----------------------------------------------------------------------
U.S. Securities and Exchange Commission
Washington, D.C. 20549
--------------------------
AMENDMENT NO. 1 TO
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [Fee Required] For the
quarterly period ended June 30, 1998.
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [No Fee Required] For the
transition period from ____________ to ____________
Commission File No. 0-10634
---------------------------
Mining Services International Corporation
(Exact Name of Registrant as Specified in Its Charter)
Utah 87-0351702
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8805 South Sandy Parkway
Sandy, Utah 84070-6408
(Address of principal executive offices, zip code)
Issuers telephone number: (801) 233-6000
---------------------------
Check whether the Issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 ___
The number of shares outstanding of the registrant's par value $0.001
Common Stock as of July 28, 1998 was 7,380,551.
-------------------------------------------------------------------------
<PAGE>
Mining Services International Corporation
Index
<TABLE>
<S> <C> <C>
Page No.
--------
Part I Financial Information
Item 1. Consolidated Balance Sheet (Condensed) June 30, 1998 and 1
December 31, 1997.
Consolidated Statement of Operations (Condensed) for the 2
three-months ended June 30, 1998 and June 30, 1997.
Consolidated Statement of Operations (Condensed) for the 3
six-months ended June 30, 1998 and June 30, 1997.
Consolidated Statement of Cash Flows (Condensed) for the 4
six-months ended June 30, 1998 and June 30, 1997.
Notes to the Condensed Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition 6
and Results of Operations
Part II Other Information
Item 6. Exhibits and Reports on Form 8-K 8
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
Financial Statements
MINING SERVICES INTERNATIONAL CORPORATION
Consolidated Balance Sheet (Condensed)
<TABLE>
<S> <C> <C>
June 30, 1998 December 31,1997
ASSETS (Unaudited)
------------------- -----------------------
Current assets:
Cash and cash equivalents $ 3,302,000 $ $1,160,000
Receivables, net 4,159,000 4,232,000
Inventories 861,000 830,000
Prepaid expenses 77,000 139,000
Current portion of notes receivable from joint ventures 435,000 435,000
------------------- -----------------------
Total current assets 8,834,000 6,796,000
Property, plant and equipment, net 4,278,000 4,122,000
Investments in joint ventures 12,927,000 12,448,000
Notes receivable from joint ventures 965,000 965,000
Other assets 497,000 370,000
------------------- -----------------------
$ 27,501,000 $ 24,701,000
=================== =======================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Accounts payable and accrued expenses $ 2,543,000 $ 1,874,000
Deferred income taxes 2,346,000 2,222,000
------------------- -----------------------
Total liabilities 4,889,000 4,096,000
------------------- -----------------------
Shareholders' equity:
Common stock, $.001 par value; 500,000,000 shares
authorized; 7,380,551 shares issued 7,000 7,000
Capital in excess of par value 5,503,000 5,416,000
Retained earnings 17,102,000 15,182,000
------------------- -----------------------
Total Shareholders' equity 22,612,000 20,605,000
------------------- -----------------------
$ 27,501,000 $ 24,701,000
=================== =======================
</TABLE>
See accompanying notes to financial statements
Page 1
<PAGE>
MINING SERVICES INTERNATIONAL CORPORATION
Consolidated Statement of Operations (Condensed)
(Unaudited)
<TABLE>
<S> <C> <C>
3 months ended 3 months ended
6/30/98 6/30/97
--------------- ---------------
Revenues:
Net sales $ 5,569,000 $ 4,779,000
Royalties and license fee income 307,000 486,000
Equity in earnings from joint ventures 1,598,000 1,615,000
------------ ------------
7,474,000 6,880,000
Cost and expenses:
Cost of sales, royalties, and license fees 5,519,000 4,851,000
General and administrative 287,000 353,000
Research and development 115,000 122,000
------------ ------------
5,921,000 5,326,000
------------ ------------
Income from operations 1,553,000 1,554,000
Other income (expense), net 9,000 2,000
------------ ------------
Income before provision for income taxes 1,562,000 1,556,000
Provision for income taxes
Current 313,000 229,000
Deferred 124,000 0
------------ ------------
438,000 229,000
------------ ------------
Net income $ 1,125,000 $ 1,327,000
============ ============
Weighted Average number of shares outstanding
Basic 7,358,000 7,383,000
============ ============
Diluted 7,558,000 7,628,000
============ ============
Net Income per Share
Basic $ .15 $ .18
============ ============
Diluted $ .15 $ .17
============ ============
</TABLE>
See accompanying notes to financial statements
Page 2
<PAGE>
MINING SERVICES INTERNATIONAL CORPORATION
Consolidated Statement of Operations (Condensed)
(Unaudited)
<TABLE>
<S> <C> <C>
6 months ended 6 months ended
6/30/98 6/30/97
-------------- --------------
Revenues:
Net sales $ 10,906,000 $ 9,813,000
Royalties and license fee income 757,000 872,000
Equity in earnings from joint ventures 2,661,000 3,090,000
------------- ------------
14,324,000 13,775,000
Cost and expenses:
Cost of sales, royalties, and license fees 10,770,000 9,635,000
General and administrative 590,000 681,000
Research and development 232,000 261,000
------------- ------------
11,592,000 10,577,000
------------- ------------
Income from operations 2,732,000 3,198,000
Other income (expense), net 18,000 36,000
------------- ------------
Income before provision for income taxes 2,750,000 3,234,000
Provision for income taxes
Current 706,000 778,000
Deferred 124,000 0
------------- ------------
830,000 778,000
------------- ------------
Net income $ 1,920,000 $ 2,456,000
============= ============
Weighted Average number of shares outstanding
Basic 7,358,000 7,383,000
============= ============
Diluted 7,558,000 7,628,000
============= ============
Net Income per Share
Basic $ .26 $ .33
============= =============
Diluted $ .25 $ .32
============= =============
</TABLE>
See accompanying notes to financial statements
Page 3
<PAGE>
MINING SERVICES INTERNATIONAL CORPORATION
Consolidated Statement of Cash Flows (Condensed)
(Unaudited)
<TABLE>
<S> <C> <C>
6 months ended 6 months ended
6/30/98 6/30/97
-------------- --------------
Cash flows from operating activities:
Net income $ 1,920,000 $ 2,456,000
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 377,000 301,000
Stock compensation expense 3,000 0
Gain on disposal of equipment (6,000) (30,000)
(Undistributed)/ distributed earnings in joint ventures 376,000 (1,090,000)
Deferred income taxes 124,000 0
Change in assets and liabilities:
(Increase) decrease in accounts receivable 73,000 (819,000)
(Increase) decrease in inventories (31,000) (52,000)
(Increase) decrease in prepaid expenses 62,000 76,000
(Increase) decrease in other assets (127,000) (12,000)
Increase (decrease) in accounts payable and accrued expenses 669,000 443,000
----------- -----------
Net cash provided by operating activities 3,440,000 1,273,000
----------- -----------
Cash flows from investing activities:
Proceeds from the sale of plant and equipment 6,000 450,000
Purchase of plant and equipment (533,000) (1,767,000)
Investment in joint ventures (855,000) (231,000)
----------- -----------
Net cash used in investing activities (1,382,000) (1,548,000)
----------- -----------
Cash flows from financing activities:
Issuance of common stock 84,000 3,000
Payments received on notes receivable for exercise of options 0 71,000
Net proceeds from operating line of credit 0 293,000
Payment on long-term debt 0 (567,000)
----------- -----------
Net cash provided by (used in) financing acitivites 84,000 (200,000)
----------- -----------
Net increase (decrease) in cash 2,142,000 (475,000)
Cash and cash equivalents, beginning of period 1,160,000 732,000
----------- -----------
Cash and cash equivalents, end of second period $ 3,302,000 $ 257,000
=========== ===========
</TABLE>
See accompanying notes to financial statements
Page 4
<PAGE>
MINING SERVICES INTERNATIONAL
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 1: BASIS OF PRESENTATION
The interim financial information for the three-months ended June 30,
1998 and the six-months ended June 30, 1998 included herein is unaudited and the
December 31,1997 Balance Sheet is derived from audited financial statements;
however, such information reflects all adjustments, which are, in the opinion of
management, necessary for a fair statement of results for the interim periods.
These consolidated financial statements are presented in accordance
with the requirements for Form 10-Q and consequently may not include all the
disclosures normally required by the generally accepted accounting principles or
those normally made in the annual 10-K filing. Financial information relating to
depreciation contained in the Management's Discussion and Analysis of Financial
Condition and Results of Operations are incorporated by reference into these
notes.
The results of operations for the three-month period ended June 30,
1998 and the six-month period ended June 30, 1998 are not necessarily indicative
of the results to be expected for the full year.
NOTE 2: SIGNIFICANT ACCOUNTING POLICIES
Because of the increasing investment of the Company in joint ventures
("JV" or "JV's") which are not consolidated, but accounted for under the equity
method, the following comparative schedule is prepared to clarify and
demonstrate the Consolidated Revenue of the Company during the three-month and
six-month periods ending June 30, 1998 and 1997. As demonstrated in the
schedule, the Company's consolidated Revenue includes its share of equity in
earnings from JV's:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Non Consolidated Amount MSI's MSI's
Joint Venture Joint Venture Equity Included in Non-JV Consolidated
Sales Net Income MSI MSI Revenue Revenue Revenue
6 Months 1998 $ 18,166,000 $ 5,216,000 50% $ 2,608,000 $ 11,716,000 $ 14,324,000
6 Months 1997 $ 19,234,000 $ 6,180,000 50% $ 3,090,000 $ 10,685,000 $ 13,775,000
3 Months 1998 $ 10,446,000 $ 3,144,000 50% $ 1,572,000 $ 5,902,000 $ 7,474,000
3 Months 1997 $ 9,306,000 $ 3,230,000 50% $ 1,615,000 $ 5,265,000 $ 6,880,000
Note: MSI does not consolidate revenues from 50% or less controlled joint ventures.
</TABLE>
NOTE 3: INVENTORIES
Inventories at June 30, 1998 and December 31, 1997 have been recorded
at the lower of cost or market, cost being determined on the first-in, first-out
(FIFO) method. The composition of inventories at June 30, 1998 and December 31,
1997 are as follows:
June 30, 1998 December 31, 1997
------------- -----------------
Raw Materials $420,000 $407,000
Finished Goods $441,000 $423,000
-------- --------
$861,000 $830,000
======== ========
Page 5
<PAGE>
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations
Three-months ended June 30, 1998 vs. 1997
Net income after tax for the second quarter of 1998 was 15% lower than
the second quarter of 1997 because the effective income tax rate for the second
quarter of 1998 was 28% compared to the effective rate of 15% for the second
quarter of 1997. This was due to prior period carry-forward credits and
allowances used in 1997.
Net income from operations for the second quarter of 1998 was
approximately the same as the second quarter of 1997 while revenues increased
8.6%. Gross margins for the second quarter of 1998 were 26.2% compared to 29.5%
for the same quarter in 1997 largely due to decreased prices in the cyanide
operations. However, the second quarter 1998 gross margin increased 2.9% over
the first quarter 1998, showing operational improvement. Revenue from explosive
sales grew 20.7% for the second quarter of 1998 compared to the same quarter in
1997. It is expected that license fee income will continue to decline as South
Africa and Australia continue to have weakening currencies against the U.S.
dollar. However, income from joint ventures should continue to grow at a faster
pace than such declines in royalties and license fees. Joint venture equity
income was down only 1.1% in comparing the second quarter of 1998 with the
second quarter of 1997. The explosive joint ventures increased equity earnings
$294,000 while the cyanide joint venture decreased equity earnings by $311,000
in comparing the second quarter 1998 to the second quarter 1997. The $311,000
decrease is primarily due to reduction of cyanide prices and volume as the gold
mines high graded their ore deposits to reduce operating costs in response to
lower gold prices. The Company also expects the cyanide business to increase
during the remainder of 1998 assuming gold prices remain sufficiently stable or
increase. The Company's cyanide joint venture is prepared to aggressively market
its product to reach plant capacity. The Company's explosive joint ventures in
Colombia and Uzbekistan are productive and are expected to continue to grow in
revenues and income contribution. The Company's joint venture in Ghana is
operating at a loss due to low volume and price erosion from pressure associated
with weakening gold prices. The joint venture expects to be operating at a
profit by year-end through significantly reducing operating costs and increasing
sales. The Company expects continued revenue growth and income contribution from
explosives in the U.S. and international joint ventures during 1998, assuming
world economies remain stable or continue to improve.
The Company has entered into a second joint venture agreement with
Norsk Hydro to provide explosives and services to Kovdorsky GOK, located on the
Kola Peninsula of Russia. Kovdorsky GOK mines iron ore and phosphate rock for
sale primarily to other western countries under long-term contracts. The Company
anticipates the joint venture will generate revenue of over $25 million over a
seven-year contract period
Six-months ended June 30, 1998 vs. 1997
Gross margins decreased from 30.1% for the six-month period ended June
30, 1997 to 24.8% for the six-month period ended June 30, 1998. The decrease
results primarily from the cumulative effect of lower gross margins from the
first quarter of 1998. The domestic and Canadian explosive operations had a 4.4%
increase in operating margins during the six-month period ended June 30, 1998
compared to the same period in 1997. The increased margins should continue to
increase during the last half of 1998 as the Eastern U.S. explosives operations
become profitable. The Company continues to grow as total revenue increased 4%
for the six-months ended June 30, 1998 compared with the same period in 1997.
Revenues in the domestic and Canadian explosive operations increased 11% in that
same period. The decrease in royalties and license fee income during the first
six-months of 1998 was more than offset by joint venture revenue in explosives
which increased 76% while equity income increased $413,000 from $176,000 in
comparing the six-months ended June 30, 1998 to the same period in 1997. The
cyanide joint venture equity earnings decreased $719,000 when comparing the
six-month period ended June 30, 1998 to the six-month period ended June 30,
1997. However, in comparing the second quarter 1998 cyanide equity earnings with
the first quarter 1998 equity earnings there was an improvement of $363,000 or
39.6%.
The effective income tax rate for the six-month period ended June 30,
1998 was 30% compared to 24% for the six-month period ended June 30, 1997. The
difference in the effective tax rate was from the use of carry-forward tax
credits and allowances used in 1997.
Page 6
<PAGE>
Liquidity and Capital Resources
The Company continued to strengthen its financial position during the
first six-months of 1998. With a strong balance sheet reporting a current ratio
(current assets divided by current liabilities) of 3.5 to 1 and total
liabilities to stockholders equity of 0.2 to 1. The Company has a revolving line
of credit with its bank in Salt Lake City, Utah in the amount of $2,250,000
bearing interest at the bank's prime rate less 3/4% or LIBOR plus 2.2% and an
equipment line of credit of $1,250,000 bearing interest at the bank's prime rate
less 3/4% or LIBOR plus 2.2% secured by equipment. $1,000,000 of the revolving
line of credit is available to be used for the increasing demand for Letters of
Credit internationally. On July 28, 1998, the Company had no balance owing on
any of its lines of credit. During the second quarter of 1998 the revolving line
of credit was not utilized. There was no interest expense for the first
six-months of 1998 compared to $25,000 in the first six-months of 1997.
The Company invested $3,005,000 in 7-day nontaxable municipal
high-grade securities in the second quarter of 1998 with the expectation to
utilize much of this resource in several international transactions during the
remainder of 1998. Joint Ventures distributed $3,037,000 cash and had equity
earnings of $2,661,000 resulting in $376,000 distribution of prior period
earnings. Property, plant and equipment at June 30, 1998 was $10,640,000
compared to $10,514,000 at June 30, 1997. Accumulated depreciation at June 30,
1998 was $6,362,000 compared to $5,900,000 at June 30, 1997.
Within this Quarterly Report filed on Form 10-Q, including this Item 2,
there are forward-looking statements made in an effort to inform the reader of
factors and results which, in management's opinion, are likely to have an
ongoing material effect on the Company. The actual results and factors could
materially differ from those indicated in the statements made.
In management's opinion, the capital resources of the Company are
adequate to finance its business activity assuming the current political,
financial, and economic environment continues. In the long-term, the results of
operations and the liquidity of the Company's resources could be impacted by
factors such as political risks, capital availability, changes in taxation,
inflation, and foreign exchange. Consequently, the Company cannot determine the
ultimate effect that current products and strategies will have on long-term net
sales, earnings, or stock price.
Page 7
<PAGE>
PART II. OTHER INFORMATION
Item 6: Exhibits and Reports on Form 8-K
No reports on Form 8-K have been filed during the quarter ended June
30, 1998 or during the period covered by this report. No additional exhibits
have been filed as part of this report.
Page 8
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
MINING SERVICES INTERNATIONAL CORPORATION
-----------------------------------------
(Registrant)
August 4, 1998 /s/ Lex L. Udy
-------------- ---------------------------
(Date) Lex L. Udy
Vice Chairman and Secretary
/s/ Duane W. Moss
---------------------------
Duane W. Moss
Chief Financial Officer
Page 9
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF THE COMPANY AS FILED IN ITS 10-Q (ITEM 8) FOR THE
QUARTER ENDED JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 3,302,000
<SECURITIES> 0
<RECEIVABLES> 4,171,000
<ALLOWANCES> 12,000
<INVENTORY> 861,000
<CURRENT-ASSETS> 8,834,000
<PP&E> 10,640,000
<DEPRECIATION> 6,362,000
<TOTAL-ASSETS> 27,501,000
<CURRENT-LIABILITIES> 2,543,000
<BONDS> 0
0
0
<COMMON> 7,000
<OTHER-SE> 22,605,000
<TOTAL-LIABILITY-AND-EQUITY> 27,501,000
<SALES> 10,906,000
<TOTAL-REVENUES> 14,324,000
<CGS> 10,770,000
<TOTAL-COSTS> 11,592,000
<OTHER-EXPENSES> (18,000)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,750,000
<INCOME-TAX> 830,000
<INCOME-CONTINUING> 1,920,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,920,000
<EPS-PRIMARY> 0.26
<EPS-DILUTED> 0.25
</TABLE>
