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U.S. Securities and Exchange Commission
Washington, D.C. 20549
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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 June 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
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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 August 9, 2000 was 7,314,260.
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<PAGE>
Mining Services International Corporation
Index
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Part I Financial Information
Item 1. Consolidated Balance Sheet (Condensed) June 30, 2000 and 1
December 31, 1999.
Consolidated Statement of Operations (Condensed) for the 2
three months ended June 30, 2000 and June 30, 1999.
Consolidated Statement of Operations (Condensed) for the 3
six months ended June 30, 2000 and June 30, 1999.
Consolidated Statement of Cash Flows (Condensed) for the 4
six months ended June 30, 2000 and June 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
MINING SERVICES INTERNATIONAL CORPORATION
Consolidated Balance Sheet (Condensed)
(In thousands, except share amounts)
<TABLE>
<CAPTION>
June 30, 2000 December 31,1999
ASSETS (Unaudited)
------ ------------- -----------------
<S> <C> <C>
Current assets:
Cash $ 780 $ 975
Receivables, net 9,159 6,605
Inventories 2,259 1,807
Prepaid expenses 204 112
Current portion of related party notes receivable 250 250
-------------------- --------------------
Total current assets 12,652 9,749
Investments in and advances to joint ventures 12,991 12,736
Property, plant and equipment, net 9,983 9,165
Goodwill 1,906 2,018
Related party notes receivable 633 633
Other assets 132 160
-------------------- --------------------
$ 38,297 $ 34,461
==================== ====================
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable and accrued expenses $ 4,902 $ 2,257
Current portion of long-term debt 287 473
-------------------- --------------------
Total current liabilities 5,189 2,730
Long-term debt 6,052 4,475
Deferred income taxes 2,442 2,408
-------------------- --------------------
Total liabilities 13,683 9,613
-------------------- --------------------
Minority interest 368 497
Stockholders' equity:
Common stock 7 7
Capital in excess of par value 5,312 5,312
Cumulative foreign currency translation adjustments (524) (381)
Retained earnings 19,451 19,413
-------------------- --------------------
Total stockholders' equity 24,246 24,351
-------------------- --------------------
$ 38,297 $ 34,461
==================== ====================
</TABLE>
See accompanying notes to financial statements
1
<PAGE>
MINING SERVICES INTERNATIONAL CORPORATION
Consolidated Statement of Income (Condensed)
(In thousands, except share amounts)
(Unaudited)
<TABLE>
<CAPTION>
3 months ended 3 months ended
6/30/00 6/30/99
-------------- --------------
<S> <C> <C>
Revenues:
Net sales $ 10,043 $ 6,658
Royalties 279 234
Equity in earnings from joint ventures 469 544
Other income 15 26
-------------------- --------------------
10,806 7,462
Cost and expenses:
Cost of sales 9,282 6,430
General administrative 1,114 689
Research and development 164 258
-------------------- --------------------
10,560 7,377
-------------------- --------------------
Income/(loss) from operations 246 85
Other income/(expenses), net (65) 17
-------------------- --------------------
Income before provision for income taxes 181 102
Provision for income taxes 49 35
-------------------- --------------------
Income before minority interest 132 67
Minority interest in (income)/loss of subsidiaries 106 -
-------------------- --------------------
Net income $ 238 $ 67
==================== ====================
Weighted average number of shares outstanding
Basic 7,314,000 7,336,000
==================== ====================
Diluted 7,316,000 7,384,000
==================== ====================
Net income/(loss) per share
Basic $ .03 $ .01
==================== ====================
Diluted $ .03 $ .01
==================== =====================
</TABLE>
See accompanying notes to financial statements
2
<PAGE>
MINING SERVICES INTERNATIONAL CORPORATION
Consolidated Statement of Income (Condensed)
(In thousands, except share amounts)
(Unaudited)
<TABLE>
<CAPTION>
6 months ended 6 months ended
6/30/00 6/30/99
-------------- --------------
<S> <C> <C>
Revenues:
Net sales $ 16,517 $ 13,027
Royalties 503 504
Equity in earnings from joint ventures 1,041 1,446
Other income 29 51
-------------------- --------------------
18,090 15,028
Costs and expenses:
Cost of sales 15,617 12,512
General administrative 2,101 1,267
Research and development 323 356
-------------------- --------------------
18,041 14,135
-------------------- --------------------
Income from operations 49 893
Other income/(expense), net (119) (52)
-------------------- --------------------
Income/(loss) before provision for income taxes and minority interest (70) 841
Provision for income taxes 21 286
-------------------- --------------------
Income/(loss) before minority interest (91) 555
Minority interest in (income)/loss of subsidiaries 129 -
-------------------- --------------------
Net income $ 38 $ 555
==================== ====================
Weighted average number of shares outstanding
Basic 7,314,000 7,368,000
==================== ====================
Diluted 7,316,000 7,384,000
==================== ====================
Earnings per common share
Basic $ .01 $ .08
==================== ====================
Diluted $ .01 $ .08
==================== ====================
</TABLE>
See accompanying notes to financial statements
3
<PAGE>
MINING SERVICES INTERNATIONAL CORPORATION
Consolidated Statement of Cash Flows (Condensed)
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
6 months ended 6 months ended
6/30/00 6/30/99
-------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 38 $ 555
Adjustments to reconcile net income to net cash
provided by/(used in) operating activities:
Depreciation and amortization 777 602
Provision and reserves for loss on assets 87 -
Gain on disposal of equipment (1) (8)
Distributed/(undistributed) earnings in joint ventures (41) 554
Deferred income taxes 34 -
Change in assets and liabilities:
(Increase) decrease in accounts receivable (2,641) 820
(Increase) decrease in inventories (452) 115
(Increase) decrease in prepaid expenses (92) 74
(Increase) decrease in other assets 28 102
Increase (decrease) in accounts payable and accrued expenses 2,645 (1,349)
Increase (decrease) in minority interest (129) -
-------------------- --------------------
Net cash provided by/(used in) operating activities 253 1,465
-------------------- --------------------
Cash flows from investing activities:
Proceeds from sale of plant and equipment 13 59
Payments received on notes receivable - 100
Purchase of plant and equipment (858) (1,462)
Increase in notes receivable - (58)
Investment in joint ventures (357) (898)
-------------------- --------------------
Net cash used in investing activities (1,202) (2,259)
-------------------- --------------------
Cash flows from financing activities:
Retirement of common stock - (131)
Net proceeds from operating line of credit 1,044 1,099
Proceeds from issuance of long-term debt - 250
Payments on long-term debt (290) (372)
-------------------- --------------------
Net cash provided by/(used in) financing activities 754 846
-------------------- --------------------
Net increase/(decrease) in cash (195) 52
Cash, beginning of period 975 314
-------------------- --------------------
Cash, end of period $ 780 $ 366
==================== ====================
</TABLE>
See accompanying notes to financial statements
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,
2000 and for the six months ended June 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 June 30,
2000 and the six month period ended June 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 June 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>
6 Months 2000..........$11,620,000 $2,082,000 50% $1,041,000 $17,049,000 $18,090,000
6 Months 1999..........$11,938,000 $2,892,000 50% $1,446,000 $13,582,000 $15,028,000
3 Months 2000..........$ 5,708,000 $ 938,000 50% $ 469,000 $10,337,000 $10,806,000
3 Months 1999..........$ 5,166,000 $1,088,000 50% $ 544,000 $ 6,918,000 $ 7,462,000
Note: MSI does not consolidate revenues from 50% or less controlled joint ventures
</TABLE>
NOTE 3: INVENTORIES
Inventories at June 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 June 30, 2000 and December 31,
1999 are as follows:
June 30, 2000 December 31, 1999
--------------------- -----------------
Raw Materials $ 701,000 $ 737,000
Finished Goods 1,558,000 1,070,000
--------------------- ----------------
$2,259,000 $1,807,000
===================== ================
5
<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 June 30, 2000 and 1999:
<TABLE>
<CAPTION>
Foreign Currency
Translation Comprehensive
Net Income Adjustment Net Income/(Loss)
---------- ---------------- -----------------
<S> <C> <C> <C>
6 Months 2000.................... $ 38,000 ($143,000) ($105,000)
6 Months 1999.....................$555,000 ($167,000) $388,000
3 Months 2000.....................$238,000 ($ 53,000) $185,000
3 Months 1999.................... $ 67,000 ($167,000) ($100,000)
</TABLE>
NOTE 5: SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
During the six-month period ended June 30, 2000, the Company purchased
$637,000 of equipment with debt.
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations
Three-months ended June 30, 2000 vs. 1999
-----------------------------------------
Revenues increased $3.3 million or 45% during the three months ended
June 30, 2000 as compared to the three months ended June 30, 2000 primarily as a
result of the $3.4 million or 51% increase in net sales over the same period.
The increase in net sales consists primarily of a $348,000 or 71% increase in
the revenues of the Company's West Virginia packaged emulsion plant, an $846,000
or 31% increase in the revenues of Green Mountain Explosives, Inc. ("GME"), a
$321,000 or 205% increase in the foreign trading revenues of MSI Chemicals Ltd.
("MSIC"), and a $1.9 million increase in the revenues of the Company's drilling
and blasting joint venture, Tennessee Blasting Services, L.L.C. ("TBS"), which
was formed in September 1999. The increase in revenue at the West Virginia
packaged emulsion plant reflects a stronger demand for the plant's product by
both GME and TBS as GME has increased sales to its core customers in addition to
capturing new accounts through its marketing efforts, and as TBS is consolidated
into the Company beginning September of 1999.
Gross margin on net sales increased from 3.4% during the second quarter
of 1999 to 7.6% during the second quarter of 2000 primarily due to a $238,000
increase in contribution from the Company's North American explosives
operations, led by the improved performance of GME, the Company's West Virginia
packaged emulsion plant, and its Canadian bulk explosives operation. The
improvement in these operations results primarily from an increase in volumes
and better utilization of plant capacity. Similarly, the Company's Colombian
explosives joint venture, Cayman Mining Services Limited ("CMS"), increased its
contribution to the Company for the three month period ended June 30, 2000
compared to the second quarter of 1999 as production and sales has more than
doubled. The Company expects the contribution from GME and CMS to remain strong
during the remainder of the year due to GME's increased market share and due to
the expectation that demand by the customers of CMS should continue to increase
to production levels experienced in 1997 and 1998. Additionally, the Company
expects improved contribution from TBS and from Eastern Mining Services Ltd.
("EMS"), its JV in Kovdor, Russia, in the final six months of 2000 as TBS
stabilizes its rapid growth and market share acquisition into profitable
operations and as EMS reaches full production in the second half of 2000.
General administrative expenses increased during the three-month period
ended June 30, 2000 by $425,000 or 62% compared to the three-month period ended
June 30, 1999. Approximately 65% of the increase during the second quarter of
2000 is the result of the consolidation of TBS beginning in September of 1999.
The balance of the increase in general administrative expenses consists
primarily of a $110,000 increase in legal expenses principally related to the
Company's defense of an action brought by the BLA Investment Irrevocable Trust
("BLA Trust"), and by a $37,000 increase in director fees. It is expected that
legal fees incurred to defend against the BLA Trust action will decrease in
light of the settlement that was reached between the parties in June of 2000.
Research and development costs decreased $94,000 or 36% during the three-month
period ended June 30, 2000 as compared to the three-month period ended June 30,
1999, the decreases consisted of reduced wages and travel expenses.
6
<PAGE>
Consequently, the improvement in gross margin provided more than an
offset to the increase in general administrative expenses resulting in an
increase in income from operations of $161,000 or 189% during the quarter ended
June 30, 2000 compared to the quarter ended June 30, 1999.
Although the Company had other income of $17,000 during the second
quarter of 1999, increased use of its lines of credit during the three-month
period ended June 30, 2000 resulted in additional interest expense, the primary
component of other expense, which increased to $65,000 for the second quarter
ended June 30, 2000.
Six-months ended June 30, 2000 vs. 1999
---------------------------------------
Similar to the three-month period ended June 30, 2000, revenue for the
six-month period ended June 30, 2000 increased $3.1 million compared to the
six-month period ended June 30, 1999. The increase consists primarily of a $3.5
million increase in net sales along with a $405,000 decrease in the equity
earnings of unconsolidated subsidiaries.
TBS accounted for $3.3 million of the increase in net sales during the
current period as a consequence of its consolidation into MSI effective
September 1999, while GME accounted for $1.4 million of the increase through the
expanded sales effort. The Company's West Virginia packaged emulsion plant
accounted for approximately $500,000 of the increase correlating to the increase
in demand for its product from GME and TBS. Offsetting these increases was an
$830,000 decrease in the net sales of the Company's Western Division resulting
primarily from the completion by one of the Company's customers of a California
dam project near the end of the second quarter of 1999. As an additional offset
to the increase in net sales, the Company was not able to completely replace the
revenues of its international trading and development efforts during the six
months ended June 30, 1999 resulting in a $405,000 decrease in net sales for the
six-month period ended June 30, 2000.
The decrease in equity in earnings of unconsolidated subsidiaries is
primarily the result of a 38% decrease in the equity in earnings of Cyanco
Company (Cyanco) during the six months ended June 30, 2000 compared to the same
period in 1999. This decrease from Cyanco was partially offset by the $112,000
increase in equity in earnings from CMS for the six-month period ended June 30,
2000 compared to the six-month period ended June 30, 1999 due to the increased
demand from CMS's Colombian customers.
Income from operations decreased $844,000 from $893,000 for the six
months ended June 30, 1999 to $49,000 for the six months ended June 30, 2000.
This decrease was caused primarily by the decrease in contribution from the
Company's Western Division and the decrease in contribution from Cyanco for the
first six months of 2000 compared to the first six months of 1999. The decrease
in the contribution from the Western Division is a reflection of the tightening
margins in the North American bulk explosives market as the market enters into a
period of consolidation. Cyanco's decrease in contribution correlates to record
low gold prices.
Other expenses increased $67,000 or 129% from $52,000 for the six
months ended June 30, 1999 to $119,000 for the six months ended June 30, 2000 as
a result of increased use of the Company's lines of credit.
Liquidity and Capital Resources
-------------------------------
The Company continues to maintain a strong balance sheet with a current
ratio of 2.44 to 1 and a ratio of total liabilities to equity of 0.56 to 1 as of
June 30, 2000. However, the current ratio decreased from 3.57 to 1 as of
December 31, 1999 to 2.44 to 1 as of June 30, 2000 as a result of the marginal
operating performance of the Company during the same period. During the six
months ended June 30, 1999, the Company had generated $1.2 million more in cash
flow from its operations than it did for the same period in 2000, thus requiring
additional usage of its lines of credit to fund working capital needs. Accounts
receivable increased during the first six months of 2000 primarily due to the
increased sales during the same period by GME and TBS. However, the Company has
reduced the account receivable from its Uzbekistan JV from $817,000 at December
31, 1999 to $247,000 as of June 30, 2000 as a result of the approval of U.S.
dollar conversion by the Uzbekistan government beginning in February of 2000.
Of the nearly $1.5 million in plant and equipment purchases made by the
Company during the first six months of 2000, purchases made by TBS represented
$672,000 of the total funded almost entirely from the proceeds of long-term debt
issued during the same period. Approximately $518,000 of the remaining purchases
of plant and equipment during the first six months of 2000 consisted of the
continued construction of the accessories plant line of O'Brien Design
Associates.
7
<PAGE>
The Company had $3,920,000 owing on its line of credit at June 30,
2000. The Company had utilized up to $4,077,000 of its line of credit during the
first six months of 2000. Interest expense related to the line of credit was
$74,000 for the period compared to $22,000 of interest expense for the same
period in 1999.
The Company anticipates being oriented toward investment in the current
industry consolidation and therefore may need to obtain additional capital
resources to fund such an investment strategy. As sales increase, the Company
expects to be able to fund additional working capital needs through 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, 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. Most of the sales and purchase contracts are denominated in U.S.
dollars except in Ghana and Uzbekistan where 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 excess cash balances are immediately
transferred to U.S. dollar accounts to the extent 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. However, now that the Company's joint
venture in Kovdor, Russia has begun operations, sales contracts will be paid in
local currency, though pegged to a dollar denominated price. It is likely that
sales receipts and leasing contract receipts 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.
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.
Item 6: Exhibits and Reports on Form 8-K
1. Exhibits:
27 Financial Data Schedule
2. Reports on Form 8K:
No reports on Form 8K have been filed during the
quarter ended June 30, 2000.
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 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
9
<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/
------------------ ----------------------------------
(Date) Duane W. Moss
Chief Legal Officer and Secretary
August 11, 2000 /s/
------------------ ----------------------------------
(Date) Wade L. Newman
Chief Financial Officer
10
<PAGE>
