<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
(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
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________________ to _____________________
Commission file number 000-21561
MCSI, INC.
(FORMERLY MIAMI COMPUTER SUPPLY CORPORATION)
(Exact name of registrant as specified in its articles of incorporation)
MARYLAND 31-1001529
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4750 HEMPSTEAD STATION DRIVE, DAYTON, OHIO 45429
(Address of principal executive offices)
(937) 291-8282
(Registrant's telephone number, including area code)
Indicate by check whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) had been subject to such
filing requirements for the past 90 days.
Yes X No
----- ----
At October 11, 2000 12,469,753 shares of common stock, no par value
per share, of the registrant were outstanding.
<PAGE>
MCSI, INC.
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2000
INDEX
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION PAGE
<S> <C>
Item 1. Financial Statements:
Consolidated Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Consolidated Statement of Operations . . . . . . . . . . . . . . . . . . . . . . . 4
Consolidated Statement of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . 5
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . .. . . 6-7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . . . . . . . . . . . 8-10
Item 3. Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . 11
PART II - OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Item 2. Changes in Securities and Use of Proceeds . . . . . . . . . . . . . . . . . 12
Item 3. Default Upon Senior Securities. . . . . . . . . . . . . . . . . . . . . . . 12
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . 12
Item 5. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . . . . . . . . 12
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
MCSI, INC
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
(Dollars in thousands)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
ASSETS 2000 1999
---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents ................................................... $ 2,585 $ 5,135
Accounts receivable ......................................................... 142,745 104,219
Inventories ................................................................. 73,285 76,923
Prepaid expenses ............................................................ 1,476 998
Deferred income taxes ....................................................... 621 621
--------- ---------
Total current assets ................................................... 220,712 187,896
Property and equipment - net of accumulated
depreciation ................................................................. 35,452 30,384
Intangible assets - net of accumulated amortization............................. 140,422 132,379
Investment in equity investee................................................... 27,105 -
Other assets ................................................................... 1,603 3,619
--------- ---------
Total assets ............................................................ $ 425,294 $ 354,278
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable - trade ........................................................ $ 85,179 $ 59,781
Accrued expenses, payroll and income taxes ...................................... 12,723 9,104
Notes payable in connection with business
combinations ................................................................... - 8,206
Current portion of long-term debt ............................................... 608 596
--------- ---------
Total current liabilities .............................................. 98,510 77,687
Long-term debt .................................................................. 163,890 149,461
Deferred income taxes ........................................................... 10,769 974
--------- ---------
Total liabilities ...................................................... 273,169 228,122
--------- ---------
Commitments and contingencies .................................................. -- --
Redeemable minority interest in subsidiary ..................................... -- 3,977
--------- ---------
Stockholders' equity:
Preferred stock, no par value; 5,000,000 shares
authorized, none outstanding ............................................. -- --
Common stock, no par value; 30,000,000 shares
authorized, 12,468,653 and 12,084,604 shares
outstanding at September 30, 2000 and
December 31, 1999, respectively .......................................... -- --
Additional paid-in capital .................................................... 120,177 100,041
Retained earnings ............................................................. 34,342 23,413
Cumulative other comprehensive income ......................................... (279) 802
Treasury stock, at cost (2000-88,780;
1999-84,944, shares respectively) ........................................ (2,115) (2,077)
--------- ---------
Total stockholders' equity ...................................................... 152,125 122,179
--------- ---------
Total liabilities and stockholders' equity.............................. $ 425,294 $ 354,278
========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
3
<PAGE>
MCSI, INC.
CONSOLIDATED STATEMENT OF OPERATONS
(UNAUDITED)
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
QUARTER ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- ----------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales................................ $ 223,152 $ 181,781 $ 662,729 $ 494,166
Cost of sales ........................... 170,594 145,695 514,230 397,590
------------ ------------ ------------ ------------
Gross profit ............................ 52,558 36,086 148,499 96,576
Selling, general and administrative
expenses ............................. 42,146 28,705 118,934 75,736
------------ ------------ ------------ ------------
Operating income ........................ 10,412 7,381 29,565 20,840
Interest expense ........................ (3,745) (2,649) (10,925) (7,173)
Other income (expense) .................. (158) 91 447 352
------------ ------------ ------------ ------------
Income before income taxes .............. 6,509 4,823 19,087 14,019
Provision for income taxes .............. 2,799 2,055 8,158 6,307
------------ ------------ ------------ ------------
Net income............................... $ 3,710 $ 2,768 $ 10,929 $ 7,712
============ ============ ============ ============
Earnings per share of common stock-
basic................................. $ 0.29 $ 0.24 $ 0.87 $ 0.67
============ ============ ============ ============
Earnings per share of common stock-
diluted............................... $ 0.29 $ 0.24 $ 0.85 $ 0.66
============ ============ ============ ============
Weighted average number of common
shares outstanding-basic ............. 12,356,941 11,529,799 12,268,711 11,439,605
============ ============ ============ ============
Weighted average number of common
shares outstanding-diluted ............ 12,684,579 11,688,185 12,594,439 11,644,718
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
4
<PAGE>
MCSI, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(Dollars in thousands)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income......................................................... $ 10,929 $ 7,712
Adjustments to reconcile net income to cash flows from
operating activities:
Depreciation and amortization ..................................... 7,434 4,686
Other non-cash items .............................................. (264) --
Changes in assets and liabilities, net of effects of acquisitions
of businesses:
Accounts receivable .............................................. (48,430) (10,831)
Inventories ...................................................... 19 (15,450)
Other assets ..................................................... (626) 2,219
Accounts payable - trade ......................................... 20,659 8,768
Accrued expenses, payroll and income taxes ....................... 1,745 3,115
-------- --------
Cash (used in) provided by operating activities ....................... (8,534) 219
-------- --------
Cash flows from investing activities:
Capital expenditures ............................................... (7,810) (7,975)
Changes in cash surrender officers' life insurance ................. 1,845 21
Purchase business combinations ..................................... (13,815) (10,180)
Proceeds from sale of Azerty wholesale division .................... 30,449 --
Increase in equity investment ...................................... (2,593) --
Cash included in acquisitions ...................................... 1,293 42
-------- --------
Cash provided by (used in) investing activities ...................... 9,369 (18,092)
-------- --------
Cash flows from financing activities:
Net proceeds from sale of common stock .............................. 1,249 18
Increase in long-term debt .......................................... 14,441 32,288
Payment of debt acquired in business combinations ................... (10,402) (7,164)
Treasury stock purchases ............................................ (7,648) (4,372)
-------- --------
Cash (used in) provided by financing activities ...................... (2,360) 20,770
-------- --------
Effects of exchange rates ........................................... (1,025) (345)
-------- --------
Net (decrease) increase in cash ...................................... (2,550) 2,552
Cash and cash equivalents - beginning of period ................... 5,135 4,115
-------- --------
Cash and cash equivalents - end of period.......................... $ 2,585 $ 6,667
======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
5
<PAGE>
MCSI, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollars in thousands, except per share data)
NOTE 1 - GENERAL
The accompanying unaudited consolidated financial statements have been
prepared in accordance with Rule 10-01 of SEC Regulation S-X. Consequently, they
do not include all the disclosures required under generally accepted accounting
principles for complete financial statements. However, in the opinion of the
management of MCSi, Inc. (the "Company"), the consolidated financial statements
presented herein contain all adjustments (consisting only of normal recurring
adjustments) necessary to present fairly the financial position, results of
operations and cash flows of the Company and its consolidated subsidiaries. For
further information regarding the Company's accounting policies and the basis of
presentation of the financial statements, refer to the consolidated financial
statements and notes included in the Company's Annual Report on Form 10-K for
the year ended December 31, 1999, the ("Annual Report").
NOTE 2 - ACQUISITIONS
As disclosed in the Annual Report, the Company has been involved in an
active acquisition program. Results of operations for the nine months ended
September 30, 2000 include the impact of entities acquired during 1999, which
are not included in the results of operations for the nine months ended
September 30, 1999. Acquisitions for the nine months ended September 30, 2000
were not material. The following pro forma information illustrates the effect of
these 1999 acquisitions assuming they had occurred on January 1, 1999.
<TABLE>
<CAPTION>
Nine months ended
September 30, 1999
------------------
<S> <C>
Net sales. . . . . . . . . . . . . . . . . . . . . . . $ 584,477
--------------
Net income. . . . . . . . . . . . . . . . . . . . . . . $ 9,695
--------------
Basic earnings per share. . . . . . . . . . . . . . . . $ 0.81
==============
Diluted earnings per share. . . . . . . . . . . . . . . $ 0.79
==============
</TABLE>
The pro forma statement of operations data reflect the effects of the
purchase price allocation and the resultant amortization and additional interest
expense associated with the cash used to fund the acquisitions, along with other
adjustments directly attributable to the transactions. The pro forma data
reflects adjustments directly related to the acquisitions and does not include
adjustments that may arise as a consequence of the acquisitions, such as cost
savings, improved efficiencies, etc. Therefore, the pro forma data is not
necessarily indicative of operating results that would have occurred for the
nine month period ended September 30, 1999, or in future periods, had the
acquisitions actually occurred on January 1, 1999.
NOTE 3 - COMPREHENSIVE INCOME
Comprehensive income was $9,848 and $8,026 for the nine months ended
September 30, 2000 and 1999, respectively.
6
<PAGE>
NOTE 4 - BASIC AND DILUTED EARNINGS PER COMMON SHARE
The only dilutive securities of the Company relate to stock options.
The computation of basic and diluted earnings per common share is shown below:
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
September 30, 2000 September 30, 2000
------------------ ------------------
Income Shares Income Shares
(Numerator) (Denominator) (Numerator) (Denominator)
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Net income as reported . . . . . . $ 3,710 $ 10,929
Effect of accretion of
redeemable stock of
subsidiary . . . . . . . . (88) (286)
----------- --------
Income available to
common stockholders . . . . . . 3,622 12,356,941 10,643 12,268,711
=========== ========
Effect of dilutive securities . . 327,638 325,728
---------- ----------
Income available to common
stockholders plus assumed
exercise . . . . . . . . . . $ 3,622 12,684,579 $ 10,643 12,594,439
----------- ------------- ----------- -------------
Basic earnings per common
share . . . . . . . . . . . . . $ 0.29 $ 0.87
========== ===========
Diluted earnings per common
share . . . . . . . . . . . . . $ 0.29 $ 0.85
========= ===========
</TABLE>
All stock options outstanding at September 30, 2000 and September 30,
1999 were included in the computation of diluted earnings per common share for
the nine months ended September 30, 2000 and 1999, respectively.
NOTE 5 - OTHER MATTERS
On September 20, 2000, Zengine, Inc., ("Zengine") completed an
initial public offering ("IPO") of 4,290,000 shares of its common stock.
Prior to the IPO, the Company owned 68.5% of the outstanding shares of
Zengine and therefore consolidated Zengine in the Company's financial
position and results of operations. As a result of the IPO and subsequent
stock option exercises, the Company owned less than 50% of Zengine's
outstanding common stock at September 30, 2000. Accordingly the Company has
accounted for its investment in Zengine using the equity method for
the three and nine month periods ended September 30, 2000. The IPO resulted
in an increase in the Company's basis in Zengine of approximately $24.5
million, which was recorded as an increase in investment in equity investee
and an offsetting increase in deferred tax liabilities of $9.8 million and
additional paid-in capital of $14.7 million. As a result of the
aforementioned IPO the put option (described in Note 10. "Stockholders'
Equity" in the Company's Annual Report) provided by the Company to certain
investors in Zengine terminated.
On July 7, 2000, the Company sold certain of the assets and
liabilities of its specialty wholesale business, Azerty Canada. The gain
resulting from this transaction was not material to the Company's results of
operations. Sales of this division were approximately $115 million in the
year ended December 31, 1999.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the
information contained in the unaudited consolidated financial statements and
Notes to unaudited consolidated financial statements. The following information
contains "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995 (the "Act") and is subject to the safe
harbor created by that Act. The words "estimate," "project," "anticipate,"
"expect," "intend," "believe," "plans" and similar expressions are intended to
identify forward-looking statements. Because such forward-looking statements
involve risks and uncertainties, there are important factors that could cause
actual results to differ materially from those expressed or implied by such
forward-looking statements. Factors that could cause actual results to differ
materially include, but are not limited to, changes in general economic and
business conditions, the availability of capital on acceptable terms, actions of
competitors and key suppliers, risks inherent in acquiring, integrating and
operating new businesses, exchange rate fluctuations, the regulatory and trade
environment (both domestic and foreign), and changes in business strategies and
other factors as discussed in Exhibit 99 hereto.
OVERVIEW
MCSi is emerging as a leading systems integrator of
state-of-the-art presentation and broadcast facilities, in addition to its
historical position as a leading supplier of computer technology and
audio-visual products. The ability to provide innovative, technically
sophisticated solutions to meet the increasing demand for improved
communication comes from a solid background in audio-visual systems,
broadcast media, and computer technology. The Company's ability to converge
these three industries, combined with design-build and engineering expertise,
computer networking and configuration services, an extensive product line,
and quality technical support services, has given the Company an advantage in
the systems integration marketplace and contributed to the dramatic growth of
the company.
To aid in establishing its position as a sophisticated systems
integration company, MCSi recently introduced system documentation standards,
including signal flow, CAD and VidCAD documentation standards and
open-architecture standardized applications for creating flexible wire-run
databases. These standards, coupled with the Company's existing physical
installation standards - cabling and interconnect, wire number identification
placement templates, and marker nomenclature - are working to create a high
level of client satisfaction.
The Company distributes most of its computer technology products
warehouse located in Erlanger, Kentucky, which is leased from a partnership
consisting of the directors and executive officers of the Company. The
warehouse maintains inventory and handles products from more than 500
manufacturers. Centralizing inventory in a facility located near a hub of
United Parcel Service allows the Company to accept and process orders for
products until 9:00p.m. EST and provide next day delivery virtually anywhere
in the continental United States. The Company is not aware of any competitor
having such capacity.
The Company intends to continue the tactical implementation of its
business plan and continue to leverage and grow as a leading provider of
convergent products and services in multiple market spaces. The focused emphasis
of the sales, engineering and support personnel is the delivery of comprehensive
multi-vendor solutions to more than 50,000 active clients. The Company intends
to continue its vigorous expansion over the next few quarters through internal
growth and strategic mergers. The Company also intends to enter new markets by
hiring certain experienced sales representatives in and outside of the Company's
current market areas (some of whom may be constrained from working in their
present locations for a period of time). There can be no assurance that any
acquisition can or will be consummated on terms favorable to the Company or that
the Company will not need additional debt or equity financing to continue its
acquisition strategy.
THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1999
NET SALES. Net sales for the three months ended September 30, 2000
increased by $41.4 million, or 22.8%, to $223.2 million from $181.8 million for
the three months ended September 30, 1999. Of the net sales increase, $36.7
million was attributable to the impact of acquisitions made during 2000 and the
fourth quarter of 1999 and $29.1 million was a result of increased sales
penetration, increased product offerings to existing customers and an expanded
sales force. Increased sales attributable to the impact of acquisitions and
internal growth for the three months ended September 30, 2000 was partially
offset by a sales reduction of $24.4 million as a result of the Company's July
7, 2000 sale of the Azerty Canada wholesale business. Sales returns are not
material to the Company's results of operations.
GROSS PROFIT. Gross profit for the three months ended September 30,
2000 increased by $16.5 million, or 45.7% to $52.6 million from $36.1 million
for the three months ended September 30, 1999. Gross profit as a percentage of
net sales for the three months ended September 30, 2000 was 23.6% compared to
19.9% for the three months ended September 30, 1999. The increase in the
8
<PAGE>
gross profit percentage was due primarily to the increase in audio-visual
integration system projects sales, which have a higher gross profit percentage,
as compared to computer technology product sales. Additionally, the
aforementioned sale of the Azerty wholesale division resulted in improved
margins as the Azerty wholesale division generated average margins less than
10%. Excluding the effects of the Azerty wholesale business, gross profit as a
percentage of sales for the three months ended September 30, 1999 was 21.7%.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for the three months ended September 30, 2000 increased
by $13.4 million, to $42.1 million from $28.7 million for the three months ended
September 30, 1999. Of that increase, 59.0% was due to the impact of
acquisitions during the fourth quarter of 1999. Selling, general and
administrative expenses were 18.9% and 15.8% of sales for the three months ended
September 30, 2000 and 1999, respectively. The 3.1% point increase was due
primarily to increased audio-visual integration system sales, which incur a
higher percentage of selling, general and administrative expenses than computer
technology product sales.
OPERATING INCOME. Operating income for the three months ended
September 30, 2000 increased by $3.0 million to $10.4 million from $7.4 million
for the three months ended September 30, 1999. This increase was primarily due
to increased sales volume and acquisitions as discussed above.
INTEREST EXPENSE. Interest expense for the three months ended
September 30, 2000 increased by $1.1 million to $3.7 million from $2.6 million
for the three months ended September 30, 1999 due primarily to the increased
level of indebtedness during 2000, resulting primarily from the Company's
acquisition program and working capital requirements.
PROVISION FOR INCOME TAXES. The provision for income taxes for the
three months ended September 30, 2000 increased $0.7 million to $2.8 million
from $2.1 million for the three months ended September 30, 1999. The Company's
effective tax rate was 43.0% for the three months ended September 30, 2000 and
42.6% for the three months ended September 30, 1999.
NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1999
NET SALES. Net sales for the nine months ended September 30, 2000
increased by $168.5 million, or 34.1%, to $662.7 million from $494.2 million for
the nine months ended September 30, 1999. Of the net sales increase, $86.7
million was attributable to the impact of acquisitions made during 2000 and the
fourth quarter of 1999 and $106.2 million of the increase is a result of
increased sales penetration, increased product offerings to existing customers
and an expanded sales force. Increased sales attributable to the impact of the
acquisitions and internal growth for the nine months ended September 30, 2000
was partially offset by a sales reduction of $24.4 million as a result of the
Company's July 7, 2000 sales of the Azerty Canada wholesale business. Sales
returns are not material to the Company's results of operations.
GROSS PROFIT. Gross profit for the nine months ended September 30,
2000 increased by $51.9 million, or 53.7% to $148.5 million from $96.6 million
for the nine months ended September 30, 1999. Gross profit as a percentage of
net sales for the nine months ended September 30, 2000 was 22.4% compared to
19.5% for the nine months ended September 30, 1999. The increase in the gross
profit percentage was due primarily to the increase in audio-visual system
integration projects sales, which have a higher gross profit percentage, as
compared to computer technology product sales. Additionally, the aforementioned
sales of the Azerty wholesale division resulted in improved margins, as the
Azerty wholesale division generated average margins less than 10%. Excluding the
effects of the Azerty wholesale business, gross profit as a percentage of sales
for the nine months ended September 30, 2000 was 24.1%.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for the nine months ended September 30, 2000 increased
by $43.2 million, to $118.9 million from $75.7 million for the nine months ended
September 30, 1999. As a percentage of net sales, selling, general and
administrative expenses were 17.9% for the nine months ended September 30, 2000
compared to 15.3% for the nine months ended September 30, 1999. The 2.6% point
increase was due primarily to increased audio-visual integration system sales,
which have a higher percentage of selling, general and administrative expenses
than computer technology product sales.
OPERATING INCOME. Operating income for the nine months ended September
30, 2000 increased by $8.8 million to $29.6 million from $20.8 million for the
nine months ended September 30, 1999, for the reasons stated above. Operating
margins were 4.5% for the nine months ended September 30, 2000 compared to 4.2%
for the nine months ended September 30, 1999.
INTEREST EXPENSE. Interest expense for the nine months ended September
30, 2000 increased to $10.9 million from $7.2 million for the nine months ended
September 30, 1999 due primarily to the increased level of indebtedness incurred
during 2000, which was used primarily for business combinations and working
capital requirements.
9
<PAGE>
PROVISION FOR INCOME TAXES. The provision for income taxes for the
nine months ended September 30, 2000 increased $1.9 million to $8.2 million from
$6.3 million for the nine months ended September 30, 1999 due to an increase in
pre-tax income. The Company's effective tax rate was 42.7% for the nine months
ended September 30, 2000 as compared to 45.0% for the corresponding period of
the prior year. The decrease was primarily due to reduced state and local taxes.
LIQUIDITY AND CAPITAL RESOURCES
Net cash flows used in operating activities totaled $8.5 million for
the first nine months of 2000 compared to $0.2 million provided by operating
activities during the first nine months of 1999. The change in net cash flows
from operating activities in the first nine months of 2000 was due primarily to
increases in net income, depreciation and amortization and trade accounts
payable, offset by higher levels of accounts receivable.
At September 30, 2000, the Company's average days sales outstanding
was 52 days as compared to 47 days at December 31,1999. The increase of the
Company's average days sales outstanding is primarily the result of increased
sales of audio-visual integration system project sales, which typically have
larger collection cycles than technology product sales. To date, management does
not believe that the increase in the average days sales outstanding exposes the
Company to increased credit risk, as the audio-visual integration system project
sales are typically made to larger, credit worthy customers.
Inventory turned 9 times on an annualized basis for the nine months
ended September 30, 2000. This level is consistent with 1999 inventory turns of
9 times. During 2000, gross inventory reductions resulting from the
consolidation of our warehousing facilities were offset by the increase in sales
of audio-visual products, which typically do not turn as quickly as computer
supplies.
Net cash provided by investing activities was $9.4 million for the
nine months ended September 30, 2000 versus as use of $18.1 million for the
nine months ended September 30, 1999. The net cash used in investing
activities primarily reflects acquisitions completed and capital expenditures
for both periods, offset during the nine months ended September 30, 2000 by
the proceeds from the sale of the Azerty wholesale division of $30.5 million.
Net cash used in financing activities totaled $2.4 million for the nine
months ended September 30, 2000 compared with $20.8 million provided by
financing activities for the nine months ended September 30, 1999. The
primary use of cash for financing activities during the nine months ended
September 30, 2000 related to the purchase of treasury stock while the
primary source of cash provided by financing activities for the nine months
ended September 30, 1999 was borrowings under the Company's line of credit.
The Company believes that its cash on hand and borrowing capacity
will be sufficient to fund its ongoing operations and budgeted capital
expenditures for the next twelve months, although actual capital needs may
change, particularly in connection with acquisitions which the Company may
make in the future. The Company's long-term requirements, including capital
expenditures and acquisitions, are expected to be financed by a combination
of additional borrowings and other sources of external financing, including
the sale of equity securities, as needed.
CREDIT FACILITY
The Company presently operates under a credit facility with a
consortium of banks totaling $160 million. Loans under the Credit Facility
may be incurred by the Company from time to time to finance "permitted
acquisitions" and may be made at the Bank's prime rate (as defined) or at the
defined published eurodollar rate plus a "eurodollar margin" that ranges from
100 to 200 basis points based on certain indebtedness ratios of the Company.
Borrowings under the Credit Facility are secured by substantially all of the
assets and property of the Company and certain of its subsidiaries, including
accounts receivable, equipment and inventory. The loan commitment terminates
on the maturity date (December 10, 2003), unless terminated earlier. The
Company may voluntarily prepay any advance without penalty or premium at any
time or from time to time.
The Credit Facility contains restrictive covenants which may have an
adverse effect on the Company's operations in the future. The Company has
covenanted that, among other things, it will not: (i) change the nature of its
business; (ii) liquidate or dissolve its affairs, merge, consolidate or acquire
the property or assets of any person, other than permitted acquisitions that
comply with the financial covenants of the Credit Facility, certain intercompany
mergers, permitted investments, permitted dispositions, certain capital
expenditures and leases; (iii) permit the incurrence of any lien on the
Company's property and assets; (iv) incur other indebtedness, except for up to
$7.0 million of indebtedness incurred by foreign subsidiaries and for certain
capital leases up to $10.0 million, certain guaranties and existing
indebtedness; (v) pay cash dividends or repurchase more than a certain amount of
its capital stock; (vi) violate certain financial covenants; or (vii) engage in
certain other transactions.
10
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
No significant market risk changes occurred in the nine-month period
ended September 30, 2000. Refer to the Company's Annual Report on Form 10-K for
further information.
11
<PAGE>
PART II-OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is involved in routine legal proceedings occurring in the
ordinary course of business, which, in the aggregate are believed by management
to be immaterial.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Amendment No. 10 to the Amended and Restated Credit Agreement,
dated as of September 27, 2000 among the Company, as the
Borrower, the Financial Institutions Named herein, as Lenders,
National City Bank, as a Lender and as Documentation Agent, PNC
Bank, National Association, as a Lender, the Swing Line Lender, a
Letter of Credit of Issuer and as Administrative Agent, dated May
31, 2000.
27 Financial Data Schedule
99 Safe Harbor Under the Private Securities Litigation Reform Act of
1995
(b) Reports on Form 8-K
Form 8-K filed on July 25, 2000 concerning the resignation of Thomas
Winstel and the appointment of Ira H. Stanley to the Board of Directors.
12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MCSi, Inc.
(Registrant)
Date: November 14, 2000
By: /s/ Ira H. Stanley
Ira H. Stanley
Vice President - Chief
Financial Officer, Secretary
13
