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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. 1 3 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 ========= =========
- -------------------------------------------------------------------------------- The accompanying notes are an integral part of these consolidated financial statements. 2 4 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 ======== ========
- -------------------------------------------------------------------------------- The accompanying notes are an integral part of these consolidated financial statements. 3 5 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: 4 6
- ------------------------------------------------------------------------------------------------------ (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 5 7 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 6 8 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 6 8 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. 7 9 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. 7 9 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 8 10 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 8 10 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