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The฀table฀below฀shows฀our฀principal฀manufacturing฀plants฀
by฀geographic฀area:
฀ Number฀of฀
Geographic฀Area฀ Principal฀Plants
United฀States฀ 27฀
South฀America฀ 5฀
Europe฀ 7฀
Far฀East฀ 1
Total฀ 40
ITEM฀3.฀LEGAL฀PROCEEDINGS
We฀are฀involved฀in฀litigation฀or฀proceedings฀that฀have฀
arisen฀in฀our฀ordinary฀business฀activities.฀We฀insure฀against฀
these฀risks฀to฀the฀extent฀deemed฀prudent฀by฀our฀management฀
and฀to฀the฀extent฀insurance฀is฀available,฀but฀no฀assurance฀can฀
be฀given฀that฀the฀nature฀and฀amount฀of฀that฀insurance฀will฀be฀
sufficient฀to฀fully฀indemnify฀us฀against฀liabilities฀arising฀out฀of฀
pending฀and฀future฀legal฀proceedings.฀Many฀of฀these฀insur-
ance฀policies฀contain฀deductibles฀or฀self-insured฀retentions฀in฀
amounts฀we฀deem฀prudent฀and฀for฀which฀we฀are฀responsible฀
for฀payment.฀In฀determining฀the฀amount฀of฀self-insurance,฀it฀is฀
our฀policy฀to฀self-insure฀those฀losses฀that฀are฀predictable,฀mea-
surable฀and฀recurring฀in฀nature,฀such฀as฀claims฀for฀automobile฀
liability,฀general฀liability฀and฀workers฀compensation.฀We฀record฀
accruals฀for฀the฀uninsured฀portion฀of฀losses฀related฀to฀these฀
types฀of฀claims.฀The฀accruals฀for฀losses฀are฀calculated฀by฀esti-
mating฀losses฀for฀claims฀using฀historical฀claim฀data,฀specific฀
loss฀development฀factors฀and฀other฀information฀as฀necessary.
On฀September฀12,฀2001,฀the฀Company,฀without฀admitting฀
or฀denying฀the฀factual฀allegations฀contained฀in฀the฀Order,฀con-
sented฀with฀the฀SEC฀to฀the฀entry฀of฀an฀Order฀making฀Findings฀
and฀Imposing฀a฀Cease-and-Desist฀Order฀(the฀“Order”)฀for฀vio-
lations฀of฀Section฀13(b)(2)(A)฀and฀Section฀13(b)(2)(B)฀of฀the฀
Exchange฀Act.฀Among฀the฀findings฀included฀in฀the฀Order฀were฀
the฀following:฀In฀1999,฀we฀discovered฀that฀certain฀of฀our฀offi-
cers฀had฀authorized฀an฀improper฀$75,000฀payment฀to฀an฀Indo-
nesian฀tax฀official,฀after฀which฀we฀embarked฀on฀a฀corrective฀
course฀of฀conduct,฀including฀voluntarily฀and฀promptly฀disclosing฀
the฀misconduct฀to฀the฀SEC฀and฀the฀Department฀of฀Justice฀(the฀
“DOJ”).฀In฀the฀course฀of฀our฀investigation฀of฀the฀Indonesia฀
matter,฀we฀learned฀that฀we฀had฀made฀payments฀in฀the฀amount฀
of฀$15,000฀and฀$10,000฀in฀India฀and฀Brazil,฀respectively,฀to฀our฀
agents,฀without฀taking฀adequate฀steps฀to฀ensure฀that฀none฀of฀
the฀payments฀would฀be฀passed฀on฀to฀foreign฀government฀offi-
cials.฀The฀Order฀found฀that฀the฀foregoing฀payments฀violated฀
Section฀13(b)(2)(A).฀The฀Order฀also฀found฀the฀Company฀in฀vio-
lation฀of฀Section฀13(b)(2)(B)฀because฀it฀did฀not฀have฀a฀system฀
of฀internal฀controls฀to฀determine฀if฀payments฀violated฀the฀
Foreign฀Corrupt฀Practices฀Act฀(“FCPA”).฀The฀FCPA฀makes฀it฀
unlawful฀for฀U.S.฀issuers,฀including฀the฀Company,฀or฀anyone฀
acting฀on฀their฀behalf,฀to฀make฀improper฀payments฀to฀any฀
foreign฀official฀in฀order฀to฀obtain฀or฀retain฀business.฀In฀addi-
tion,฀as฀discussed฀below,฀the฀FCPA฀establishes฀accounting฀and฀
internal฀control฀requirements฀for฀U.S.฀issuers.฀We฀cooperated฀
with฀the฀SEC’s฀investigation.
By฀the฀Order,฀dated฀September฀12,฀2001฀(previously฀dis-
closed฀by฀us฀and฀incorporated฀by฀reference฀in฀this฀annual฀
report฀as฀Exhibit฀99.1),฀we฀agreed฀to฀cease฀and฀desist฀from฀
committing฀or฀causing฀any฀violation฀and฀any฀future฀violation฀
of฀Section฀13(b)(2)(A)฀and฀Section฀13(b)(2)(B)฀of฀the฀Exchange฀
Act.฀Such฀Sections฀of฀the฀Exchange฀Act฀require฀issuers฀to฀(x)฀
make฀and฀keep฀books,฀records฀and฀accounts,฀which,฀in฀rea-
sonable฀detail,฀accurately฀and฀fairly฀reflect฀the฀transactions฀and฀
dispositions฀of฀the฀assets฀of฀the฀issuer฀and฀(y)฀devise฀and฀main-
tain฀a฀system฀of฀internal฀accounting฀controls฀sufficient฀to฀pro-
vide฀reasonable฀assurances฀that:฀(i)฀transactions฀are฀executed฀
in฀accordance฀with฀management’s฀general฀or฀specific฀authori-
zation;฀and฀(ii)฀transactions฀are฀recorded฀as฀necessary:฀(I)฀to฀
permit฀preparation฀of฀financial฀statements฀in฀conformity฀with฀
generally฀accepted฀accounting฀principles฀or฀any฀other฀criteria฀
applicable฀to฀such฀statements,฀and฀(II)฀to฀maintain฀account-
ability฀for฀assets.
On฀March฀29,฀2002,฀we฀announced฀that฀we฀had฀been฀
advised฀that฀the฀SEC฀and฀the฀DOJ฀are฀conducting฀investiga-
tions฀into฀allegations฀of฀violations฀of฀law฀relating฀to฀Nigeria฀
and฀other฀related฀matters.฀The฀SEC฀has฀issued฀a฀formal฀order฀
of฀investigation฀into฀possible฀violations฀of฀provisions฀under฀the฀
FCPA฀regarding฀anti-bribery,฀books฀and฀records฀and฀internal฀
controls.฀On฀August฀6,฀2003,฀the฀SEC฀issued฀a฀subpoena฀seek-
ing฀information฀about฀our฀operations฀in฀Angola฀and฀Kazakh-
stan฀as฀part฀of฀its฀ongoing฀investigation.฀We฀are฀providing฀
documents฀to฀and฀cooperating฀fully฀with฀the฀SEC฀and฀DOJ.฀
The฀DOJ฀and฀the฀SEC฀have฀issued฀subpoenas฀to,฀or฀otherwise฀
asked฀for฀interviews฀with,฀current฀and฀former฀employees฀in฀
connection฀with฀the฀investigations฀regarding฀Nigeria,฀Angola฀
and฀Kazakhstan.฀In฀addition,฀we฀have฀conducted฀internal฀
investigations฀into฀these฀matters.
Our฀internal฀investigations฀have฀identified฀issues฀regarding฀
the฀propriety฀of฀certain฀payments฀and฀apparent฀deficiencies฀in฀
our฀books฀and฀records฀and฀internal฀controls฀with฀respect฀to฀
certain฀operations฀in฀Nigeria,฀Angola฀and฀Kazakhstan,฀as฀well฀
as฀potential฀liabilities฀to฀governmental฀authorities฀in฀Nigeria.฀
The฀investigation฀in฀Nigeria฀was฀substantially฀completed฀during฀
the฀first฀quarter฀of฀2003฀and,฀based฀upon฀current฀information,฀
we฀do฀not฀expect฀that฀any฀such฀potential฀liabilities฀will฀have฀a฀
material฀adverse฀effect฀on฀our฀consolidated฀financial฀state-
ments.฀The฀internal฀investigations฀in฀Angola฀and฀Kazakhstan฀
were฀substantially฀completed฀in฀the฀third฀quarter฀of฀2004.฀฀
Evidence฀obtained฀during฀the฀course฀of฀the฀investigations฀has฀
been฀provided฀to฀the฀SEC฀and฀DOJ.
The฀Department฀of฀Commerce,฀Department฀of฀the฀Navy฀
and฀the฀DOJ฀(the฀“U.S.฀agencies”)฀are฀investigating฀compliance฀
with฀certain฀export฀licenses฀issued฀to฀Western฀Geophysical฀
from฀1994฀through฀2000฀for฀export฀of฀seismic฀equipment฀
leased฀by฀the฀People’s฀Republic฀of฀China.฀We฀acquired฀West-
ern฀Geophysical฀in฀August฀1998฀and฀subsequently฀transferred฀
related฀assets฀to฀WesternGeco฀in฀December฀2000.฀Under฀the฀
WesternGeco฀formation฀agreement,฀we฀owe฀indemnity฀to฀
WesternGeco฀for฀certain฀matters.฀We฀are฀cooperating฀fully฀
with฀the฀U.S.฀agencies.
We฀have฀received฀a฀subpoena฀from฀a฀grand฀jury฀in฀the฀
Southern฀District฀of฀New฀York฀regarding฀goods฀and฀services฀we฀
2004฀Form฀10-K฀฀฀฀฀13