______________________________________________________________________
U.S. Securities and Exchange Commission
Washington, D.C. 20549
__________________________
FORM 10-Q
(Mark One)
[ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange act of 1934 For the quarterly period ended
September 30, 2000
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 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)
Registrant's telephone number: (801) 233-6000
___________________________
Indicate by check mark whether the registrant (1) filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
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 __
The number of shares outstanding of the registrant's par value $0.001 Common
Stock as of November 8, 2000 was 7,314,260.
_________________________________________________________________________
<PAGE>
<TABLE>
<CAPTION>
Mining Services International Corporation
Index
Page No.
Part I Financial Information
<S> <C> <C>
Item 1. Consolidated Balance Sheet (Condensed) September 30, 2000 and 1
December 31, 1999.
Consolidated Statement of Operations (Condensed) for the 2
three months ended September 30, 2000 and September 30, 1999.
Consolidated Statement of Operations (Condensed) for the 3
nine months ended September 30, 2000 and September 30, 1999.
Consolidated Statement of Cash Flows (Condensed) for the 4
nine months ended September 30, 2000 and September 30, 1999.
Condensed Notes to the consolidated financial statements 5
Item 2. Management's Discussion and Analysis of Financial Condition 6
and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk 8
Part II Other Information
Item 6. Exhibits and Reports on Form 8-K 8
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
Financial Statements
<TABLE>
<CAPTION>
MINING SERVICES INTERNATIONAL CORPORATION
Consolidated Balance Sheet (Condensed)
(In thousands, except share amounts)
September 30, 2000 December 31,1999
ASSETS (Unaudited)
____________________ ___________________
Current assets:
<S> <C> <C>
Cash $ 872 $ 975
Receivables, net 8,008 6,605
Inventories 2,227 1,807
Prepaid expenses 139 112
Current portion of related party notes receivable 133 250
____________________ ___________________
Total current assets 11,379 9,749
Investments in and advances to joint ventures 13,764 12,736
Property, plant and equipment, net 10,281 9,165
Goodwill 1,850 2,018
Related party notes receivable 1,250 633
Other assets 128 160
____________________ ___________________
$ 38,652 $ 34,461
==================== ===================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 5,087 $ 2,257
Current portion of long-term debt 4,532 473
____________________ ___________________
Total current liabilities 9,619 2,730
Long-term debt 1,696 4,475
Deferred income taxes 2,722 2,408
____________________ ___________________
Total liabilities 14,037 9,613
____________________ ___________________
Minority interest 154 497
Stockholders' equity:
Common stock 7 7
Capital in excess of par value 5,312 5,312
Cumulative foreign currency translation adjustments (587) (381)
Retained earnings 19,729 19,413
____________________ ___________________
Total stockholders' equity 24,461 24,351
____________________ ___________________
$ 38,652 $ 34,461
==================== ===================
</TABLE>
See accompanying notes to financial statements
<PAGE>
<TABLE>
<CAPTION>
MINING SERVICES INTERNATIONAL CORPORATION
Consolidated Statement of Income (Condensed)
(In thousands, except share amounts)
(Unaudited)
3 months ended 3 months ended
9/30/00 9/30/99
____________________ ___________________
Revenues:
<S> <C> <C>
Net sales $ 10,427 $ 6,567
Royalties 227 217
Equity in earnings from joint ventures 732 460
Other income 14 0
__________________ ___________________
11,400 7,244
__________________ ___________________
Cost and expenses:
Cost of sales 9,870 6,172
General administrative 1,078 785
Research and development 172 230
__________________ ___________________
11,120 7,187
__________________ ___________________
Income from operations 280 57
Other expense, net 78 44
__________________ ___________________
Income before provision for income taxes 202 13
Benefit/(provision) for income taxes (139) 52
__________________ ___________________
Income before minority interest 63 65
Minority interest in loss of subsidiaries 215 11
__________________ ___________________
Net income $ 278 $ 76
================== ===================
Weighted average number of shares outstanding
Basic 7,314,000 7,331,000
================== ===================
Diluted 7,316,000 7,395,000
================== ===================
Net income per share
Basic $ .04 $ .01
================== ===================
Diluted $ .04 $ .01
================== ===================
</TABLE>
See accompanying notes to financial statements
<PAGE>
<TABLE>
<CAPTION>
MINING SERVICES INTERNATIONAL CORPORATION
Consolidated Statement of Income (Condensed)
(In thousands, except share amounts)
(Unaudited)
9 months ended 9 months ended
9/30/00 9/30/99
__________________ ___________________
Revenues:
<S> <C> <C>
Net sales $ 26,944 $ 19,593
Royalties 730 721
Equity in earnings from joint ventures 1,773 1,932
Other income 43 26
__________________ ___________________
29,490 22,272
__________________ ___________________
Costs and expenses:
Cost of sales 25,486 18,684
General administrative 3,179 2,052
Research and development 495 586
__________________ ___________________
29,160 21,322
__________________ ___________________
Income from operations 330 950
Other expense, net 198 96
__________________ ___________________
Income before provision for income taxes and minority interest 132 854
Provision for income taxes (159) (234)
__________________ ___________________
Income/(loss) before minority interest (27) 620
Minority interest in loss of subsidiaries 344 11
__________________ ___________________
Net income $ 317 $ 631
================== ===================
Weighted average number of shares outstanding
Basic 7,314,000 7,331,000
================== ===================
Diluted 7,316,000 7,395,000
================== ===================
Earnings per common share
Basic $ .04 $ .09
================== ===================
Diluted $ .04 $ .09
================== ===================
</TABLE>
See accompanying notes to financial statements
<PAGE>
<TABLE>
<CAPTION>
MINING SERVICES INTERNATIONAL CORPORATION
Consolidated Statement of Cash Flows (Condensed)
(In thousands)
(Unaudited)
9 months ended 9 months ended
9/30/00 9/30/99
Cash flows from operating activities:
<S> <C> <C>
Net income $ 316 $ 631
Adjustments to reconcile net income to net cash
provided by/(used in) operating activities:
Depreciation and amortization 1,166 936
Provision and reserves for loss on assets 114 -
Gain on disposal of equipment (19) (1)
Distributed/(undistributed) earnings in joint ventures (786) 1,187
Deferred income taxes 314 277
Change in assets and liabilities:
(Increase) decrease in accounts receivable (1,517) 446
(Increase) decrease in inventories (420) 59
(Increase) decrease in prepaid expenses (27) 66
(Increase) decrease in deposits (819)
(Increase) decrease in other assets 32 109
Increase (decrease) in accounts payable and accrued expenses 2,830 (71)
Increase (decrease) in minority interest (343) 461
___________________ ___________________
Net cash provided by/(used in) operating activities 1,660 3,281
___________________ ___________________
Cash flows from investing activities:
Proceeds from sale of plant and equipment 33 51
Payments received on notes receivable - 100
Purchase of plant and equipment (1,462) (2,970)
Increase in notes receivable (500) (58)
Investment in joint ventures (448) (1,100)
___________________ ___________________
Net cash used in investing activities (2,377) (3,977)
___________________ ___________________
Cash flows from financing activities:
Retirement of common stock - (131)
Net proceeds from operating line of credit 1,044 795
Proceeds from issuance of long-term debt - 1,000
Payments on long-term debt (430) (442)
___________________ ___________________
Net cash provided by/(used in) financing activities 614 1,222
___________________ ___________________
Net increase/(decrease) in cash (103) 526
Cash, beginning of period 975 314
___________________ ___________________
Cash, end of period $ 872 $ 840
================== ===================
</TABLE>
See accompanying notes to financial statements
<PAGE>
Mining Services International
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 1: BASIS OF PRESENTATION
The interim financial information for the three months ended September
30, 2000 and for the nine months ended September 30, 2000 included herein is
unaudited and the December 31,1999 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
The results of operations for the three-month period ended September
30, 2000 and the nine month period ended September 30, 2000 are not necessarily
indicative of the results to be expected for the full year.
NOTE 2: SIGNIFICANT ACCOUNTING POLICIES
Because of the significance of investment by the Company in joint
ventures ("JV" or "JV's") which are not consolidated, but are accounted for
under the equity method, the following comparative schedule is prepared to
clarify and demonstrate the consolidated revenue of the Company during the
periods ending September 30, 2000 and 1999. As demonstrated in the schedule, the
Company's consolidated revenue includes its share of equity in earnings from
JV's:
<TABLE>
<CAPTION>
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
<S> <C> <C> <C> <C> <C> <C>
9 Months 2000 $19,669,000 $3,546,000 50% $1,773,000 $27,717,000 $29,490,000
9 Months 1999 $18,502,000 $3,864,000 50% $1,932,000 $20,340,000 $22,272,000
3 Months 2000 $ 8,049,000 $1,464,000 50% $ 732,000 $10,668,000 $11,400,000
3 Months 1999 $ 6,566,000 $ 920,000 50% $ 460,000 $ 6,784,000 $ 7,244,000
</TABLE>
Note: MSI does not consolidate revenues from 50% or less controlled
joint ventures
NOTE 3: INVENTORIES
Inventories at September 30, 2000 and December 31, 1999 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 September 30, 2000
and December 31, 1999 are as follows:
<TABLE>
<CAPTION>
September 30, 2000 December 31, 1999
<S> <C> <C>
Raw Materials $ 663,000 $ 737,000
Finished Goods 1,564,000 1,070,000
$2,227,000 $1,807,000
</TABLE>
<PAGE>
NOTE 4: COMPREHENSIVE INCOME
Comprehensive income or loss includes certain changes in equity not
represented in net income or loss, including foreign currency translation
adjustments. The following table illustrates the effect of comprehensive income
for the respective periods ended September 30, 2000 and 1999:
<TABLE>
<CAPTION>
Foreign Currency
Translation Comprehensive
Net Income Adjustment Net Income/(Loss)
<S> <C> <C> <C>
9 Months 2000 $317,000 ($206,000) $111,000
9 Months 1999 $631,000 ($145,000) $486,000
3 Months 2000 $278,000 ($ 63,000) $215,000
3 Months 1999 $ 76,000 $ 22,000 $ 98,000
</TABLE>
NOTE 5: SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
During the nine-month period ended September 30, 2000, the Company
purchased $666,000 of equipment with debt.
Item 2 Management's Discussion and Analysis of Financial Condition and Results
of Operations
Three-months ended September 30, 2000 vs. 1999
Net income increased $202,000 or 266% during the three months ended
September 30, 2000 as compared to the three months ended September 30, 1999 as
income from operations increased to $280,000 for the quarter ended September 30,
2000, an increase of $223,000 or 391% over the same period ended September 30,
1999. The improvement in operating income is a result of an increase in gross
margin contribution on net sales as well as an increase in equity in earnings
from joint ventures.
Gross margin on net sales increased $162,000 during the three-month
period ended September 30, 2000 as compared to the same three-month period in
1999 primarily due to increased contribution from the Company's Eastern U.S. and
Canadian operations resulting from increased net sales for the period of 30% and
65%, respectively. Although net sales revenue increased $3.9 million or 59%, due
primarily to increases in the net sales of Green Mountain Explosives, Inc.
("GME") and Tennessee Blasting Services, L.L.C. ("TBS"), gross margin as a
percentage of net sales decreased 11% from 6.01% to 5.34% for the three-month
period ended September 30, 2000 as compared to the same period in 1999. This
decrease in gross margin as a percentage of net sales was predominately affected
by the performance of TBS, which continued dramatic growth of net sales during
the quarter ended September 30, 2000, but which has not yet achieved
profitability. The Company expects that recently implemented efforts to contain
costs will result in improved performance at TBS. The decrease in gross margin
as a percentage of net sales also decreased because of the decrease in
contribution from the Company's Western U.S. operations of $168,000 for the
three months ended September 30, 2000 compared the three-months period ended
September 30, 1999. Management expects to increase profitability in the West
through renewed emphasis on cost reduction and improved margins.
Equity in earnings from joint ventures increased $272,000 or 59%
during the three months ended September 30, 2000 as compared to the three months
ended September 30, 1999, predominately due to the increase in production to
levels, which are approaching production levels achieved in 1997 and 1998, at
the Company's Colombian joint venture, Cayman Mining Services, Ltd. ("CMS").
Profitable start-up operations at the Company's joint venture in Kovdor, Russia,
Eastern Mining Services, Ltd. ("EMS") added to the increase in equity in
earnings from joint ventures. Management expects that current production levels
will remain relatively constant at CMS during the remainder of the year.
Additionally, it is expected that EMS will achieve planned levels of production
in the fourth quarter of 2000. Contribution from Cyanco Company ("Cyanco"), the
Company's Nevada joint venture, decreased 12% during the quarter ended September
30, 2000 as compared to the quarter ended September 30, 1999.
<PAGE>
General administrative expenses increased during the three-month
period ended September 30, 2000 by $293,000 or 37% compared to the three-month
period ended September 30, 1999. The majority of the increase is a result of the
three months of full-scale operations at TBS in the third quarter of 2000 as
compared to a single month of start-up operations for TBS in the third quarter
of 1999. Research and development expenses decreased from $230,000 during the
third quarter of 1999 to $172,000 during the third quarter of 2000, a decrease
of $58,000 or 25%. Other expense increased $34,000 or 77% during the three-month
period ended September 30, 2000 when compared to the same period in 1999 and
consists primarily of an increase in interest expense, reflecting the Company's
increased use of its revolving credit line. The Company's effective tax rate for
the three months ended September 30, 2000 is 33%. The minority interest in the
loss of subsidiaries increased $204,000 for the three months ended September 30,
2000 as compared to the three-month period ended September 30, 2000 as a result
of an increase in the losses of TBS.
Nine-months ended September 30, 2000 vs. 1999
Revenues increased $7.2 million or 32% during the nine months ended
September 30, 2000 as compared to the same period in 1999. Of total revenues,
net sales increased $7.35 million or 38% during the same comparative periods,
while equity in earnings from joint ventures decreased $159,000 or 8%.
Net sales increased predominately due to the consolidation of TBS for
a full nine months of 2000 as compared to consolidating TBS for only one month
during the first nine months of 1999 subsequent to the formation of the joint
venture effective September 1, 1999. The net sales of GME and the Company's
Canadian operations also increased during the nine-month period ended September
30, 2000 as compared to the same period in 1999 by 34% and 24%, respectively.
Gross margin on net sales increased $549,000 or 60% during the nine months ended
September 30, 2000 as compared to the same period in 1999 primarily due to
increased contribution from GME and the Company's Eastern U.S. and Canadian
operations.
As a result of increased production levels in the second and third
quarters of 2000, contribution from CMS increased $358,000 during the first
three quarters of 2000 as compared to the same period in 1999. Improvement in
overall performance was also derived from the cessation of losses from
Turon-MSI, the Company's Uzbekistan joint venture, and West Africa Chemicals,
L.T.D. ("WAC") the Company's 50% joint venture in Ghana. However, these
improvements were more than offset by the 31% decrease in contribution by Cyanco
for the nine months ended September 30, 2000 as compared to the nine months
ended September 30, 1999 as the cost of certain raw materials increased while
the market for Cyanco's product remains depressed consistent with the low price
of gold.
The decrease in income from operations of $620,000 or 65% for the
nine-month period ended September 30, 2000 compared to the same period in 1999
was primarily affected by the 55% increase in general administrative expenses
during the comparative periods. The majority of the increase is the result of
the consolidation of a full nine months of the general and administrative
expenses of TBS during the nine-month period ended September 30, 2000 as
compared to the consolidation of only one month of those costs in the results of
operations in the first nine months of 1999 due to the formation of the joint
venture on September 1, 1999. General and administrative expenses also increased
during the nine months ended September 30, 2000 compared to the same period in
1999 as a result of an increase in legal fees related to the defense of an
action brought by the BLA Investment Irrevocable Trust ("BLA Trust"), as well as
a result of an increase in director fees. As a result of a settlement between
the parties of the BLA Trust action, the proceedings have been stayed and
Management does expect legal costs to continue for the foreseeable future.
Other expense has increased $102,000 or 106% during the nine-month
period ended September 30, 2000 compared to the nine months ended September 30,
1999. This increase consists primarily of an increase in interest expense due
the Company's expanded use of its line of credit to address working capital
needs. The provision for income taxes for the nine months ended September 30,
2000 of $159,000 results in an effective tax rate of 36%. Again, the minority
interest in the loss of subsidiaries increased from $11,000 for the nine months
ended September 30, 1999 to $344,000 for the nine-month period ended September
30, 2000 as a result of an increase in the losses of TBS during the comparative
periods.
Liquidity and Capital Resources
In September 1999, the Company entered into a revolving line of credit
agreement ("LOC") that expires in August of 2001. It has been the Company's
intention to extend the LOC to mature in August of 2002. Due to the Company's
marginal performance in the later part of 1999 and the first quarter of 2000,
<PAGE>
the lender has expressed a preference to return to the more traditional LOC term
of 12 months. The Company intends to extend the LOC as it approaches maturity in
August of 2001 and Management believes that the lender will agree to the
extension. However, because the Company was not able to extend the LOC, the
entire balance of the loan has been reclassified as a current liability. This
reclassification results in a technical default in the credit agreement relative
to the financial covenant of debt service coverage. The lender has expressed a
willingness to continue the existing relationship and Management believes that
the lender will waive the default. The Company had $3,950,000 owing on the LOC
at September 30, 2000. The Company had utilized up to $3,950,000 of the LOC
during the first nine months of 2000. Interest expense related to the LOC was
$202,000 for the nine-month period ended September 30, 2000 compared to $60,000
of interest expense for the same period in 1999.
Due to the reclassification of the LOC to a current liability, the
Company has a current ratio of 1.18 to 1 as of September 30, 2000 compared to a
current ratio of 3.57 to 1 as of December 31, 1999. The ratio of total
liabilities to equity was 0.58 to 1 as of September 30, 2000 compared to a ratio
of 0.40 to 1 as of December 31, 1999. The growth in the Company's operations and
investments, as evidenced by the significant increase in revenues, combined with
marginal operating results during the early months of 2000, have been the
principal cause for the Company's increased working capital and long-term
capital needs. The Company has increased its investment in joint venture during
the nine-month period ended September 30, 2000 in part through an increase in
the undistributed earnings of its joint ventures and through the completion of a
joint venture project in Kovdor, Russia which became operational in July of
2000.
Of the $2.1 million in plant and equipment purchases made by the
Company during the first nine months of 2000, purchases made by TBS represented
$766,000 of the total funded almost entirely from the proceeds of long-term debt
issued during the same period. Approximately $846,000 of the remaining purchases
of plant and equipment during the first nine months of 2000 consisted of the
continued construction of the accessories plant line of O'Brien Design
Associates. Additionally, GME has undertaken the construction of improvements to
a new magazine site under lease totaling nearly $400,000.
The Company may need to obtain additional capital resources for the
purpose of maintaining existing investments as it continues to expand the market
share of existing operations. The Company expects to be able to fund the working
capital requirements of increases in sales through existing debt instruments and
operating cash flows.
Item 3 Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to market risk from changes in foreign currency
and interest rates. The Company manufactures and sells some of its products in
Colombia, Russia, Ghana, Uzbekistan and Canada. It also purchases products for
raw materials and for resale from additional foreign markets such as Australia
and India. In addition, the Company licenses its technology in other foreign
countries such as South Africa, India, Korea and Namibia. Approximately 14% of
the Company's consolidated revenue is generated from foreign markets; however,
as explained in the Significant Accounting Policies, the Company's sales in
joint ventures are not reported in consolidated revenues and the percentage of
the Company's business in foreign countries will likely remain significant. The
Company manages its risk of foreign currency rate changes by maintaining foreign
currency bank accounts in currencies in which it regularly transacts business
and by maintaining hard currency accounts to which dollar denominated contracts
are credited. The sales and purchase contracts in Ghana and Uzbekistan are not
denominated in U.S. dollars but the investments have now been written-off,
though operations continue. Certain license royalty payment obligations are not
denominated in U.S. dollars and are thus subject to the risks of currency rate
changes. All cash balances are transferred to U.S. dollar accounts as soon as
possible. Option contracts to hedge foreign-currency transactions are not used
by the Company. The Company does not enter into derivative contracts for trading
in speculative purposes. Changes in the currency rate are not expected to have a
material impact on the Company's results of operations currently. It is likely
that sales receipts and leasing contract receipts in Russia may be subject to
significant time delay in converting them from local currency to U.S. dollars.
Accordingly, equity in earnings from that joint venture may be subjected to more
currency exchange risk than is expected by the Company in other foreign joint
ventures. It is not expected that currency rate hedging transactions will be
used in 2000.
The Company's cash equivalents and short-term investments and its
outstanding debt bear variable interest rates. The rates are adjusted to market
conditions. Changes in the market rate effects interest earned and paid by the
Company. The Company does not use derivative instruments to offset the exposure
to changes in interest rates. Changes in the interest rates are not expected to
have a material impact on the Company's results of operations.
<PAGE>
PART II. OTHER INFORMATION
Item 1: Legal Proceedings
A settlement agreement was reached on June 9, 2000 in the action
brought against the Company by the BLA Trust as disclosed in an 8-K filing in
January, 2000 and in the 10-Q filed for the first quarter of 2000. The
settlement agreement effectively amends certain aspects of the claims against
the Company and the named defendant directors. In addition, the proceedings of
both parties will be discontinued for a period of time in order to work out an
arrangement to allow the BLA Trust to vote its shares.
<PAGE>
Item 6: Exhibits and Reports on Form 8-K
1. Exhibits:
27 Financial Data Schedule
2. Reports on Form 8-K:
No reports on Form 8-K have been filed during the quarter ended
September 30, 2000.
<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 11, 2000 /s/ Duane W. Moss
(Date) _____________________
Duane W. Moss
Chief Legal Officer and Secretary
August 11, 2000 /s/ Wade L. Newman
(Date) ______________________
Wade L. Newman
Chief Financial Officer
<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 11, 2000
(Date) Duane W. Moss
Chief Legal Officer and Secretary
August 11, 2000
(Date) Wade L. Newman
Chief Financial Officer
