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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 March
31, 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
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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 May 9, 2000 was 7,314,260.
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<PAGE>
Mining Services International Corporation
Index
<TABLE>
<CAPTION>
Page No.
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<S> <C> <C>
Part I Financial Information
Item 1. Consolidated Balance Sheet (Condensed) March 31, 2000 and 1
December 31, 1999.
Consolidated Statement of Operations (Condensed) for the 2 three
months ended March 31, 2000 and March 31, 1999.
Consolidated Statement of Cash Flows (Condensed) for the 3 three
months ended March 31, 2000 and March 31, 1999.
Condensed Notes to the consolidated financial statements 4
Item 2. Management's Discussion and Analysis of Financial Condition 5
and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk 6
Part II Other Information
Item 6. Exhibits and Reports on Form 8-K 6
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
Financial Statements
MINING SERVICES INTERNATIONAL CORPORATION
Consolidated Balance Sheet (Condensed)
(In thousands, except share amounts)
<TABLE>
<CAPTION>
March 31, 2000 December 31,1999
ASSETS (Unaudited)
------ -------------- ----------------
<S> <C> <C>
Current assets:
Cash $ 6 $ 975
Receivables, net 7,261 6,605
Inventories 2,032 1,807
Prepaid expenses 126 112
Current portion of related party notes receivable 250 250
-------------------- --------------------
Total current assets 9,675 9,749
Investments in and advances to joint ventures 13,419 12,736
Property, plant and equipment, net 9,734 9,165
Goodwill 1,962 2,018
Related party notes receivable 633 633
Other assets 225 160
-------------------- --------------------
$ 35,648 $ 34,461
==================== ====================
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable and accrued expenses $ 2,901 $ 2,257
Current portion of long-term debt 545 473
-------------------- --------------------
Total current liabilities 3,446 2,730
Long-term debt 5,226 4,475
Deferred income taxes 2,442 2,408
-------------------- --------------------
Total liabilities 11,114 9,613
-------------------- --------------------
Minority Interest 474 497
Stockholders' equity:
Common stock 7 7
Capital in excess of par value 5,312 5,312
Cumulative foreign currency translation adjustments (471) (381)
Retained earnings 19,212 19,413
-------------------- --------------------
Total stockholders' equity 24,060 24,351
-------------------- --------------------
$ 35,648 $ 34,461
==================== ====================
</TABLE>
See accompanying notes to financial statements
<PAGE>
MINING SERVICES INTERNATIONAL CORPORATION
Consolidated Statement of Income (Condensed)
(In thousands, except share amounts)
(Unaudited)
<TABLE>
<CAPTION>
3 months ended 3 months ended
3/31/00 3/31/99
-------------------- --------------------
<S> <C> <C>
Revenues:
Net sales $ 6,474 $ 6,369
Royalties 224 270
Equity in earnings from joint ventures 572 902
Other income 14 25
-------------------- --------------------
7,284 7,566
Cost and expenses:
Cost of sales 6,335 6,082
General administrative 987 578
Research and development 159 98
-------------------- --------------------
7,481 6,758
-------------------- --------------------
Income/(loss) from operations (197) 808
Other expenses, net 54 69
-------------------- --------------------
Income/(loss) before provision for income taxes (251) 739
Benefit/(provision) for income taxes 28 (251)
-------------------- --------------------
Income/(loss) before minority interest (223) 488
Minority interest (23) -
-------------------- --------------------
Net income/(loss) $ (200) $ 488
==================== ====================
Weighted average number of shares outstanding
Basic 7,314,000 7,368,000
==================== ====================
Diluted 7,314,000 7,493,000
==================== ====================
Net income/(loss) per share
Basic $ (.03) $ .07
==================== ====================
Diluted $ (.03) $ .07
==================== ====================
</TABLE>
See accompanying notes to financial statements
<PAGE>
MINING SERVICES INTERNATIONAL CORPORATION
Consolidated Statement of Cash Flows (Condensed)
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
3 months ended 3 months ended
3/31/99 3/31/99
-------------------- --------------------
<S> <C> <C>
Cash flows from operating activities:
Net income/(loss) $ (200) $ 488
Adjustments to reconcile net income/(loss) to net cash
provided by/(used in) operating activities:
Depreciation and amortization 391 281
Provision and reserves for loss on assets 25 -
Gain on disposal of equipment (13) (4)
Distributed/(undistributed) earnings in joint ventures (586) 73
Deferred income taxes 34 -
Change in assets and liabilities:
(Increase) decrease in accounts receivable (681) (688)
(Increase) decrease in inventories (225) 44
(Increase) decrease in prepaid expenses (14) (55)
(Increase) decrease in other assets (65) (1)
Increase (decrease) in accounts payable and accrued expenses 644 951
Increase (decrease) in minority interest (23) -
-------------------- --------------------
Net cash provided by/(used in) operating activities (713) 1,089
-------------------- --------------------
Cash flows from investing activities:
Proceeds from sale of plant and equipment 13 47
Purchase of plant and equipment (904) (829)
Investment in joint ventures (187) (334)
-------------------- --------------------
Net cash used in investing activities (1,078) (1,116)
-------------------- --------------------
Cash flows from financing activities:
Net proceeds from operating line of credit 975 18
Proceeds from issuance of long-term debt - 250
Payments on long-term debt (153) (319)
-------------------- --------------------
Net cash provided by/(used in) financing activities 822 (51)
-------------------- --------------------
Net decrease in cash (969) (78)
Cash, beginning of period 975 314
-------------------- --------------------
Cash, end of period $ 6 $ 236
==================== ====================
</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 March 31, 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 March 31, 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 "JVs") 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
March 31, 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>
1st Quarter 2000 $ 5,912,000 $ 1,155,000 50% $ 586,000 $ 6,698,000 $ 7,284,000
1st Quarter 1999 $ 7,501,000 $ 1,854,000 50% $ 927,000 $ 6,639,000 $ 7,566,000
</TABLE>
Note: MSI does not consolidate revenues from 50% or less controlled joint
ventures
NOTE 3: INVENTORIES
Inventories at March 31, 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 March 31, 2000 and December 31,
1999 are as follows:
<TABLE>
<CAPTION>
March 31, 2000 December 31, 1999
--------------------- -----------------
<S> <C> <C>
Raw Materials $ 708,000 $ 737,000
Finished Goods $ 1,324,000 1,070,000
--------------------- -------------------
$ 2,032,000 $ 1,807,000
===================== ===================
</TABLE>
<PAGE>
NOTE 4: EARNINGS PER SHARE
The Company's net loss for the quarter ended March 31, 2000 has an
antidilutive effect on the calculation of earnings per share. However, if the
results of the quarter had produced net income instead of a net loss, the
weighted number of shares outstanding on a diluted basis would be 7,316,000.
NOTE 5: COMPREHENSIVE INCOME
Comprehensive income or loss includes certain changes in equity not
represented in net income or loss, including foreign currency translation
adjustments. Due to a foreign currency translation adjustment of $90,000, the
comprehensive loss for the quarter ended March 31, 2000 was $290,000.
Item 2 Managements Discussion and Analysis of Financial Condition and
Results of Operations
Three-months ended March 31, 2000 vs. 1999
- ------------------------------------------
Revenues decreased $282,000 or 4% in the first quarter of 2000 compared to
the first quarter of 1999. This decrease was primarily due to the $330,000
decrease in equity in earnings from joint ventures. Beginning with the second
quarter of 1999, contributions from Cyanco, the Companys joint venture in
Nevada, have been hampered by depressed gold prices. Although, Cyanco has
obtained increased market share, falling gold prices have had a significantly
negative impact on the joint ventures margins. The drop in Cyancos operating
results represent the majority of the decrease in equity in earnings from joint
ventures. While management believes that Cyanco may experience continued margin
pressure if gold prices remain depressed and raw material prices increase, it
believes that Cyanco is well positioned for the long-term with strategic
contracts already in place.
Net sales for explosives decreased 2% or $105,000 for the three months
ended March 31, 2000, as compared to the same period in 1999. However, net
revenues from the Companys western division decreased nearly $1 million for the
period as one of the Companys customers completed a large dam project during the
second quarter of 1999. By entering into a drilling and blasting (D&B) joint
venture in Tennessee in September 1999, the Company was able to offset the
majority of the decrease in net sales. However, the start-up phase of the D&B
joint venture did not provide as much net contribution to income from operations
as compared to the California dam project, which is reflected in the 2.4%
decrease of gross margin between net sales and cost of sales during the current
period compared to the same period in 1999. The Companys foreign trading
subsidiary, MSI Chemicals, had a $526,000 decrease in revenue due to a large
ammonium nitrate sale in the first quarter of 1999 which was not repeated in the
first quarter of 2000. This decrease in revenues was offset by a $590,000
increase in the revenues of Green Mountain Explosives (GME) for the three months
ended March 31, 2000 as compared to the three months ended March 31, 1999.
Even though an increase in the net contribution to the Companys operations
by GME was $125,000 when comparing the first quarter of 2000 to the first
quarter of 1999, the first quarter operating results of both GME and TBS reflect
lower than average projected results due to the influence of the
weather-sensitive construction cycle. Predictably, the first and fourth quarters
represent the bottom of the construction cycle while the second and third
quarters normally have drier weather when increased revenues are experienced.
Management believes that GME and TBS will provide significant contribution to
the Company in the second and third quarters of 2000.
The $409,000 increase in general administrative expenses for the period is
primarily attributable to the consolidation of the Tennessee Drilling and
Blasting Services, L.L.C. (TBS) general administrative expenses of $205,000, a
$42,000 increase in the general administrative expenses of GME, a $72,000
increase in administrative wages, and a $25,000 increase in director fees.
During the first quarter of 1999, the Company was able to offset some of its
research and development costs with revenues generated from product testing. No
such testing occurred in the first quarter of 2000; accordingly, research and
development costs increased $61,000 or 62% for the three months ended March 31,
2000 compared to the three-month period ended March 31, 1999.
<PAGE>
As a result of the decrease in revenues of $282,000 combined with an
increase in expenses of $723,000, income from operations for the three-month
period ended March 31, 1999 of $808,000 decreased $1,005,000 to a loss from
operations of $197,000 for the three-month period ended March 31, 2000. Other
expenses decreased $15,000 or 22% as compared to the same period in the prior
year. As a result of the decrease in income before taxes as compared to the
prior period, income taxes decreased $279,000 or 111% from an expense of
$251,000 for the quarter ended March 31, 1999 to a benefit of $28,000 for the
quarter ended March 31, 2000. The effective tax benefit rate of 11% for the
three-month period ended March 31, 2000 differs from the statutory expense rate
of 34% primarily due to permanent differences in book and tax accounting
resulting from the disallowance of certain expenses for tax purposes. As a
result of the consolidation of TBS in September 1999, the Company recognized the
minority interest in the first quarter loss of TBS of $23,000.
Liquidity and Capital Resources
- -------------------------------
The current ratio decreased from 3.57 to 1 as of December 31, 1999 to 2.81
to 1 as of March 31, 2000. The decrease in the current ratio was primarily
attributable to the use of cash to fund the acquisition of plant and equipment
in the first quarter of 2000. In addition, proceeds from the line of credit were
used to fund working capital needs primarily due to an increase in the
undistributed earnings of joint ventures of $586,000. The $681,000 increase in
accounts receivable largely consists of an increase in the accounts receivable
of TBS and GME of $659,000 and $231,000, respectively. These increases are
partially offset by a decrease in the accounts receivable of the Companys
wholly-owned subsidiary Central Asia Chemical (CAC) of $392,000, which received
payment by the Companys Uzbekistan joint venture of amounts owed to CAC for
previous raw material shipments. Management is hopeful that CAC should continue
receiving payments since U.S. dollar conversion for raw material purchases has
been approved for Turon-MSI by the Uzbekistan government. Increased operating
activity from TBS and GME affected accounts payable in a manner similar to the
affect on accounts receivable. A majority of the increase in Investments in and
Advances to Joint Ventures between December 31, 1999 and March 31, 2000 comes
from an increase in the undistributed earnings of Joint Ventures. The $904,000
purchase of plant and equipment during the three months ended March 31, 2000
consists primarily of the acquisition of two drills by TBS of $503,000 and the
continued construction of the accessories plant line of OBrien Design Associates
of $275,000.
The Company had $3,340,000 owing on its line of credit at March 31, 2000,
which was as much of the line as the Company had utilized of its line of credit
during the first quarter of 2000. Interest expense related to the line of credit
was $52,000 for the period compared to $8,000 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. Additionally, as the working
capital requirements for the operations of GME, TBS, and the Companys joint
ventures in Russia and Colombia begin to expand, the Company may need to
increase its lines of credit and obtain long-term financing against certain of
the Companys assets, or liquidate certain assets.
<PAGE>
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 Companys consolidated revenue is generated from foreign markets; however, as
explained in the Significant Accounting Policies, the Companys sales in joint
ventures are not reported in consolidated revenues and the percentage of the
Companys 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. None of the license royalty payment
obligations are 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 Companys results
of operations currently. However, once the Companys joint venture in Kovdor,
Russia begins 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 Companys 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 6: Exhibits and Reports on Form 8-K
In January 2000, an action styled as BLA Investment Irrevocable Trust, by
and through Bryan Bagley and Lisa Higley, Trustees, Plaintiffs, vs. Mining
Services International Corporation, a Utah corporation, and John T. Day, Lex
Udy, Nathan L. Wade and Steven Fleischer, Defendants, was filed in the Third
Judicial District Court for Salt Lake County, Utah. As a result, a Form 8-K was
filed on January 20, 2000 disclosing details of this legal action. No additional
exhibits have been filed as part of this report.
<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)
May 12, 2000 /s/ Duane W. Moss
------------ -----------------
(Date) Duane W. Moss
Chief Financial Officer and Secretary
May 12, 2000 /s/ Wade L. Newman
------------ ------------------
(Date) Wade L. Newman
Controller
<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)
May 12, 2000 /s/ Duane W. Moss
------------ -----------------
(Date) Duane W. Moss
Chief Financial Officer and Secretary
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 6,000
<SECURITIES> 0
<RECEIVABLES> 7,389,000
<ALLOWANCES> 128,000
<INVENTORY> 2,032,000
<CURRENT-ASSETS> 9,675,000
<PP&E> 17,219,000
<DEPRECIATION> 7,485,000
<TOTAL-ASSETS> 35,648,000
<CURRENT-LIABILITIES> 3,446,000
<BONDS> 5,226,000
0
0
<COMMON> 7,000
<OTHER-SE> 24,053,000
<TOTAL-LIABILITY-AND-EQUITY> 35,648,000
<SALES> 6,474,000
<TOTAL-REVENUES> 7,284,000
<CGS> 6,335,000
<TOTAL-COSTS> 7,481,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 54,000
<INCOME-PRETAX> (251,000)
<INCOME-TAX> (28,000)
<INCOME-CONTINUING> (200,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (200,000)
<EPS-BASIC> (0.03)
<EPS-DILUTED> (0.03)
</TABLE>
