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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
 
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
 FOR THE QUARTERLY PERIOD ENDED July 31, 2006
 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 000-25142
 
 MITCHAM INDUSTRIES, INC.
  Texas
    
    76-0210849(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)
 8141 SH 75 South
P.O. Box 1175
Huntsville, Texas 77342
 (936) 291-2277
 
  þ o
  o o þ
  o þ




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MITCHAM INDUSTRIES, INC.
INDEX
 PART I. FINANCIAL INFORMATIONItem 1.
    
    Financial StatementsCondensed Consolidated Balance Sheets as of July 31, 2006 and January 31, 2006
    
    
    3Condensed Consolidated Statements of Operations for the three and six months ended July 31, 2006 and 2005
    
    
    4Condensed Consolidated Statements of Cash Flows for the six months ended July 31, 2006 and 2005
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    14Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    24Item 4.
    
    Controls and Procedures
    
    
    25PART II. OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    25Item 1A.
    
    Risk Factors
    
    
    25Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    25Item 3.
    
    Defaults Upon Senior Securities
    
    
    25Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    25Item 5.
    
    Other Information
    
    
    26Item 6.
    
    Exhibits
    
    
    26Signatures
    
    
    27Separation AgreementForm of Non-Qualified Stock Optioin Grant AgreementForm of Restricted Stock Award AgreementForm of Incentive Stock Option Grant AgreementCertification of CEO Pursuant to Rule 13a-14(a)Certification of EVP-Finance and CFO pursuant to Rule 13a-14(a)Certification of CEO Pursuant to Section 906Certification of CEO Pursuant to Section 906




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PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 MITCHAM INDUSTRIES, INC.
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (In thousands, except per share data)
 July 31,
    
    
    January 31,2006
    
    
    2006(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    17,900
    
    
    $
    16,438Short-term investments
    
    
    2,000
    
    
    
    2,550Trade accounts receivable, net
    
    
    8,291
    
    
    
    5,793Notes receivable, net
    
    
    2,293
    
    
    
    3,088Inventories, net
    
    
    3,425
    
    
    
    1,155Prepaid expenses and other current assets
    
    
    1,091
    
    
    
    717Current portion of deferred tax asset
    
    
    1,266
    
    
    
    Total current assets
    
    
    36,266
    
    
    
    29,741Seismic equipment lease pool and property and equipment, net
    
    
    20,385
    
    
    
    19,924Intangible assets, net
    
    
    2,355
    
    
    
    2,584Goodwill
    
    
    3,358
    
    
    
    2,358Deferred tax asset, net
    
    
    2,149
    
    
    
    3,000Other assets
    
    
    9
    
    
    
    13Total assets
    
    $
    64,522
    
    
    $
    57,620LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    2,865
    
    
    $
    4,436Accrued expenses and other current liabilities
    
    
    3,340
    
    
    
    2,066Current portion of long-term debt
    
    
    1,500
    
    
    
    Deferred revenue
    
    
    625
    
    
    
    381Income taxes payable
    
    
    504
    
    
    
    286Total current liabilities
    
    
    8,834
    
    
    
    7,169Long-term debt, net of current maturities
    
    
    1,500
    
    
    
    3,000Total liabilities
    
    
    10,334
    
    
    
    10,169Shareholders equity:Preferred stock, $1.00 par value; 1,000 shares authorized;
none issued and outstanding
    
    
    
    
    
    
    Common stock, $.01 par value; 20,000 shares authorized;
10,522 and 10,360 shares issued, respectively
    
    
    105
    
    
    
    104Additional paid-in capital
    
    
    66,396
    
    
    
    64,404Treasury stock, at cost (919 and 915 shares)
    
    
    (4,781
    )
    
    
    (4,686
    )Deferred compensation
    
    
    (229
    )
    
    
    (8
    )Accumulated deficit
    
    
    (10,735
    )
    
    
    (15,427
    )Accumulated other comprehensive income
    
    
    3,432
    
    
    
    3,064Total shareholders equity
    
    
    54,188
    
    
    
    47,451Total liabilities and shareholders equity
    
    $
    64,522
    
    
    $
    57,620
 The accompanying notes are an integral part of these condensed consolidated financial statements.
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MITCHAM INDUSTRIES, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (In thousands, except per share data)
 (Unaudited)
 For the Three Months Ended
    
    
    For the Six Months EndedJuly 31,
    
    
    July 31,2006
    
    
    2005
    
    
    2006
    
    
    2005Revenues:Equipment leasing
    
    $
    4,970
    
    
    $
    4,796
    
    
    $
    11,980
    
    
    $
    10,992Lease pool equipment sales
    
    
    442
    
    
    
    956
    
    
    
    3,149
    
    
    
    1,669Other equipment sales
    
    
    5,547
    
    
    
    1,250
    
    
    
    9,945
    
    
    
    1,979Total revenues
    
    
    10,959
    
    
    
    7,002
    
    
    
    25,074
    
    
    
    14,640Direct costs:Equipment leasing
    
    
    521
    
    
    
    609
    
    
    
    1,376
    
    
    
    1,206Lease pool depreciation
    
    
    1,811
    
    
    
    2,079
    
    
    
    3,551
    
    
    
    4,180Cost of lease pool equipment sales
    
    
    163
    
    
    
    296
    
    
    
    1,640
    
    
    
    463Cost of other equipment sales
    
    
    3,332
    
    
    
    776
    
    
    
    6,078
    
    
    
    1,301Total direct costs
    
    
    5,827
    
    
    
    3,760
    
    
    
    12,645
    
    
    
    7,150Gross profit
    
    
    5,132
    
    
    
    3,242
    
    
    
    12,429
    
    
    
    7,490Operating costs:General and administrative
    
    
    3,829
    
    
    
    2,233
    
    
    
    7,363
    
    
    
    4,186Depreciation and amortization
    
    
    309
    
    
    
    76
    
    
    
    607
    
    
    
    152Total operating costs
    
    
    4,138
    
    
    
    2,309
    
    
    
    7,970
    
    
    
    4,338Operating income
    
    
    994
    
    
    
    933
    
    
    
    4,459
    
    
    
    3,152Interest and other income, net
    
    
    210
    
    
    
    112
    
    
    
    368
    
    
    
    197Income before income taxes
    
    
    1,204
    
    
    
    1,045
    
    
    
    4,827
    
    
    
    3,349Benefit from (provision for) income taxes
    
    
    49
    
    
    
    194
    
    
    
    (135
    )
    
    
    32Net income
    
    $
    1,253
    
    
    $
    1,239
    
    
    $
    4,692
    
    
    $
    3,381Net income per common share:Basic
    
    $
    0.13
    
    
    $
    0.14
    
    
    $
    0.49
    
    
    $
    0.38Diluted
    
    $
    0.12
    
    
    $
    0.13
    
    
    $
    0.46
    
    
    $
    0.35Shares used in computing net
income per common share:Basic
    
    
    9,599
    
    
    
    9,052
    
    
    
    9,585
    
    
    
    9,014Diluted
    
    
    10,115
    
    
    
    9,694
    
    
    
    10,134
    
    
    
    9,644
 The accompanying notes are an integral part of these condensed consolidated financial statements.
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MITCHAM INDUSTRIES, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (In thousands)
 (Unaudited)
 For the Six Months Ended July 31,2006
    
    
    2005Cash flows from operating activities:Net income
    
    $
    4,692
    
    
    $
    3,381Adjustments to reconcile net income to net cash provided by operating
activities:Depreciation and amortization
    
    
    4,158
    
    
    
    4,332Stock-based compensation
    
    
    794
    
    
    
    65Provision for doubtful accounts, net of charge offs
    
    
    
    
    
    
    79Gross profit from sale of lease pool equipment
    
    
    (1,509
    )
    
    
    (1,205
    )Excess tax benefit from exercise of non-qualified stock options
    
    
    (272
    )
    
    
    Deferred tax benefit
    
    
    (415
    )
    
    
    Changes in:Trade accounts and notes receivable
    
    
    (2,016
    )
    
    
    2,074Inventories
    
    
    (2,231
    )
    
    
    Income taxes payable
    
    
    490
    
    
    
    (232
    )Accounts payable, accrued expenses, other current liabilities and
deferred revenue
    
    
    (53
    )
    
    
    (4,143
    )Current assets of discontinued operations
    
    
    115
    
    
    
    78Prepaid expenses and other current assets
    
    
    (371
    )
    
    
    279Net cash provided by operating activities
    
    
    3,382
    
    
    
    4,708Cash flows from investing activities:Purchases of seismic equipment held for lease
    
    
    (4,078
    )
    
    
    (2,237
    )Purchases, sales and maturities of short-term investments
    
    
    550
    
    
    
    (1,000
    )Purchases of property and equipment
    
    
    (1,270
    )
    
    
    (457
    )Acquisition of subsidiary, net of cash acquired
    
    
    (1,000
    )
    
    
    (2,513
    )Sale of used lease pool equipment
    
    
    3,149
    
    
    
    1,669Long-term assets of discontinued operations
    
    
    
    
    
    
    143Net cash used in investing activities
    
    
    (2,649
    )
    
    
    (4,395
    )Cash flows from financing activities:Proceeds from issuance of common stock upon exercise of stock options
    
    
    706
    
    
    
    274Excess tax benefits from exercise of non-qualified stock options
    
    
    272
    
    
    
    Repurchase of common stock
    
    
    (95
    )
    
    
    Payments on borrowings
    
    
    
    
    
    
    (918
    )Net cash provided by (used in) financing activities
    
    
    883
    
    
    
    (644
    )Effect of changes in foreign exchange rates on cash and cash equivalents
    
    
    (154
    )
    
    
    Net increase (decrease) in cash and cash equivalents
    
    
    1,462
    
    
    
    (331
    )Cash and cash equivalents, beginning of period
    
    
    16,438
    
    
    
    13,138Cash and cash equivalents, end of period
    
    $
    17,900
    
    
    $
    12,807Supplemental cash flow information:Interest paid
    
    $
    153
    
    
    $
    30
 The accompanying notes are an integral part of these condensed consolidated financial statements.
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MITCHAM INDUSTRIES, INC.
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (unaudited)
 1.
    
    Basis of PresentationThe condensed consolidated financial statements of Mitcham Industries, Inc. (Mitcham or
the Company) have been prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance with accounting
principles generally accepted in the United States of America have been condensed or omitted
pursuant to such rules and regulations, although the Company believes that the disclosures
are adequate to make the information presented not misleading. These condensed consolidated
financial statements should be read in conjunction with the financial statements and the
notes thereto included in the Companys Annual Report on Form 10-K for the year ended
January 31, 2006. In the opinion of the Company, all adjustments, consisting only of normal
recurring adjustments, necessary to present fairly the financial position as of July 31,
2006; the results of operations for the three and six months ended July 31, 2006 and 2005;
and the cash flows for the six months ended July 31, 2006 and 2005, have been included. The
foregoing interim results are not necessarily indicative of the results of the operations to
be expected for the full fiscal year ending January 31, 2007.Certain fiscal 2006 amounts have been reclassified to conform to the fiscal 2007
presentation. Such reclassifications had no effect on net income.2.
    
    OrganizationMitcham Industries, Inc., a Texas corporation, was incorporated in 1987. The Company,
through its wholly owned Canadian subsidiary, Mitcham Canada, Ltd. (MCL) and its wholly
owned Russian subsidiary, Mitcham Seismic Eurasia LLC (MSE), provides full-service
equipment leasing, sales and service to the seismic industry worldwide, primarily in North
and South America, Russia, CIS and Eurasia. The Company, through its wholly owned
Australian subsidiary, Seismic Asia Pacific Pty Ltd. (SAP), provides seismic,
oceanographic and hydrographic leasing and sales worldwide, primarily in Southeast Asia and
Australia. The Company, through its wholly owned subsidiary, Seamap International Holdings
Pte, Ltd. (Seamap), designs, manufactures and sells a broad range of proprietary products
for the seismic, hydrographic and offshore industries with product sales and support
facilities based in Huntsville, Texas, Singapore and the United Kingdom. All intercompany
transactions and balances have been eliminated in consolidation.3.
    
    AcquisitionsOn July 12, 2005, the Company acquired 100% of the common stock of Seamap. Seamap is engaged
in the design, manufacture and sale of state-of-the-art seismic and offshore telemetry
systems. The proprietary products of Seamap expanded Mitchams market and diversified its
customer base and are complementary to Mitchams marine rental and sales business. Mitcham
now has a broader range of product offerings and Seamaps strategic facilities support
Mitchams expanding global operations. The consolidated financial statements include the
assets and liabilities and the operating results of Seamap from the acquisition date.
Pursuant to Statement of Financial Accounting Standard (SFAS) No. 141, Business
Combinations, Mitcham applied purchase accounting to the transaction. All of the goodwill
recognized is deductible for tax purposes.
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The purchase included all the net assets of Seamap, which are located in Huntsville, Texas,
Singapore and the United Kingdom. Seamap was purchased for an initial purchase price of $6.5 million,
consisting of $3.5 million paid in cash at closing and $3.0 million issued in promissory
notes payable to the former shareholders of Seamap (see Note 6). In addition, the former shareholders of
Seamap will receive $1.0 million in any measurement period (defined as a twelve month period
beginning May 1 and ending April 30) that the Seamap segment reaches either $8.0 or $10.0
million in revenues during a five-year period ending April 30, 2010, subject to $2.0 million
in aggregate. The Seamap segment earned revenues in excess of $8.0 million during the first
measurement period ended April 30, 2006 and earned the first $1.0 million earn-out payment.
The payment was made in August 2006. Mitcham believes that the purchase price of Seamap will
be economically recovered from future cash flow of Seamap.The following is a summary of the allocations of the aggregate purchase price to the
estimated fair values of the assets acquired and liabilities assumed at the respective date
of acquisition, adjusted for the additional $1.0 million earn-out payment:
 (in thousands)Working capital
    
    $
    1,203Equipment
    
    
    153Covenant not to compete
    
    
    1,000Proprietary rights
    
    
    1,850Goodwill
    
    
    3,358Total purchase price
    
    $
    7,564
 At the time of the acquisition, Seamap had approximately $153,000 of fixed assets. These
assets consisted primarily of vehicles, computer and workshop equipment and will remain in
use in the same manner as prior to the acquisition.Pro Forma Results of OperationsThe following pro forma results of operations for the three and six months ended July 31,
2005 assumes the Seamap acquisition occurred on February 1, 2005. The pro forma results have
been prepared for comparative purposes only and do not purport to indicate the results of
operations that would actually have occurred had the acquisition been in effect on the date
indicated, or which may occur in the future.
 Three Months
    
    Six Months EndedEnded July 31, 2005
    
    July 31, 2005(in thousands, except per share amounts)Revenues
    
    $
    8,139
    
    
    $
    19,687Net Income
    
    $
    1,216
    
    
    $
    4,045Earnings per share:Basic
    
    $
    0.13
    
    
    $
    0.45Diluted
    
    $
    0.13
    
    
    $
    0.42
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4.
    
    InventoriesInventories are stated at the lower of cost (first-in, first-out) or market. Inventories
consist of the following:
 July 31,
    
    
    January 31,2006
    
    
    2006(in thousands)Raw materials
    
    $
    1,443
    
    
    $
    542Finished goods
    
    
    1,342
    
    
    
    293Work in progress
    
    
    708
    
    
    
    3823,493
    
    
    
    1,217Less allowance for obsolescence
    
    
    (68
    )
    
    
    (62
    )Total inventories, net
    
    $
    3,425
    
    
    $
    1,155
 5.
    
    Balance Sheet Detail
 July 31,
    
    
    January 31,2006
    
    
    2006(in thousands)Accounts receivable, net:Accounts receivable
    
    $
    9,244
    
    
    $
    6,918Allowance for doubtful accounts
    
    
    (953
    )
    
    
    (1,125
    )$
    8,291
    
    
    $
    5,793Notes receivable, net:Current portion of notes receivable
    
    $
    2,405
    
    
    $
    3,136Allowance for doubtful accounts
    
    
    (112
    )
    
    
    (48
    )$
    2,293
    
    
    $
    3,088Seismic equipment lease pool and
property and equipment, net:Seismic equipment lease pool
    
    $
    73,716
    
    
    $
    75,692Land and buildings
    
    
    366
    
    
    
    366Furniture and fixtures
    
    
    3,744
    
    
    
    2,608Autos and trucks
    
    
    379
    
    
    
    35778,205
    
    
    
    79,023Accumulated depreciation and
amortization
    
    
    (57,820
    )
    
    
    (59,099
    )$
    20,385
    
    
    $
    19,924Intangible assets, net:Covenant not to compete
    
    $
    1,000
    
    
    $
    1,000Proprietary rights
    
    
    1,850
    
    
    
    1,8502,850
    
    
    
    2,850Accumulated amortization
    
    
    (495
    )
    
    
    (266
    )$
    2,355
    
    
    $
    2,584
 6.
    
    DebtOn June 27, 2005, the Company obtained a $12.5 million revolving loan agreement and credit
line with First Victoria National Bank (the Bank). The facility has a two-year term and
bears interest at the prime rate. Borrowings under the facility are subject to a borrowing
base computed based upon the Companys
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existing seismic equipment lease pool, accounts
receivable and any new seismic equipment to be purchased with proceeds from the facility. Management believes that the full amount of the facility is
available as of July 31, 2006. The credit line is secured by essentially all of the
Companys assets. Interest on any outstanding principal balance is payable monthly, while
the principal is due at the end of the two-year term. The revolving loan agreement also
contains certain financial covenants that require, among other things, that we maintain a
debt to shareholders equity ratio of a maximum of 1.3 to 1.0, maintain a current assets to
current liabilities ratio of a minimum of 1.25 to 1.0, and not incur or maintain any
indebtedness or obligations or guarantee the debts or obligations of others in a total
aggregate amount which exceeds $1.0 million without the prior written approval of the Bank,
except for indebtedness incurred as a result of the Seamap acquisition and other specific
exceptions. No amounts are currently outstanding under this facility.In connection with the Seamap acquisition in July 2005, the Company issued $3.0 million in
promissory notes payable to the former shareholders of Seamap. The notes are three-year, 5%
notes with no principal or interest due in the first 12 months. Interest on the full amount
of the principal was paid on the first anniversary of the notes in July 2006 in the amount
of $150,000. No further interest or principal payments are due until July 2007 when accrued
interest and 50%, or $1.5 million, of the principal amount of $3.0 million is due. Accrued
interest on the unpaid principal and the remainder of the principal is due in July 2008. The
notes are secured by a pledge of the outstanding stock of Seamap.7.
    
    Comprehensive IncomeSFAS No. 130, Reporting Comprehensive Income,establishes standards for the reporting and
display of comprehensive income and its components in a full set of general-purpose
financial statements. Comprehensive income generally represents all changes in
shareholders equity (deficit) during the period, except those resulting from investments
by, or distributions to, shareholders. The Company has comprehensive income related to
changes in foreign currency to U.S. dollar exchange rates, which is recorded as follows:
 Three Months Ended
    
    
    Six Months EndedJuly 31,
    
    
    July 31,2006
    
    
    2005
    
    
    2006
    
    
    2005(in thousands)Net income
    
    $
    1,253
    
    
    $
    1,239
    
    
    $
    4,692
    
    
    $
    3,381Gain (loss) from
foreign currency
translation
adjustment
    
    
    (223
    )
    
    
    269
    
    
    
    368
    
    
    
    73Comprehensive income
    
    $
    1,030
    
    
    $
    1,508
    
    
    $
    5,060
    
    
    $
    3,454
 8.
    
    Earnings Per ShareNet income per basic common share is computed using the weighted average number of common
shares outstanding during the period, excluding unvested restricted stock. Net income per
diluted common share is computed using the weighted average number of common shares and
dilutive potential common shares outstanding during the period. Potential common shares
result from the assumed exercise of warrants and outstanding common stock options having a
dilutive effect using the treasury stock method, and from the unvested shares of restricted
stock using the treasury stock method. The following table presents the calculation of basic
and diluted weighted average common shares used in the earnings per share calculation for
the three and six months ended July 31, 2006 and 2005:
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Three Months Ended
    
    Six Months EndedJuly 31,
    
    July 31,(in thousands)
    
    2006
    
    2005
    
    2006
    
    2005Common shares outstanding
    
    
    9,599
    
    
    
    9,052
    
    
    
    9,585
    
    
    
    9,014Unvested restricted stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Basic common shares outstanding
    
    
    9,599
    
    
    
    9,052
    
    
    
    9,585
    
    
    
    9,014Stock options
    
    
    487
    
    
    
    632
    
    
    
    525
    
    
    
    621Restricted stock
    
    
    13
    
    
    
    
    
    
    
    8
    
    
    
    Warrants
    
    
    16
    
    
    
    10
    
    
    
    16
    
    
    
    9Total common share equivalents
    
    
    516
    
    
    
    642
    
    
    
    549
    
    
    
    630Diluted common shares outstanding
    
    
    10,115
    
    
    
    9,694
    
    
    
    10,134
    
    
    
    9,644
 9.
    
    Stock OptionsStock-Based CompensationGeneralEffective February 1, 2006, the Company adopted the provisions of SFAS No. 123R, Share-Based
Payment(SFAS 123R) using the modified prospective transition method. Under this method,
stock-based compensation expense recognized for share-based awards during the three and six
months ended July 31, 2006 includes: (a) compensation expense for all stock-based
compensation awards granted prior to, but not yet vested as of, February 1, 2006, based on
the grant date fair value estimated in accordance with the original provisions of SFAS 123,
Accounting for Stock-Based Compensation (SFAS 123), and (b) compensation expense for all
stock-based compensation awards granted subsequent to February 1, 2006, based on the grant
date fair value estimated in accordance with the provisions of SFAS 123R. In accordance with
the modified prospective transition method, results for the prior periods have not been
restated. Prior to the adoption of SFAS 123R, the Company recognized stock-based
compensation expense in accordance with Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees(APB 25) and related Interpretations, as
permitted by SFAS 123.At July 31, 2006, the Company had stock-based compensation plans as described in more detail
below. The total compensation expense related to stock-based awards granted under these
plans during the three and six months ended July 31, 2006, reflecting the impact of the
implementation of the modified prospective transition method in accordance with SFAS 123R,
was approximately $497,000 and $794,000 respectively. The total compensation expense related
to stock-based awards granted under these plans during the three and six months ended July
31, 2005, reflecting compensation expense recognized in accordance with APB 25, was
approximately $39,000 and $65,000. Effective February 1, 2006, the Company recognized
stock-based compensation costs net of a forfeiture rate for only those shares expected to
vest over the requisite service period of the award. The Company estimated the forfeiture
rate for fiscal 2007 based on its historical experience regarding employee terminations and
forfeitures.The fair value of each option award is estimated as of the date of grant using a
Black-Scholes-Merton option pricing formula. Expected volatility is based on historical
volatility of the Companys stock over a preceding period commensurate with the expected
term of the option. The simplified method described in Securities and Exchange Commission
(SEC) Staff Accounting Bulletin No. 107 was used to determine the expected term of our
options. This has resulted in a shorter expected term than the terms calculated under SFAS
123 for pro forma purposes. The risk-free rate for the expected term of the option is based
on the U.S. Treasury yield curve in effect at the time of grant. Expected dividend yield was
not considered in the option pricing formula since the Company does not pay dividends and
has no plans to do so in the future. The weighted average grant-date fair value of options
granted during the six months ended July 31, 2006 and 2005 was $13.79 and $8.41,
respectively. The assumptions for the periods indicated are noted in the following table.
 10




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##### Table of Contents



Weighted average Black-Scholes fair value assumptions
 Six Months Ended July 31,2006
    
    2005Risk free interest rate
    
    
    4.8  5.2
    %
    
    
    3.05.0
    %Expected life
    
    5.5  6.3
    yrs

    
    8
    yrs.Expected volatility
    
    
    65  66
    %
    
    
    6369
    %Expected dividend yield
    
    
    0.0
    %
    
    
    0.0
    %
 As a result of adopting SFAS 123R, the impact on income before income taxes and net income
for the three months ended July 31, 2006 was a reduction of approximately $497,000, and a
reduction of approximately $794,000 for the six months ended July 31, 2006 from what would
have been presented if the Company had continued to account for stock option awards under
APB 25. The impact on basic and diluted earnings per share for the three and six months
ended July 31, 2006 was a reduction of $0.05 and $0.08 per share, respectively.In addition, prior to the adoption of SFAS 123R, the Company presented all tax benefits
related to deductions resulting from the exercise of stock options as operating activities
in the consolidated statement of cash flows. SFAS 123R requires that cash flows resulting
from tax benefits attributable to tax deductions in excess of the compensation expense
recognized for those options (excess tax benefits) be classified as financing in flows and
operating out-flows. The Company had excess tax benefits of approximately $272,000 during
the six months ended July 31, 2006.The pro forma table below illustrates the effect on net income and earnings per share as if
the Company had applied the fair value recognition provisions of SFAS No. 123, as amended by
SFAS No. 148, Accounting for Stock-Based Compensation  Transition and Disclosure (SFAS
148), to all stock-based employee compensation for the three and six months ended July 31,
2005:
 Three Months
    
    
    Six MonthsEnded
    
    
    EndedJuly 31,
    
    
    July 31,2005
    
    
    2005(in thousands, except per share amounts)Pro forma impact of fair value methodReported net income
    
    $
    1,239
    
    
    $
    3,381Less: fair value impact of employee stock
compensation
    
    
    (266
    )
    
    
    (484
    )Pro forma net income
    
    $
    973
    
    
    $
    2,897Income per common shareReported net income per share:Basic
    
    $
    0.14
    
    
    $
    0.38Diluted
    
    $
    0.13
    
    
    $
    0.35Pro forma net income per share:Basic
    
    $
    0.11
    
    
    $
    0.32Diluted
    
    $
    0.10
    
    
    $
    0.30
 Stock Option PlansThe Company has share-based awards outstanding under five different plans: the 1994 Stock
Option Plan (1994 Plan), the 1998 Amended and Restated Stock Awards Plan (1998 Plan),
the 2000 Stock Option Plan (2000 Plan), the Mitcham Industries, Inc. Stock Awards Plan
(2006 Plan) and the 1994 Non-Employee Director Plan (Director Plan), and together, the
Plans. Stock options granted and outstanding under each of the plans generally vest evenly
over three years (except for the Director Plan, under which
options generally vested after one year) and have a 10-year contractual term. The exercise
 11




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##### Table of Contents



price of a stock option generally is equal to the fair market value of the Companys common
stock on the option grant date. All new grants will be made under the Companys 2006 Plan,
the other plans remain in effect only for purposes of administering options that are
outstanding. All shares available but not granted under the 1998 and 2000 Plans as of the
date of the approval of the 2006 Plan were transferred to the 2006 Plan. As of July 31, 2006
there were 712,488 shares available for grant under the 2006 Plan. The 2006 Plan provides
for awards of nonqualified stock options, incentive stock options, restricted stock awards
and restricted stock units.Stock Based Compensation ActivityThe following table presents a summary of the Companys stock option activity for the six
months ended July 31, 2006:
 WeightedAverageWeighted
    
    RemainingAverage
    
    Contractual
    
    AggregateNumber of
    
    Exercise
    
    Term
    
    Intrinsic ValueShares
    
    Price
    
    (in years)
    
    (in thousands)Outstanding, beginning of period
    
    
    1,054,920
    
    
    $
    5.15Granted
    
    
    303,000
    
    
    
    13.79Exercised
    
    
    (156,920
    )
    
    
    4.70Canceled or expired
    
    
    (420
    )
    
    
    4.14Outstanding, end of period
    
    
    1,200,580
    
    
    
    7.39
    
    
    
    6.90
    
    
    $
    7,639Vested and expected to vest in the
future at July 31, 2006
    
    
    1,183,347
    
    
    
    7.31
    
    
    
    7.17
    
    
    
    7,612Exercisable at July 31, 2006
    
    
    855,914
    
    
    
    5.24
    
    
    
    2.59
    
    
    
    7,104
 The aggregate intrinsic value in the table above represents the total pre-tax intrinsic
value (the difference between the Companys closing stock price on the last trading day of
the second quarter of fiscal 2007 and the exercise price, multiplied by the number of
in-the-money options) that would have been received by the option holders had all option
holders exercised their options on July 31, 2006. This amount changes based upon the fair
market value of the Companys common stock. Total intrinsic value of options exercised for
the six months ended July 31, 2006 was $2.4 million. The fair value of options that vested
during the six months ended July 31, 2006 was approximately $300,000. No options vested in
the quarter ended July 31, 2005.As of July 31, 2006, there was approximately $2.6 million of total unrecognized compensation
expense related to unvested stock options granted under the Companys share-based
compensation plans. That expense is expected to be recognized over a weighted average period
of 2.3 years.Cash received from option exercises for the six months ended July 31, 2006 was an aggregate
of approximately $706,000. During the six months ended July 31, 2006, income tax payables
were reduced by approximately $540,000 as a result of the tax deduction from option
exercises.Restricted stock awards as of July 31, 2006 and changes during the six months ended July 31,
2006 were as follows:
 Six Months Ended July 31, 2006WeightedNumber of
    
    Average GrantShares
    
    Date Fair ValueUnvested, beginning of period
    
    
    8,500
    
    
    $
    1.90Granted
    
    
    16,000
    
    
    
    16.64Vested
    
    
    (9,000
    )
    
    
    5.15Canceled
    
    
    
    
    
    
    Unvested, end of period
    
    
    15,500
    
    
    $
    16.64
 12




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##### Table of Contents



As of July 31, 2006, there was approximately $229,000 of unrecognized stock-based
compensation expense related to unvested restricted stock awards. That cost is expected to
be recognized over a weighted average period of 2.7 years.10.
    
    Discontinued OperationsOn August 1, 2003, the Company sold the operating assets of its front-end services segment
(DSI) due to the over-capacity in that market segment. The Company accepted a note
receivable from the purchaser for a portion of the sales price, which will mature during the
current fiscal year. The note receivable is the only remaining asset of the discontinued
operations.
 July 31,
    
    January2006
    
    31, 2006(in thousands)Accounts and notes receivable of discontinued operations
    
    $
    239
    
    
    $
    355Other current assets of discontinued operations
    
    $
    
    
    
    $
    11Accounts payable and accrued liabilities of discontinued
operations
    
    $
    
    
    
    $
    10
 11.
    
    Segment ReportingThe following information is disclosed as required by SFAS No. 131, Disclosures about
Segments of an Enterprise and Related Information.On July 12, 2005, the Company acquired 100% of the outstanding stock of Seamap. For a
description of this acquisition and the operations of this segment, see Note 3.
Manufacturing, support and sales facilities are maintained in the UK and Singapore with a
sales office in Huntsville, Texas.The Mitcham segment offers for lease or sale, new and experienced seismic equipment to the
oil and gas industry, seismic contractors, environmental agencies, government agencies and
universities. The Mitcham segment is headquartered in Huntsville, Texas, with sales and
services offices in Calgary, Canada; Brisbane, Australia; Ufa, Bashkortostan, Russia; and
associates throughout Europe, South America and Asia.Financial information by business segment is set forth below net of any allocations (in
thousands):
 As of July 31, 2006Mitcham
    
    Seamap
    
    ConsolidatedFixed assets, net
    
    $
    19,349
    
    
    $
    1,036
    
    
    $
    20,385Intangible assets, net
    
    $
    
    
    
    $
    2,355
    
    
    $
    2,355Goodwill
    
    $
    
    
    
    $
    3,358
    
    
    $
    3,358
 13




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##### Table of Contents



For the Three Months Ended July 31,
    
    For the Three Months Ended July2006
    
    
    
    
    
    
    
    
    
    31, 2005Mitcham
    
    Seamap
    
    Consolidated
    
    Mitcham
    
    Seamap
    
    ConsolidatedRevenues
    
    $
    8,268
    
    
    $
    2,691
    
    
    $
    10,959
    
    
    $
    6,529
    
    
    $
    473
    
    
    
    7,002Interest income, net
    
    $
    184
    
    
    $
    2
    
    
    $
    186
    
    
    $
    110
    
    
    $
    1
    
    
    $
    111Net income (loss) before taxes
    
    $
    1,628
    
    
    $
    (424
    )
    
    $
    1,204
    
    
    $
    986
    
    
    $
    59
    
    
    $
    1,045Capital expenditures
    
    $
    646
    
    
    $
    780
    
    
    $
    1,426
    
    
    $
    1,598
    
    
    $
    
    
    
    $
    1,503Depreciation and amortization
expense
    
    $
    1,933
    
    
    $
    187
    
    
    $
    2,120
    
    
    $
    2,149
    
    
    $
    6
    
    
    $
    2,155
 For the Six Months Ended July 31,
    
    For the Six Months Ended July 31,2006
    
    
    
    
    
    
    
    
    
    2005Mitcham
    
    Seamap
    
    Consolidated
    
    Mitcham
    
    Seamap
    
    ConsolidatedRevenues
    
    $
    19,083
    
    
    $
    5,991
    
    
    $
    25,074
    
    
    $
    14,167
    
    
    $
    473
    
    
    $
    14,640Interest income, net
    
    $
    329
    
    
    $
    5
    
    
    $
    334
    
    
    $
    194
    
    
    $
    1
    
    
    $
    195Net income (loss) before taxes
    
    $
    5,507
    
    
    $
    (680
    )
    
    $
    4,827
    
    
    $
    3,290
    
    
    $
    59
    
    
    $
    3,349Capital expenditures
    
    $
    4,256
    
    
    $
    1,092
    
    
    $
    5,348
    
    
    $
    2,694
    
    
    $
    
    
    
    $
    2,694Depreciation and amortization
expense
    
    $
    3,788
    
    
    $
    370
    
    
    $
    4,158
    
    
    $
    4,326
    
    
    $
    6
    
    
    $
    4,332
 12.
    
    New Accounting PronouncementsIn June 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No.
48 Accounting for Uncertainty in Income Taxes (FIN 48). FIN 48 clarifies how uncertain tax
positions that have been taken or are expected to be taken on a companys tax return should
be recognized, measured, presented and disclosed in the financial statements. The cumulative
effect of applying this pronouncement to uncertain tax positions at the date of adoption
will be recorded during the fiscal year beginning February 1, 2007. The Company is currently
evaluating the effect that the adoption of FIN 48 will have on its consolidated financial
position and results of operations.
 
 Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Forward-Looking Statements and Risk Factors
  14




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##### Table of Contents



Business Overview
   For the Three Months Ended
    
    
    For the Six Months EndedJuly 31,
    
    
    July 31,2006
    
    
    2005
    
    
    2006
    
    
    2005(in thousands)Revenues:Mitcham
    
    $
    8,268
    
    
    $
    6,529
    
    
    $
    19,083
    
    
    $
    14,167Seamap
    
    
    2,691
    
    
    
    473
    
    
    
    5,991
    
    
    
    473Total revenues
    
    
    10,959
    
    
    
    7,002
    
    
    
    25,074
    
    
    
    14,640Direct costs:Mitcham
    
    
    4,309
    
    
    
    3,550
    
    
    
    9,230
    
    
    
    6,940Seamap
    
    
    1,518
    
    
    
    210
    
    
    
    3,415
    
    
    
    210Total direct costs
    
    
    5,827
    
    
    
    3,760
    
    
    
    12,645
    
    
    
    7,150Gross profit
    
    
    5,132
    
    
    
    3,242
    
    
    
    12,429
    
    
    
    7,490Operating costs:General and administrative
    
    
    3,829
    
    
    
    2,233
    
    
    
    7,363
    
    
    
    4,186Depreciation and amortization
    
    
    309
    
    
    
    76
    
    
    
    607
    
    
    
    152Total operating costs
    
    
    4,138
    
    
    
    2,309
    
    
    
    7,970
    
    
    
    4,338Operating income
    
    $
    994
    
    
    $
    933
    
    
    $
    4,459
    
    
    $
    3,152EBITDA(1)
    
    $
    3,138
    
    
    $
    3,089
    
    
    $
    8,651
    
    
    $
    7,486Adjusted EBITDA(1)
    
    $
    3,635
    
    
    $
    3,118
    
    
    $
    9,445
    
    
    $
    7,551Reconciliation of Net Income to EBITDA
and Adjusted EBITDANet income
    
    $
    1,253
    
    
    $
    1,239
    
    
    $
    4,692
    
    
    $
    3,381Interest income, net
    
    
    (186
    )
    
    
    (111
    )
    
    
    (334
    )
    
    
    (195
    )Depreciation and amortization
    
    
    2,120
    
    
    
    2,155
    
    
    
    4,158
    
    
    
    4,332Provision for (benefit from) income taxes
    
    
    (49
    )
    
    
    (194
    )
    
    
    135
    
    
    
    (32
    )EBITDA (1)
    
    
    3,138
    
    
    
    3,089
    
    
    
    8,651
    
    
    
    7,486Stock-based compensation
    
    
    497
    
    
    
    29
    
    
    
    794
    
    
    
    65Adjusted EBITDA (1)
    
    $
    3,635
    
    
    $
    3,118
    
    
    $
    9,445
    
    
    $
    7,551
 
 (1)
    
    EBITDA is defined as net income (loss) before (i) depreciation and
amortization, (ii) interest income, net of interest expense and (iii) provision for (or benefit
from) income taxes. Adjusted EBITDA excludes stock-based compensation. We consider EBITDA and
Adjusted EBITDA to be important indicators for the performance of our business, but not measures of
performance calculated in accordance with accounting principles generally accepted in the United
States (GAAP). We have included these non-GAAP financial measures because they provide management
with important information for assessing our performance and as indicators of our ability to make
capital expenditures and finance working capital requirements. EBITDA and Adjusted EBITDA are not
measures of financial performance under GAAP and should not be considered in isolation or as
alternatives to cash flow from operating activities or as alternatives to net income as indicators
of operating performance or any other measures of performance derived in accordance with GAAP.
Other companies in our industry may calculate EBITDA or Adjusted 15




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##### Table of Contents



EBITDA differently than we do and EBITDA and Adjusted EBITDA may not be comparable with similarly
titled measures reported by other companies.     16




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##### Table of Contents



For the Three
    
    For the SixMonths Ended
    
    Months EndedJuly 31,
    
    July 31,2006
    
    2005
    
    2006
    
    2005Revenues:Equipment leasing
    
    
    45
    %
    
    
    68
    %
    
    
    48
    %
    
    
    75
    %Lease pool equipment sales
    
    
    4
    
    
    
    14
    
    
    
    12
    
    
    
    11Other equipment sales
    
    
    51
    
    
    
    18
    
    
    
    40
    
    
    
    14Total revenues
    
    
    100
    
    
    
    100
    
    
    
    100
    
    
    
    100Direct costs:Equipment leasing
    
    
    5
    
    
    
    9
    
    
    
    5
    
    
    
    8Lease pool depreciation
    
    
    16
    
    
    
    30
    
    
    
    14
    
    
    
    29Cost of lease pool equipment sales
    
    
    1
    
    
    
    4
    
    
    
    7
    
    
    
    3Cost of other equipment sales
    
    
    31
    
    
    
    11
    
    
    
    24
    
    
    
    9Total direct costs
    
    
    53
    
    
    
    54
    
    
    
    50
    
    
    
    49Gross profit
    
    
    47
    
    
    
    46
    
    
    
    50
    
    
    
    51Operating expenses:General and administrative
    
    
    35
    
    
    
    32
    
    
    
    30
    
    
    
    29Depreciation and amortization
    
    
    3
    
    
    
    1
    
    
    
    2
    
    
    
    1Total operating expenses
    
    
    38
    
    
    
    33
    
    
    
    32
    
    
    
    30Operating income
    
    
    9
    
    
    
    13
    
    
    
    18
    
    
    
    21Interest and other income, net
    
    
    2
    
    
    
    2
    
    
    
    1
    
    
    
    1Income before income taxes
    
    
    11
    
    
    
    15
    
    
    
    19
    
    
    
    22(Provision for) benefit from income taxes
    
    
    
    
    
    
    3
    
    
    
    (1
    )
    
    
    Net income
    
    
    11
    %
    
    
    18
    %
    
    
    18
    %
    
    
    22
    %
 Results of Operations
 Three Months Ended July 31, 2006 Compared to Three Months Ended July 31, 2005
 Revenues
  Mitcham Industries
  Seamap
  17




---



##### Table of Contents



Direct Costs
 Mitcham Industries
     Seamap
  General and Administrative Costs
  Interest and Other Income, net
  Provision for Income Taxes
  18




---



##### Table of Contents



Six Months Ended July 31, 2006 Compared to Six Months Ended July 31, 2005
 Revenues
  Mitcham Industries
  Seamap
  Direct Costs
 Mitcham Industries
    Seamap
  General and Administrative Costs
  19




---



##### Table of Contents



Interest and Other Income, net
  Provision for Income Taxes
  Liquidity and Capital Resources
      20




---



##### Table of Contents



New Russian Operations
  Critical Accounting Policies and Estimates
   21




---



##### Table of Contents



Revenue Recognition
 Leases
  Equipment Sales
  Allowance for Doubtful Accounts
  Long-Lived Assets
    22




---



##### Table of Contents



Income Taxes
  Accounting for Income Taxes
 
    
    taxable income projections in future years;
    
    whether the carry forward period is so brief that it would limit realization of tax benefits;
    
    future sales and operating cost projections that will produce more than enough taxable
income to realize the deferred tax asset based on existing sales prices and cost
structures; and
    
    our earnings history exclusive of the loss that created the future deductible amount
coupled with evidence indicating that the loss is an aberration rather than a continuing
condition.
  
    
    the current level of worldwide oil and gas exploration activities resulting from
historically high prices for oil and natural gas;
    
    increasing world demand for oil;
    
    our anticipated positive income in certain jurisdictions; and
    
    our existing customer relationships.
  
    
    the risk of the world oil supply increasing, thereby depressing the price of oil and natural gas;
    
    the risk of decreased global demand for oil; and
    
    the potential for increased competition in the seismic equipment leasing and sales business.
  23




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##### Table of Contents



Stock Options
 Share-Based Payments
    New Accounting Pronouncements
  
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
 Market Risk
  Foreign Currency Risk
  24




---



##### Table of Contents



Item 4. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Controls over Financial Reporting
  
 PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3. Defaults Upon Senior Securities
  
 Item 4. Submission of Matters to a Vote of Security Holders
 25




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##### Table of Contents



Name of Nominee
    
    For
    
    WithheldBilly F. Mitcham, Jr.
    
    
    8,711,417
    
    
    
    49,819R. Dean Lewis
    
    
    8,509,103
    
    
    
    252,133John F. Schwalbe
    
    
    8,509,803
    
    
    
    251,433Robert P. Capps
    
    
    8,605,000
    
    
    
    156,236Peter H. Blum
    
    
    8,620,285
    
    
    
    140,951
  For
    
    Against
    
    Abstaining
    
    Broker Non-Votes2,379,983
    
    1,938,604
    
    27,529
    
    4,415,120
  For
    
    Against
    
    Abstaining8,662,281
    
    53,951
    
    45,004
 
 Item 5. Other Information
  
 Item 6. Exhibits
  3.1
    
    
    
    Amended and Restated Articles of Incorporation of Mitcham Industries, Inc. (1)3.2
    
    
    
    Second Amended and Restated Bylaws of Mitcham Industries, Inc. (2)10.1
    
    
    
    Separation Agreement, dated June 26, 2006 between Michael A. Pugh and Mitcham
Industries, Inc.*10.2
    
    
    
    Mitcham Industries, Inc. Stock Awards Plan (3)*10.3
    
    
    
    Form of Non-Qualified Stock Option Grant Agreement under the Mitcham Industries, Inc.
Stock Award Plan*10.4
    
    
    
    Form of Restricted Stock Award Agreement under the Mitcham Industries, Inc. Stock Award
Plan*10.5
    
    
    
    Form of Incentive Stock Option Grant Agreement under the Mitcham Industries, Inc. Stock
Award Plan*31.1
    
    
    
    Certification of Billy F. Mitcham, Jr., Chief Executive Officer, pursuant to Rule
13a-14(a) of the Securities Exchange Act of 1934, as amended.31.2
    
    
    
    Certification of Robert P. Capps, Executive Vice President-Finance and Chief Financial
Officer, pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.32.1
    
    
    
    Certification of Billy F. Mitcham, Jr., Chief Executive Officer, pursuant to 18 U.S.C. §
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.2
    
    
    
    Certification of Robert P. Capps, Executive Vice President-Finance and Chief Financial
Officer, pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002,.
 
 *
    
    Management contract or compensatory plan or arrangement(1)
    
    Incorporated by reference to Exhibit 3.1 of the Companys Registration Statement on Form
S-8 (File No. 333-67208), filed with the SEC on August 9, 2001. 26




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##### Table of Contents



(2)
    
    Incorporated by reference to Exhibit 3.2 of the Companys Annual Report on Form 10-K for the
fiscal year ended January 31, 2004, filed with the SEC on May 28, 2004.(3)
    
    Incorporated by reference to Exhibit A of the Companys proxy statement for the fiscal year
ended January 31, 2006, filed with the SEC on May 31, 2006. 
 SIGNATURES
  MITCHAM INDUSTRIES, INC.Date:  September 12, 2006
    /s/ Robert P. CappsRobert P. CappsExecutive Vice President-Finance and Chief Financial
Officer
(Duly Authorized Officer and Chief Accounting
Officer) 27




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##### Table of Contents



Exhibit
No.
    
    
    

Description3.1
    
    
    
    Amended and Restated Articles of Incorporation of Mitcham Industries, Inc. (1)3.2
    
    
    
    Second Amended and Restated Bylaws of Mitcham Industries, Inc. (2)10.1
    
    
    
    Separation Agreement, dated June 26, 2006 between Michael A. Pugh and Mitcham
Industries, Inc.*10.2
    
    
    
    Mitcham Industries, Inc. Stock Awards Plan (3)*10.3
    
    
    
    Form of Non-Qualified Stock Option Grant Agreement under the Mitcham Industries, Inc.
Stock Award Plan*10.4
    
    
    
    Form of Restricted Stock Award Agreement under the Mitcham Industries, Inc. Stock Award
Plan*10.5
    
    
    
    Form of Incentive Stock Option Grant Agreement under the Mitcham Industries, Inc. Stock
Award Plan*31.1
    
    
    
    Certification of Billy F. Mitcham, Jr., Chief Executive Officer, pursuant to Rule
13a-14(a) of the Securities Exchange Act of 1934, as amended.31.2
    
    
    
    Certification of Robert P. Capps, Executive Vice President-Finance and Chief Financial
Officer, pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.32.1
    
    
    
    Certification of Billy F. Mitcham, Jr., Chief Executive Officer, pursuant to 18 U.S.C. §
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.2
    
    
    
    Certification of Robert P. Capps, Executive Vice President-Finance and Chief Financial
Officer, pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002,.
 
 *
    
    Management contract or compensatory plan or arrangement(1)
    
    Incorporated by reference to Exhibit 3.1 of the Companys Registration Statement on Form
S-8 (File No. 333-67208), filed with the SEC on August 9, 2001.(2)
    
    Incorporated by reference to Exhibit 3.2 of the Companys Annual Report on Form 10-K for the
fiscal year ended January 31, 2004, filed with the SEC on May 28, 2004.(3)
    
    Incorporated by reference to Exhibit A of the Companys proxy statement for the fiscal year
ended January 31, 2006, filed with the SEC on May 31, 2006. 28