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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) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED JUNESEPTEMBER 30, 1999
COMMISSION FILE NUMBER 0-13292
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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]X No
[ ]
As of August 6,--- ---
At November 2, 1999, 13,319,58812,695,238 shares of Registrant's Common Stock were
outstanding.
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PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.STATEMENTS
MCGRATH RENTCORP
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
- ------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED JUNE 30, SIXNINE MONTHS ENDED
JUNESEPTEMBER 30, --------------------------- --------------------------SEPTEMBER 30,
--------------------- ---------------------
(in thousands, except per share amounts) 1999 1998 1999 1998
------- ------- ------- -------- ------------------------------------------------------------------------------------------------------
REVENUES
Rental $19,099 $17,340 $38,078 $34,321$ 20,359 $ 18,385 $ 58,437 $ 52,706
Rental Related Services 3,100 2,727 5,534 4,950
------- ------- ------- -------4,511 4,062 10,045 9,012
-------- -------- -------- --------
Rental Operations $22,199 20,067 $43,612 39,27124,870 22,447 68,482 61,718
Sales 9,208 13,234 16,071 21,18611,584 21,787 27,655 42,973
Other 232 174 450 368
------- ------- ------- -------445 244 895 612
-------- -------- -------- --------
Total Revenues 31,639 33,475 60,133 60,825
------- ------- ------- -------36,899 44,478 97,032 105,303
-------- -------- -------- --------
COSTS AND EXPENSES
Direct Costs of Rental Operations
Depreciation 4,753 3,810 9,419 7,6575,072 4,618 14,491 12,275
Rental Related Services 1,825 1,544 3,163 3,2082,237 1,943 5,400 5,151
Other 3,531 3,535 6,664 6,560
------- ------- ------- -------4,180 3,656 10,844 10,216
-------- -------- -------- --------
Total Direct Costs of Rental Operations 10,109 8,889 19,246 17,42511,489 10,217 30,735 27,642
Costs of Sales 6,187 8,723 11,047 13,972
------- ------- ------- -------8,474 15,581 19,521 29,553
-------- -------- -------- --------
Total Costs 16,296 17,612 30,293 31,397
------- ------- ------- -------19,963 25,798 50,256 57,195
-------- -------- -------- --------
Gross Margin 15,343 15,863 29,840 29,42816,936 18,680 46,776 48,108
Selling and Administrative 3,989 3,839 8,188 7,544
------- ------- ------- -------4,024 4,560 12,212 12,104
-------- -------- -------- --------
Income from Operations 11,354 12,024 21,652 21,88412,912 14,120 34,564 36,004
Interest 1,581 1,583 3,097 3,034
------- ------- ------- -------1,721 1,686 4,818 4,720
-------- -------- -------- --------
Income Before Provision for Income Taxes 9,773 10,441 18,555 18,85011,191 12,434 29,746 31,284
Provision for Income Taxes 3,836 4,114 7,283 7,427
------- ------- ------- -------4,318 4,899 11,601 12,326
-------- -------- -------- --------
Income Before Minority Interest 5,937 6,327 11,272 11,4236,873 7,535 18,145 18,958
Minority Interest in Income of Subsidiary 90 353 54 481
------- ------- ------- -------88 447 142 928
-------- -------- -------- --------
Net Income $ 5,8476,785 $ 5,974 $11,218 $10,942
======= ======= ======= =======7,088 $ 18,003 $ 18,030
======== ======== ======== ========
Earnings Per Share:
Basic $ 0.440.52 $ 0.420.50 $ 0.821.34 $ 0.77
======= ======= ======= =======1.27
======== ======== ======== ========
Diluted $ 0.430.51 $ 0.420.50 $ 0.811.32 $ 0.75
======= ======= ======= =======1.25
======== ======== ======== ========
Shares Used in Per Share Calculation:
Basic 13,403 14,122 13,611 14,296
======= ======= ======= =======13,067 14,062 13,430 14,218
======== ======== ======== ========
Diluted 13,568 14,309 13,780 14,497
======= ======= ======= =======13,220 14,231 13,593 14,406
======== ======== ======== ========
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial
statements.
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MCGRATH RENTCORP
CONSOLIDATED BALANCE SHEETS
(unaudited)
JUNE- -----------------------------------------------------------------------------------------
SEPTEMBER 30, DECEMBER 31,
----------------------- ------------
(in thousands) 1999 1998
--------- ---------- -----------------------------------------------------------------------------------------
ASSETS
Cash $ 586439 $ 857
Accounts Receivable, less allowance for doubtful
accountsAccounts of $650 in 1999 and 1998 23,35623,328 21,811
Rental Equipment, at cost:
Relocatable Modular Offices 227,105235,603 216,414
Electronic Test Instruments 67,53469,094 66,573
--------- ---------
$ 294,639304,697 282,987
Less Accumulated Depreciation (88,842)(91,608) (82,959)
--------- ---------
Rental Equipment, net 205,797213,089 200,028
--------- ---------
Land, at cost 19,303 18,953
Buildings, Land Improvements, Equipment and Furniture,
at cost, less accumulated depreciation of $4,594$5,032
in 1999 and $ 3,858$3,858 in 1998 32,01831,700 31,460
Prepaid Expenses and Other Assets 5,6405,030 5,567
--------- ---------
Total Assets $ 286,700292,889 $ 278,676
========= =========--------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Notes Payable $ 102,900108,700 $ 97,000
Accounts Payable and Accrued Liabilities 26,06225,533 22,964
Deferred Income 4,0589,351 5,574
Minority Interest in Subsidiary 2,6382,727 2,584
Deferred Income Taxes 50,19952,788 45,160
--------- ---------
Total Liabilities 185,857199,099 173,282
--------- ---------
Shareholders' Equity:
Common Stock, no par value --
Authorized -- 40,000 shares
Outstanding -- 13,32012,690 shares in 1999 and
13,970 shares in 1998 7,7687,434 8,138
Retained Earnings 93,07586,356 97,256
--------- ---------
Total Shareholders' Equity 100,84393,790 105,394
--------- ---------
Total Liabilities and Shareholders' Equity $ 286,700292,889 $ 278,676
========= =========
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The accompanying notes are an integral part of these consolidated financial
statements.
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MCGRATH RENTCORP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
SIX- ------------------------------------------------------------------------------------------
NINE MONTHS ENDED JUNESEPTEMBER 30,
--------------------------
(In--------------------------------
(in thousands) 1999 1998
-------- --------- ------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 11,21818,003 $ 10,94218,030
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation and Amortization 10,215 8,37915,749 13,381
Gain on Sale of Rental Equipment (2,674) (2,955)(4,425) (4,397)
Change In:
Accounts Receivable (1,545) (1,397)(1,517) (4,927)
Prepaid Expenses and Other Assets (74) 1,824537 1,417
Accounts Payable and Accrued Liabilities 2,953 (10,064)2,587 (4,988)
Deferred Income (1,517) (268)3,777 419
Deferred Income Taxes 5,039 4,2437,628 6,467
-------- --------
Net Cash Provided by Operating Activities 23,615 10,70442,339 25,402
-------- --------
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of Rental Equipment (19,723) (25,044)(35,327) (35,501)
Purchase of Land, Buildings, Land Improvements,
Equipment and Furniture (1,704) (1,996)(1,848) (3,751)
Proceeds from Sale of Rental Equipment 7,209 7,54512,198 11,248
-------- --------
Net Cash Used in Investing Activities (14,218) (19,495)(24,977) (28,004)
-------- --------
CASH FLOW FROM FINANCING ACTIVITIES:
Net Borrowings Under Notes Payable 5,900 21,500
Net11,700 18,000
Proceeds from the Exercise of Stock Options 28617 215
Repurchase of Common Stock (12,583) (9,810)(25,486) (11,617)
Payment of Dividends (3,013) (2,576)(4,611) (3,987)
-------- --------
Net Cash Provided by (Used in) Financing
Activities (9,668) 9,329(17,780) 2,611
-------- --------
Net Increase (Decrease) in Cash (271) 538(418) 9
Cash Balance, Beginning of Period 857 538
-------- --------
Cash Balance, End of Period $ 586439 $ 1,076547
======== ========
Interest Paid During the Period $ 2,9915,345 $ 2,9964,443
======== ========
Income Taxes Paid During the Period $ 2,1073,782 $ 3,1035,779
======== ========
Dividends Declared but not yet Paid $ 1,5981,523 $ 1,4101,400
======== ========
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The accompanying notes are an integral part of these consolidated financial
statements.
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MCGRATH RENTCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNESEPTEMBER 30, 1999
NOTE 1. CONSOLIDATED FINANCIAL INFORMATION
The consolidated financial information for the sixnine months ended
JuneSeptember 30, 1999 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 sixnine months
ended JuneSeptember 30, 1999 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 June 1999, the Company amended its $75,000,000 unsecured line of
credit agreement with its banks to extend it to June 30, 2001 (other terms and
conditions remained the same). In addition, the Company amended its committed
line of
credit related to its cash management services to increase it from $4,000,000 to
$4,000,000$5,000,000 and to extend it to June 30, 2000.
NOTE 3. BUSINESS SEGMENTS
The Company defines its business segments based on the nature of
operations for the purpose of reporting under Statement of Financial Accounting
Standard No. 131, "Disclosures about Segments of an Enterprise and Related
Information" (SFAS 131). The Company's three reportable segments are Mobile
Modular Management Corporation (Modulars), McGrath-RenTelco (Electronics), and
Enviroplex. The operations of these three segments are described in the notes to
the consolidated financial statements included in the Company's latest Form
10-K. As a separate corporate entity, Enviroplex revenues and expenses are
separately maintained from Modulars and Electronics. Excluding interest expense,
allocations of revenues and expenses not directly associated with Modulars or
Electronics are generally allocated to these segments based on their pro-rata
share of direct revenues. Interest expense is allocated between Modulars and
Electronics based on their pro-rata share of average rental equipment, accounts
receivable and customer security deposits. The Company does not report total
assets by business segment. Summarized financial information for the sixnine months
ended JuneSeptember 30, 1999 and 1998 for the Company's reportable segments is shown
in the following table:
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(in thousands) MODULARS(1) ELECTRONICS(2) ENVIROPLEX CONSOLIDATED
- -------------- ----------------------------------------------------------- --------------- ---------- ------------
SIXNINE MONTHS ENDED JUNESEPTEMBER 30,
1999
Rental Operation Revenues $ 30,50148,026 $ 13,11120,456 $ -- $ 43,61268,482
Sales and Other Revenues 7,704 5,035 3,782 16,52112,897 7,908 7,745 28,550
Total Revenues 38,205 18,146 3,782 60,13360,923 28,364 7,745 97,032
Depreciation on Rental Equipment 5,096 4,3237,886 6,605 -- 9,41914,491
Interest Expense 2,381 806 (90) 3,0973,720 1,246 (148) 4,818
Income before Income Taxes 11,694 6,538 323 18,55518,451 10,458 837 29,746
Rental Equipment Acquisitions 13,771 5,95225,186 10,141 -- 19,72335,327
Accounts Receivable, net (period end) 11,648 8,391 3,317 23,35613,037 9,010 1,281 23,328
Rental Equipment, at cost (period end) 227,105 67,534235,603 69,094 -- 294,639304,697
1998
Rental Operation Revenues $ 27,87243,976 $ 11,39917,742 -- $ 39,27161,718
Sales and Other Revenues 6,403 4,599 10,552 21,55418,939 6,340 18,306 43,585
Total Revenues 34,275 15,998 10,552 60,82562,915 24,082 18,306 105,303
Depreciation on Rental Equipment 4,233 3,4246,895 5,380 -- 7,65712,275
Interest Expense 2,296 690 48 3,0343,583 1,095 42 4,720
Income before Income Taxes 10,214 5,768 2,868 18,85017,136 8,670 5,478 31,284
Rental Equipment Acquisitions 15,823 9,22120,121 15,380 -- 25,04435,501
Accounts Receivable, net (period end) 10,413 6,666 6,112 23,19113,948 6,710 6,063 26,721
Rental Equipment, at cost (period end) 207,503 56,148209,507 60,747 -- 263,651270,254
- ------------------------------------------------------------------------------------------------------
- --------
(1) Operates under the trade name Mobile Modular Management Corporation
(2) Operates under the trade name McGrath-RenTelco
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ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This Quarterly Report on Form 10-Q contains statements, which constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. These statements appear in a number of places.
Such statements can be identified by the use of forward-looking terminology such
as "believes", "expects", "may", "estimates", "will", "should", "plans" or
"anticipates" or the negative thereof or other variations thereon or comparable
terminology, or by discussions of strategy. Readers are cautioned that any such
forward-looking statements are not guarantees of future performance and involve
significant risks and uncertainties, and that actual results may vary materially
from those in the forward-looking statements as a result of various factors.
These factors include the effectiveness of management's strategies and
decisions, general economic and business conditions, new or modified statutory
or regulatory requirements and changing prices and market conditions. This
report identifies other factors that could cause such differences. No assurance
can be given that these are all of the factors that could cause actual results
to vary materially from the forward-looking statements.
THREE AND SIXNINE MONTHS ENDED JUNESEPTEMBER 30, 1999 AND 1998
Rental revenues for the three and sixnine months ended JuneSeptember 30, 1999
increased $1,759,000 (10%$1,974,000 (11%) and $3,757,000$5,731,000 (11%), respectively, over the
comparative periods in 1998. Mobile Modular Management Corporation ("MMMC")
contributed $2,018,000$2,995,000 and McGrath-RenTelco contributed $1,739,000$2,736,000 of the
six-monthnine-month increase. MMMC's rental revenues increased as a result of having an
average of $19,177,000$19,834,000 more equipment on rent compared to a year earlier. In
1999, Modularsearlier even
though average monthly yield of 1.91% andfor all modular equipment has declined from 1.94%
in 1998 to 1.90% in 1999. Modular average utilization of 82.00%,
exclusive offor the nine months ended
September 30, 1999, excluding new equipment not previously rented,inventory, was approximately81.9% compared to
82.8% for the same as the
comparative period in 1998. McGrath-RenTelco's rental revenues increased
as a result of having an average of $13,717,000$5,371,000 more equipment on rent compared
to a year earlier offset by aneven though average monthly yield declinefor all electronics
equipment has declined from 3.53% in 1998 to 3.20%3.31% in 1999 primarily as a result of1999. Electronics average
utilization declining from 55.4%for the nine months ended September 30, 1999 was 53.0% compared to
55.0% for the same period in 1998 to 51.4% in 1999.1998.
Rental related services revenues for the three and sixnine months ended
JuneSeptember 30, 1999 increased $373,000 (14%$449,000 (11%) and $584,000 (12%$1,033,000 (11%), respectively,
as compared to the same periods in 1998 as a result of higher volume of modular
equipment movements and site requirements in 1999. Gross margins on these
services for the six-monthnine-month period increased from 35%43% in 1998 to 43%46% in 1999 due to the mix of
services performed in 1999 and approximate the 1998 annual gross margin.1999.
Sales for the three and sixnine months ended JuneSeptember 30, 1999 declined
$4,026,000 (30%$10,203,000 (47%) and $5,115,000 (24%$15,318,000 (36%), respectively, as compared to the same
periods in 1998 primarily due to a reduction in sales by Enviroplex of
manufactured classrooms to school districts from the high levels in 1998 caused
by California's Class Size Reduction Program. Sales also have declined as a
result of the nonrepetitive nature of one large sale ($6,110,000) recorded by
MMMC in the third quarter of 1998. Further, management believes
schools have delayed placing orders until allocation of fundsfor Enviroplex, increased business
levels anticipated from the $9.2 billion California bond measure, which passed
in November 1998, is determined.
Both MMMC and McGrath-RenTelco's sales volumes have increased over the 1998
comparative period.not materialized. Consolidated gross margin on sales
declined for the six-monthnine-month period from 34%31% in 1998 to 31%29% in 1999 due to lower
margin classroom projects sold during the first six-monthsnine months of 1999. 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.
Enviroplex's backlog of orders as of JuneSeptember 30, 1999 and 1998 was
$6,808,000$4,595,000 and $7,788,000,$3,189,000, respectively. Backlog is not significant in MMMC's
modular business or in McGrath-RenTelco's electronics business.
Depreciation on rental equipment for the three and sixnine months ended
JuneSeptember 30, 1999 increased $943,000 (25%$454,000 (10%) and $1,762,000 (23%$2,216,000 (18%) over the
comparative periods in 1998 due to the additional rental equipment purchased during 1998.
Modularpurchased.
For the nine months ended September 30, 1999, the average
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modular rental equipment, at cost, increased 9%$26,311,000 (14%) and Electronicsaverage
electronics rental equipment, at cost, increased 20% between June 30,$12,207,000 (22%) over the 1998
and June 30, 1999.comparative period.
Selling and administrative expenses for the three and sixnine months ended
JuneSeptember 30, 1999 increased $150,000 (4%decreased $536,000 (12%) and $644,000 (9%increased $108,000 (1%),
respectively, over the comparative periods in 1998. For the comparative six-month period
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the increase relates primarily to higher bad debt expense ($330,000) resulting
from an unusual write-off of $282,000 in the first quarter of 1999.
Additionally, higher depreciation expense for facilities and office equipment
($73,000) and advertising expenses ($60,000) for brochure development, web page
design, and yellow page advertising contributed to the increase in sellingSelling and administrative
expenses.expenses for each quarter in 1999 have been approximately the same with the
three-month period ending September 30, 1999 declining as compared with the
similar period in 1998 primarily due to lower personnel and temporary labor
costs ($411,000), including performance and incentive bonuses.
Interest expense for the sixnine months ended JuneSeptember 30, 1999 increased
$63,000$98,000 (2%) over 1998 as a result of a higher average borrowing level offset by
a lower average interest rate in 1999. The debt increase funded part of the
significant rental equipment purchases made during the last twelve months.
Income before provision for taxes for the three and sixnine months ended
JuneSeptember 30, 1999 decreased $668,000 (6%$1,243,000 (10%) and $295,000 (2%$1,538,000 (5%), respectively,
while net income decreased $127,000 (2%$303,000 (4%) and increased $276,000 (3%),$27,000, respectively, from the
comparative periods in 1998. For the six-month comparative period,The percentage decrease for net income increased while pretaxis lower
than the percentage decrease for income declinedbefore provision for taxes as a result
of a lowerEnviroplex's smaller contribution to consolidated earnings and an effective
tax rate in 1999 of 39.25% compared to 39.40%which declined from 39.4% in 1998 combined with a lower
contribution to earnings by the majority owned subsidiary, Enviroplex.39.0% in 1999. Earnings per share
for the three and sixnine months ending JuneSeptember 30, 1999 increased to $0.44$0.52 per
share and $0.82$1.34 per share, respectively, on fewer outstanding shares.
LIQUIDITY AND CAPITAL RESOURCES
This section contains statements that constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. See the statement at the beginning of this Item for cautionary
information with respect to such forward-looking statements.
The Company's operations produced a positive cash flow for the sixnine
months ended JuneSeptember 30, 1999 of $23,615,000$42,339,000 as compared to $10,704,000$25,402,000 for
the year earlier period. During 1999, the primary uses of cash have been to
purchase additional rental inventory to satisfy customer requirements, to
repurchase shares of the Company's common stock on the open market, and to pay
dividends to the Company's shareholders.
The Company had a total liabilities to equity ratiosratio of 1.842.12 to 1 and
1.64 to 1 as of JuneSeptember 30, 1999 and December 31, 1998, respectively. The debt
(notes payable) to equity ratios were 1.021.16 to 1 and 0.92 to 1 as of JuneSeptember
30, 1999 and December 31, 1998, respectively. Both ratios have increased since
December 31, 1998 as a result of the Company's stock repurchase program.
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 sixnine months ended JuneSeptember
30, 1999, the Company repurchased 686,9001,399,860 shares of its outstanding common
stock for an aggregate purchase price of $12,583,313$25,485,584 (or an average price of
$18.32$18.21 per share). As of August 6,November 2, 1999, 740,500733,640 shares remain authorized for
repurchase.
The Company believes that its needs for working capital and capital
expenditures through 1999 and beyond will be met adequately by cash flow and
bank borrowings.
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MARKET RISK
This section contains statements that constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. See the statement at the beginning of this Item for cautionary
information with respect to such forward-looking statements.
The Company currently has no material derivative financial instruments
that expose the Company to significant market risk. The Company is exposed to
cash flow and fair value risk due to changes in interest rates with respect to
its notes payable. As of JuneSeptember 30, 1999, the Company believes that the
carrying amounts of its financial instruments (cash and notes payable)
approximate fair value.
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YEAR 2000
This section contains statements that constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. See the statement at the beginning of this Item for cautionary
information with respect to such forward-looking statements.
The "Year 2000" issue is the result of computer programs using two
digits rather than four to determine the applicable year. This could affect
date-sensitive calculations that treat "00" as the year 1900 rather than the
year 2000. An assessment of the Company's exposure related to the Year 2000
issues has been completed and it is not expected to have a significant impact on
the Company.
The Company initiated a number of major system projects in 1997 and 1998
to upgrade core computer hardware, networking and software systems. These
projects are replacing existing systems as opposed to simply fixing Year 2000
problems. Most of these projects have been completed and are operational; the
balance is expected to be operational by SeptemberNovember 1999. Capitalized expenditures
for this process totaled $1,600,000$1,800,000 for the period January 1, 1997 to JuneSeptember
30, 1999 for external labor, hardware and software costs. This amount includes
the cost of new software applications installed as a result of strategic
replacement projects. Prior to December 31, 1998, the Company did not separately
track the internal costs incurred related to Year 2000 issues or the system
conversions described above. Such internal costs are principally the related
payroll costs for its information systems personnel and are not necessarily
considered incremental costs to the Company. Effective January 1, 1999, the
Company began to track and capitalize these internal costs in accordance with
Statement of Position 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use." The Company estimates approximately
$400,000$200,000 for completion of its system upgrades for the remainder of 1999, of
which approximately $150,000 is expected to be related to internal costs. All
future1999. Future
costs will be funded from operating cash flow.
The Company does not significantly rely on "embedded technology" in its
critical processes. Embedded technology, which means microprocessor-controlled
devices as opposed to multi-purpose computers, does control some building and
security operations, such as electric power management, ventilation, and
building access. All buildingBuilding facilities are presently beinghave been evaluated, and the Company
expectsbelieves all essential systems using embedded technology to be confirmed asare Year 2000 ready by September, 1999.ready.
The electronics test and measurement rental equipment has been evaluated, and it
appears only minor quantities of equipment pose a Year 2000 problem. If deemed
important, some equipment may be upgraded. The Company asks its customers to
seek definitive Year 2000 compliance guidance directly from the equipment
manufacturers.
The Company cannot predict the likelihood of a significant disruption
of its customers' or suppliers' businesses or the economy as a whole, either of
which could have a material adverse impact on the Company. However, because the
markets for the Company's products are comprised of numerous customers with a
variety of sizes and levels of sophistication, the noncompliance with Year 2000
of any one would not be expected to have a detrimental impact on the Company's
financial position or results of
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operations. As a normal course of business, the Company seeks to maintain
multiple suppliers where possible. The Company continues to communicate with
vendors, customers, suppliers, service providers, and government agencies to
monitor their compliance.
The Company presently believes that its Year 2000 exposures will not
present a material adverse risk to the Company's future consolidated results of
operations, liquidity, andor capital resources. However, if all systems are not
completed in a timely manner, or the level of timely compliance by key suppliers
or service providers is not sufficient, the Year 2000 issue could have a
material adverse effect on the Company's operations. This includes, but is not
limited to, delays of equipment shipments resulting in loss of revenues,
increased operating costs, loss of customers and suppliers, or other significant
disruptions to the Company's business.
The Company's contingency plan includes (1) all critical computer
operating and financial data will be backed-up and printed at key dates to
provide the basis, if necessary, for a manual system, (2) in the event a
significant number of customers are unable to issue payments, the Company has
sufficient liquidity with its existing line of credit to function adequately,
and (3) the Company continues to look for multiple suppliers and is also
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evaluating power and communication alternatives in the event of a loss of
service. The contingency plan is enhanced by the fact that existing management
has been in place since before computer systems were used.
PART II OTHER INFORMATION
ITEM 3. OTHER INFORMATION
On June 3,September 2, 1999, the Company declared a quarterly dividend on its
Common Stock; the dividend was $0.12 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 Amended and Restated Credit Agreement Filed herewith.
4.2 $4,000,000$5,000,000 Committed Credit Facility 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.
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D)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: August 6, 1999.November 2, 1999 MCGRATH RENTCORP
by: /s/ ThomasTHOMAS J. Sauer
---------------------------------SAUER
---------------------------
Thomas J. Sauer
Vice President and Chief
Financial Officer (Chief
Accounting Officer)
9 11
Exhibit Index
No. Description
---- -----------
4.1 $5,000,000 Committed Credit Facility
27 Financial Data Schedule