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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
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FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED MARCH 31,JUNE 30, 1998 COMMISSION FILE NUMBER 0-13292
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McGRATH--------------------------------------------
MCGRATH RENTCORP
(Exact name of registrant as specified in its Charter)
CALIFORNIA 94-2579843
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
5700 LAS POSITAS ROAD, LIVERMORE, CA
94550 (Address of principal executive offices)
Registrant's telephone number: (925) 606-9200
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Indicate by check mark 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) has been subject to such
filing requirements for the past 90 days.
Yes X No.
----- -----__X_ No ___
At May 11,August 7, 1998, 14,144,73014,068,362 shares of Registrant's
Common Stock were outstanding.
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PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
McGRATHSTATEMENTS
MCGRATH RENTCORP
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED MARCH 31,
--------------------------------JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------------------- ------------------------------------
1998 1997 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
REVENUES
Rental $16,980,893 $14,327,001$ 17,339,975 $ 14,743,810 $ 34,320,868 $ 29,070,811
Rental Related Services 2,222,709 2,640,842
----------- -----------2,727,176 2,133,040 4,949,885 4,773,882
---------------- ----------------- ---------------- ----------------
Rental Operations 19,203,602 16,967,84320,067,151 16,876,850 39,270,753 33,844,693
Sales 7,952,147 9,601,49713,233,648 16,344,934 21,185,795 25,946,431
Other 194,392 272,170
----------- -----------173,698 237,224 368,090 509,394
---------------- ----------------- ---------------- ----------------
Total Revenues 27,350,141 26,841,510
----------- -----------33,474,497 33,459,008 60,824,638 60,300,518
---------------- ----------------- ---------------- ----------------
COSTS AND EXPENSES
Direct Costs of Rental Operations
Depreciation 3,846,691 3,423,4413,810,232 3,464,332 7,656,923 6,887,773
Rental Related Services 1,664,022 1,923,9731,544,464 1,313,029 3,208,486 3,237,002
Other 3,025,471 2,641,926
----------- -----------3,534,613 2,203,225 6,560,084 4,845,151
---------------- ----------------- ---------------- ----------------
Total Direct Costs of Rental Operations 8,536,184 7,989,3408,889,309 6,980,586 17,425,493 14,969,926
Costs of Sales 5,249,373 6,261,196
----------- -----------8,722,806 11,393,852 13,972,179 17,655,048
---------------- ----------------- ---------------- ----------------
Total Costs 13,785,557 14,250,536
----------- -----------17,612,115 18,374,438 31,397,672 32,624,974
---------------- ----------------- ---------------- ----------------
Gross Margin 13,564,584 12,590,97415,862,382 15,084,570 29,426,966 27,675,544
Selling and Administrative 3,704,663 3,357,564
----------- -----------3,838,880 3,688,801 7,543,543 7,046,365
---------------- ----------------- ---------------- ----------------
Income from Operations 9,859,921 9,233,41012,023,502 11,395,769 21,883,423 20,629,179
Interest 1,450,846 872,885
----------- -----------1,582,884 989,446 3,033,730 1,862,331
---------------- ----------------- ---------------- ----------------
Income Before Provision for Income Taxes 8,409,075 8,360,52510,440,618 10,406,323 18,849,693 18,766,848
Provision for Income Taxes 3,313,176 3,307,367
----------- -----------4,113,603 4,044,277 7,426,779 7,351,644
---------------- ----------------- ---------------- ----------------
Income Before Minority Interest 5,095,899 5,053,1586,327,015 6,362,046 11,422,914 11,415,204
Minority Interest in Income of Subsidiary 128,200 133,670
----------- -----------352,679 280,399 480,879 414,069
================ ================= ================ ================
Net Income $ 4,967,6995,974,336 $ 4,919,488
=========== ===========6,081,647 $ 10,942,035 $ 11,001,135
================ ================= ================ ================
Earnings Per Share:
Basic $ 0.34 0.33
=========== ===========0.42 $ 0.41 $ 0.77 $ 0.73
================== =================== ================ ================
Diluted $ 0.34 0.33
=========== ===========0.42 $ 0.40 $ 0.75 $ 0.73
================== =================== ================ ================
Shares Used in Per Share Calculation:
Basic 14,435,790 14,976,51814,122,495 15,011,918 14,295,909 14,994,218
================== =================== ================ ================
Diluted 14,634,560 15,123,004
- ---------------------------------------------------------------------------------------14,213,201 15,201,573 14,496,762 15,163,548
================== =================== ================ ================
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial
statements.
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McGRATHMCGRATH RENTCORP
CONSOLIDATED BALANCE SHEETS
(unaudited)
- ---------------------------------------------------------------------------------------------
MARCH---------------------------------------------------------------------------------------------------------------
June 30, December 31,
DECEMBER 31,
--------------------------------------------------- ------------------
1998 1997
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ASSETS
Cash $ 1,442,8391,076,195 $ 537,875
Accounts Receivable, less allowance for doubtful
accounts of $650,000 in 1998 and 1997 20,323,91123,191,495 21,794,028
Rental Equipment, at cost:
Relocatable Modular Offices 200,067,260207,502,584 196,132,895
Electronic Test Instruments 52,341,46056,147,727 50,350,777
------------- -------------
252,408,720------------------ ------------------
263,650,311 246,483,672
Less Accumulated Depreciation (74,405,307)(76,767,755) (72,398,374)
------------- ------------------------------- ------------------
Rental Equipment, net 178,003,413186,882,556 174,085,298
------------- ------------------------------- ------------------
Land, at cost 20,495,975 20,495,975
Buildings, Land Improvements, Equipment and Furniture,
at cost, less accumulated depreciation of $3,500,913$3,617,709
in 1998 and $3,177,213 in 1997 29,350,04330,195,229 28,921,513
Prepaid Expenses and Other Assets 7,351,8734,733,265 6,557,534
------------- ------------------------------- ------------------
Total Assets $ 256,968,054266,574,715 $ 252,392,223
============= =============================== ==================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Notes Payable $ 97,746,987103,500,000 $ 82,000,000
Accounts Payable and Accrued Liabilities 16,535,97616,750,244 27,047,173
Deferred Income 7,900,2796,661,013 6,928,532
Minority Interest in Subsidiary 1,651,2582,003,937 1,523,058
Deferred Income Taxes 39,546,91240,491,447 36,247,956
------------- ------------------------------- ------------------
Total Liabilities 163,381,412169,406,641 153,746,719
------------- ------------------------------- ------------------
Shareholders' Equity:
Common Stock, no par value -
Authorized -- 40,000,000 shares
Outstanding -- 14,107,89014,098,362 shares in 1998 and
14,521,790 shares in 1997 7,697,5317,701,829 7,756,054
Retained Earnings 85,889,11289,466,245 90,889,450
------------- ------------------------------- ------------------
Total Shareholders' Equity 93,586,64397,168,074 98,645,504
------------- ------------------------------- ------------------
Total Liabilities and Shareholders' Equity $ 256,968,055266,574,715 $ 252,392,223
============= =============
- ---------------------------------------------------------------------------------------------================== ==================
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial
statements.
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McGRATHMCGRATH RENTCORP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
- -------------------------------------------------------------------------------------------
THREE---------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED MARCH 31,
----------------------------------JUNE 30,
-----------------------------------------
1998 1997
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- ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 4,967,69910,942,035 $ 4,919,48811,001,135
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation and Amortization 4,201,698 3,657,6148,378,752 7,332,307
Gain on Sale of Rental Equipment (1,390,658) (1,513,842)(2,955,192) (2,885,946)
Proceeds from Sale of Rental Equipment 3,496,525 3,542,7357,545,304 7,577,768
Change In:
Accounts Receivable 1,470,117 2,224,004(1,397,467) (3,922,041)
Prepaid Expenses and Other Assets (794,339) (1,642,300)1,824,267 (3,558,671)
Accounts Payable and Accrued Liabilities (10,635,727) 1,364,540(10,064,142) 571,639
Deferred Income 971,747 (213,330)(267,518) 1,720,598
Deferred Income Taxes 3,298,956 2,524,553
------------ ------------4,243,492 185,813
------------------ ------------------
Net Cash Provided by Operating Activities 5,586,018 14,863,462
------------ ------------18,249,531 18,022,602
------------------ ------------------
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of Rental Equipment (9,870,673) (9,980,850)(25,044,294) (20,630,573)
Purchase of Buildings, Land Improvements,
Equipment and Furniture (783,537) (1,782,391)
------------ ------------(1,995,545) (4,411,326)
------------------ ------------------
Net Cash Used in Investing Activities (10,654,210) (11,763,241)
------------ ------------(27,039,839) (25,041,899)
------------------ ------------------
Cash Flow from Financing Activities:
Net Borrowings Under Lines of Credit 15,746,987 (1,850,000)21,500,000 11,150,000
Net Proceeds from the Exercise of Stock Options 183,175 478,057214,632 513,894
Repurchase of Common Stock (8,795,263)(9,809,788) --
Payment of Dividends (1,161,743) (1,037,814)
------------ ------------(2,576,216) (2,238,495)
------------------ ------------------
Net Cash Provided (Used) by Financing Activities 5,973,156 (2,409,757)
------------ ------------9,328,628 9,425,399
------------------ ------------------
Net Increase in Cash 904,964 690,464538,320 2,406,102
Cash Balance, Beginning of Period 537,875 686,333
------------ ------------================== ==================
Cash Balance, End of Period $ 1,442,8391,076,195 $ 1,376,797
============ ============3,092,435
================== ==================
Interest Paid During the Period $ 3,302,3803,045,749 $ 892,867
============ ============1,850,899
================== ==================
Income Taxes Paid During the Period $ 14,2203,103,287 $ 731,200
============ ============7,085,171
================== ==================
Dividends Declared but not yet Paid $ 1,414,4731,409,836 $ 1,200,681
============ ============
- -------------------------------------------------------------------------------------------1,200,953
================== ==================
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The accompanying notes are an integral part of these consolidated financial
statements.
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McGRATHMCGRATH RENTCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31,JUNE 30, 1998
NOTE 1. CONSOLIDATED FINANCIAL INFORMATION
The consolidated financial information for the threesix months ended March
31,June 30,
1998 has not been audited, but in the opinion of management, all adjustments
(consisting of only normal recurring accruals, consolidation and eliminating
entries) necessary for the fair presentation of the consolidated results of
operations, financial position, and cash flows of McGrath RentCorp (the
"Company") have been made. The consolidated results of the threesix months ended March 31,June
30, 1998 should not be considered as necessarily indicative of the consolidated
results for the entire year. It is suggested that these consolidated financial
statements be read in conjunction with the financial statements and notes
thereto included in the Company's latest Form 10-K.
NOTE 2. NOTES PAYABLE
In AprilOn July 31, 1998, the Company entered intorestructured a portion of its debt to a fixed
rate by completing a private placement of $40,000,000 of 6.44% senior notes due
in 2005 through BancAmerica Robertson Stephens. Interest on the notes is due
semi-annually in arrears and the principal is due in 5 equal installments
commencing on July 31, 2001. Upon completion of the private placement, the
Company repaid a $15,000,000 interim loan agreement (the
"Agreement") with one of its banksbanks. The remainder
of the proceeds was applied to borrow $15,000,000 on a short-term basis.
The loan is required to be repaid onreduce the earlier of July 31, 1998 or the funding
date of a contemplated private offering of debt securities. The Agreement
requires the Company to pay interest at prime minus one-half percent or, at the
Company's election, other rate options available under the Agreement.existing revolver.
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ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THREE AND SIX MONTHS ENDED MARCH 31,JUNE 30, 1998 AND 1997
Rental revenues for the three and six months ended March 31,June 30, 1998 increased
$2,653,892 (19%$2,596,165 (18%) and $5,250,057 (18%), respectively, over the comparative
periodperiods in 1997, with1997. Mobile Modular Management Corporation ("MMMC") contributing $1,922,046contributed
$3,552,623 (68%) and electronics contributing $731,846.contributed $1,697,434 (32%) of the six-month
increase. The significant rental revenue increase by MMMC resulted from the
large quantities of equipment shipped to schools in the latter part of 1997.
Average utilization for electronics during the first quartersix months increased from
53.9% in 1997 to 56.4%55.8% in 1998 and declined for modulars from 79.3%79.0% in 1997 to
76.6%75.8% in 1998. Modular utilization declined as a result ofprimarily due to a substantial
increase in the level of inventory throughfrom the addition of new equipment.classrooms for the 1998 school
year. Modular utilization excluding new equipment inventory was 82.2% compared
to 81.0% as of June 30, 1998 and 1997, respectively, with an additional
$17,643,000 of modular equipment on rent as of June 30, 1998 compared to a year
earlier.
Rental related services revenues for the first quarter ofthree and six months ended June
30, 1998 declined
$418,133 (16%increased $594,136 (28%) and $176,003 (4%), respectively, as compared
to the same periodperiods in 1997 as a result of less
shipments and site requirements in 1998.1997. Gross margins declinedincreased from 27%34% to 35% in 1997
to 25% in 1998.1998 for
the comparative six-month period.
Sales for the three and six months ended March 31,June 30, 1998 declined $1,649,350
(17%$3,111,286
(19%) and $4,760,636 (18%), respectively, as compared to the same periodperiods in
1997 due to fewer new equipmentclassroom sales by
MMMC to school districts.districts by MMMC. Enviroplex
and Electronics and Enviroplex sales volumes were
consistent withincreased 15% and 11%, respectively, over the 1997
comparative period. However, Enviroplex's deferred
income increased $1,614,262 as it experienced delayssix-month period which partially offset MMMC's expected decline in
shipment to school
districts as a result of the inclement weather in California.new classroom sales. (See 1997 Form 10K Management Discussion and Analysis for
Fiscal Years 1997 and 1996.) Gross margin on sales declined slightlyimproved for the quartersix-month
period from 35%32% in 1997 to 34% in 1998. Sales continue to occur routinely as a
normal part of the Company's rental business; however, these sales can fluctuate
from quarter to quarter and year to year depending on customer demands and
requirements.
Depreciation on rental equipment for the three and six months ended March 31,June
30, 1998 increased $423,250 (12%$345,900 (10%) and $769,150 (11%) over the comparative
periodperiods in 1997 dueas a result of additions to the additional rental equipment purchased during 1997.of both
modulars and electronics. Rental equipment, at cost, increased 21%23% between March 31,June
30, 1997 and March 31,June 30, 1998. Other direct costs of rental operations for the
three and six months ended June 30, 1998 increased $383,545 (15%$1,331,388 (60%) and
$1,714,933 (35%) over the first quartercomparative periods in 1997. This
increase primarily resulted from more customers requesting that certain lease1997 due to increased
maintenance costs be charged to them inof the rental rate rather than as a one-time charge
resulting inmodular fleet and higher amortization expense of lease costs ($256,748) for items
recoveredexpenses
included in the customer's rental rate.
Selling and administrative expenses increased $347,099 (10%) for the three and six months ended March 31,June
30, 1998 increased $150,079 (4%) and $497,178 (7%), respectively, compared to
the same periodperiods in 1997 primarily due to higher personnel and benefit costs.
Personnel and benefit costs increased $318,095$433,225 over the comparative quartersix-month
period in 1997 resulting from additional staff for sales and support, including
the addition of electronics sales people on the East Coast.Coast, and higher health
insurance costs.
Interest expense for the three and six months ended June 30, 1998 increased
$577,961 (66%$593,438 (60%) and $1,171,399 (63%) over the comparative periods in 1998 over 1997 as a
result of a corresponding 66% higher average borrowing levellevels in 1998. The debt increase funded part of the significantwas
primarily due to rental equipment purchases made during 1997.
Income before provisionNet income for taxes, net incomethe three and basic earningssix months ended June 30, 1998 decreased
slightly as compared to the comparative periods in 1997 and amounted to
$5,974,336 and $10,942,035, respectively. Earnings per share increased slightly
for the three and six-month periods in 1998 as compared to 1997 and amounted to $8,409,075,
$4,967,699 and $0.34$0.42 per share respectively.and $0.77 per
share, respectively, on fewer shares outstanding.
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LIQUIDITY AND CAPITAL RESOURCES
The Company had a total liabilities to equity ratio of 1.751.74 to 1 and 1.56 to
1 as of March 31,June 30, 1998 and December 31, 1997, respectively. The debt (notes
payable) to equity ratio was 1.041.07 to 1 and 0.83 to 1 as of March 31,June 30, 1998 and
December 31, 1997, respectively.
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The Company has made purchases of shares of its common stock from time to
time in the over-the-counter market (NASDAQ) and/or through privately
negotiated, large block transactions under an authorization of the Board of
Directors. Shares repurchased by the Company are cancelled and returned to the
status of authorized but unissued stock. During the three months ended March 31,As of August 7, 1998, the Company has
repurchased 439,450519,550 shares of its outstanding common stock for an aggregate
purchase price of $8,795,263$10,424,093 (or an average price of $20.01$20.06 per share). On March 26,As of
August 7, 1998, the Board of Directors919,900 shares remain authorized the repurchase of
up to an additional 1,000,000 shares of its common stock; no repurchases have
been made to date under this new authorization.for repurchase.
The Company believes that its needs for working capital and capital
expenditures through 1998 and beyond will adequately be met by cash flow and
bank borrowings.
PART II OTHER INFORMATION
ITEM 3. OTHER INFORMATION
On March 26,June 11, 1998, the Company declared a quarterly dividend on its Common
Stock; the dividend was $0.10 per share. Subject to its continued profitability
and favorable cash flow, the Company intends to continue the payment of
quarterly dividends.
ITEM 4. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
NUMBER DESCRIPTION METHOD OF FILING
------ ----------- ----------------
4.1 Third Amendment to the RestatedFirst Extension $3,000,000 Committed Credit AgreementFacility Filed herewith.
4.2 $15,000,000 Short-Term Business Loan AgreementFourth Extension to the $5,000,000 Optional Credit Facility with
Union Bank of California N.A. Filed herewith.
27.14.3 Schedule of Notes With Sample Note Filed herewith.
27 Financial Data Schedule Filed herewith.
(b) Reports on Form 8-K.
No reports on form 8-K have been filed during the quarter for which
this report is filed.
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SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) 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.
Date: May 11,August 7, 1998 MCGRATH RENTCORP
by: /s/ Delight Saxton
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Delight Saxton
Senior Vice President, Chief Financial
Officer (Chief Accounting Officer) and
Secretary
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INDEX TO EXHIBITS
Exhibits.
NUMBER DESCRIPTION METHOD OF FILING
- ------ ----------- ----------------
4.1 Third AmendmentFirst Extension $3,000,000 Committed Credit Facility Filed herewith.
4.2 Fourth Extension to the Restated$5,000,000 Optional Credit
Agreement
4.2 $15,000,000 Short-Term Business Loan Agreement
27.1Facility with Uion Bank of California H.A. Filed herewith.
4.3 Schedule of Notes With Sample Note Filed herewith.
27 Financial Data Schedule Filed herewith.