, our significant clients may vary between years. If we lose one or more major clients in the future, or if one or more clients encounter financial difficulties, our business, results of operations and financial condition could be materially and adversely affected.
 
Additionally, from time to time, a significant portion of our revenues are generated by a single project. Our dependence from time to time on a single project for a significant percentage of our revenues may result in significant variability of our earnings from period to period as these projects are completed.
 
We cannot assure you that NOC and IOC clients will continue to generate the majority, or even a significant percentage, of our revenues. Smaller or less capitalized oil and gas exploration and production companies may be forced to reduce their budgets for seismic data acquisition services in periods of depressed or declining commodity prices. Our dependence on customers other than NOCs and IOCs for a substantial portion of our revenues could expose us to greater earnings volatility.
 
Historically, our NOC and IOC clients have represented a significant percentage of our revenues. Smaller or less capitalized oil and gas exploration and production companies may be required to reduce sharply their expenditures for seismic data acquisition services in periods of depressed or declining commodity prices. Our dependence on customers other than NOCs and IOCs for a substantial portion of our revenues could expose us to greater earnings and cash flow volatility.
 
Revenues derived from our projects may not be sufficient to cover our costs of completing those projects. As a result, our results of operations may be adversely affected.
 
Our revenues are determined, in part, by the price we receive for our services, the productivity of our crews and the accuracy of our cost estimates. Our crews’ productivity is partly a function of external factors, such as seasonal variations in the length of days, weather, including the onset of hurricanes, difficult terrain, and third party delays, over which we have little or no control. In addition, cost estimates for our projects may be inadequate due to unknown factors associated with the work to be performed and market conditions, resulting in cost over-runs. If our crews encounter operational difficulties or delays, or if we have not correctly priced our services, our results of operation may vary, and in some cases, may be adversely affected. We have in the past experienced cost over-runs that caused the costs from a particular project to exceed the revenues from that project, and we cannot assure you that this will not happen again.
 
Many of our projects are performed on a turnkey basis where a defined amount and scope of work is provided by us for a fixed price and extra work, which is subject to client approval, is billed separately. The revenues, cost and gross profit realized on a turnkey contract can vary from our estimated amount because of changes in job conditions, variations in labor and equipment productivity from the original estimates, the performance of subcontractors, and any other similar conditions. Turnkey contracts may also cause us to bear substantially all of the risks of business interruption caused by weather delays and other hazards. These variations, delays and risks inherent in billing clients at a fixed price may result in us experiencing reduced profitability or losses on projects that could materially and adversely affect our business, results of operations and financial condition.
 
 
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From time to time we experience disputes with our clients relating to the amounts we invoice for our services, particularly with respect to billings relating to standby time. The exercise of remedies against clients in connection with our collection efforts could negatively affect our ability to secure future business from those clients.
 
Our contracts for seismic data acquisition services typically include provisions that require payment to us at a reduced rate for a limited amount of time if we are unable to record seismic data as a result of weather conditions or certain other factors outside our control, including delays caused by our clients. From time to time we experience disputes with our clients relating to the amounts we invoice for our services. The exercise of our contractual remedies against these or other clients in connection with our collection efforts could negatively affect our relationship with these clients, and could result in the loss of future business, which in turn could negatively affect our business, results of operations and financial condition in future periods.
 
Technological change in our business creates risks of technological obsolescence and requirements for future capital expenditures. If we are unable to continue investing in, or otherwise acquire, the latest technology, we may not be able to compete effectively.
 
The development of seismic data acquisition, processing and interpretation equipment has been characterized by rapid technological advancements in recent years, and we expect this trend to continue. Manufacturers of seismic equipment may develop new systems that have competitive advantages relative to systems now in use that either renders the equipment we currently use obsolete or require us to make substantial capital expenditures to maintain our competitive position. Additionally, a number of seismic equipment manufacturers are affiliated with or are otherwise controlled by our competitors. If any such equipment manufacturer developed new equipment or systems and, for competitive reasons or otherwise, declined to sell such equipment or systems to us, we could be placed at a competitive disadvantage. In order to remain competitive, we must continue to invest additional capital to maintain, upgrade and expand our seismic data acquisition capabilities. See “Part II – Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources - Capital Resources.”
 
If we do not effectively manage our transitions into new products and services, our revenues may suffer.
 
Products and services for the seismic industry are characterized by rapid technological advances in hardware performance, software functionality and features, frequent introduction of new products and services, and improvement in price characteristics relative to product and service performance. Among the risks associated with the introduction of new products and services are delays in development or manufacturing, variations in costs, delays in customer purchases or reductions in price of existing products in anticipation of new introductions, write-offs or write-downs of the carrying costs of assets associated with prior generation products, difficulty in predicting customer demand for new product and service offerings and effectively managing inventory levels so that they are in line with anticipated demand, risks associated with customer qualification, evaluation of new products, and the risk that new products may have quality or other defects or may not be supported adequately by application software. The introduction of new products and services by our competitors also may result in delays in customer purchases and difficulty in predicting customer demand. If we do not make an effective transition from existing products and services to future offerings, our revenues and margins may decline.
 
Furthermore, sales of our new products and services may replace sales, or result in discounting, of some of our current offerings, offsetting the benefit of a successful new product introduction. In addition, it may be difficult to ensure performance of new products and services in accordance with our revenues, margin, and cost estimates and to achieve operational efficiencies embedded in our estimates. Given the competitive nature of the seismic industry, if any of these risks materialize, the future demand for our products and services, and our future business, results of operations and financial condition, may suffer.
 
 
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We are exposed to risks related to complex, highly technical products.
 
Our customers often require demanding specifications for product performance and reliability. Because many of our products are complex and often use unique advanced components, processes, technologies, and techniques, undetected errors and design and manufacturing flaws may occur. Even though we attempt to assure that our systems perform reliably in the field, the many technical variables related to their operations can cause a combination of factors that may, and from time to time have, caused performance and service issues with certain of our products. Product defects result in higher product service, warranty, and replacement costs and may affect our customer relationships and industry reputation, all of which may adversely impact our business, results of operations and financial condition. Despite our testing and quality assurance programs, undetected errors may not be discovered until the product is purchased and used by a customer in a variety of field conditions. If our customers deploy our new products and they do not work correctly, our relationship with our customers may be materially and adversely affected.
 
We face risks related to inventory.
 
We are exposed to inventory risks that may adversely affect our operating results as a result of new product launches, rapid changes in product cycles and pricing, defective merchandise, changes in customer demand and other factors. We endeavor to accurately predict these trends and avoid shortages or excess or obsolete inventory. Demand for products, however, can change significantly between the time inventory or components are ordered and the date of sale. Any one of the inventory risk factors set forth above may adversely affect our business, results of operations and financial condition.
 
Our backlog estimates are based on certain assumptions and are subject to unexpected adjustments and cancellations and thus may not be timely converted to revenues in any particular fiscal period, if at all, or be indicative of our actual operating results for any future period.
 
Our backlog estimates represent those seismic data acquisition projects for which a client has executed a contract and has a scheduled start date for the project as well as unrecognized pre-committed funding from our Multi-client Services segment. Backlog estimates are based on a number of assumptions and estimates including assumptions related to foreign exchange rates and proportionate performance of contracts and our valuation of assets, such as seismic data, to be received by us as payment under certain agreements. The realization of our backlog estimates is further affected by our performance under term rate contracts, as the early or late completion of a project under term rate contracts will generally result in decreased or increased, as the case may be, revenues derived from these projects. Contracts for services are also occasionally modified by mutual consent. Because of potential changes in the scope or schedule of our clients’ projects, we cannot predict with certainty when or if our backlog will be realized. Even where a project proceeds as scheduled, it is possible that the client may default and fail to pay amounts owed to us. In addition, the contracts in our backlog are cancelable by the client. Material delays, payment defaults or cancellations could reduce the amount of backlog currently reported, and consequently, could inhibit the conversion of that backlog into revenues.
 
We have invested, and may continue to invest, significant amounts of money in acquiring and processing seismic data for Multi-client surveys and for our seismic data library without knowing precisely how much of this seismic data we will be able to license or when and at what price we will be able to license such data.
 
Multi-client surveys and the resulting seismic data library are an important part of our business. Although we are placing greater emphasis on proprietary projects for our customers, we expect to continue to invest in acquiring and processing seismic data that we own. By making such investments, we are exposed to the following risks:
 
 
We may not fully recover our costs of acquiring, processing and interpreting seismic data through future sales. The amounts of these data sales are uncertain and depend on a variety of factors, many of which are beyond our control.
 
 
The timing of these sales is unpredictable and can vary greatly from period to period. The costs of each survey are capitalized and then amortized over the expected useful life of the data. This amortization will affect our earnings and, when combined with the sporadic nature of sales, will result in increased earnings volatility.
 
 
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Regulatory changes that affect companies’ ability to drill, either generally or in a specific location where we have acquired seismic data, could materially and adversely affect the value of the seismic data contained in our library. Technology changes could also make existing data sets obsolete. Additionally, each of our individual surveys has a limited book life based on its location and oil and gas companies’ interest in prospecting for reserves in such location, so a particular survey may be subject to a significant and/or accelerated decline in value beyond our initial estimates.
 
 
The value of our Multi-client data could be significantly adversely affected if any material adverse change occurs in the general prospects for oil and gas exploration, development and production activities.
 
 
The cost estimates upon which we base our pre-commitments of funding could be wrong, which could result in losses that have a material adverse effect on our business, results of operations and financial condition.
 
 
Pre-commitments of funding are subject to the creditworthiness of our clients. In the event that a client refuses or is unable to pay its commitment, we could lose a material amount of money.
 
 
If our clients significantly increase their preference toward licensing seismic data from Multi-client data libraries, we may not have the appropriate existing data library assets to be able to obtain permits and access rights to geographic areas of interest from which to record such data, or make appropriate levels of investment in the creation of new data library assets to support our business strategy.
 
Any reduction in the market value of such data will require us to write down its recorded value, which could have a significant material adverse effect on our business, results of operations and financial condition.
 
Our operations are subject to delays related to obtaining land access rights from third parties which could affect our results of operations.
 
Our seismic data acquisition operations could be adversely affected by our inability to obtain timely access to both public and private land included within a seismic survey. We cannot begin surveys on property without obtaining permits from certain governmental entities as well as the permission of the parties who have rights to the land being surveyed. In recent years, it has become more difficult, costly and time-consuming to obtain access rights as drilling activities have expanded into more populated areas. Additionally, while land owners generally are cooperative in granting access rights, some have become more resistant to seismic and drilling activities occurring on their property and stall or refuse to grant these rights for various reasons. In our Multi-client Services segment, we acquire data sets pertaining to large areas of land. Consequently, if we do not obtain land access rights from a specific land owner, we may not be able to provide a complete survey for that area. The failure to redact or remove the seismic information relating to mineral interests held by non-consenting third parties could result in claims against us for seismic trespass. In addition, governmental entities do not always grant permits within the time periods expected. Delays associated with obtaining such permits and significant omissions from a survey as a result of the failure to obtain consents could have a material adverse effect on our business, results of operations and financial condition.
 
We operate under hazardous conditions that subject us and our employees to risk of damage to property or personal injury, and limitations on our insurance coverage may expose us to potentially significant liability costs.
 
Our activities are often conducted in dangerous environments and under hazardous conditions, including the detonation of dynamite. Operating in such environments and under such conditions carries with it inherent risks, such as damage to or loss of human life, property or equipment, as well as the risk of downtime or reduced productivity resulting from equipment failures caused by such adverse operating environment. These risks could cause us to experience equipment losses, injuries to our personnel and interruptions in our business. In addition our insurance may not be sufficient or adequate to cover all losses or liabilities or that insurance will continue to be available to us or available to us on acceptable terms. A successful claim for which we are not fully insured, or which exceeds the policy limits of our applicable insurance, could have a material adverse effect on our business, results of operations and financial condition. Moreover, we do not carry business interruption insurance with respect to our operations.
 
 
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Our agreements with our clients may not adequately protect us from unforeseen events or address all issues that could arise with our clients. The occurrence of unforeseen events not adequately addressed in the contracts could result in increased liability, costs and expenses associated with any given project.
 
With many of our clients we enter into master service agreements that allocate certain operational risks. Despite the inclusion of risk allocation provisions in our agreements, our operations may be affected by a number of events that are unforeseen or not within our control. Our agreements may not adequately protect us from each possible event. If an event occurs that we have not contemplated or otherwise addressed in an agreement, we, and not our client, will likely bear the increased cost or liability. To the extent our agreements do not adequately address these and other issues, or we are not able to resolve successfully resulting disputes, we may incur increased liability, costs and expenses.
 
Weather may adversely affect our ability to conduct business.
 
Our seismic data acquisition operations could be adversely affected by inclement weather conditions. Delays associated with weather conditions could have a material adverse effect on our business, results of operations and financial condition. For example, weather delays focused on a particular project or region could lengthen the time to complete the project, resulting in decreased margins to us. Accordingly, the results of any one quarter are not necessarily indicative of annual results or continuing trends.
 
We may be held liable for the actions of our subcontractors.
 
We often work as the general contractor on seismic data acquisition surveys and consequently engage a number of subcontractors to perform services and provide products. There can be no assurance we will not be held liable for the actions of these subcontractors. In addition, subcontractors may cause damage or injury to our personnel and property that is not fully covered by insurance.
 
Current or future distressed financial conditions of clients could have an adverse effect on us in the event these clients are unable to pay us for our products and services.
 
Some of our clients may, from time to time, experience severe financial problems that have had or may have a significant effect on their creditworthiness. We generally do not require that our clients make advance payments or otherwise collateralize their payment obligations. We cannot provide assurance that one or more of our financially distressed clients will not default on their payment obligations to us or that such a default or defaults will not have a material adverse effect on our business, results of operations, financial condition or cash flows. Furthermore, the bankruptcy of one or more of our clients, or other similar proceeding or liquidity constraint, will reduce the amounts we can expect to recover, if any, with respect to amounts owed to us by such party. In addition, such events might force those clients to reduce or curtail their future use of our products and services, which could have a material adverse effect on our business, results of operations and financial condition.
 
The high fixed costs of our operations could result in operating losses.
 
We are subject to high fixed costs that primarily consist of depreciation and other amortization, maintenance expenses associated with our seismic data acquisition, processing and interpretation equipment and certain crew costs. Because some of our equipment is new or nearly new, we believe that our depreciation expense relative to our revenues could be higher than that of many of our competitors. Extended periods of significant downtime or low productivity caused by reduced demand, weather interruptions, equipment failures, permit delays or other causes could reduce our profitability and have a material adverse effect on our business, results of operations and financial condition because we will not be able to reduce our fixed costs as fast as revenues decline.
 
 
27

 
Our results of operations could be adversely affected by goodwill or long-lived asset impairments.
 
We periodically review our portfolio of equipment for impairment. A prolonged downturn could affect the carrying value of our goodwill and require us to recognize a loss. If we expect significant sustained decreases in oil and natural gas prices in the future, we may be required to write down the value of our equipment if the future cash flows anticipated to be generated from the related equipment falls below net book value. A decline in oil and natural gas prices, if sustained, can result in future impairments. In addition, changes in industry conditions, such as changes in applicable laws and regulations, could affect the usefulness of our Multi-client seismic data library to oil and gas companies, thereby requiring us to write down the value of our seismic data library. If we are forced to write down the value of our assets, these non-cash asset impairments could negatively affect our results of operations in the period in which they are recorded. See discussions of “Asset Impairment” and “Goodwill” included in Note 2 “Summary of Significant Accounting Policies.”
 
We are subject to compliance with stringent environmental laws and regulations that may expose us to significant costs and liabilities.
 
Our operations are subject to stringent federal, provincial, state and local environmental laws and regulations in the United States and foreign jurisdictions relating to environmental protection. In our business, we use explosives and certain other regulated hazardous materials that are subject to such regulation. These laws and regulations may impose numerous obligations that are applicable to our operations including:
 
 
the acquisition of permits before commencing regulated activities;
 
 
the limitation or prohibition of seismic activities in environmentally sensitive or protected areas such as wetlands, wilderness areas or archaeological sites;
 
 
restrictions pertaining to the management and operation of our vehicles and equipment; and
 
 
licensing requirements for our personnel handling explosives and other regulated hazardous materials.
 
Numerous governmental authorities, such as the U.S. Environmental Protection Agency (“EPA”), BATFE, the Bureau of Land Management (“BLM”) and analogous state agencies in the United States and governmental bodies with control over environmental matters in foreign jurisdictions, have the power to enforce compliance with these laws and regulations and any licenses and permits issued under them, oftentimes requiring difficult and costly actions. In addition, failure to comply with these laws, regulations and permits may result in the assessment of administrative, civil and criminal penalties, the imposition of obligations to investigate and/or remediate contaminations, and the issuance of injunctions limiting or preventing some or all of our operations.
 
We invest financial and management resources to comply with these laws and related licensing and permitting requirements, and we believe that the regulatory environment for the oil and natural gas industry and related service providers is likely to become more burdensome and time consuming in future years. Over the last several years, permitting authorities have begun requiring us to comply with standards that have never before applied to seismic companies. While shale plays continue to represent a significant opportunity for us, some proposed or existing regulations would inhibit the use of hydraulic fracturing in connection with the drilling of wells, which is a crucial part in recovering economic amounts of hydrocarbons from shale plays. If oil and natural gas companies face regulation that makes drilling for resources uneconomic, the demand for our services may be adversely affected. In addition, the ongoing revision of such environmental laws and regulations, sometimes as a direct result of particular economic, political, or social events, makes it difficult for seismic data acquisition companies to predict future costs or the impact of such laws and regulations on future projects. As a result, we could incur capital and operating expenses, as well as compliance costs, beyond those anticipated which could adversely affect our business, results of operations and financial condition.
 
There is inherent risk of incurring significant environmental costs and liabilities in our operations due to our controlled storage, use and disposal of explosives. In the event of an accident, we could be held liable for any damages that result or we could be penalized with fines, and any liability could exceed the limits of or fall outside our insurance coverage.
 
 
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Current and future legislation relating to climate change and hydraulic fracturing may negatively impact the exploration and production of oil and gas, and implicitly the demand for our products and services.
 
Along with other seismic data acquisition companies, we may be affected by new environmental legislation intended to limit or reduce increased emissions of gases, such as carbon dioxide and methane from the burning of fossil fuels (oil, gas and coal), which may be a contributing factor to climate change. The European Union has already established greenhouse gas (“GHGs”) regulations, and many other countries, including the United States, are in the process of enacting similar regulations. This could cause us to incur additional direct and indirect compliance costs in relation to any new climate change laws and regulations. Moreover, passage of climate change legislation or other regulatory initiatives that target emissions of GHGs may impair exploration and production of hydrocarbons and thus adversely affect future demand for our products and services. Reductions in our revenues or increases in our expenses as a result of climate control legislative initiatives could have negative impact on our business, results of operations and financial condition. Although various climate change legislative measures have been under consideration by the U.S. Congress, it is not possible at this time to predict whether or when Congress may act on climate change legislation.
 
In addition, the “Fracturing Responsibility and Awareness of Chemicals Act” (the “FRAC Act”) was introduced to both houses of the 113th U.S. Congress in  May and June 2013, aiming to amend the “Safe Drinking Water Act” (the “SDWA”) by repealing an exemption from regulation for hydraulic fracturing. The 111th and 112th U.S. Congresses did not take any significant action on previously introduced versions of the FRAC Act. If enacted, the FRAC Act would amend the definition of “underground injection” in the SDWA to encompass hydraulic fracturing activities. Such a provision could require hydraulic fracturing operations to meet permitting and financial assurance requirements, adhere to certain construction specifications, fulfill monitoring, reporting, and recordkeeping obligations, and meet plugging and abandonment requirements. The FRAC Act also proposes to require the reporting and public disclosure by the energy industry of the chemicals mixed with the water and sand it pumps underground in the hydraulic fracturing process, information that has largely been protected as trade secrets. The adoption of any future federal or state laws or implementing regulations imposing reporting obligations on, or otherwise limiting, the hydraulic fracturing process could make it more difficult to complete natural gas wells. Shale gas cannot be economically produced without extensive fracturing. In the event this legislation is enacted, demand for seismic acquisition services may be adversely affected. In addition, the EPA has asserted federal regulatory authority over certain hydraulic fracturing operations involving diesel additives under the SDWA and has released permitting guidance for hydraulic fracturing activities that use diesel in fracturing fluids in those states where EPA is the permitting authority.
 
Most recently, investor groups are increasingly pressing U.S. oil and gas companies to take stronger actions and increase public disclosure of information on fracking, climate change, and environment changes. In their resolutions, these groups request detailed accounting of how oil and gas companies are addressing the risks of fracking associated with threats to environment, communities, labor, regulatory changes and drilling moratoriums. If successful, these actions may result in substantial cost increases, delays, suspensions or even cancellations of existing or new exploration projects, with a direct adverse effect on our business, results of operations and financial condition.
 
Historically, our operational expenses incurred in connection with international seismic data projects have been higher than the operational expenses incurred in connection with seismic data projects undertaken in the United States. The profitability of our future international operations will depend significantly on our ability to control these expenses.
 
The expense of mobilizing personnel and equipment to various foreign locations, as well as the cost of obtaining and complying with local regulatory requirements, historically have been significantly higher than the expenses incurred in connection with seismic data projects undertaken in the United States. If we are unable to reduce the expenses incurred in connection with an international seismic data project, or to obtain better pricing for such services, our business, results of operations and financial condition could be materially and adversely affected.
 
 
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Operating internationally subjects us to significant risks and regulation inherent in operating in foreign countries.
 
We conduct operations on a global scale. For the year ended December 31, 2013, approximately 36% of our revenues were attributable to operations in foreign countries.
 
Our international operations are subject to a number of risks inherent to any business operating in foreign countries, and especially those with emerging markets. As we continue to increase our presence in such countries, our operations may encounter the following risks, among others:
 
 
government instability, which can cause investment in capital projects by our potential clients to be withdrawn or delayed, reducing or eliminating the viability of some markets for our services;
 
 
potential expropriation, seizure, nationalization or detention of assets;
 
 
difficulty in repatriating foreign currency received in excess of local currency requirements;
 
 
trade sanctions or import/export quotas;
 
 
civil uprisings, riots and war, which can make it unsafe to continue operations, adversely affect both budgets and schedules and expose us to losses;
 
 
availability of suitable personnel and equipment, which can be affected by government policy, or changes in policy, which limit the importation of qualified crewmembers or specialized equipment in areas where local resources are insufficient;
 
 
decrees, laws, regulations, interpretation and court decisions under legal systems, which are not always fully developed and which may be retroactively applied and cause us to incur unanticipated and/or unrecoverable costs as well as delays; and
 
 
terrorist attacks, including kidnappings of our personnel.
 
We cannot predict the nature and the likelihood of any such events. However, if any of these or other similar events should occur, it could have a material adverse effect on our business, results of operations and financial condition.
 
We are subject to taxation in many foreign jurisdictions and the final determination of our tax liabilities involves the interpretation of the statutes and requirements of local and national taxing authorities worldwide. Our tax returns are subject to routine examination by taxing authorities, and these examinations may result in assessments of additional taxes, penalties and/or interest.
 
Our overall success as a global business depends, in part, upon our ability to succeed in differing economic, social and political conditions. We may not continue to succeed in developing and implementing policies and strategies that are effective in each location where we do business, which could negatively affect our business, results of operations and financial condition.
 
A portion of the seismic equipment that we use in certain foreign countries may require prior U.S. government approval in the form of an export license, and may otherwise be subject to tariffs and import/export restrictions. The delay in obtaining required governmental approvals could affect our ability to timely commence a project, and the failure to comply with all such controls could result in fines and other penalties.
 
 
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As a company subject to compliance with the Foreign Corrupt Practices Act (the “FCPA”), our business may suffer because our efforts to comply with U.S. law could restrict our ability to do business in foreign markets relative to our competitors who are not subject to U.S. law. Additionally, our business plan may involve establishing joint ventures with partners in certain foreign markets. Any determination that we or our foreign agents or joint venture partners have violated the FCPA may adversely affect our business and operations.
 
We and our local partners operate in many parts of the world that have experienced governmental corruption to some degree and, in certain circumstances, strict compliance with anti-bribery laws may conflict with local customs and practices. We may be subject to competitive disadvantages to the extent that our competitors are able to secure business, licenses or other preferential treatment by making payments to government officials and others in positions of influence or using other methods that U.S. law and regulations prohibit us from using.
 
As a U.S. corporation, we are subject to the regulations imposed by the FCPA, which generally prohibits U.S. companies and their intermediaries from making improper payments to foreign officials for the purpose of obtaining or keeping business. In particular, we may be held liable for actions taken by our strategic or local partners even though our partners are not subject to the FCPA. Any such violations could result in substantial civil and/or criminal penalties and might adversely affect our business, results of operations or financial condition. In addition, our ability to continue to work in the countries discussed above could be adversely affected if we were found to have violated certain U.S. laws, including the FCPA.
 
Our results of operations can be significantly affected by currency fluctuations.
 
A portion of our revenues is derived in the local currencies of the foreign jurisdictions in which we operate. Accordingly, we are subject to risks relating to fluctuations in currency exchange rates. In the future, and especially as we expand our sales in international markets, our clients may increasingly make payments in non-U.S. currencies. Fluctuations in foreign currency exchange rates could affect our sales, cost of sales and operating margins. In addition, currency devaluation can result in a loss to us if we hold deposits of that currency. Hedging foreign currencies can be difficult, especially if the currency is not actively traded. We cannot predict the effect of future exchange rate fluctuations on our operating results.
 
A terrorist attack or armed conflict could harm our business.
 
Some seismic surveys are located in unstable political jurisdictions, including North Africa and the Middle East. Terrorist activities, anti-terrorist efforts and other armed conflicts involving the United States or other countries may adversely affect our ability to work in these markets which could adversely affect our business, results of operations or financial condition. These activities could have a direct negative effect on our business in those areas, including loss of life, equipment and data. Costs for insurance and security may increase as a result of these threats, and some insurance coverage may become more difficult to obtain on acceptable terms, if available at all.
 
Our success depends on key members of our management, the loss of any of whom could disrupt our business operations.
 
We have undergone reorganization of our senior level management.  Additional reorganization or the loss of services of additional members of our senior level executives or key personnel could disrupt our operations, which in turn could materially and adversely affect our business, results of operations and financial condition.
 
We may be unable to attract and retain skilled and technically knowledgeable employees, which could adversely affect our business.
 
Our success depends upon attracting and retaining highly skilled professionals and other technical personnel. A number of our employees are highly skilled scientists and highly trained technicians, and our failure to continue to attract and retain such individuals could adversely affect our ability to compete in the seismic services industry. We may confront significant and potentially adverse competition for these skilled and technically knowledgeable personnel, particularly in light of the bankruptcy proceedings and otherwise during periods of increased demand for seismic services. Additionally, at times there may be a shortage of skilled and technical personnel available in the market, potentially compounding the difficulty of attracting and retaining these employees. As a result, our business, results of operations and financial condition may be materially adversely affected.
 
 
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Our industry has periodically experienced shortages in the availability of equipment. Any difficulty we experience replacing or adding equipment could adversely affect our business.
 
If the demand for seismic services increases, we may not be able to acquire equipment to replace our existing equipment or add additional equipment. From time to time, the high demand for seismic services has decreased the availability of geophysical equipment, resulting in extended delivery dates on orders of new equipment. If that happens again, any delay in obtaining equipment could delay our implementation of additional or larger crews and restrict the productivity of our existing crews. Our required equipment may not continue to be available to us at costs that allow us to be profitable. A delay in obtaining equipment essential to our operations could have a material adverse effect on our business, results of operations and financial condition.
 
Our business is subject to cybersecurity risks and threats.
 
                Threats to our information technology systems associated with cybersecurity risk and cyber incidents or attacks continue to grow. It is also possible that breaches to our systems could go unnoticed for some period of time. Risks associated with these threats include, among other things, loss of intellectual property, impairment of our ability to conduct our operations , disruption of our customers’ operations, loss or damage to our customer data delivery systems, and increased costs to prevent, respond to or mitigate cybersecurity events.
 
Risks Related to Our Indebtedness
 
The provisions of our debtor-in-possession financing may have adverse effects on our operations and financial results.
 
The terms of our debtor-in-possession financing contain restrictive covenants that limit our ability to, among other things:
 
 
incur or guarantee additional debt;
 
 
pay dividends;
 
 
repay subordinated debt prior to its maturity;
 
 
grant additional liens on our assets;
 
 
enter into transactions with our affiliates;
 
 
repurchase stock;
 
 
make certain investments or acquisitions of substantially all or a portion of another entity’s business assets;
 
 
merge with another entity or dispose of our assets;
 
 
engage in new lines of business; and
 
 
make expenditures or payments outside of an agreed upon budget.
 
The requirement that we comply with these provisions may materially adversely affect our ability to react to changes in market conditions, take advantage of business opportunities we believe to be desirable, obtain future financing, fund needed capital expenditures or withstand a continuing or future downturn in our business.
 
If our debtor-in-possession lenders foreclose on their security interests in our assets, they will have the right to sell those assets in order to satisfy our obligations to them.
 
Our secured debt obligations under our debtor-in-possession financing are secured by a lien on substantially all of our assets including the equity interests in our material subsidiaries. In the event of foreclosure relating to us or our subsidiaries that have guaranteed our indebtedness under that financing, holders of this secured indebtedness will have prior claims with respect to substantially all of our assets. There can be no assurance that we would receive any proceeds from a foreclosure sale of our assets that constitute collateral following the satisfaction of the secured lenders’ priority claims.
 
 
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If we are unable to comply with the restrictions and covenants in our debtor-in-possession financing and future debt agreements, there could be a default under the terms of such agreements, which could result in an acceleration of repayment.
 
If we are unable to comply with the restrictions and covenants in our debtor-in-possession financing or in future debt agreements, there could be a default under the terms of these agreements. Our ability to comply with these restrictions and covenants, may be affected by events beyond our control. As a result, we cannot assure you that we will be able to comply with these restrictions and covenants. In the event of a default under these agreements, lenders could terminate their commitments to lend or accelerate the loans and declare all amounts borrowed due and payable. If any of these events occur, our assets might not be sufficient to repay in full all of our outstanding indebtedness and we may be unable to find alternative financing.
 
Item 1B.  Unresolved Staff Comments
 
None.
 
Item 2.  Properties
 
We own a building complex in the greater metropolitan Houston, Texas area that we use as our corporate headquarters. Our headquarters consists of office and warehouse space totaling approximately 104,000 square feet.
 
In addition, at the end of 2013, we were registered to do business and, in certain locations, leased administrative offices, sales offices, data processing centers, research centers, warehouses or equipment repairing centers , more specifically (i) in the United States, in cities such as Dallas, Missouri City, Stafford, Carrollton, Midland, Houston (all the above mentioned are cities in Texas), Culbertson (Montana), Toronto (Ohio), Anchorage (Alaska), Deadhorse (Alaska) and Denver (Colorado) as well as (ii) throughout the world, in countries such as Algeria, Argentina, Brazil, Brunei, Canada, Cayman Islands, Chile, Colombia, Cook Islands, Dubai, Iraq, Isle of Man, Kenya, Libya, Mexico, Paraguay, Sri Lanka, Oman, Peru, Poland, Russia, Saudi Arabia, Trinidad and Tobago, Tunisia, United Arab Emirates, and Venezuela.
 
We believe that our existing facilities are well maintained, suitable for their intended use, and adequate to meet our current and future operating requirements.
 
Item 3.  Legal Proceedings
 
We are subject to lawsuits, investigations, and claims arising in the ordinary conduct of our business. Although we cannot predict with certainty the ultimate resolution of lawsuits, investigations and claims asserted against us, we do not believe that an adverse decision in any currently pending legal proceedings to which we are a party will have a material adverse effect on our business, results of operations, financial condition or cash flows.
 
For a discussion of our Chapter 11 filing and the Bankruptcy Case, See “Part I—Item 1. Business--Voluntary Reorganization under Chapter 11 starting on page 3.
 
On March 20, 2014, a lawsuit styled Britt Miller, et al. v. Global Geophysical Services, Inc., et al., Civil Action No. 4:14-CV-00708, was filed in the United States District Court for the Southern District of Texas, Houston Division.  On March 21, 2014, a lawsuit styled Janice S. Gibson v. Global Geophysical Services, Inc., et al.,  No. 4:14-CV-0735, was filed in the United States District Court for the Southern District of Texas, Houston Division.  On April 3, 2014, a lawsuit styled Leslie Trinin v. P. Matthew Verghese, et al., No. 4:14-CV-00873, was filed in the United States District Court for the Southern District of Texas, Houston Division.  The cases were filed as putative class actions.  The Miller Complaint is filed on behalf of a putative class of all purchasers of the Company’s common stock from April 21, 2010 to March 18, 2014, and purchasers of the Depositary Shares purchased in, or traceable to, the Company’s registration statement of December 3, 2013.  The Gibson Complaint is filed on behalf of a putative class of purchasers of the Company’s common stock from February 7, 2011 to March 17, 2014.  The Trinin Complaint is filed on behalf of a putative class of all purchasers of Depositary Shares purchased in, or traceable to, the Company’s registration statement of December 3, 2014.  The named defendants in the Trinin case are certain officers and directors of the Company, and MLV Co. and National Securities Corporation, the alleged underwriters of the Company’s December 3, 2013 offering of Depositary Shares.  The Company is not a party to the Trinin case.
 
 
33

 
Plaintiffs in these cases collectively allege violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and SEC Rule 10b-5, and Sections 11, 12(a)(2), and 15 of the Securities Act of 1933, resulting in damages to members of the putative classes.  We intend to vigorously defend these actions.
 
On March 21, 2014, we received a letter from the staff of the SEC notifying us that the SEC is conducting an inquiry relating to the Company and requesting, among other things, that we voluntarily preserve and retain certain documents and information relating to our March 17, 2014 public announcement of a “Restatement of Certain Financial Results and Delay in Filing of Form 10-K.”  On March 28, 2014, we received a letter from the staff of the SEC notifying us that the staff was conducting an investigation in connection with possible violations of the federal securities laws, and on the same date the SEC issued a subpoena seeking the testimony of one of our senior executives.  We have retained counsel and intend to cooperate with the staff’s investigation.
 
 
Item 4.  Mine Safety Disclosures
 
Not applicable.
 
 
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Item 5.  Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
 
As of March 25, 2014, the day when the Debtors filed the Voluntary Petitions, there were 39,730,042 shares of our common stock outstanding and 305 stockholders of record.
 
Our common stock was previously listed and traded on the NYSE. On March 26, 2014, the NYSE suspended trading in the Company’s common stock and commenced proceedings to delist the common stock. On March 27, 2014, the OTCQB market operated by OTC Markets Group, Inc. (www.otcmarkets.com) and the OTC Bulletin Board (www.otcbb.com) began quoting our common stock under the symbol “GEGSQ.”
 
The following table sets forth the high and low closing prices for our common stock during the most recent two fiscal years, as reported by the NYSE for the periods shown. The following quotations reflect inter dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions.
 
Quarter Ended
 
High
   
Low
 
March 31, 2012
  $ 11.76     $ 7.02  
June 30, 2012
  $ 10.41     $ 5.19  
September 30, 2012
  $ 6.40     $ 4.24  
December 31, 2012
  $ 5.64     $ 3.71  
March 31, 2013
  $ 4.61     $ 2.28  
June 30, 2013
  $ 4.72     $ 1.90  
September 30, 2013
  $ 4.67     $ 2.25  
December 31, 2013
  $ 2.89     $ 1.38  

We have never paid cash dividends on our common stock and do not expect to do so in the foreseeable future. There can be no assurance that our operations will prove profitable to the extent necessary to pay cash dividends. Moreover, even if such profits are achieved, the future dividend policy will depend upon our earnings, capital requirements, financial condition, debt covenants and other factors considered relevant by our Board of Directors.
 
Securities Authorized for Issuance under Equity Compensation Plans
 
The following table summarizes certain information regarding securities authorized for issuance under our equity compensation plans as of December 31, 2013. In July 2006, our Board of Directors and Stockholders adopted the Global Geophysical Services, Inc. 2006 Incentive Compensation Plan. See information regarding material features of the plan in Note 11, “Stock-Based Compensation” to the Consolidated Financial Statements included herein.
 
 
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Plan Category
 
Number of Securities to be Issued Upon Exercise of Outstanding Options and Performance Units
(a)(1)
   
Weighted-Average Exercise Price of Outstanding Options
(b)
   
Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a))
(c) (2)
 
                   
Equity compensation plans approved by security holders
    3,607,350     $ 14.62       3,421,544  
Equity compensation plans not approved by security holders
    -       -       -  
Total
    3,607,350     $ 14.62       3,421,544  
 
(1)  Under the 2006 Incentive Compensation plan, in addition to options, we have also granted share-based compensation awards in the form of performance units. The 3,607,350 shares to be issued upon exercise of outstanding options and performance units as listed in column (a) consisted of shares to be issued in respect of the exercise of 2,426,000 outstanding options and in respect of the 1,181,350 performance units payable in shares but for which no shares were yet issued and outstanding. Because there is no exercise price associated with performance units awards, all of which are granted to employees at no cost, such awards are not included in the weighted average exercise price calculation in column (b).
(2) The shares remaining available for awards (other than outstanding awards) under the 2006 Incentive Compensation Plan could be issued in the form of stock options, stock appreciation rights, stock awards and stock units.
 
Stock Performance Graph

The following graph compares the cumulative 15-quarter total return provided stockholders on Global Geophysical Services, Inc.’s common stock relative to the cumulative total returns of the S&P 500 Index (“OSX”) and a peer group made up of companies in the PHLX Oil Service Sector Index. The PHLX Oil Service Sector Index consists of far larger companies that perform a variety of services as compared to land based acquisition and processing of seismic data performed by us.

The following graph and related information shall not be deemed “soliciting material” or to be “filed” with the SEC, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that we specifically incorporate it by reference into such filing. 
 
 
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Comparison of Fifteen-Quarter Cumulative Total Return*
Among Global Geophysical Services, Inc., the S&P 500 Index and the PHLX Oil Service Sector Index
 
 
_____________
*           Assumes $100 was invested on April 22, 2010, the date of our initial public offering, in stock or index, including reinvestment of dividends.  The stock price performance included in this graph is not necessarily indicative of future stock price performance.
 
Sales of Unregistered Securities and Stock Repurchases
 
During the year ended December 31, 2013, we did not make any purchases of our common stock or Depositary Shares, which are both registered pursuant to Section 12 of the Securities Exchange Act of 1934.
 
 
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Item 6.  Selected Financial Data
 
SELECTED FINANCIAL INFORMATION
 
The following information as of and for the years ended December 31, 2013, 2012, 2011, 2010 and 2009 has been updated to reflect the restatement to our financial statements as discussed in Note 21 to the Consolidated Financial Statements included in Item 8, “Financial Statements and Supplementary Data” of this 2013 Form 10-K. You should read the selected consolidated historical financial information set forth below along with our restated audited consolidated financial statements included in Item 8, “Financial Statements and Supplementary Data” of this 2013 Form 10-K.
 
The following selected consolidated financial data as of December 31, 2013 and 2012 and for the years ended December 31, 2013, 2012 and 2011 are derived from our audited consolidated financial statements included in this 2013 Form 10-K. The consolidated financial data as of December 31, 2011, 2010 and 2009 and for the years ended December 31, 2010 and 2009 have been updated to reflect the restatement for matters similar to those described in Note 21 to the Consolidated Financial Statements included in Item 8, “Financial Statements and Supplementary Data” of this 2013 Form 10-K.
 
We have not amended our previously-filed Annual Reports on Form 10-K or Quarterly Reports on Form 10-Q for the periods affected by the restatement. The financial information that has been previously filed or otherwise reported for these periods is superseded by the information in this 2013 Form 10-K, and the financial statements and related financial information contained in such previously-filed reports should no longer be relied upon. The information presented in the following tables has been updated to reflect the effects of the restatement of our financial results, which is more fully described in Note 21 to the Consolidated Financial Statements in Item 8, “Financial Statements and Supplementary Data” of this 2013 Form 10-K.  For further information that will help you better understand the summary data, you should read this financial data in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the Consolidated Financial Statements and related notes included in Item 8, “Financial Statements and Supplementary Data” and other financial information included elsewhere in this Form 10-K. These historical results are not necessarily indicative of results to be expected for any future periods.
 
 
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Year Ended December 31,
 
   
2013
   
2012
(Restated)
   
2011
(Restated)
   
2010
(Restated)
   
2009
(Restated)
 
Statement of Operations Data:
                             
Proprietary revenues
  $ 151,163     $ 183,513     $ 207,068     $ 119,553     $ 280,982  
Multi-client data library pre-commitments
    59,767       111,088       127,443       118,491       13,365  
Multi-client data library late sales
    77,729       44,828       50,298       16,376       11,130  
Total revenues
    288,659       339,429       384,809       254,420       305,477  
Operating expenses
    261,655       262,865       299,168       228,519       265,458  
Multi-client data library impairment
    88,223       -       -       -       -  
Goodwill impairment
    1,414               -       -       -  
Multi-client data library commissions
    14,784       -       -       -       -  
Selling, general and administrative expenses
    51,410       51,346       43,962       37,583       29,971  
(Gain) loss on disposal of property and equipment, net
    (8,624 )     (15,706 )     (1,683 )     2,629       -  
Income (loss) from operations
    (120,203 )     40,924       43,362       (14,311 )     10,048  
Interest expense, net
    (35,845 )     (31,750 )     (25,329 )     (21,316 )     (18,656 )
Other income (expense), net(1)
    (1,136 )     (4,159 )     (529 )     (6,675 )     1,023  
Income (loss) before income taxes
    (157,184 )     5,015       17,504       (42,302 )     (7,585 )
Income tax expense (benefit)
    (3,358 )     20,903       12,593       (303 )     (2,254 )
Income (loss) after taxes
    (153,826 )     (15,888 )     4,911       (41,999 )     (5,331 )
Net income (loss), attributable to non-controlling interests
    (312 )     (302 )     (22 )     162       -  
Net income (loss), attributable to common stockholders
  $ (153,514 )   $ (15,586 )   $ 4,933     $ (42,161 )   $ (5,331 )
                                         
Basic
  $ (4.03 )   $ (0.42 )   $ 0.13     $ (1.53 )   $ (0.65 )
Diluted(2)
  $ (4.03 )   $ (0.42 )   $ 0.13     $ (1.53 )   $ (0.19 )
Weighted average shares outstanding
                                       
Basic
    38,049       37,319       36,666       27,517       8,188  
Diluted(2)
    38,049       37,319       36,666       27,517       28,788  
                                         
Cash Flows Data:
                                       
Cash flows provided by operating activities
    58,160       121,984       135,101       118,766       81,152  
Cash flows used in investing activities
    (60,669 )     (167,057 )     (199,944 )     (215,657 )     (54,036 )
Cash flows provided by (used in) financing activities
    (1,950 )     46,907       58,131       108,101       (40,533 )
                                         
Balance Sheet Data:
                                       
Cash and cash equivalents(3)
    18,900       23,359       21,525       28,237       17,027  
Total assets
    392,907       547,686       506,559       415,294       317,157  
Total debt, including capital leases and current portion(4)
    347,839       350,885       292,085       218,344       171,953  
Total liabilities
    426,236       443,464       394,068       313,779       251,126  
Total stockholders’ equity (deficit)
    (33,329 )     104,222       112,491       101,515       66,031  
___________________
(1) Includes unrealized gain (loss) on derivative instruments, foreign exchange gain (loss), loss on extinguishment of debt, and other income (expense).
(2) For the year 2011, there were no diluted shares. For the years 2013, 2012 and 2010, diluted and basic are the same due to the net loss for those years.
(3) Cash and cash equivalents do not include restricted cash investments of approximately $1.0 million, $1.8 million, $5.6 million, $2.4 million and $5.3 million at December 31, 2013, 2012, 2011, 2010 and 2009, respectively.
(4) Excludes unamortized original issue discount of approximately $5.5 million, $6.9 million, $4.9 million, $5.6 million and $2.1 million at December 31, 2013, 2012, 2011, 2010 and 2009, respectively.
 
 
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Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operation
 
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the “Selected Financial Information” section of this Form 10-K and our Consolidated Financial Statements and the related notes and other financial information included elsewhere in this Form 10-K. In addition to historical financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties, and assumptions. Our actual results and timing of selected events may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those discussed under “Risk Factors” and elsewhere in this Form 10-K, which are incorporated herein by reference.
 
Restatement of Previously Issued Financial Statements
 
Management’s Discussion and Analysis of Financial Condition and Results of Operations in both tabular and textual form has been updated to reflect the effects of the restatement described in Note 21 of the Consolidated Financial Statements in “Item 8. Financial Statements and Supplementary Data.”

Voluntary Reorganization under Chapter 11
 
On March 25, 2014, the Company and certain of its subsidiaries, including Autoseis, Inc.; Global Geophysical EAME, Inc.; GGS International Holdings, Inc.; Accrete Monitoring, Inc.; and Autoseis Development Company (the Company and such subsidiaries, collectively, the “Debtors”) filed voluntary petitions for reorganization (the “Voluntary Petitions”) under Chapter 11 of the United States Bankruptcy Code (the “Bankruptcy Code”), in the United States Bankruptcy Court for the Southern District of Texas, Corpus Christi Division (the “Bankruptcy Court”). The filing by the Debtors is jointly administered under Case No. 14-20130 (the “Bankruptcy Case”). The Debtors are operating their business as “debtors-in-possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court.  For additional information regarding the events leading to the Debtors seeking protection under Chapter 11 and assumptions regarding our ability to continue as a going concern, see “Item 1.  Business—Events Leading to Seeking Protection under Chapter 11” and “ —Going Concern.”  For additional information regarding the Debtors’ debtor-in-possession financing, see “ —Liquidity and Capital Resources—Capital Resources -- Debtor-in-Possession Financing” below.

Overview
 
We provide an integrated suite of seismic data solutions to the global oil and gas industry, including our high resolution RG-3D Reservoir GradeSM (“RG3D”) seismic solutions. Our seismic data solutions consist primarily of seismic data acquisition, microseismic monitoring, data processing and interpretation services, as well as seismic data recording equipment known as the AUTOSEIS® HDR system. Together with our AUTOSEIS® HDR system, the services we offer deliver data that enables the creation of high resolution images of the earth’s subsurface and reveals complex structural and stratigraphic details. These images are used primarily by oil and gas companies to identify geologic structures favorable to the accumulation of hydrocarbons, to reduce risk associated with oil and gas exploration, to optimize well completion techniques and to monitor changes in hydrocarbon reservoirs. We integrate seismic survey design, data acquisition, processing and interpretation to deliver enhanced services to our clients. In addition, we own and market, directly and indirectly, a seismic data library and the AUTOSEIS® HDR system to customers in markets we serve. Seismic data library sales occur as a result of licenses being issued to clients on a non-exclusive basis.
 
We provide land seismic data acquisition on a worldwide basis, including challenging environments such as marshes, forests, jungles, arctic climates, mountains and deserts worldwide. Our seismic solutions are used by many of the world’s largest and most technically advanced oil and gas exploration and production companies, including national oil companies (“NOCs”), major integrated oil companies (“IOCs”), and large independent oil and gas companies. We believe our experience positions us well to serve our customers as they expand their involvement in shale and tight reservoir plays outside the U.S.
 
As of December 31, 2013, we owned approximately 130,000 recording channels, which are primarily comprised of our AUTOSEIS® HDR systems. Our recording channels and systems are interoperable, which provides operational scalability and efficiency. This operational scalability and efficiency enables us to execute on large and technologically complex projects.
 
 
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We generate revenues primarily by providing proprietary services and Multi-client services to our clients. We generate revenues from proprietary services by conducting geophysical services, primarily seismic data acquisition, for our clients on a contractual basis where our clients generally obtain all rights to the seismic data acquired or other output of our efforts. Proprietary Services also include revenues generated by providing microseismic monitoring, data processing, interpretation services and seismic equipment sales. We generate revenue from Multi-client services by selling non-exclusive licenses to seismic and other data we own as a part of our seismic data library.
 
During 2013, we began to increase our emphasis on our Proprietary Services segment outside the U.S. This reallocation of business mix is a component of our strategic efforts to generate higher cash margins in the business while reducing the capital allocated to investing in the Multi-client library. As evidence of this shift, our backlog at December 31, 2012 was approximately $101.3 million and was comprised of $35.3 million from Proprietary Services and $66.0 million from Multi-client Services. As of December 31, 2013, our backlog was approximately, $113.8 million, but was comprised of $101.9 million from Proprietary Services and $11.9 million from Multi-client Services backlog. In addition, 28% of our backlog at December 31, 2012 was from international projects with 72% from domestic projects as compared to 67% of backlog at December 31, 2013 from international and 33% from domestic projects.
 
Since commercial operations began in May 2005, we have expanded not only our operational capabilities but also our service offerings to include land, transition zone seismic data acquisition, microseismic monitoring, processing and interpretation services, Multi-client services, and seismic equipment sales associated with our AUTOSEIS® HDR seismic recording system.
 

 
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The following table summarizes operating income by segment (in thousands):
 
   
Proprietary Services
   
Multi-client Services
   
Corporate
   
Total
 
Year Ended December 31, 2013:
                       
Revenues
  $ 151,163     $ 137,496     $ -     $ 288,659  
Operating expenses(1)(2)
    140,033       99,879       21,743       261,655  
Multi-client data library impairment
    -       88,223       -       88,223  
Goodwill impairment
    -       -       1,414       1,414  
SG&A and Multi-client data library commissions
    -       14,784       51,410       66,194  
Gain on disposal of property and equipment, net
    -       -       (8,624 )     (8,624 )
Operating income (loss)
  $ 11,130     $ (65,390 )   $ (65,943 )   $ (120,203 )
                                 
Segment Assets
  $ 50,148     $ 208,894     $ 133,865     $ 392,907  
                                 
Year Ended December 31, 2012: (Restated)
                               
Revenues
  $ 183,513     $ 155,916     $ -     $ 339,429  
Operating expenses(1)(2)
    142,907       102,881       17,077       262,865  
Multi-client data library impairment
    -       -       -       -  
Goodwill impairment
    -       -       -       -  
SG&A and Multi-client data library commissions
    -       -       51,346       51,346  
Gain on disposal of property and equipment, net
    -       -       (15,706 )     (15,706 )
Operating income (loss)
  $ 40,606     $ 53,035     $ (52,717 )   $ 40,924  
                                 
Segment Assets
  $ 26,843     $ 336,583     $ 184,260     $ 547,686  
                                 
Year Ended December 31, 2011: (Restated)
                               
Revenues
  $ 207,068     $ 177,741     $ -     $ 384,809  
Operating expenses(1)(2)
    169,966       112,082       16,400       299,168  
Multi-client data library impairment
    -       -       -       -  
Goodwill impairment
    -       -       -       -  
SG&A and Multi-client data library commissions
    -       -       43,962       43,962  
Gain on disposal of property and equipment, net
    -       -       (1,683 )     (1,683 )
Operating income (loss)
  $ 37,102     $ 64,939     $ (58,679 )   $ 43,362  
                                 
Segment Assets
  $ 54,965     $ 276,273     $ 175,321     $ 506,559  
 
(1) Corporate operating expenses represent depreciation expense, (net) associated with the assets used during the period.
(2) Multi-client Services operating expenses represent data library revenue and backstop amortization expense.
 
 
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How We Generate Our Revenues
 
We generate revenues by providing Proprietary Services and Multi-client Services to our clients. Proprietary Services revenues represented 52% and 54% of our revenues for the years ended December 31, 2013 and 2012, respectively. Multi-client Services revenues represented 48% and 46% of our revenues for the years ended December 31, 2013 and 2012, respectively.
 
Proprietary Services.  We generate revenues by providing our clients seismic data acquisition, microseismic monitoring, data processing, and interpretation services on a proprietary basis where our clients ultimately own the output of our efforts, including seismic data obtained through seismic data acquisition surveys. Beginning in late 2013, we also generate revenues through sales of seismic equipment.
 
Most of our Proprietary Services, including our seismic data acquisition, microseismic monitoring, data processing and interpretation services, are obtained through a competitive bidding process. Seismic equipment sales occur both through competitive bidding as well as direct negotiation and sales effort with customers. Our clients usually ask us to quote a “turnkey” rate for each completed unit of recorded data, or less frequently, they may ask for a “term rate” bid. When we perform work on a turnkey basis, a defined amount and scope of work is provided by us for a fixed price and extra work, which is subject to client approval, is billed separately. When we perform work on a term rate basis, one of our seismic crews is hired for a fixed fee per day. Current market conditions drive our portfolio of outstanding contracts in terms of pricing (turnkey, term rate or a combination of the two). We also enter into contracts that combine different pricing elements, such as a term rate contract with bonus incentives for early completion or achievement of certain performance metrics to maximize the economic incentives for both us and our client.
 
We have entered into master service agreements with many of our clients. These agreements specify payment terms, establish standards of performance and allocate certain operational risks through indemnity and related provisions and are supplemented on a project-by-project basis with pricing terms and other project-specific terms. Revenues from our Proprietary Services segment are recognized when they are realizable and earned as services are performed, in most cases, based on the proportionate performance method. We defer unearned revenues until earned, and recognize losses in full when they occur.
 
Our contracts typically provide that we remain responsible for the majority of costs and expenses associated with a particular project. We seek to manage the risk of delays through the inclusion of “standby rate” provisions. These provisions are included in most of our contracts and require payment to us of a reduced rate for a limited amount of time if we are unable to record seismic data as a result of weather conditions or certain other factors outside our control. The pricing for any Proprietary Services, microseismic monitoring, data processing or interpretation services project is primarily determined by the data quality requirement, resolution, program parameters, complexity and conditions, including the timing, location and terrain and equipment required to complete the project.
 
Multi-client Services.  We generate Multi-client Services revenues by granting a non-exclusive license to seismic data. This allows our clients to have access to seismic data at a cost that is generally less than acquiring data on a proprietary basis. The seismic data sets that we have acquired through our Multi-client Services are included in our seismic data library.
 
Revenues under our Multi-client Services arrangements occur in several forms including pre-commitments, late sales and/or data swaps, or a combination, from the licensing of Multi-client data. The terms of the license typically set pricing on a per square mile basis, specify a defined survey area, and include limitations on transferability of the underlying data. We retain ownership of the seismic data acquired and licensed in Multi-client Services, and such data remains available for late sales.
 
 
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The following table summarizes data for our Multi-client Services segment (in millions):
 
   
Year Ended December 31,
 
   
2013
   
2012
(Restated)
   
2011
(Restated)
 
                   
Pre-commitments
  $ 59.8     $ 111.1     $ 127.4  
Late Sales
    77.7       44.8       50.3  
Total Multi-client Services revenues
  $ 137.5     $ 155.9     $ 177.7  
                         
Cash investment in Multi-client data library
  $ 67.1     $ 164.6     $ 178.1  
Capitalized depreciation(1)
    4.1       11.3       16.9  
Non-cash data exchange
    0.1       3.7       4.4  
Total investment in Multi-client data library
  $ 71.3     $ 179.6     $ 199.4  

   
 
 
   
2013
   
2012
(Restated)
   
2011
(Restated)
 
                   
Cumulative investment in Multi-client data library
  $ 726.7     $ 655.4     $ 475.8  
Less:  accumulated amortization of Multi-client data library
    446.1       346.2       243.3  
Multi-client data library impairment
    88.2       -       -  
Multi-client data library net book value (at period end)
  $ 192.4     $ 309.2     $ 232.5  
 
(1)  represents capitalized cost of the equipment owned or leased under capital leases and utilized in connection with the acquisition of Multi-client data.
 
How We Evaluate Our Operations
 
We evaluate our projects on a project basis and as a whole using similar performance metrics. In addition, we utilize a variety of financial and productivity metrics to analyze and monitor our performance. These metrics include, but are not limited to, the following:
 
 
safety performance rates;
 
 
miles or kilometers of acquired data over time;
 
 
EBITDA;
 
 
cash flow from operations;
 
 
cash flow after investments;
 
 
selling, general and administrative expenses (“SG&A”) as a percentage of revenues;
 
 
our EBIT in absolute terms and as a percentage of revenues; and
 
 
the level of pre-commitments and late sales for our Multi-client projects.
 
 
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The information generated using these metrics is an important part of our operational analysis. We apply these metrics to monitor operations separately for each of our projects and analyze trends to determine the relative performance of each. We also use these metrics to allocate our crews, combined with local decision-making and flexibility in the delivery of services to address the needs of our clients.
 
Recent Trends Affecting Our Business
 
The seismic data services industry historically has been and continue to be cyclical. Volatility in oil and gas prices can produce significant changes in the demand for seismic services and the prices seismic contractors can negotiate for their services. Oil and gas exploration, development, exploitation and production spending levels traditionally have been heavily influenced by expected future prices of oil and natural gas.
 
In connection with recent increases in crude price levels and the outlook for oil and gas pricing, recent studies project significant increases in worldwide capital expenditures by oil and gas companies for 2014 through 2016. We expect the increases in capital spending outside of the U.S. to result in increased demand for seismic services in the regions where we operate while spending in the U.S. is expected to increase modestly as compared to 2013 levels. In addition, we believe that the seismic industry is transitioning from legacy cabled recording systems to autonomous nodal technologies. We have benefited from this transition through improved operating efficiency and expanded seismic offerings.
 
We are also observing the continued emergence of microseismic recording technologies and services. We expect to utilize our capabilities and technologies to expand our offerings for this emerging field in future periods.
 
Critical Accounting Policies and Estimates
 
Our discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of the Consolidated Financial Statements included elsewhere in this Form 10-K requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities, such as backlog. We regularly evaluate our judgments and estimates in determining our operating results and financial condition. Estimates are based upon information available as of the date of the Consolidated Financial Statements and, accordingly, actual results could differ from these estimates, sometimes materially. Critical accounting policies and estimates are defined as those that are both most important to the portrayal of our operating results and financial condition and require management’s most subjective judgments. The most critical accounting policies and estimates are described below.
 
 
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Revenue Recognition
 
Proprietary Services.   Our Proprietary Services are provided under cancelable service contracts, which vary in terms and conditions. We recognize revenues in accordance with the type of contract we provide services. These contracts are either“turnkey” or “term” agreements or a combination of the two. Under turnkey agreements or the turnkey portions thereof, we recognize revenues based upon quantifiable measures of progress, such as square miles or linear kilometers of data acquired. Under term agreements or the term portions thereof, period revenues are recognized on a day-rate or other similar basis. Under certain contracts where the client pays separately for the mobilization of equipment to the project site, we recognize these mobilization fees as revenues during the performance of the seismic acquisition, using the same quantifiable measures of progress as for the acquisition work. We also receive reimbursements for certain other out-of-pocket expenses under the terms of our service contracts. We record amounts billed to clients in revenues as the gross amount including out-of-pocket expenses that are reimbursed by the client. In some instances, customers are billed in advance of services performed which we record as deferred revenue.
 
Multi-client Services.  Revenues are recorded under our arrangements from the licensing of our Multi-client data as either pre-commitments, late sales or data swap transactions. Once a contract is signed, it is either classified as a pre-commitment or a late sale and the entire contract will follow the appropriate revenue recognition as described below.
 
Revenues from the creation of our Multi-client projects are recognized when (i) we have a licensing arrangement with the customer that is validated by a signed contract, (ii) the sales price is fixed and determinable, (iii) collection is reasonably assured, and (iv) delivery, as defined in the paragraph below, has occurred. When these criteria have been satisfied, we recognize revenues using the proportionate performance method based upon quantifiable measures of progress such as square miles or linear kilometers of data acquired.
 
Revenues associated with a data swap transaction are recognized when (i) we have an arrangement with the customer that is validated by a signed contract, (ii) the value is determined based on the value which is more readily determinable between the two data sets, and (iii) the asset exchanged for has been received. Delivery is defined as “data is made available to the customer to view”.
 
If the data is subject to any incremental processing, we hold back a portion of the revenues to be recognized upon the delivery of the processed data to the customer. This hold back is calculated as a percentage of the data processing cost remaining to complete over the entire cost of the project.
 
Pre-commitment Revenues.  Pre-commitment revenues are contractual obligations whereby a client commits funds in advance of our acquisition of Multi-client seismic data. In return for these pre-commitments, our clients typically have some input with respect to project specifications and receive preferential pricing. We record pre-commitment payments as deferred revenue when they are received and record them as revenues on the basis of proportionate performance based on quantifiable measures of progress.
 
Late Sale Revenues.  Late sales occur when we enter into an agreement to sell a non-exclusive license on a Multi-client survey to a customer and we have acquired all or any portion of the seismic data. For late sale contracts, any portion associated with data which has not been acquired will be deferred and recognized as revenues on the basis of proportionate performance.
 
We establish amortization rates based on the estimated future revenues (both from pre-commitments and late sales) on an individual survey basis. The underlying estimates that form the basis of these sales estimates depend on historical and recent revenue trends, oil and gas prospects in particular regions, current and future expectations about commodity prices for oil and gas, general economic conditions affecting our customer base, expected changes in technology and other factors. The estimation of future cash flows and fair value is highly subjective and inherently imprecise. Estimates can change materially from period to period based on many factors, including those previously described. Accordingly, if conditions change in the future, an impairment loss may be recorded relative to the seismic data library, which could be material to any particular reporting period. However, under no circumstance will an individual survey carry a net book value greater than a four-year straight-line amortized value measured from the date the survey was completed. This is accomplished by comparing the cumulative amortization recorded for each survey to the cumulative straight-line amortization. If the cumulative straight-line amortization is higher for any specific survey, additional amortization expense is recorded, resulting in accumulated amortization being equal to the cumulative straight-line amortization for such survey. We often refer to this additional straight-line amortization as “Backstop” amortization.
 
 
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Allowance for Doubtful Accounts.   We estimate our allowance for doubtful accounts receivable (billed and unbilled) based on our past experience of historical write-offs, our current client base and our individual review of specific past due accounts. However, the inherent volatility of the energy industry’s business cycle can cause swift and unpredictable changes in the financial stability of our clients, which can result in significant deterioration in the collectability of our accounts receivable and require additional allowances being recorded as bad debt exposure in future periods.
 
Impairment of Long-lived Assets.  In accordance with ASC 360-10-35, “Impairment or Disposal of Long-lived Assets”, we evaluate the recoverability of property and equipment and our Multi-client data library as facts and circumstances indicate that any of those assets might be impaired. If an evaluation is required, the estimated future undiscounted future cash flows associated with the asset are compared to the asset’s carrying amount to determine if an impairment of such property and Multi-client data library asset is necessary. The effect of any impairment would be to expense the difference between the fair value of such property and its carrying value.
 
For the Multi-client data library, the impairment evaluation is based first on a comparison of the undiscounted future cash flows over each project’s remaining estimated useful life with the carrying value of each project. If the undiscounted future cash flows are equal to or greater than the carrying value of such project, no impairment is recorded. If undiscounted future cash flows are less than the carrying value of any project, the forecast of future cash flows related to such project is discounted to fair value and compared with such project’s carrying amount. The difference between the project’s carrying amount and the discounted future value of the expected revenue stream is recorded as an impairment charge. Impairment charges of $88.2 million, zero and zero were recognized in our Statements of Operations during the years ended December 31, 2013, 2012 and 2011, respectively.
 
Depreciable Lives of Property, Plant and Equipment.  Our property, plant and equipment are capitalized at historical cost and depreciated over the useful life of the asset. Our estimation of the useful life of a particular asset is based on circumstances that exist in the seismic industry and information available to our management at the time of the purchase of the asset. The technology of the equipment used to gather data in the seismic industry evolves over time, and as circumstances change and new information becomes available, these estimates could change. We amortize these capitalized items using the straight-line method. Capital assets are depreciated over periods from one to ten years depending on the classification of the asset.
 
Impairment of Goodwill and Other Intangible Assets.  We evaluate goodwill for impairment annually or whenever there are indicators that the carrying value of the assets may not be fully recoverable. Definite-lived intangible assets are amortized over their estimated useful lives and are reviewed for impairment whenever there are indicators that the carrying value of the assets may not be fully recoverable. See Note 6 “Goodwill and Intangible Assets” to our Consolidated Financial Statements for our discussion of the impairment of goodwill and other intangible assets.

Tax Accounting.  The Company follows ASC 740, “Income Taxes”. Under the asset and liability method required by this guidance, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A deferred tax asset will be reduced by a valuation allowance when, based on our estimates, it is more likely than not that a portion of those assets will not be realized in a future period.
 
The realization of our deferred tax assets depends on recognition of sufficient future taxable income in specific tax jurisdictions during periods in which those temporary differences are deductible. Valuation allowances are established, when necessary, to reduce deferred income tax assets to the amounts we believe are more likely than not to be recovered. In evaluating our valuation allowance, we consider the reversal of existing temporary differences, the existence of taxable income in prior carryback years, tax planning strategies and future taxable income for each of our taxable jurisdictions, the latter two of which involve the exercise of significant judgment. Changes to our valuation allowance have significantly impacted current year results of operations and could significantly impact future results of operations.

We have liabilities for unrecognized tax benefits related to uncertain tax positions connected with ongoing examinations and open tax years. Changes in our assessment of these liabilities may require us to increase the liability and record additional tax expense or reverse the liability and recognize a tax benefit, which would negatively or positively, respectively, impact our effective tax rate.
 
 
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Stock-Based Compensation.  We account for stock-based compensation in accordance ASC 718, “Compensation – Stock Compensation”, which requires us to measure the cost of employee services received in exchange for an award of equity instruments based on the grant date fair value of the award. For stock options issued, we use the Black-Scholes-Merton option-pricing model, which requires various assumptions as to interest rates, volatility, dividend yields and expected lives of stock-based awards. Performance share unit awards we issue are subject to performance criteria such as meeting predetermined financial and non-financial targets for a three-year performance period. The fair value as of the grant date for each performance share unit award is determined based on fair value derived from a multi-factor Monte Carlo valuation model that simulates our performance of the predetermined targets relative to other companies in our peer group.
 
 

 
 
 
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Results of Operations
 
Year Ended December 31, 2013 Compared to Year Ended December 31, 2012
 
Revenues.    The following table sets forth our consolidated revenues for the periods indicated (in millions):
 
Revenues by Segment
 
Year Ended December 31,
 
   
2013
   
2012
(Restated)
 
Proprietary Services
  $ 151.2       52 %   $ 183.5       54 %
Multi-client Services
    137.5       48 %     155.9       46 %
Total
  $ 288.7       100 %   $ 339.4       100 %
 
Revenues by Area
 
Year Ended December 31,
 
   
2013
   
2012
(Restated)
 
United States
  $ 186.0       64 %   $ 176.1       52 %
International
    102.7       36 %     163.3       48 %
Total
  $ 288.7       100 %   $ 339.4       100 %

We recorded revenues of $288.7 million for the year ended December 31, 2013 compared to $339.4 million for the same period of 2012, a decrease of $50.7 million, or 15%.
 
We recorded revenues from Proprietary Services of $151.2 million for the year ended December 31, 2013, compared to $183.5 million for the same period of 2012, a decrease of $32.3 million, or 18%. The decrease was primarily due to a decrease in revenues international Proprietary operations in the first and second quarters of 2013 and was partially offset by an increase in revenues from Proprietary operations in the United States in the third and fourth quarters of 2013. While we began to transition during 2013 to a greater emphasis on Proprietary Services outside the United States and were able to build backlog in that area during the year, the impact of such emphasis was, for the most part, not realized by revenues received during the year.
 
Multi-client Services generated revenues of $137.5 million for the year ended December 31, 2013 compared to $155.9 million for the same period of 2012, a decrease of $18.4 million, or 12%. The $137.5 million in Multi-client Services revenues included $59.8 million of pre-commitment revenues and $77.7 million of late sale revenues that included $0.4 million in non-cash data swap transactions.   Late sales revenues for the year ended December 31, 2013 also include a $25.0 million non-refundable license fee recognized in the first quarter of 2013 discussed in further detail in Note 4, “Multi-client Library” to the Consolidated Financial Statements included elsewhere herein.  This compared to $111.1 million of pre-commitment revenues that included $2.1 million in non-cash data swap transactions and $44.8 million of late sale revenues that included $3.2 million in non-cash data swap transactions during the same period of 2012. The decrease in pre-commitment revenues in 2013 as compared to 2012 related to our strategic shift away from Multi-client services and a substantially reduced investment in Multi-client programs in 2013 as compared to 2012. The pre-commitment revenue decrease in 2013 primarily occurred in the third and fourth quarters due to our focus of shifting assets to Proprietary programs. The following table sets forth our consolidated Multi-client Services revenues for the periods indicated (in millions):
 
   
Year Ended December 31,
 
   
2013
   
2012
(Restated)
 
Multi-client revenues
           
Pre-commitments
  $ 59.8     $ 111.1  
Late sales
    77.7       44.8  
Total revenues
  $ 137.5     $ 155.9  
 
Operating Expenses.  Total operating expenses decreased by $1.2 million, or 1%, to $261.7 million for the year ended December 31, 2013 from $262.9 million for the year ended December 31, 2012. Operating costs decreased by $1.8 million, or 1%. Multi-client amortization decreased by $3.0 million, or 3%, due to reduced Multi-client Services revenue, offset by an increase in backstop amortization. Depreciation and other amortization increased by $3.6 million, or 12%, primarily due to a decrease of capitalized depreciation associated with the multi-client library.

 
49

 
Multi-client Data Library Impairment. Multi-client data library impairment was $88.2 million for the year ended December 31, 2013, reflecting a decrease in the expected cash flow generation potential of certain portions of the library. Of the $88.2 million recorded, $13.0 million occurred in the first quarter of 2013 and $75.2 million occurred in the fourth quarter of 2013. We did not incur any such impairment charge for 2012.

Goodwill Impairment. Goodwill impairment was $1.4 million for the year ended December 31, 2013 reflecting a $1.0 million charge in the third quarter of 2013 relating to the divestiture of our line-clearing business and a $0.4 million charge relating to our HMS unit in the fourth quarter of 2013. See Note 6 "Goodwill and Intangible Assets". We did not incur any such impairment charge for 2012.

Multi-client Data Library Commission. Multi-client data library commission was $14.8 million for the year ended December 31, 2013 relating to the License and Marketing Agreement executed in the first quarter of 2013. See Note 4 "Multi-Client Library". We did not have any such commission expense for 2012.

Selling, General and Administrative Expenses.  SG&A increased by $0.1 million to $51.4 million for the year ended December 31, 2013, from $51.3 million for the year ended December 31, 2012. This increase is primarily due to higher stock-based compensation expenses in the third and fourth quarters, offset by lower provisions related to bad debt in the first and fourth quarters.

Depreciation (net), Amortization and Multi-client Data Library and Other Impairment.  Total depreciation (net), amortization and Multi-client data library and other impairment increased by $90.4 million, or 67%, to $225.9 million for the period ended December 31, 2013 in comparison to the same period of 2012. The Multi-client Services amortization expense for the year ended December 31, 2013 was $99.9 million, resulting in an increase in our average amortization rate to 73% for the period. Gross depreciation expense for the period ended December 31, 2013 was $37.1 million, of which, $4.1 million was capitalized in connection with our Multi-client Services investments resulting in a net depreciation expense of $33.0 million. During the period ended December 31, 2013, approximately $10.7 million of library amortization expense was attributable to backstop amortization. Backstop amortization represents the non-cash charges recorded to ensure each survey in the library is carried at a net book value no greater than that amount that would reflect full amortization of the survey on a straight-line basis over four years.
 
The following table summarizes our depreciation (net), amortization and Multi-client data library and other impairment for the periods indicated (in millions):
 
   
Year Ended December 31,
 
   
2013
   
2012
(Restated)
 
             
Gross depreciation expense
  $ 37.1     $ 40.8  
Less:  capitalized deprecation for Multi-client data library
    4.1       11.3  
Depreciation (net)
    33.0       29.5  
Multi-client amortization expense:
               
Multi-client data library revenue amortization
    89.2       94.7  
Backstop amortization
    10.7       8.2  
      99.9       102.9  
Amortization expense of intangible assets
    3.4       3.1  
Multi-client data library impairment
    88.2       -  
Goodwill impairment
    1.4       -  
Depreciation (net), amortization and Multi-client data library and other impairment
  $ 225.9     $ 135.5  
                 
Average Multi-client amortization rate for the period
    73 %     66 %

 
50

 
Gross depreciation charges decreased by $3.7 million, to $37.1 million during 2013 due to the sale of certain line clearing assets in the fourth quarter of 2013 and the loss of equipment resulting from a fire in warehouse in Colombia during the second quarter of 2013.

Multi-client amortization and impairment expense decreased by $3.0 million, or 3%, to $99.9 million for the year ended December 31, 2013, compared to $102.9 million for the same period of 2012. The decrease was primarily due to the reduction in Multi-client revenue in 2013.
 
Interest Expense, Net.  Interest expense, net, increased by $4.0 million, or 13%, to $35.8 million for the year ended December 31, 2013, from $31.8 million for the year ended December 31, 2012. This increase was primarily due to substantially higher interest rates for borrowings under the September 2013 Financing Agreement as compared to borrowings under our previous revolving credit facility, which was refinanced with proceeds of borrowings under the September 2013 Financing Agreement as of September 30, 2013.
 
Other Income (Expense), Net.  Other expense, net, decreased by $3.1 million to $1.1 million for the year ended December 31, 2013 from $4.2 million for the year ended December 31, 2012. This decrease resulted primarily from the write-off of an investment in an unconsolidated subsidiary in the third quarter of 2012 as compared to no such write-offs occurring in 2013.
 
Income Tax.    For the year ended December 31, 2013, we had income tax benefit of $3.4 million compared to expense of $20.9 million for the year ended December 31, 2012. [NTD:  Just trying to make the disclosure more understandable.] This change resulted primarily from our recording a valuation allowance of $47.1 million during the year ended December 31, 2013 against certain deferred tax assets.

EBITDA.   We define EBITDA as earnings before interest, taxes, depreciation and amortization, and non-controlling interest. EBITDA is not a measure of financial performance derived in accordance with generally accepted accounting principles (GAAP) and should not be considered in isolation or as an alternative to net income as an indication of operating performance. The table below presents a reconciliation of EBITDA to net loss (in thousands):

   
2013
   
2012
(Restated)
 
             
Net loss, attributable to common stockholders
  $ (153,514 )   $ (15,586 )
Net loss, attributable to non-controlling interests
    (312 )     (302 )
Income tax expense (benefit)
    (3,358 )     20,903  
Interest expense, net
    35,845       31,750  
EBIT(1)
  $ (121,339 )   $ 36,765  
                 
Add:  Multi-client data library amortization
    99,879       102,881  
Add: Multi-client data library impairment
    88,223       -  
Add: Depreciation (net) and other amortization(2)
    37,826       35,594  
EBITDA(1)
  $ 104,589       172,240  
 
(1)  EBIT and EBITDA (as defined in the calculations above) are non-GAAP measures.
(2)  Includes amortization of intangibles and goodwill impairment.
 
Our management believes EBITDA is useful to an investor in evaluating our operating performance because this measure is widely used by investors in the energy industry to measure a company’s operating performance without regard to items excluded from the calculation of such term, which can vary substantially from company to company depending upon, among other factors, accounting methods, book value of assets, capital structure and the method by which assets were acquired. We believe EBITDA helps investors more meaningfully evaluate and compare the results of our operations from period to period by removing the effect of our capital structure and asset base from our operating structure. EBITDA is also used as a supplemental financial measure by our management in presentations to our board of directors, as a basis for strategic planning and forecasting, and as a component for setting incentive compensation.
 
 
51

 
Year Ended December 31, 2012 Compared to Year Ended December 31, 2011
 
Revenues.    The following table sets forth our consolidated revenues for the periods indicated (in millions):
 
Revenues by Segment
 
Year Ended December 31,
 
   
2012
(Restated)
   
2011
(Restated)
 
Proprietary Services
  $ 183.5       54 %   $ 207.1       54 %
Multi-client Services
    155.9       46 %     177.7       46 %
Total
  $ 339.4       100 %   $ 384.8       100 %
       
 
Revenues by Area
 
Year Ended December 31,
 
   
2012
(Restated)
   
2011
(Restated)
 
United States
  $ 176.1       52 %   $ 205.3       53 %
International
    163.3       48 %     179.5       47 %
Total
  $ 339.4       100 %   $ 384.8       100 %
 
We recorded revenues of $339.4 million for the year ended December 31, 2012 compared to $384.8 million for the year ended December 31, 2011, a decrease of $45.4 million, or 12%. The decrease is primarily due to decreased Proprietary Services activities in Colombia in 2012 as compared to 2011.
 
We recorded revenues from Proprietary Services of $183.5 million for the year ended December 31, 2012 compared to $207.1 million for the year ended December 31, 2011, a decrease of $23.6 million, or 11%. Of this amount, the decrease related to Latin America Proprietary Services operations was $42.0 million, largely driven by a decrease in our crew activities in Colombia in 2012 as compared to 2011. In Europe, Africa, and Middle East (“EAME”), during the years ended December 31, 2012 and 2011, we recorded revenues of $33.7 million and $32.0 million, respectively. In North America, we had $48.6 million in revenues from Proprietary Services for the year ended December 31, 2012 compared to $32.0 million for the year ended December 31, 2011, a decrease of $16.6 million, or 34.2%.
 
We recorded revenues from Multi-client Services of $155.9 million for the year ended December 31, 2012 compared to $177.7 million for the year ended December 31, 2011, a decrease of $21.8 million, or 12%. The $155.9 million in Multi-client revenues included $111.1 million of pre-commitment revenues that included $2.2 million in non-cash data swap transactions and $44.8 million of late sale revenues that included $3.2 million in non-cash data swap transactions. This compared to $127.4 million of pre-commitment revenues that included $1.2 million in non-cash data swap transactions and $50.3 million of late sale revenues that included $1.9 million in non-cash data swap transactions during the same period of 2012. Total pre-commitments that had not been recognized as revenues were $20.0 million and $35.7 million as of December 31, 2012 and 2011, respectively. The following table sets forth our consolidated Multi-client Services revenues for the periods indicated (in millions):
 
   
Year Ended December 31,
 
   
2012
(Restated)
   
2011
 
Multi-client revenues
           
Pre-commitments
  $ 111.1     $ 127.4  
Late sales
    44.8       50.3  
Total revenues
  $ 155.9     $ 177.7  
 
 
52

 
Operating Expenses.  Total operating expenses decreased by $36.3 million, or 12%, to $262.9 million for the year ended December 31, 2012 from $299.2 million for the year ended December 31, 2011. Operating costs decreased by $27.9 million, or 18%, to $131.0 million in the year ended December 31, 2012 from $158.9 million in the comparable period in 2011. The decrease resulted primarily from reduced crew activity. Multi-client amortization decreased by $9.9 million, or 9%, due to reduced Multi-client Services revenue, offset by an increase in backstop amortization. Depreciation and other amortization increased by $1.5 million, or 5%, primarily due to a decrease of capitalized depreciation associated with the multi-client library.

Selling, General and Administrative Expenses.  SG&A increased by $7.3 million, or 17%, to $51.3 million for the year ended December 31, 2012, from $44.0 million for the year ended December 31, 2011. This increase is primarily due to higher headcount and compensation expenses and an increase in bad debt expenses recorded in the first and fourth quarters.

Depreciation (net), Amortization and Multi-client Data Library and Other Impairment.  Total depreciation (net), amortization and Multi-client data library and other impairment decreased by $7.5 million, or 5%, to $135.5 million for the period ended December 31, 2012 in comparison to the same period of 2011. The Multi-client Services amortization expense for the period ended December 31, 2012 was $102.9 million, resulting in an increase in our average amortization rate to 66% for the period. Gross depreciation expense for the period ended December 31, 2012 was $40.8 million, of which, $11.3 million was capitalized in connection with our Multi-client Services investments resulting in a net depreciation expense of $29.5 million. During the period ended December 31, 2012, approximately $8.2 million of library amortization expense was attributable to backstop amortization. Backstop amortization represents the non-cash charges recorded to ensure each individual survey in the library is carried at a net book value no greater than that amount that would reflect full amortization of the survey on a straight-line basis over four years.
 
The following table summarizes our depreciation (net), amortization and Multi-client data library and other impairment for the periods indicated (in millions):
 
   
Year Ended December 31,
 
   
2012
(Restated)
   
2011
(Restated)
 
             
Gross depreciation expense
  $ 40.8     $ 45.2  
Less:  capitalized deprecation for Multi-client library
    11.3       16.9  
Depreciation (net)
    29.5       28.3  
Multi-client amortization expense:
               
Multi-client data library revenue amortization
    94.7       107.1  
Backstop amortization
    8.2       5.7  
      102.9       112.8  
Amortization expense of intangible assets
    3.1       1.9  
Goodwill impairment
    -       -  
Depreciation (net), amortization and Multi-client data library and other impairment
  $ 135.5     $ 143.0  
                 
Average Multi-client amortization rate for the period
    66 %     63 %
 
Gross depreciation charges decreased by $4.4 million, to $40.8 million during 2012 as some of our older equipment is nearing full depreciation and capital investment in recent quarters has been less than our historical average.

Multi-client amortization expense was $102.9 million for the year ended December 31, 2012, compared to Multi-client amortization of $112.8 million for the same period of 2011. Multi-client amortization decreased by $9.9 million, or 9%, as a result of the decrease in Multi-client Services revenues, primarily occurring in the fourth quarter of 2012.
 
Interest Expense, Net.  Interest expense, net, increased by $6.5 million, or 26%, to $31.8 million for the year ended December 31, 2012, from $25.3 million for the year ended December 31, 2011. This increase in interest expense was primarily due to the issuance in March 2012 of $50.0 million aggregate principal amount of our 10.5% senior notes due 2017 (see Note 8 “Debt”) and increased borrowings under our prior revolving credit facility.
 
 
53

 
Other Income (Expense), Net.  Other expense, net, increased by $3.7 million to $4.2 million for the year ended December 31, 2012 from $0.5 million for the year ended December 31, 2011. The primary reasons for the increase were $1.7 million of foreign exchange losses, primarily booked in the second quarter of 2012, and a loss of $1.8 million on the write-off of an investment in an unconsolidated subsidiary in the third quarter of 2012.
 
Income Tax.    For the year ended December 31, 2012, we had income tax expense of $20.9 million compared to an expense of $12.6 million for the year ended December 31, 2011. During the year ended December 31, 2012, an income tax charge of $14.3 million was recorded in the fourth quarter related to foreign tax credits in the U.S. and the limitations on utilizing those tax credits.

EBITDA.   We define EBITDA as earnings before interest, taxes, depreciation and amortization, and non-controlling interests. EBITDA is not a measure of financial performance derived in accordance with GAAP and should not be considered in isolation or as an alternative to net income as an indication of operating performance. The table below presents a reconciliation of EBITDA to net income (loss) (in thousands):

   
2012
(Restated)
   
2011
(Restated)
 
             
Net income (loss), attributable to common stockholders
  $ (15,586 )   $ 4,933  
Net loss, attributable to non-controlling interests
    (302 )     (22 )
Income tax expense (benefit)
    20,903       12,593  
Interest expense, net
    31,750       25,329  
EBIT(1)
  $ 36,765     $ 42,833  
                 
Add:  Multi-client data library amortization
    102,881       112,802  
Add: Multi-client data library impairment
    -       -  
Add: Depreciation (net) and other amortization(2)
    32,594       30,223  
EBITDA(1)
  $ 172,240       185,858  
 
(1)  EBIT and EBITDA (as defined in the calculations above) are non-GAAP measures.
(2)  Includes amortization of intangibles and goodwill impairment.
 
 
54

 
Liquidity and Capital Resources
 
Liquidity
 
Prior to 2013, we placed a substantial emphasis on our Multi-client Services segment and building up our Multi-client library with external sources of financing.  In fiscal years 2010, 2011 and 2012, our net cash used in investing activities exceeded our net cash provided by operating activities by $96.9 million, $64.8 million and $45.1 million, respectively.  In those periods, we invested $201.2 million in 2010, $199.4 million in 2011 and $179.6 million in 2012, respectively, in our Multi-client library.  We financed these investing activities, including our investments in our Multi-client library, primarily from issuances of long-term debt, our revolving credit facility and, for 2010, also issuances of equity securities.  Our net investment in Multi-client library increased from $145.9 million at year end 2010 to $232.5 million at year end 2011 and to $309.2 million at year end 2012.
 
We reported net losses of $42.2 million in 2010 and $15.6 million in 2012.  We reported net income of $4.9 million in 2011.  At year end 2012, we had liquidity (available cash and undrawn borrowing capacity under our revolving credit facility) of $29.3 million and backlog of $101.3 million, as compared with backlog of $200.7 million at the end of 2011.
 
During the latter part of 2012, following a change in executive leadership at the Company, the Company made a strategic decision to increase its emphasis on Proprietary Services in what it viewed to be a more lucrative international market and decrease its emphasis on Multi-client Services in the increasingly competitive U.S. market.  During this transition period of 2013, we increased our Proprietary Services backlog.
 
This change in emphasis on international Proprietary Services vs. Multi-Client Services impacted our liquidity during 2013 and continues to impact our liquidity.  Historically, our primary internal sources of liquidity have been cash generated by the Proprietary Services and Multi-Client Services provided to our clients, and, from time to time, we receive proceeds from sales of non-core assets. Our primary external sources of liquidity have been borrowings under our credit facilities, debt and equity offerings and equipment financings such as operating and capital leases. Our primary uses of capital include the acquisition of seismic data recording equipment, seismic vehicles, other equipment needed to outfit new crews and to enhance the capabilities of and maintain existing crews' energy sources, and investments in our Multi-client library.  With the increased emphasis on international Proprietary Services as described above also came increased expenses and working capital needs for mobilizing personnel and equipment to various foreign locations and increased costs of complying with local regulatory requirements, which expenses and working capital needs are difficult to forecast and require expenditures in advance, in cases months in advance, of when project revenues are received.
 
Our internal sources of liquidity, including our cash position, depend to a large extent on the level of demand for our services. Historically, we have periodically supplemented our internal sources of liquidity with external sources, including borrowings under our previous revolving credit facility, as the need arises.  However, limitations in our debt agreements became increasingly restrictive during 2013, including a scheduled reduction in available capacity under our revolving credit facility from $80 million to $67.5 million at September 30, 2013.  We were able to refinance our prior revolving credit facility with the September 2013 Financing Agreement, but this agreement (i) provided for a term facility with scheduled amortization, (ii) provided no available borrowing capacity, and (iii) imposed further limitations and restrictions, including more restrictions on our ability to incur or guarantee additional indebtedness or to grant additional liens on our assets.  When considered in combination with our low share price, these events began to severely limit our access to additional debt and equity capital, resulting in our being almost exclusively dependent on our internal sources of liquidity. For this reason, during 2013 we increased our focus on enhancing operating cash flows, remaining fully pre-funded on investments in our Multi-client library, increasing the weighting of Proprietary Services revenues as a percentage of total revenues and pursuing selective asset sales as means of providing liquidity. During 2013, we also explored several asset sale and other transactions that would have, if executed, improved our balance sheet and liquidity.  However, we were not able to consummate these transactions.  While we focused on improving our liquidity during 2013, we previously reported that events beyond our control could affect our results of operations, financial condition and liquidity.  Our liquidity fluctuated during the year, at June 30, 2013 we reported our liquidity was $10.8 million, with only $0.1 million of borrowing capacity under our previous revolving credit facility.  At year end, our liquidity was $18.9 million, with no available borrowing capacity under our September 2013 Financing Agreement or other lines of credit.
 
While we increased our backlog in the first two months of 2014, we experienced a number of adverse developments that, taken together, materially and adversely impacted our liquidity in the first part of 2014.  These developments included higher than anticipated working capital requirements associated with project start-up costs for new international projects; reduced revenues attributable to reductions in programs in Colombia; higher than anticipated project costs and increases in estimated taxes; slower than anticipated production in Kenya; and project cancellations in Libya due to security concerns.  Contracts for providing our international proprietary services generally require us to incur working capital for start-up expenditures well in advance of when we receive revenues and cash flows under such contracts, which negatively impacts our liquidity during the early phases of such contracts. We also recorded in the fourth quarter of 2013 an impairment of our Multi-client library in the amount of $75.2 million, reflecting a decrease in the expected cash flow generation potential of certain portions of such library.
 
 
55

 
While focused on improving liquidity through the actions described above, in March 2014 we retained and began working with financial advisors to evaluate our financial condition and to assist us in reviewing financial and strategic alternatives for addressing our liquidity needs, including obtaining additional capital and/or a financial restructuring. In this connection, we and our financial advisors began discussions with certain of our creditors, including discussions leading to entering into a Forbearance Agreement with our senior secured lenders under which such lenders agreed to forbear from exercising any rights and remedies in connection with certain then existing or possible future defaults and events of default.  During March 2014, however, our liquidity continued to deteriorate.
 
By letter dated March 24, 2014, our senior secured lenders accelerated the payment of the Company’s obligations under the September 2013 Financing Agreement. The aggregate principal amount of debt outstanding under the September 2013 Financing Agreement as of the date of acceleration was $81.8 million.  Under the indentures governing our Senior Notes and some of our other debt obligations, the acceleration of our obligations under the September 2013 Financing Agreement constituted a cross default and would have allowed the holders of such debt to accelerate the respective obligations.
 
The combination of these events led us to seek protection from our creditors under the Bankruptcy Code by filing the Voluntary Petitions on March 25, 2014. See “Item 1. Business—Voluntary Reorganization under Chapter 11 starting on page 3 for discussion of the Chapter 11 filing and Bankruptcy Case.
 
We are committed to an orderly resolution of our liquidity situation and financial restructuring that will permit us to continue our operations and to attempt to preserve the value of our assets and our overall enterprise value. However, there can be no assurance that we will be successful in doing so, and we are dependent on a financial restructuring to continue as a going concern. See “Item 1.  Business—Going Concern.” For additional information relating to our debtor-in-possession financing and related matters, see “Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operation -- Liquidity and Capital Resources -- Capital Resources -- Debtor-in-Possession Financing.”
 
For the periods indicated, we had available liquidity as follows (in millions):
 
   
December 31,
 
   
2013
   
2012
 
 
           
Available Cash
  $ 18.9     $ 23.4  
Undrawn borrowing capacity under Revolving Credit Facility(1)
    -       5.9  
Total available liquidity
  $ 18.9     $ 29.3  
 
(1)  Borrowings under the Revolving Credit Facility were subject to certain limitations under provisions of our senior notes indenture.  As of December 31, 2012, undrawn borrowing capacity was limited to $2.1 million resulting in net availability of $3.8 million.
 
We are also required to post letters of credit or performance bonds in connection with a number of our seismic data acquisition contracts as security for the performance of our obligations under those contracts. Letters of credit totaling $1.0 million were secured with the cash identified as “Restricted cash investments” on our balance sheet as of December 31, 2013.
 
For purposes of local payroll and other operating expenses we typically maintain cash balances with local banks in many of the foreign jurisdictions in which we operate. In some jurisdictions, our ability to transfer such cash balances to our U.S. based banks can require a period of weeks, or even months, due to local banking and other regulatory requirements. We do not consider the cash balances maintained in such accounts to be material.
 
 
56

 
The following table summarizes the net cash provided by (used in) operating, investing and financing activities for the years ended December 31, 2013, 2012 and 2011 (in millions):

   
2013
   
2012
(Restated)
   
2011
(Restated)
 
                   
Net income and adjustments to reconcile net income (loss) to net cash
  $ 64.1     $ 123.5     $ 155.9  
Effects of changes in operating assets and liabilities
    (5.9 )     (1.6 )     (20.8 )
Cash flows from operating activities
    58.2       121.9       135.1  
Cash flows from investing activities
    (60.7 )     (167.0 )     (199.9 )
Cash flows from financing activities
    (2.0 )     46.9       58.1  
Net increase (decrease) in cash and cash equivalents
  $ (4.5 )   $ 1.8     $ (6.7 )

Operating Activities.   Historically, we have relied primarily on cash flows from operations to fund working capital for current and future operations. During 2013, we also funded some of our working capital needs from proceeds of asset sales, including sales of seismic equipment and proceeds from a $25 million license fee received upon execution of a license and marketing agreement entered into with a third party in the first quarter of 2013 as described in Note 4 to the Notes to the Consolidated Financial Statements. Net cash provided by operating activities totaled $58.2 million, $121.9 million and $135.1 million for the years ended December 31, 2013, 2012 and 2011, respectively. This represented a decrease in operating cash flows of $63.8 million for the year ended December 31, 2013 compared to ­­­­the year ended December 31, 2012. The decrease in operational cash flow in 2013 resulted primarily from a decrease in operating income during the period.

Investing Activities.   Cash used in investing activities totaled $60.7 million, $167.0 million and $199.9 million for the years ended December 31, 2013, 2012 and 2011, respectively. The $106.3 million decrease in cash used in investing activities in 2013, as compared to 2012, was primarily the result of reduced expenditure for property and equipment and reduced investment in Multi-client library in 2013.
 
Investing activities in the years ended December 31, 2013, 2012 and 2011 consisted primarily of the acquisition of new seismic data recording equipment, seismic energy sources, vehicles and vessels, and other equipment needed to outfit new and existing crews. Investments in our Multi-client seismic data library totaled $67.1 million and $164.6 million for the years ended December 31, 2013 and 2012, respectively. In addition, we financed $2.4 million, $7.6 million and $14.5 million of our equipment purchased through capital leases in the years ended December 31, 2013, 2012 and 2011, respectively. These are included on our Statements of Cash Flows and in Note 15 - Supplemental Cash Flow Information in the Notes to our Consolidated Financial Statements. Investing activities in 2014 are expected to consist primarily of investments in our Multi-client seismic data library and equipment purchases. The following table sets forth our investment in our Multi-client library for the periods indicated (in millions):
 
   
Year Ended December 31,
 
   
2013
   
2012
(Restated)
 
Multi-client investment (period)
           
Cash
  $ 67.1     $ 164.6  
Capitalized depreciation (1)
    4.1       11.3  
Non-cash data swaps (2)
    0.1       3.7  
Total
  $ 71.3     $ 179.6  

 
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Investment (cumulative)
           
Cash
  $ 640.1     $ 573.0  
Capitalized depreciation (1)
    59.5       55.4  
Non-cash data swaps (2)
    27.1       27.0  
Total
    726.7       655.4  
                 
Cumulative amortization and impairment
    534.3       346.2  
Multi-client net book value
  $ 192.4     $ 309.2  
 
(1)  Represents capitalized cost of the equipment, owned or leased, and used in connection with Multi-client Services.
(2)  Includes non-cash data swap investment recorded as deferred revenue.
 
Financing Activities.   Cash from financing activities decreased by $48.9 million in the year ended December 31, 2013 as compared to 2012. In the years ended December 31, 2013, 2012 and 2011, financing activities used $2.0 million, generated $46.9 million and $58.1 million, respectively. On September 30, 2013, we received $82.8 million in proceeds from borrowings under our September 2013 Financing Agreement to refinance the outstanding balance of our prior revolving credit facility and to pay related fees and expenses. In December 2013, we received net proceeds of $7.1 million from the issuance of 347,827 Depositary Shares each representing a 1/1,000th interest in a share of our 11.5% Series A Cumulative Preferred Stock, with a liquidation preference of $25,000.00 per preferred share ($25.00 per Depositary Share).
 
Please see our Consolidated Financial Statements presented elsewhere in this Annual Report on Form 10-K for more information on our historical operating, investing, and financing cash flows.
 
Capital Resources.
 
See Notes 8 and 18 to our Consolidated Financial Statements for additional discussion relating to our indebtedness and our Depositary Shares and Series A Cumulative Preferred Stock.
 
Events of Default on Indebtedness
 
By letter dated March 24, 2014, TPG Specialty Lending, Inc. (“TSL”), as collateral agent, administrative agent and lender under the September 2013 Financing Agreement, dated as of September 30, 2013, between the Company, as borrower, certain subsidiary guarantors listed therein, and the other lenders and agents party thereto, accelerated the payment of our obligations under the September 2013 Financing Agreement.  The aggregate principal amount of debt outstanding under the September 2013 Financing Agreement as of the date of acceleration was $81.8 million.  Under the indentures governing our Senior Notes and some of our other debt obligations, the acceleration of our obligations under the September 2013 Financing Agreement constituted a cross default and would allow the holders of such debt to accelerate the respective obligations, subject to the provisions of the Bankruptcy Code.  The acceleration of these obligations, in part, results from defaults under the September 2013 Financing Agreement that were claimed to have existed at December 31, 2013.  As a result, all debt obligations of the Company have been classified as current in the Consolidated Balance Sheet of the Company at December 31, 2013.
 
Additionally, the filing of the Voluntary Petitions described above constituted an event of default or otherwise triggered repayment obligations under the express terms of certain instruments and agreements relating to direct financial obligations of certain of the Debtors (the “Debt Documents”).  As a result of such an event of default or triggering event, all obligations under the Debt Documents, by the terms of the Debt Documents, have or may become due and payable, subject to the provisions of the Bankruptcy Code.  We believe that any efforts to enforce payment obligations against the Debtors under the indentures governing the Senior Notes or the Debt Documents are stayed as a result of the filing of the Voluntary Petitions in the Court.  The material Debt Documents, and the approximate principal amount of debt outstanding thereunder as of March 25, 2014, includes $250 million aggregate principal amount of Senior Notes, approximately $6.9 million of bank debt owed to lenders in Colombia and approximately $4.7 million in capital leases relating to various pieces of equipment.
 
Debtor-in-Possession Financing
 
In connection with filing the Voluntary Petitions, the Debtors filed motions seeking Bankruptcy Court approval of a senior secured debtor-in-possession credit facility, as detailed in a commitment letter and term sheet, among the Company, as borrower, each of the direct and indirect domestic subsidiaries of the Company designated therein, as guarantors, certain holders of the Senior Notes (collectively, the “Backstop Parties”), and Wilmington Trust, National Association, as administrative agent and collateral agent. The initial debtor-in-possession credit facility provided for a super-priority senior secured term loan facility in an aggregate principal amount of $60 million to be drawn upon in two or more tranches: (i) $25 million (the “Initial DIP Loan”) upon entry of the interim order of the Bankruptcy Court (the “Interim Order”); and (ii) $35 million upon entry of an order by the Bankruptcy Court approving the loans on a final basis (the “Final Order”).
 
 
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On March 28, 2014, the Bankruptcy Court entered the Interim Order approving the Initial DIP Loan over the objection of the Debtors’ prepetition secured lenders, and the Initial DIP Loan was funded.
 
On April 14, 2014, the Debtors filed a supplemental motion for entry of a final order authorizing the Debtors to obtain postpetition financing, refinance the prepetition secured indebtedness and approve a related settlement with the prepetition secured lenders, including authorizing the Debtors to enter into a senior secured postpetition financing agreement in an aggregate principal amount of up to $151.9 million, pursuant to the terms of a Financing Agreement dated as of April 14, 2014 (the “Replacement DIP Credit Facility”), among the Company, as borrower, and certain subsidiaries of the Company, as guarantors, the lenders from time to time party thereto, and Wilmington Trust, National Association, as administrative agent for the lenders and as collateral agent for the Lenders.  The Replacement DIP Credit Facility provides for a super-priority senior secured term loan facility in an aggregate principal amount of $151.9 million to be drawn upon in two or more tranches: (i) the Initial DIP Loan of $25.0 million, which was drawn on March 28, 2014 following entry of the Interim Order; and (ii) an additional $126.9 million (the “Final DIP Loan”) that would be available upon entry of the Final Order.  The motion for approval of the Replacement DIP Credit Facility was filed on a consensual basis reflecting a settlement agreement, subject to Bankruptcy Court approval, among the Debtors, the Backstop Parties and the Debtors’ prepetition secured lenders that would resolve certain disputes among the parties, thereby avoiding the significant cost, delays and uncertainty of litigation, and provide consensual debtor-in-possession financing for the Debtors.
 
On April 25, 2014, the Bankruptcy Court entered the Final Order approving the Replacement DIP Credit Facility and related settlement agreement and the Final DIP Loan was funded.
 
The proceeds of the Initial DIP Loan are available for general corporate purposes of the Debtors during the Bankruptcy Case (including payment of certain fees and expenses), working capital, certain transaction fees, costs and expenses and certain other costs and expenses with respect to the administration of the Bankruptcy Case. The Final DIP Loan will be used, in part, to repay, in full, the indebtedness under the September 2013 Financing Agreement (including payment of certain fees and expenses) and for general corporate purposes of the Debtors during the Bankruptcy Case, working capital, certain transaction fees, costs and expenses and certain other costs and expenses with respect to the administration of the Bankruptcy Case.  The Initial DIP Loan bears interest, at the Company’s option, at either LIBOR plus 8.50% per annum (subject to a LIBOR floor of 1.5% per annum) or the base rate (the highest of the federal funds effective rate plus 1/2 of 1%, The Wall Street Journal prime rate and the three-month LIBOR rate plus 1%, subject to a floor of 2.5%) plus 7.50%.  The Final DIP Loan will be split into two tranches consisting of $35.0 million of Term A Loans (“the Term A Loans”) and $91.9 million of Term B loans (the “