SECURITIES AND EXCHANGE COMMISSION

Washington, 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 September 30, 2002

Commission file number 0-13292

Commission file number 0-13292

McGRATH RENTCORP

(Exact name of registrant as specified in its Charter)

5700 Las Positas Road, Livermore, CA 94551
94551-7800

(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 [   ]

Yes    x                                         No    ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined under Rule 12b-2 of the Exchange Act).

Yes    x                                         No    ¨

At October 23, 2002, 12,489,180April 30, 2003, 12,036,630 shares of Registrant’s Common Stock were outstanding.

PART I—FINANCIAL INFORMATION

PART I FINANCIAL INFORMATIONMcGRATH RENTCORP

ITEM 1. FINANCIAL STATEMENTS

MCGRATH RENTCORP
CONSOLIDATED STATEMENTS OF INCOME

(unaudited)

The accompanying notes are an integral part of these consolidated financial statements.

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MCGRATHMcGRATH RENTCORP

CONSOLIDATED BALANCE SHEETS

The accompanying notes are an integral part of these consolidated financial statements.

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MCGRATHMcGRATH RENTCORP

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

The accompanying notes are an integral part of these consolidated financial statements.

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MCGRATHMcGRATH RENTCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2002

March 31, 2003

NoteNOTE 1.    CONSOLIDATED FINANCIAL INFORMATION

The consolidated financial information for the ninethree months ended September 30, 2002March 31, 2003 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 ninethree months ended September 30, 2002March 31, 2003 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.

NoteNOTE 2.    COMMON STOCK AND OPTIONS (clarification of latest Form 10-K disclosure)

 On July 2, 2001,

The Company accounts for stock-based compensation plans in accordance with Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees,” under which compensation cost is recorded as the difference between the fair value and the exercise price at the date of grant, and is recorded on a straight-line basis over the vesting period of the underlying options. The Company entered into ahas adopted the disclosure only provisions of Statement of Financial Standards (“SFAS”) No. 123, “Accounting for Stock Exchange AgreementBased Compensation”. No compensation expense has been recognized in the accompanying financial statements as the option terms are fixed and the exercise price equals the market price of the underlying stock on the date of grant for all options granted by the Company.

Had compensation cost for the stock-based compensation plans been determined based upon the fair value at grant dates for awards under those plans consistent with the minority shareholdersmethod prescribed by SFAS 123, net income would have been reduced to the pro forma amounts indicated below:

The fair value of Enviroplex to increase its ownership in Enviroplex from 73% to 81%. The Company exchanged 85,366 shares of its common stock for 8% of Enviroplex. The transactioneach option granted was recorded using purchase accounting and was valued at $2,061,000 basedestimated on the Company’s closing price of $24.14 per share on June 29, 2001, the last trading day immediately preceding the effective date of the transaction.

Note 3. DEPRECIATIONgrant using the Black-Scholes option-pricing model using the following assumptions:

 Effective January 1, 2002, the Company prospectively revised the estimated residual value of its relocatable modular offices from 18% to 50% of original cost.

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The change in estimate is based on actual used equipment sales experience and management believes that this change better reflects the future expected residualfair values of the modular equipment. Historical results demonstrate that upon sale, the Company recovers a high percentageoptions granted as of its modular equipment cost.March 31, 2003 and 2002 were $2.5 million and $1.7 million, respectively. The Company’s proactive repair and maintenance program is a key factor contributing to the high recoveryweighted average fair value of its equipment’s cost upon sale. Forgrants was $6.77 during the three months ended September 30,March 31, 2003.

NOTE 3.    EARNINGS PER SHARE

Basic earnings per share (“EPS”) is computed as net income divided by the weighted average number of shares of common stock outstanding for the period. Diluted EPS is computed as net income divided by the weighted average number of shares outstanding of common stock and common stock equivalents for the period, including the dilutive effects of stock options and other potentially dilutive securities. Common stock equivalents result from dilutive stock options computed using the treasury stock method and the average share price for the reported period. The weighted average number of dilutive options outstanding for the three months ended March 31, 2003 and 2002 were 88,912 and 247,056, respectively. As of March 31, 2003, stock options to purchase 197,000 shares of the Company’s common stock were not included in the computation of diluted EPS because the exercise price exceeded the average market price for the quarter and the effect of the change is a decrease in depreciation expense of $1.8 million and an increase in net income of $1.1 million or $0.09 per diluted share. For the nine months ended September 30, 2002, the effect of the change is a decrease in depreciation expense of $5.4 million and an increase in net income of $3.3 million or $0.26 per diluted share.would have been anti-dilutive.

NoteNOTE 4.    IMPAIRMENT

 The Company continually evaluates the recoverability of its rental equipment’s carrying value in accordance with Statement of Financial Accounting Standards No. 144. A key element in the recoverability assessment of the equipment’s carrying value is the Company’s outlook as to the future market conditions for its electronics rental equipment. If the carrying amount of the equipment is not fully recoverable, an impairment charge is recognized to the extent that the carrying value of the equipment exceeds its estimated fair value. The Company estimates fair value based upon the condition of the equipment and market conditions. As a result of these evaluations, equipment was identified with carrying values in excess of its estimated future net cash flows. During the first six months of

In 2002, the Company’s RenTelco segment recorded a noncash impairment chargescharge of $24.1 million, resultingwhich primarily reduced the net carrying value of its communications equipment. Of this amount, $11.9 million was recorded during the three months ended March 31, 2002 and resulted from the depressed and low projected demand for RenTelco’s rental products coupled with high inventory levels, especiallyparticularly communications equipment. During the three months ended September 30, 2002, no impairment charge was recorded. RenTelco’s business activity levels are directly attributable to the severe and prolongedcontinued broad-based weakness in the telecommunications industry. The Company has limited visibility asWorsening market demand for the Company’s communications equipment caused an additional $12.2 million impairment charge to whenbe recorded for the recovery in this sector will occur. Impairmentthree months ended June 30, 2002. Since June 30, 2002, there have been no impairment charges are separately captioned on the Statements of Income within Direct Costs of Rental Operations.

recorded. As of September 30, 2002,March 31, 2003, the carrying value of communications equipment was $9.0$7.4 million of which $1.3$0.3 million is classified as held for sale and included in “Rental Equipment, at cost: Electronics Test Instruments”

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on the Consolidated Balance Sheet. The Company will continue to use its best efforts to sell the rental equipment determined to be in excess of the required levels to meet projected customer demand.Sheets. There can be no assurance that the Companyfuture impairment charges on RenTelco’s remaining equipment will be successful in these efforts.not occur.

Note 5. PROPOSED MERGER TERMINATED

     The proposed merger transaction is discussed in the Company’s Annual Report on Form 10-K filed with the SEC on March 19, 2002, and a copy of the Merger Agreement was attached as an exhibit to the Company’s Report on Form 8-K filed with the SEC on December 26, 2001. On July 1, 2002, McGrath RentCorp exercised its right to terminate the Merger Agreement, dated as of December 20, 2001, between McGrath RentCorp and Tyco Acquisition Corp. 33, a subsidiary of Tyco International Ltd. In August 2002, Tyco Acquisition Corp. 33 paid $1.25 million to McGrath RentCorp as reimbursement of certain costs and expenses incurred in connection with the proposed merger. In connection with the payment, McGrath RentCorp and Tyco Acquisition Corp. 33 have agreed that neither of them will have any claims against the other or their affiliates in connection with the Merger Agreement. The $1.25 million payment was included in “Other Revenues” on the Statements of Income for the period ending September 30, 2002. Additionally, included in Selling and Administrative expenses for first nine months of 2002 are $0.6 million of nonrecurring merger-related costs and expenses.

Note 6.NOTE 5.    BUSINESS SEGMENTS

The Company defines its business segments based on the nature of operations for the purpose of reporting under SFAS 131, “Disclosures about Segments of an Enterprise and Related Information.”Information”. The Company’s three reportable segments are Mobile Modular Management Corporation (Modulars), RenTelco (Electronics), and Enviroplex. The operations and accounting policies of these three segments are described in the notes toNotes 1 and 2 of the consolidated financial statements included in the Company’s latest Form 10-K. The Corporate segment in the table below is for the items related to the terminated merger with Tyco International which were not specifically allocated to a reportable segment. 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, deferred income and customer security deposits. The Company does not report total assets by business segment. Summarized financial information for the ninethree months ended September 30,March 31, 2003 and 2002 and 2001 for the Company’s reportable segments is shown in the following table:

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(in thousands)		Modulars				Electronics				Enviroplex				Corporate1				Consolidated
Three Months Ended March 31, 2003
Rental Revenues		$	15,703			$	2,738			$	—			$	—			$	18,441
Rental Related Services Revenues			3,427				120				—				—				3,547
Sales and Other Revenues			2,582				2,063				828				—				5,473
Total Revenues			21,712				4,921				828				—				27,461
Depreciation of Rental Equipment			1,740				1,375				—				—				3,115
Impairment of Rental Equipment			—				—				—				—				—
Interest Expense (Income) Allocation			652				96				(58	)			—				690
Income (Loss) before Provision for Income Taxes			7,840				600				(382	)			—				8,058
Rental Equipment Acquisitions			2,897				757				—				—				3,654
Accounts Receivable, net (period end)			21,535				3,475				2,010				—				27,020
Rental Equipment, at cost (period end)			287,147				37,801				—				—				324,948
Rental Equipment, net book value (period end)			200,766				19,393				—				—				220,159
Utilization (period end)2			82.9	%			44.2	%
Average Utilization2			83.8	%			42.8	%
2002
Rental Revenues		$	16,327			$	4,965			$	—			$	—			$	21,292
Rental Related Services Revenues			3,817				154				—				—				3,971
Sales and Other Revenues			3,442				2,699				360				—				6,501
Total Revenues			23,586				7,818				360				—				31,764
Depreciation of Rental Equipment			1,755				3,613				—				—				5,368
Impairment of Rental Equipment			—				11,887				—				—				11,887
Interest Expense (Income) Allocation			912				293				(58	)			—				1,147
Income (Loss) before Provision for Income Taxes			8,850				(11,913	)			(565	)			(419	)			(4,047	)
Rental Equipment Acquisitions			6,523				504				—				—				7,027
Accounts Receivable, net (period end)			22,834				7,186				1,949				—				31,969
Rental Equipment, at cost (period end)			284,733				64,754				—				—				349,487
Rental Equipment, net book value (period end)			200,876				40,994				—				—				241,870
Utilization (period end)2			85.8	%			37.2	%
Average Utilization2			85.9	%			34.7	%

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ITEMITEM 2.    MANAGEMENT DISCUSSION MANAGEMENT DISCUSSIONAND ANALYSIS ANALYSISOF FINANCIAL CONDITION FINANCIAL CONDITIONAND RESULTS RESULTSOF OPERATIONS 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 1995.1995 and are subject to a number of risks and uncertainties. All statements, other than statements of historical facts included in this Quarterly Report on Form 10-Q regarding the Company’s business strategy, future operations, financial position, estimated revenues or losses, projected costs, prospects, plans and objectives are forward-looking statements. These statements appear in a number of places. Such statementsplaces and 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. All forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q. Readers should not place undue reliance on these forward-looking statements and are cautioned that any such forward-looking statements are not guarantees of future performance and involve significant risks and uncertainties, and that actualperformance. Actual results may vary materially from those in the forward-looking statements as a result of various factors. These factors includeinclude: the effectiveness of management’s strategies and decisions,decisions; general economic and business conditions and in particular the continuing weakness in the telecommunications industry; new or modified statutory or regulatory requirements andrelating to the Company’s modular operations; changing prices and market conditions.conditions; additional impairment charges on the Company’s equipment; and fluctuations in the Company’s rentals and sales of modular or telecommunications equipment. 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 Nine Months Ended September 30,March 31, 2003 and 2002 and 2001

The Company’s RenTelco division continues to be affected by the severe and prolonged broad-based weakness in the telecommunications industry, and thiswhich has significantly impacted the Company’s overall results in 2002. In 2002, RenTelco’s quarterly rental revenues have continued to decline; first quarter 2002 declined 29% from fourth quarter 2001, second quarter 2002 declined 19% from first quarter 2002 and third quarter 2002 declined 14% from second quarter 2002.for the quarter. RenTelco’s rental revenue levels have declined 68%45% from $5.0 million in first quarter 2001 levels of $10.9 million, its historically highest quarterly rental revenue level,2002 to $3.5$2.7 million in first quarter 2003. In 2002, the third quarter of 2002. During the first six months of 2002,Company’s RenTelco segment recorded a noncash impairment chargescharge of $24.1 million. Of this amount, $11.9 million was recorded during the three months ended March 31, 2002 and resulted from the depressed and low projected demand for RenTelco’s rental products coupled with high inventory levels, particularly communications equipment. Worsening market demand for the Company’s communications equipment caused an additional $12.2 million impairment charge to be recorded for the three months ended June 30, 2002. ThereIn conjunction with these write-downs, equipment with an adjusted value of $1.9 million was classified as held for sale and was no impairment charge recorded during the third quarter 2002. RenTelco’s pretax income contribution, excludinglonger depreciated. Since June 30, 2002, there have been no impairment charges and items related to the terminated merger with Tyco International, have declinedrecorded. RenTelco’s pre-tax contribution increased from $14.1a pre-tax loss of $11.9 million in the first nine monthsquarter 2002, which included the impairment charge noted above, to pre-tax income of 2001 to $1.2$0.6 million forin the first nine monthsquarter 2003, resulting from the sale of 2002.underutilized equipment. The $24.1 million in impairment charges primarily related to reducingreduced the net carrying value of theRenTelco’s communications equipment. At September 30, 2002, the Company’sMarch 31, 2003, RenTelco’s communications equipment had a carrying value of $9.0$7.4 million after considering the impairment writedowns, representing 38%35% of the carrying valueelectronics inventory, and includes the remaining equipment held for sale of all electronics equipment. $0.3 million. There can be no assurance that future impairment charges on RenTelco’s remaining equipment will not occur.

Looking forward forto the remainder of 2002 and the forseeableforeseeable future, the Company expects RenTelco’s business activity levels to be low until such time as the telecommunications industry recovers. While management has limited visibility as to when the recovery in this sector will occur, management believes that adjusted equipment and overhead expense levels will meet demand in the near term, and positions RenTelco to increase its earnings contribution upon the recovery of the telecommunications industry. However, there can be no assurance as to the success of RenTelco’s operations and financial results in connection with any such recovery. If business levels were to decline further, the Company is subject to the risk that additional equipment may become impaired which would adversely impact the Company’s future reported results. The Company is actively attemptingwill continue to sell its underutilized electronics rental inventory, especiallyequipment determined to be in excess of the impaired equipment designated as held for sale of $1.3 million, which represents 5% of all electronics equipment.required levels to meet projected customer rental demand. There can be no assurance that the Company will be successful in these efforts.

Rental revenues for the three and nine months ended September 30, 2002March 31, 2003 decreased $4.9$2.8 million (20%(13%) and $14.8 million (19%), respectively, from the comparative periodsperiod in 2001 as a result of RenTelco’s rental revenue decline. For the nine-month period,2002 with Mobile Modular Management Corporation’s (“MMMC”Modular’s (MMMC) decreasing $0.6 million (4%) rental revenue increase of $2.8and RenTelco decreasing $2.2 million (6%) was offset by RenTelco’s rental revenue decrease of $17.6 million (59%(45%). MMMC’sMMMC rental revenues increaseddecreased primarily due to higher equipment levels on rentreturns during the first nine months of 2002,last two quarters, while RenTelco’sRenTelco rental revenues declined due to continued broad-based weakness in the telecommunications industry, as described above.industry. For MMMC, as of September 30, 2002, modular utilization, was 86.4% and modularor the cost of rental equipment on rent increaseddivided by $8.0 million compared to a year earlier. For the nine month period, average utilization for modulars,total cost of rental

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equipment excluding new equipment not previously rented increasedand accessory equipment, as of March 31, 2003 and 2002 was 82.9% and 85.8%, respectively. For the three months ended March 31, 2003, modular average equipment on rent, valued at cost, declined slightly compared to the year earlier period. Average utilization for modulars for the quarter ended March 31, 2003, decreased from 85.3% in 2001 to 86.0%85.9% in 2002 whileto 83.8% in 2003 and was the primary factor for the decline in the average monthly yield orfrom 2.00% in 2002 to 1.88% in 2003. Average monthly yield is calculated as rental revenues for the quarter divided by the average rental equipment cost, remained the same at 2.02%divided by three and can be impacted by equipment utilization and rental rates of cost.equipment on rent. For RenTelco, electronics utilization as of September 30,March 31, 2003 and 2002 was 44.7%44.2% and 37.2%, respectively. For the three months ended March 31, 2003, electronics average equipment on rent, valued at cost and adjusted for the equipment write-downs occurring in 2002, decreased $25.2by $13.3 million compared to athe year earlier period as demand

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continued continues to worsenbe weak for communicationsthis short-term rental equipment.product. For the nine-month period,quarter ended March 31, 2003, average utilization for electronics decreasedincreased from 53.6% in 2001 to 37.2%34.7% in 2002 to 42.8% in 2003 with the average monthly yield decreasingincreasing from 3.4% of cost1.9% in 20012002 to 2.2% of cost2.4% in 20022003, both increasing primarily as a result of 31% lower utilization combined with 9% lower rental rates.the 2002 equipment write-downs.

Depreciation onof rental equipment for the three and nine months ended September 30, 2002March 31, 2003 decreased $3.9$2.3 million (55%(42%) and $8.0 million (39%), respectively, from the comparative periodsperiod in 20012002 primarily as a result of prospectively increasing the residual value for modular equipment from 18% to 50% of original cost effective January 1, 2002. (See “Note 3 — Depreciation”due primarily to the Financial Statements on page 4). Additionally,RenTelco equipment write-downs, which classified some equipment as a result of the writedown in the first and second quarters 2002, certain electronicsnon-depreciable equipment classified as held for sale was no longer depreciated and certain electronics equipment used for rentals had lowerlowered the monthly depreciation expense as a result of a reduction in the carrying value of theon written down rental equipment. These decreases into depreciation expense were offset in part by depreciation related to rental equipment additions and a reduction in the useful life for certain optical equipment effective January 1, 2002.

additions. For MMMC, in 2002, as rental revenues for the three and nine month periods increased 3% and 6%, respectively, over the comparable periods in 2001,months ended March 31, 2003, depreciation expense as a percentage of rental revenues for both periods declined from 21% in 2001 to 10% in 2002 due primarily toremained consistent with the impact of the change in residual value for modular equipment discussed above.prior year’s period at 11%. For RenTelco, in 2002, asthe effect of 62% lower depreciation expense and 45% lower rental revenues for the first nine months ofquarter 2003 as compared to first quarter 2002, declined 59% from the first nine months of 2001, depreciation expense asresulted in a percentage of revenues increased from 34% in 2001 to 57% in 2002 reflecting the lower equipment utilization in 2002. RenTelco’s increasedecrease in depreciation expense as a percentage of revenues for the first nine months occurredfrom 73% in spite of the first and second quarter 2002 electronics equipment writedowns.to 50% in 2003.

Other direct costs of rental operations for the three and nine month periodsmonths ended March 31, 2003 decreased $0.6$0.5 million (13%(10%) and increased $0.9 million (7%), respectively, over the priorlast year’s comparable periodsperiod due primarily due to expense changes in the respective periods related to the repairsignificantly reducing MMMC’s utilization of higher priced subcontractors for maintenance and maintenancerepairs of its modular rental equipment. For the nine month period,three months ended March 31, 2003, consolidated gross margin percentage on rents increased from 56.5% in 2001 to 57.5%a negative margin of 4.2% in 2002, excluding the noncashwhich included RenTelco’s $11.9 million impairment charges of $24.1 million relatedcharge, to RenTelco’s rental equipment. (See “Note 4 — Impairment” to the Financial Statements on page 4).59.2% in 2003.

Rental related services revenues for the three and nine months ended September 30, 2002 declined $0.6March 31, 2003 decreased $0.4 million (11%) from the comparative period in 2002. These revenues are primarily associated with modulars and $0.8consist of services negotiated as an integral part of the lease, which are recognized on a straight-line basis over the term of the lease. The $0.4 million (6%), respectively,revenue decrease resulted from the change in mix of all leases and the associated rental related service revenues within term at March 31, 2003 as compared to the prior year’s periods in 2001 due to the mix and volume of modular activity. For the nine-month comparative period, grossyear period. Gross margin percentage on these services increased from 39.2% in 2001 to 45.9% in 2002.

     Sales revenues for the three and nine months ended September 30,March 31 decreased from 43.8% in 2002 increased $3.9 million (32%) and $4.1to 39.1% in 2003.

Sales for the three months ended March 31, 2003 decreased $0.9 million (14%), respectively, compared to from the prior year’s periods in 2001. For the nine-monthcomparable period in 2002 higheras a result of lower sales volume occurredby RenTelco and MMMC offset by increased sales at MMMC ($2.0 million increase), Enviroplex ($1.2 million increase) and RenTelco ($0.9 million increase) as compared to the same period in 2001.Enviroplex. Sales continue to occur routinely as a normal part of the Company’s rental business; however, these sales and margins can fluctuate from quarter to quarter and year to year depending on the mix in equipment sold, customer requirements and funding. Consolidated gross margin percentage on sales for the nine-month period decreased from 31.9%three months ended March 31 remained consistent between years at 30.2% in 20012003 compared to 27.3%30.5% in 2002. In the future, gross margins on the sale of used modular equipment may decline as a result of higher residual values in relation to prior periods.

Enviroplex’s backlog of orders as of September 30,March 31, 2003 and 2002 and 2001 was $2.8$12.2 million and $8.6$9.4 million, respectively. BacklogTypically, in the California classroom market, booking activity for the first half of the year provides the most meaningful information towards determining order levels to be produced for the entire year. (Backlog is not significant in MMMC’s modular business or in RenTelco’s electronic business.)

 Other revenues for the three and nine month periods include a $1.25 million nonrecurring reimbursement by a subsidiary of Tyco International of certain costs and expenses incurred in connection with the terminated Merger Agreement (See “Note 5 — Proposed Merger Terminated”).

Selling and administrative expenses for the three and nine months ended September 30, 2002March 31, 2003 decreased $0.5$0.6 million (9%(11%) and increased less than $0.1 million (less than 1%), respectively, overfrom the comparable periods2002 period. The decrease is due primarily to reductions in 2001. Includedpersonnel and benefit costs of $0.2 million and expenses incurred in the first nine months of 2002 are $0.6 million of nonrecurring expenses related to the Company’s terminated Merger Agreement (See “Note 5 — Proposed Merger Terminated”).

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merger with Tyco International of $0.4 million.

Interest expense for the three and nine months ended September 30, 2002March 31, 2003 decreased $0.8$0.5 million (46%(40%) and $2.6 million (45%), respectively, from the comparable periods in 2001first quarter 2002 as a result of 35% lower debt levels and 7% lower average interest rates compared tofrom the comparative prior year periods.period.

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Income before provision for taxes for the three and nine months ended September 30, 2002March 31, 2003 increased $2.3$12.1 million (19%) and decreased $27.7 million (77%), respectively, from the comparable periodsquarter in 2001. The nine month decrease is primarily due to RenTelco’s lower operating results combined with the recorded impairment charges related to its rental equipment. For the three and nine months ended September 30, 2001 and 2002, the effective tax rate remained unchanged at 39.8%.

2002. Net income for the three-month periodfirst quarter 2003 increased $1.3$7.3 million (19%) with earningsfrom a net loss of $2.3 million or, a $0.19 loss per diluted share, increasing 17% from $0.58to net income of $4.9 million or, $0.40 per diluted share in 2001 to $0.68 per diluted share in 2002.share. For comparability, of the three-month period results, excluding items related to the terminatedimpairment and merger agreement and the increase in modular residual value used in the depreciation calculation,expenses, first quarter net income and earnings per share would have decreased 4% from $7.2$5.1 million and $0.58or $0.39 per diluted share in 20012002 to $6.6$4.9 million and $0.53or $0.40 per diluted share in 2002.2003 with fewer shares outstanding.

 Net income for the nine-month period decreased $16.5 million (77%) with earnings per diluted share decreasing 78% from $1.73 per diluted share in 2001 to $0.39 per diluted share in 2002. For comparability of the nine-month period results, excluding the impairment charges, items related to the terminated merger agreement and the increase in modular residual value used in the depreciation calculation, net income and earnings per share would have decreased from $21.4 million and $1.73 per diluted share in 2001 to $15.7 million and $1.25 per diluted share in 2002.

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 cash flow from operations plus the proceeds from the sale of rental equipment decreased $4.8$5.7 million (8%(30%) for the ninethree months ended September 30, 2002March 31, 2003 from $58.4$18.8 million in 20012002 to $53.6$13.1 million in 2002.2003. The total cash available from operations and sale proceeds for the nine-monththree-month period declined primarily as a result of lower earnings before impairment, depreciation and amortization expense, lower sale proceeds and net changes in the accounts receivable and accounts payable. Additionally, during the first nine months of 2002, an increase in the exercise of stock options over the comparable period in 2001 generated additional cash of $1.6 million. During 2002,2003, the primary uses of cash have been to repurchase $10.2 million of the Company’s common stock, purchase of $16.2$3.7 million of additional rental equipment (primarily modulars) to satisfy customer requirements payment ofand pay dividends of $6.2$2.2 million to the Company’s shareholders andwith debt reduction of $31.4increasing $3.2 million.

The Company had total liabilities to equity ratios of 1.481.32 to 1 and 1.701.25 to 1 as of September 30, 2002March 31, 2003 and December 31, 2001,2002, respectively. The debt (notes payable) to equity ratios were 0.550.45 to 1 and 0.790.40 to 1 as of September 30, 2002March 31, 2003 and December 31, 2001,2002, respectively. Both ratios have improvedincreased since December 31, 20012002 primarily as a result of debt reduction.the stock repurchase of $10.2 million during the first quarter of 2003. The Company’s credit facility related to its cash management services facilitate automatic borrowings and repayments with the bank on a daily basis depending on the Company’s cash position and allows the Company has reduced net borrowings under its lines of credit by usingto maintain minimal cash generated from operations to pay down debt.balances. At September 30, 2002,March 31, 2003, the Company had unsecured lines of credit which expire June 30, 2004 that permit it to borrow up to $125.0 million of which $48.7$34.7 million was outstanding and included on the Balance Sheet asin Notes Payable.

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 2002, nothe three months ended March 31, 2003, the Company repurchased 462,900 shares have been repurchased.of its outstanding common stock for an aggregate purchase price of $10.2 million (or an average price of $22.05 per share). As of October 23, 2002, 805,800April 30, 2003, 1,000,000 shares remain authorized for repurchase.

The Company believes that its needs for working capital and capital expenditures through 2002 and the forseeable future2003 will be adequately met by internally generated cash flow and bank borrowings.

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ITEMITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKMARKET RISK

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 September 30, 2002, theThe Company believes that the carrying amounts of its financial instruments (cashfor cash, accounts receivable, accounts payable, and notes payable)payable approximate their fair value.

ITEMITEM 4.    CONTROLS CONTROLSAND PROCEDURES PROCEDURES

The Company’s management, under the supervision and with the participation of the Company’s Chief Executive Officer (CEO) and Chief Financial Officer (CFO), performed an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures within 90 days before the filing date of this quarterly report. Based on that evaluation, the CEO and CFO, concluded that the Company’s disclosure controls

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and procedures were effective. There have been no significant changes in the Company’s internal controls or in other factors that could significantly affect internal controls subsequent to their evaluation.

PART II OTHER INFORMATION

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERSPART II—OTHER INFORMATION

 The Company held its 2002 Annual Meeting of Shareholders on September 20, 2002. The proposals voted on by the Company shareholders and the voting results are as follows:

Proposal 1: Election of Directors

The election of directors was approved as follows:

Continuing as directors after the meeting were William J. Dawson, Robert C. Hood, Joan M. McGrath, Robert P. McGrath, Delight Saxton and Ronald H. Zech.

Proposal 2: Ratification of Appointment of Independent Auditors

Grant Thornton LLP was ratified as the Company’s independent auditors for fiscal year 2002 with 9,681,771 in favor, 12,300 against, and 23,409 abstentions and 2,766,100 non-votes.

ITEMITEM 5.    OTHER INFORMATIONOTHER INFORMATION

Dividends

On September 20, 2002,March 21, 2003, the Company declared a quarterly dividend on its Common Stock of $0.18Stock; the dividend was $0.20 per share. The dividend will be payable on October 31, 2002 to all shareholders of record on October 15, 2002.

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Subject to its continued profitability and favorable cash flow, the Company intends to continue the payment of quarterly dividends.

ITEMITEM 6.    EXHIBITS EXHIBITSAND REPORTS REPORTSONFORM 8-K

(a) Exhibits.

 None

(b) Reports on Form 8-K.

	(1) The Company filed a Current Report on Form 8-K on July 1, 2002 regarding the declaration of a quarterly dividend for the second quarter ended June 30, 2002 and the termination of the Agreement and Plan of Merger, dated as of December 20, 2001, between the Company and Tyco Acquisition Corp. 33.
	(2) The Company filed a Current Report on Form 8-K on July 15, 2002 regarding a change in certifying accountant.

No reports on Form 8-K have been filed during the quarter for which this report is filed.

SIGNATURESSIGNATURES

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.