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Mitcham Industries Inc. Reports Operating Results (10-Q)

December 09, 2009 | About:
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10qk

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Mitcham Industries Inc. (MIND) filed Quarterly Report for the period ended 2009-10-31.

MITCHAM INDUSTRIES, INC. specializes in the leasing and sale of seismic equipment to the oil and gas industry. Co. provides short-term leasing of peripheral seismic equipement to meet a customer's requirements, as well as offering maintenance and support during the lease term. Co. leases its seismic equipment primarily to land-based seismic data acquisition companies and major oil and gas exploration companies conducting seismic data acquisition surveys in North and South America. Co. also sells and services new and used seismic data acquisition systems and peripheral equipment to companies. Mitcham Industries Inc. has a market cap of $69.4 million; its shares were traded at around $7.0692 with a P/E ratio of 22.1 and P/S ratio of 1. Mitcham Industries Inc. had an annual average earning growth of 2.1% over the past 10 years.

Highlight of Business Operations:

During the fiscal years ended January 31, 2009, 2008 and 2007, we added approximately $34.9 million, $26.0 million and $25.5 million, respectively, of equipment to our lease pool in response to the strong demand for our equipment and services during those periods. We have responded to the decline in demand for our services and products by reducing our additions to our lease pool of equipment. During the nine months ended October 31, 2009, we added approximately $11.4 million of equipment to our lease pool, as compared to $20.5 million during the nine months ended October 31, 2008. Despite the recent decline in demand, we have added, and expect to add during fiscal 2010, certain types of equipment to our lease pool, such as down-hole seismic tools and three component digital sensors. We expect that the cost of these additions will be approximately $17.4 million for all of fiscal 2010; however, if demand warrants, we could acquire additional equipment during the balance of this fiscal year.

A significant portion of our revenues is generated from sources outside the U.S. For the three months ended October 31, 2009, revenues from international customers totaled approximately $9.2 million. This amount represents 63% of consolidated revenues for this period, as compared to 69% for the third quarter of fiscal 2009. For the first nine months of fiscal 2010, revenues from international customers totaled approximately $27.6 million, or 73% of consolidated revenues, as compared to 74% for the first nine months of fiscal 2009. The majority of our transactions with international customers are denominated in U.S., Australian and Canadian dollars, Russian rubles and British pounds sterling.

approximately $50.6 million for the nine months ended October 31, 2008. The decline between the nine-month periods is attributable primarily to a decrease in equipment leasing revenues and lower sales of lease pool equipment and new seismic equipment, offset by an increase in Seamap equipment sales. For the three months ended October 31, 2009, leasing revenues began to recover from the lower levels experienced earlier in the year and Seamap sales continued to exceed those in the prior year period. For the three months ended October 31, 2009, we generated operating income of approximately $1.4 million as compared to approximately $2.7 million for the three months ended October 31, 2008. For the nine months ended October 31, 2009, our operating income was essentially break-even as compared to an operating profit of approximately $11.3 million for the nine months ended October 31, 2008. The decline in operating profit in the three and nine month periods was due primarily to the decline in leasing revenues and an increase in lease pool depreciation. A more detailed explanation of these variations follows.

SAP regularly sells new hydrographic and oceanographic equipment and provides system integration services to customers in Australia and throughout the Pacific Rim. For the fiscal quarter ended October 31, 2009, SAP generated a gross profit of approximately $92,000 from these transactions as compared to a gross profit of approximately $391,000 in the fiscal quarter ended October 31, 2008. For the nine months ended October 31, 2009, SAP produced a gross profit of approximately $396,000 versus approximately $851,000 in the nine months ended October 31, 2008. The decline in gross profit in the three and nine month periods was due primarily to the decline in sales volumes.

In May 2008, SAP entered into a contract with the Royal Australian Navy to provide certain equipment to the Republic of the Philippines. We account for this contract using the percentage of completion method. In the three months ended October 31, 2009, we did not recognize any revenue or costs related to this contract. The contract is essentially complete pending final documentation approval and billing of the final contract milestone of approximately $400,000. In the nine months ended October 31, 2009, we recognized approximately $1.0 million in revenues related to this contract. We have incurred approximately $200,000 in unexpected costs in the fulfillment of this contract and have submitted claims for reimbursement of these costs. However, until our claims are approved and accepted, we have not included the benefit from these claims in our calculation of expected profits from the contract. We expect to recognize additional contract revenues of approximately $340,000 upon final completion of the contract, excluding the effect of the pending claims, and gross profit of approximately $46,000. In the three and nine months ended October 31, 2008, we recognized approximately $1.1 million in revenues related to this contract. The sales of hydrographic and oceanographic equipment by SAP are generally not related to oil and gas exploration activities and are often made to governmental entities. Accordingly, these sales are not impacted by global economic and financial issues to the same degree as are other parts of our business.

Overall, our Equipment Leasing segment generated a gross profit of approximately $4.0 million in the third quarter of fiscal 2010 as compared to approximately $6.0 million in the third quarter of fiscal 2009. For the first nine months of fiscal 2010, our Equipment Leasing segment generated a gross profit of approximately $5.5 million, as compared to approximately $20.5 million in the first nine months of fiscal 2009. The gross profit for the three and nine month periods declined due primarily to lower leasing revenues and higher depreciation expense related to our lease pool equipment. During fiscal

Read the The complete ReportMIND is in the portfolios of John Rogers of ARIEL CAPITAL MANAGEMENT LLC.

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