1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.D. C. 20549
--------------------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED JUNE 30, 2000MARCH 31, 2001 COMMISSION FILE NUMBER 0-13292
--------------------------------
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
--------------------------------
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 [ ]
At August 3, 2000, 12,307,918May 8, 2001, 12,173,046 shares of Registrant's Common Stock were
outstanding.
================================================================================
2
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MCGRATH RENTCORP
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
- -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------- -------------------------MARCH 31,
(in thousands, except per share amounts) 2001 2000
1999 2000 1999
- -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
REVENUES
Rental ........................................... $ 22,84726,107 $ 19,019 $ 44,228 $ 38,07821,381
Rental Related Services 3,974 3,100 7,296 5,534
-------- --------.......................... 4,178 3,322
-------- --------
Rental Operations 26,821 22,119 51,524 $ 43,612............................. 30,285 24,703
Sales 10,315 9,208 17,008 16,071............................................ 5,721 6,693
Other 233 232 480 450
-------- --------............................................ 276 247
-------- --------
Total Revenues 37,369 31,559 69,012 60,133
======== ======== ======== ========........................ 36,282 31,643
-------- --------
COSTS AND EXPENSES
Direct Costs of Rental Operations
Depreciation 5,745 4,753 11,101 9,419.................................. 6,420 5,356
Rental Related Services 2,324 1,825 4,056 3,163....................... 2,342 1,732
Other 4,706 3,531 8,487 6,664
======== ======== ======== ========......................................... 4,708 3,781
-------- --------
Total Direct Costs of Rental Operations 12,775 10,109 23,644 19,24613,470 10,869
Costs of Sales 6,915 6,187 11,736 11,047
-------- --------................................... 3,848 4,821
-------- --------
Total Costs 19,690 16,296 35,380 30,293
-------- --------........................... 17,318 15,690
-------- --------
Gross Margin 17,679 15,263 33,632 29,840....................... 18,964 15,953
Selling and Administrative 4,787 3,989 9,482 8,188
-------- --------....................... 5,797 4,695
-------- --------
Income from Operations 12,892 11,274 24,150 21,652........................ 13,167 11,258
Interest 2,160 1,581 4,104 3,097
-------- --------......................................... 2,144 1,944
-------- --------
Income Before Provision for Income Taxes 10,732 9,693 20,046 18,555...... 11,023 9,314
Provision for Income Taxes 4,186 3,805 7,818 7,283
-------- --------....................... 4,387 3,632
-------- --------
Income Before Minority Interest 6,546 5,888 12,228 11,272............... 6,636 5,682
Minority Interest in Income (Loss) of Subsidiary 157 90 136 54
-------- -------- -------- --------
Income before Effect of Accounting Change 6,389 5,798 12,092 11,218
Cumulative Effect of Accounting Change,
net of tax benefit of $833 -- -- -- (1,367)
-------- --------. 1 (21)
-------- --------
Net Income .................................. $ 6,3896,635 $ 5,798 $ 12,092 $ 9,851
======== ========5,703
======== ========
Earnings Per Share:
Basic Income before Cumulative Effect of Accounting Change............................................ $ 0.520.55 $ 0.430.46
Diluted .......................................... $ 0.970.54 $ 0.82
Cumulative Effect of Accounting Change, net of tax -- -- -- (0.10)
-------- -------- -------- --------
Net Income $ 0.52 $ 0.43 $ 0.97 $ 0.72
======== ======== ======== ========
Diluted
Income before Cumulative Effect of Accounting Change $ 0.52 $ 0.43 $ 0.97 $ 0.81
Cumulative Effect of Accounting Change, net of tax -- -- -- (0.10)
-------- -------- -------- --------
$ 0.52 $ 0.43 $ 0.97 $ 0.71
======== ======== ======== ========0.45
Shares Used in Per Share Calculation:
Basic 12,305 13,403 12,402 13,611............................................ 12,147 12,500
Diluted 12,393 13,568 12,494 13,780.......................................... 12,285 12,593
- -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial
statements.
1
3
MCGRATH RENTCORP
CONSOLIDATED BALANCE SHEETS
(unaudited)
- ---------------------------------------------------------------------------------------
JUNE 30,-----------------------------------------------------------------------------------------
MARCH 31, DECEMBER 31,
-------------------- ------------
(in thousands) 2001 2000
1999
- --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
ASSETS
Cash .................................................. $ 2,6971,036 $ 490643
Accounts Receivable, less allowance for doubtful
accounts of $700 in 2001 and $650 in 2000 and 1999 27,154 25,095.......... 35,370 45,687
Rental Equipment, at cost:
Relocatable Modular Offices 252,381 238,449........................ 265,715 261,081
Electronic Test Instruments 81,626 72,832........................ 97,786 92,404
--------- ---------
334,007 311,281363,501 353,485
Less Accumulated Depreciation (99,175) (94,103)...................... (110,305) (106,083)
--------- ---------
Rental Equipment, net 234,832 217,178.............................. 253,196 247,402
--------- ---------
Land, at cost ......................................... 19,303 19,303
Buildings, Land Improvements, Equipment and Furniture,
at cost, less accumulated depreciation of $6,016$7,292
in 2001 and $6,815 in 2000 and $5,116 in 1999 32,267 31,668......................... 33,444 33,233
Prepaid Expenses and Other Assets 5,702 3,988..................... 11,540 10,978
--------- ---------
Total Assets ............................. $ 321,955353,889 $ 297,722357,246
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Notes Payable ...................................... $ 125,800121,300 $ 110,300126,876
Accounts Payable and Accrued Liabilities 29,862 24,811........... 34,999 37,012
Deferred Income 8,610 9,511.................................... 16,086 19,241
Minority Interest in Subsidiary 2,971 2,836.................... 3,507 3,506
Deferred Income Taxes 54,979 54,861.............................. 64,084 61,653
--------- ---------
Total Liabilities 222,222 202,319........................ 239,976 248,288
--------- ---------
Shareholders' Equity:
Common Stock, no par value -
Authorized -- 40,000 shares
Outstanding -- 12,30812,167 shares in 2001 and
12,125 shares in 2000 and
12,546 shares in 1999 8,631 8,755.................... 9,238 8,971
Retained Earnings 91,102 86,648.................................. 104,675 99,987
--------- ---------
Total Shareholders' Equity 99,733 95,403............... 113,913 108,958
--------- ---------
Total Liabilities and Shareholders' Equity $ 321,955353,889 $ 297,722357,246
========= =========
- --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial
statements.
2
4
MCGRATH RENTCORP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
- -----------------------------------------------------------------------------------------------------
SIX-----------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED JUNE 30,
-------------------------
(InMARCH 31,
----------------------------
(in thousands) 2001 2000
1999
- ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income ............................................................. $ 12,0926,635 $ 9,8515,703
Adjustments to Reconcile Net Income to Net Cash Provided
by Operating Activities:
Depreciation and Amortization 12,001 10,215
Cumulative Effect of Accounting Change, net of tax -- 1,367....................................... 6,897 5,802
Gain on Sale of Rental Equipment (3,355) (2,674).................................... (1,390) (1,426)
Change In:
Accounts Receivable (2,059) (1,545).............................................. 10,317 2,150
Prepaid Expenses and Other Assets (1,714) (74)................................ (562) (507)
Accounts Payable and Accrued Liabilities 4,968 2,953......................... (2,260) 871
Deferred Income (901) (1,517).................................................. (3,155) (1,010)
Deferred Income Taxes 118 5,039............................................ 2,431 703
-------- --------
Net Cash Provided by Operating Activities 21,150 23,615..................... 18,913 12,286
-------- --------
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of Rental Equipment (34,234) (19,723)........................................... (14,568) (13,315)
Purchase of Land, Buildings, Land Improvements, Equipment
&and Furniture (1,497) (1,704)........................................................ (688) (405)
Proceeds from Sale of Rental Equipment 8,833 7,209................................. 3,744 3,866
-------- --------
Net Cash Used in Investing Activities (26,898) (14,218)......................... (11,512) (9,854)
-------- --------
CASH FLOW FROM FINANCING ACTIVITIES:
Net Borrowings (Payments) Under Notes Payable 15,500 5,900
Net.......................... (5,576) 3,700
Proceeds from the Exercise of Stock Options 62 28............................ 267 19
Repurchase of Common Stock ............................................. -- (4,379) (12,584)
Payment of Dividends (3,228) (3,012)................................................... (1,699) (1,505)
-------- --------
Net Cash Provided by (Used in)Used in Financing Activities 7,955 (9,668)......................... (7,008) (2,165)
-------- --------
Net Increase (Decrease) in Cash 2,207 (271).......................................... 393 267
Cash Balance, Beginning of Period .......................................... 643 490 857
-------- --------
Cash Balance, End of Period ................................................ $ 2,6971,036 $ 586757
======== ========
Interest Paid During the Period ............................................ $ 3,9302,988 $ 2,9902,400
======== ========
Income Taxes Paid During the Period ........................................ $ 7,7001,956 $ 2,2442,929
======== ========
Dividends Declared but not yet Paid ........................................ $ 1,947 $ 1,723 $ 1,598
======== ========
- ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial
statements.
3
5
MCGRATH RENTCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000MARCH 31, 2001
NOTE 1. CONSOLIDATED FINANCIAL INFORMATION
The consolidated financial information for the sixthree months ended
June 30,
2000March 31, 2001 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 sixthree months
ended June
30, 2000March 31, 2001 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 2000,ACCOUNTING FOR DERIVATIVES
On January 1, 2001, the Company extended its $5,000,000 lineadopted Statement of credit related
to its cash management services from June 30, 2000 to August 31, 2000.
Management expects it willFinancial
Accounting Standard No. 133, "Accounting for Derivative Instruments and Hedging
Activities" (SFAS 133), as amended by SFAS 138, which establishes accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be able to further extend or renew this facilityrecorded in the
future.balance sheet as either an asset or liability measured at its fair value. The
Company does not own any derivative instruments, and as such, the implementation
of this statement did not have a material impact on the Company's financial
position or result of operations.
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.SFAS 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-RenTelcoRenTelco (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 sixthree months ended June 30,March 31, 2001 and 2000 and 1999 for the
Company's reportable segments is shown in the following table:
4
6
- -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
(in thousands) MODULARS(1) ELECTRONICS(2) ENVIROPLEX CONSOLIDATED
THREE MONTHS ENDED MARCH 31, ----------- -------------- ---------- ------------
SIX MONTHS ENDED JUNE 30,
20002001
Rental Operation Revenues ........................... $ 34,31115,180 $ 17,21310,927 $ -- $ 51,52426,107
Rental Related Services Revenues .......... 3,958 220 -- 4,178
Sales and Other Revenues 7,036 5,347 5,105 17,488.................. 2,909 2,136 952 5,997
Total Revenues 41,347 22,560 5,105 69,012............................ 22,047 13,283 952 36,282
Depreciation on Rental Equipment 5,821 5,280.......... 3,158 3,262 -- 11,1016,420
Interest Expense (Income) 3,139 1,117 (152) 4,104.......................... 1,627 625 (108) 2,144
Income before Income Taxes 10,696 8,733 617 20,046................ 5,462 5,698 (137) 11,023
Rental Equipment Acquisitions 19,330 14,904............. 6,400 8,168 -- 34,23414,568
Accounts Receivable, net (period end) 12,330 10,564 4,260 27,154..... 20,019 12,774 2,577 35,370
Rental Equipment, at cost (period end) 252,381 81,626.... 265,715 97,786 -- 334,007
1999363,501
Utilization (Period end)(3) ............... 85.0% 58.2%
Average Utilization(3) .................... 85.1% 60.8%
2000
Rental Operation Revenues ........................... $ 30,50813,669 $ 13,1047,712 $ -- $ 43,61221,381
Rental Related Services Revenues .......... 3,136 186 -- 3,322
Sales and Other Revenues 7,704 5,035 3,782 16,521.................. 3,089 2,405 1,446 6,940
Total Revenues 38,212 18,139 3,782 60,133............................ 19,894 10,303 1,446 31,643
Depreciation on Rental Equipment 5,096 4,323.......... 2,838 2,518 -- 9,4195,356
Interest Expense (Income) 2,381 806 (90) 3,097.......................... 1,501 526 (83) 1,944
Income before Income Taxes 11,700 6,532 323 18,555................ 5,563 3,913 (162) 9,314
Rental Equipment Acquisitions 13,771 5,952............. 5,415 7,900 -- 19,72313,315
Accounts Receivable, net (period end) 11,648 8,391 3,317 23,356..... 10,246 9,102 3,598 22,946
Rental Equipment, at cost (period end) 227,105 67,534.... 241,950 78,449 -- 294,639320,399
Utilization (Period end)(3)................ 80.4% 57.2%
Average Utilization(3) .................... 80.4% 56.3%
- -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
(1) Operates under the trade name Mobile Modular Management Corporation
(2) Operates under the trade name McGrath-RenTelcoRenTelco
(3) Utilization is calculated each month by dividing the cost of rental
equipment on rent by the total cost of rental equipment excluding new
equipment inventory and accessory equipment. The average utilization for
the period is calculated using the average costs of rental equipment.
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 SIX MONTHS ENDED JUNE 30,MARCH 31, 2001 AND 2000 AND 1999
The Company's core rental businesses continue to grow steadily.grew significantly. Rental
revenues for the three and six months ended June 30, 2000March 31, 2001 increased $3,828,000
(20%) and $6,150,000 (16%$4.7 million (22%)
over the comparative periodsperiod in 1999.2000. Mobile Modular Management Corporation
("MMMC") contributed $2,162,0000$1.5 million and McGrath-RenTelcoRenTelco contributed $3,988,000$3.2 million of the
six-monththree-month increase. MMMC's rental revenues increased as a result of having an
average of $19,056,000$30.9 million more equipment on rent compared to a year earlier even thoughwith
the average monthly yield for all modular equipment has declinedincreasing from 1.91%1.99% in
19992000 to 1.87%2.01% in 2000.2001. At June 30, 2000,March 31, 2001, modular utilization, excluding new
equipment inventory, was 82.4%85.0% and average utilization for the sixthree months
ended June 30,March 31, 2001and 2000 was 81.0% compared to 82.0%
for the same period in 1999. McGrath-RenTelco's85.1% and 80.4%, respectively. RenTelco's
rental revenue increase can be attributed to strong communication equipment
rental activity, which resulted in an average of $11,074,000$15.8 million more equipment on
rent compared to a year earlier. Additionally, the average monthly yield for all
electronics equipment increased from 3.20%3.45% in 19992000 to 3.63%3.84% in 2000.2001. At June 30, 2000,March
31, 2001, electronics utilization was 65.4%58.1% and average utilization for the
sixthree months ended June 30,March 31, 2001 and 2000 was 58.8% compared60.8% and 56.3%, respectively.
Depreciation on rental equipment for the three months ended March 31,
2001 increased $1.1 million (20%) over the comparative periods in 2000 due to
51.4%higher amounts of rental equipment. For the three months ended March 31, 2001,
average modular rental equipment, at cost, increased $23.3 million (10%) and
average electronics rental equipment, at cost, increased $20.7 million (28%)
over the 2000 comparative period. Other direct costs of rental operations for
the three months ended March 31, 2001 increased $927,000 (25%) over the same
period in 1999.2000 due to higher maintenance and repair expenses of the modular
fleet and increased amortization expense related to costs, such as delivery and
installation, which are charged to customers in the rental rate. Consolidated
gross margin on rents for the three-month period increased slightly from 57.3%
in 2000 to 57.4% in 2001.
Rental related services revenues for the three and six months ended June
30,March 31,
2001 increased $856,000 (26%) from $3.3 million in 2000 to $4.2 million in 2001
due to the increased $874,000 (28%) and $1,762,000 (32%) over the comparative
periods in 1999. Two large projects with extensive modification and site related
work accounted for 42% of the six month increase.modular rental activity. Gross margin on rental related
services for the six-monththree-month period increaseddecreased from 43%47.8% in 19992000 to 44%43.9% in
2000.2001.
Sales for the three and six months ended June 30,March 31, 2001 decreased $972,000
(15%) from $6.7 million in 2000 increased
$1,107,000 (12%) and $937,000 (6%) as compared to the same periods$5.7 million in 1999 with
most of the sales growth from Enviroplex.2001. Consolidated gross
margin on sales for the three months ended March 31, 2001 was consistent32.7% compared to
28.0% for each of the reported six-month periods at 31%.same period in 2000. 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, requirements
and requirements.funding. Looking forward, in a slowing economy, the Company would anticipate
fewer sales opportunities for the remainder of
6
8
2001 as companies in an effort to conserve capital are less likely to purchase
modular and electronics equipment.
Enviroplex's backlog of orders as of June 30,March 31, 2001 and 2000 was $9.3
million and 1999 was
$12,326,000 and $6,808,000,$16.3 million, respectively. Backlog is not significant in MMMC's
modular business or in McGrath-RenTelco'sRenTelco's electronics business.
Depreciation on rental equipment for the three and six months ended June
30, 2000 increased $992,000 (21%) and $1,682,000 (18%) over the comparative
periods in 1999 due to higher amounts of rental equipment. For the six months
ended June 30, 2000, average modular rental equipment, at cost, increased
$23,709,000 (11%) and average electronics rental equipment, at cost, increased
$10,480,000 (16%) over the 1999 comparative period.
Other direct costs of rental operations for the three and six months ended
June 30, 2000 increased $1,175,000 (33%) and $1,823,000 (27%) over the same
periods in 1999 primarily due to an $832,000 write-off of rental equipment in
the second quarter identified as equipment which was beyond economic repair.
Additionally, higher maintenance and repair expenses of the modular fleet
contributed to these increases.
Selling and administrative expenses for the three and six months ended June 30, 2000March
31, 2001 increased $798,000 (20%) and $1,294,000 (16%$1.1 million (23%) over the comparative periodsperiod in 19992000
primarily due to higher personnel and benefit costs, including
performanceincreased marketing and
incentive bonuses.
6
8advertising costs, and increased consultant fees related to legal, accounting,
and investor relations.
Interest expense for the three and six months ended June 30, 2000March 31, 2001 increased
$579,000 (37%) and $1,007,000 (33%$200,000 (10%) over the 19992000 comparative periodsperiod as a result of a higher average
borrowing level and ain 2001. The higher average interest
rate in 2000. The average debt increase resulted from rental equipment
purchases, repurchaseslevels funded part of the Company's
capital expenditures, payment of dividends and repurchases of common stock and dividend payments made
during the last twelve months.stock.
Income before provision for taxes for the three months ended June 30, 2000March 31,
2001 increased $1,039,000 (11%$1.7 million (18%) from $9.3 million to $10,732,000 while$11.0 million and net
income increased $591,000
(10%$932,000 (16%) from $5.7 million to $6,389,000 or $0.52$6.6 million with earnings
per diluted share over the comparative periodincreasing 20% from $0.45 per share in 1999. Income before provision2000 to $0.54 per share
in 2001. The lower percentage increase for taxes for the six months ended June 30, 2000
increased $1,491,000 (8%) to $20,046,000 while net income increased $2,241,000
(23%)was effected by a higher
tax rate of 39.8% in 2001 as compared to $12,092,000 or $0.97 per39.0% in 2000 with the diluted share over the comparative period in
1999. The higher percentage increase in net income is due to the impact of a
one-time charge of $1,367,000 recognized in the first quarter of 1999
representing the cumulative effect of an accounting change, net of tax.
Excluding the impact of this one-time charge, net income for the six months
ended June 30, 1999 was $11,218,000 or $0.81 per diluted share resulting in
comparative earnings increasing 8% and comparative earnings
per share increasing
20% in 2000.increase impacted by the Company's ongoing stock repurchase program
with fewer shares outstanding.
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 from operations
for the sixthree months ended June 30, 2000March 31, 2001 of $21,150,000$18.9 million as compared to $23,615,000$12.3
million for the year earlier period.period primarily due to the reduction of accounts
receivable. During 2000,the first quarter of 2001, the primary uses of cash have been
to purchase additional rental inventoryequipment to satisfy customer requirements, to repurchase
sharesother
capital expenditures, payment of the Company's common stock on the open market, and to pay dividends to the Company's shareholders.shareholders, and
debt reduction.
The Company had total liabilities to equity ratios of 2.232.11 to 1 and
2.122.28 to 1 as of June 30, 2000March 31, 2001 and December 31, 1999,2000, respectively. The debt
(notes payable) to equity ratios were 1.261.06 to 1 and 1.16 to 1 as of June 30, 2000March 31,
2001 and December 31, 1999,2000, respectively. Both ratios have increaseddecreased since
December 31, 1999 partially2000 as a result of the Company's stock repurchase program.earnings and debt reduction.
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 six months ended June 30,
2000 the Company repurchased 265,3602001, no shares of its outstanding common stock for
an aggregate purchase price of $4,379,000 (or an average price of $16.50 per
share).have been
repurchased. As of August 3, 2000, 975,500March 31, 2001, 805,800 shares remain authorized for
repurchase.
The Company believes that its needs for working capital and capital
expenditures through 20002001 and beyond will be adequately met by cash flow and
bank borrowings.
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 June 30, 2000,March 31, 2001, the Company believes that the carrying
amounts of its financial instruments (cash and notes payable) approximate fair
value.
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 Company experienced no disruption in operations due to transition to
the Year 2000. A number of major system projects were initiated in 1997, 1998
and 1999 to upgrade core computer hardware, networking and software
7
9
systems. These projects replaced existing systems as opposed to simply fixing
Year 2000 problems; they are now complete and operational. There are no known
trends or deferred capital spending related to Year 2000 issues that are likely
to affect the Company's results of operations.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
McGrath RentCorp has been named along with a number of other companies
as a defendant in a lawsuit alleging a failure to warn about certain chemicals
associated with building materials used in portable classrooms in California.
The lawsuit was filed by As You Sow, a corporation that has served as a
plaintiff in numerous lawsuits alleging similar failures to warn. The Company
and its subsidiary Enviroplex, Inc. are two of nineteen named defendants, all of
whom are involved in the portable classroom industry in the State of California.
While the plaintiff alleges that materials used to construct portable classrooms
require certain warnings, there is no allegation that any individual has
suffered any injury or harm. The plaintiff does not allege that any particular
classroom leased, sold or manufactured by the Company or Enviroplex has exposed
anyone to any such chemicals; and the Company believes that in fact none of the
portable classrooms it leases or sells and none of the portable classrooms
manufactured by Enviroplex pose any health risk. The Company believes the
lawsuit is without merit, and it intends to defend against the suit vigorously.
The lawsuit was filed in the Superior Court of the State of California for the
County of San Francisco on July 7, 2000. The complaint seeks a court injunction
ordering the defendants to post warning signs in portable classrooms, recovery
of a fine of $2,500 for each failure to post a warning sign where required, and
recovery of monies the defendants may have made by selling or leasing classrooms
without appropriate warnings. Plaintiff also asks for payment of attorneys'
fees. The Company has entered into an agreement to settle this lawsuit on terms
that it believes will have no material adverse impact on its operations or
financial condition.
ITEM 3. OTHER INFORMATION
On May 31, 2000,March 16, 2001, the Company declared a quarterly dividend on its
Common Stock; the dividend was $0.14$0.16 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.
No exhibits included.None.
(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) 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 3, 2000May 8, 2001 MCGRATH RENTCORP
By: /s/ Thomas J. Sauer
------------------------------------------------------
Thomas J. Sauer
Vice President and Chief Financial
Officer (Chief Accounting Officer)
10
INDEX TO EXHIBITS
Number Description
- ------ -----------
27 Financial Data Schedule
8