FORM 10-Q1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.D. C. 20549
_________________________---------------
FORM 10-Q
QUARTERLY REPORT UNDERPURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended SeptemberFOR THE QUARTER ENDED SEPTEMBER 30, 1997
Commission File No.1998
COMMISSION FILE NUMBER 0-13292
McGRATH---------------
MCGRATH RENTCORP
(Exact name of registrant as specified in its Charter)
CALIFORNIA 94-2579843
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
5700 LAS POSITAS ROAD, LIVERMORE, CALIFORNIACA 94550
(Address of principal executive offices)
Registrant's telephone number: (510)(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[X] No ______ _______[ ]
At November 11, 1997, 15,021,9185, 1998, 14,000,862 shares of Registrant's
Common Stock were outstanding.
_________________________================================================================================
McGrath RentCorp
Third Quarter 1997 Form 10-Q
Page 12
PART 1.I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.STATEMENTS
MCGRATH RENTCORP
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three months ended Nine months ended
September- ------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER
SEPTEMBER 30, September 30,
--------------------------- ---------------------------- ----------------------------
1998 1997 19961998 1997
1996
----------- ----------- ------------ ------------ ------------------------------------------------------------------------------------------------------------------
REVENUES:REVENUES
Rental operations-
Rental $16,067,741 $12,321,796$ 18,385,026 $ 16,067,741 $ 52,705,894 $ 45,138,552
$35,573,650
Rental related services 3,608,892 3,920,071 8,892,168 7,672,245
----------- -----------Related Services 4,061,774 3,357,762 9,011,659 8,131,644
------------ -----------
19,676,633 16,241,867 54,030,720 43,245,895------------ ------------ ------------
Rental Operations 22,446,800 19,425,503 61,717,553 53,270,196
Sales and related services21,787,334 25,675,496 9,255,33842,973,129 51,621,927
19,598,040
----------- -----------Other 244,360 251,130 612,450 760,524
------------ ----------------------- ------------ ------------
Total revenuesRevenues 44,478,494 45,352,129 25,497,205105,303,132 105,652,647
62,843,935
----------- ----------- ------------ ----------------------- ------------ ------------
COSTS & EXPENSES:AND EXPENSES
Direct costsCosts of rental operations-Rental Operations
Depreciation 4,617,674 3,649,571 3,108,15112,274,597 10,537,344
9,188,972
Rental related services 1,991,688 2,048,185 5,606,739 4,227,682Related Services 1,942,766 1,638,057 5,151,252 4,875,059
Other direct rental costs 2,296,141 2,671,884 6,763,243 6,231,218
----------- -----------3,655,957 2,649,772 10,216,041 7,494,923
------------ ----------------------- ------------ ------------
Total Direct Costs of Rental Operations 10,216,397 7,937,400 7,828,22027,641,890 22,907,326
19,647,872
CostCosts of sales and related servicesSales 15,580,968 17,878,601 6,064,18429,553,147 35,533,649
13,257,615
----------- ----------- ------------ ----------------------- ------------ ------------
Total Costs 25,797,365 25,816,001 13,892,40457,195,037 58,440,975
32,905,487
----------- ----------- ------------ ----------------------- ------------ ------------
Gross marginMargin 18,681,129 19,536,128 11,604,80148,108,095 47,211,672 29,938,448
Selling and administrative expenses 5,429,859 3,729,591 12,970,953 9,576,391
----------- -----------Administrative 4,560,456 4,962,291 12,103,999 12,008,656
------------ ----------------------- ------------ ------------
Income from operations 14,106,269 7,875,210 34,240,719 20,362,057Operations 14,120,673 14,573,837 36,004,096 35,203,016
Interest expense1,685,905 1,042,716 744,2754,719,635 2,905,047
2,061,701
----------- ----------- ------------ ----------------------- ------------ ------------
Income before provision
for income taxes 13,063,553 7,130,935 31,335,672 18,300,356
----------- ----------- ------------ -----------Before Provision for income taxes 5,361,199 2,667,070 12,632,183 7,110,824
----------- -----------Income Taxes 12,434,768 13,531,121 31,284,461 32,297,969
Provision for Income Taxes 4,899,299 5,445,015 12,326,078 12,796,659
------------ ----------------------- ------------ ------------
Income Before Minority Interest 7,535,469 8,086,106 18,958,383 19,501,310
Minority Interest in Income of Subsidiary 447,125 383,752 928,004 797,821
------------ ------------ ------------ ------------
Net incomeIncome $ 7,088,344 $ 7,702,354 $ 4,463,86518,030,379 $ 18,703,489
$11,189,532
----------- ----------- ------------ -----------
----------- ----------- ------------ -----------
Net income per share============ ============ ============ ============
Earnings Per Share:
Basic $ 0.50 $ 0.51 $ 0.291.27 $ 1.25
============ ============ ============ ============
Diluted $ 0.50 $ 0.51 $ 1.25 $ 1.23
$ 0.73
----------- ----------- ------------ -----------
----------- ----------- ------------ -----------============ ============ ============ ============
Shares Used in Per Share Calculation:
Basic 14,062,112 15,015,918 14,217,977 15,001,462
============ ============ ============ ============
Diluted 14,231,078 15,242,764 14,405,525 15,192,887
============ ============ ============ ============
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial
statements.
2
McGrath RentCorp
Third Quarter 1997 Form 10-Q
Page 23
MCGRATH RENTCORP
CONSOLIDATED BALANCE SHEETS
(unaudited)
CONSOLIDATED BALANCE SHEETS
(Unaudited)
September- ------------------------------------------------------------------------------------------
SEPTEMBER 30, DecemberDECEMBER 31,
------------- -------------
1998 1997
1996
------------ ------------- -----------------------------------------------------------------------------------------
ASSETS
Cash $ 1,341,998546,775 $ 686,333537,875
Accounts receivable,Receivable, less allowance for doubtful
accounts of $650,000 in 1998 and 1997 and $605,000 in 1996 25,849,843 19,919,95426,720,545 21,794,028
Rental equipment,Equipment, at cost:
Relocatable modular offices 179,968,456 158,376,950Modular Offices 209,507,315 196,132,895
Electronic test instruments 48,867,451 43,335,413
------------ ------------
228,835,907 201,712,363Test Instruments 60,747,136 50,350,777
------------- -------------
270,254,451 246,483,672
Less - Accumulated depreciation (70,142,706) (64,419,888)
------------ ------------
158,693,201 137,292,475Depreciation (79,793,338) (72,398,374)
------------- -------------
Rental Equipment, net 190,461,113 174,085,298
------------- -------------
Land, 20,167,647 20,167,647at cost 20,495,975 20,495,975
Buildings, Land improvements, furnitureImprovements, Equipment and equipment,Furniture,
at cost, less accumulated depreciation of $2,934,896$3,983,826
in 1998 and $3,177,213 in 1997 31,566,195 28,921,513
Prepaid Expenses and $3,376,803 in 1996 25,416,597 19,572,015
Prepaid expenses and other assets 6,494,117 2,396,935
------------ ------------
$237,963,403 $200,035,359
------------ ------------
------------ ------------Other Assets 5,140,947 6,557,534
------------- -------------
Total Assets $ 274,931,550 $ 252,392,223
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Notes payablePayable $ 65,800,000100,000,000 $ 53,850,00082,000,000
Accounts payablePayable and accrued liabilities 22,757,765 15,280,543Accrued Liabilities 21,312,813 27,047,173
Deferred income 7,313,239 5,226,803Income 7,347,482 6,928,532
Minority Interest in Subsidiary 2,507,403 1,523,058
Deferred income taxes 37,627,123 36,869,734
------------ ------------Income Taxes 42,714,887 36,247,956
------------- -------------
Total liabilities 133,498,127 111,227,080
------------ ------------Liabilities 173,882,585 153,746,719
------------- -------------
Shareholders' equity:Equity:
Common stock,Stock, no par value -
Authorized - 4O,OOO,OOO-- 40,000,000 shares
Outstanding - 15,015,918-- 14,000,862 shares in 1998 and
14,521,790 shares in 1997 7,648,364 7,756,054
Retained Earnings 93,400,601 90,889,450
------------- -------------
Total Shareholders' Equity 101,048,965 98,645,504
------------- -------------
Total Liabilities and 14,797,918 in 1996 7,718,062 7,161,168
Retained earnings 96,747,214 81,647,111
------------ ------------
Total shareholders' equity 104,465,276 88,808,279
------------ ------------
$237,963,403 $200,035,359
------------ ------------
------------ ------------Shareholders' Equity $ 274,931,550 $ 252,392,223
============= =============
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial
statements.
3
McGrath RentCorp
Third Quarter 1997 Form 10-Q
Page 34
MCGRATH RENTCORP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (decrease) in cash
(Unaudited)
Nine months ended
September- --------------------------------------------------------------------------------------
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
1998 1997
1996
------------ ------------- -------------------------------------------------------------------------------------
Cash flows from operating activities:CASH FLOWS FROM OPERATING ACTIVITIES:
Net incomeIncome $ 18,030,379 $ 18,703,489
$ 11,189,532
Adjustments to reconcile net incomeReconcile Net Income to net cash
providedNet Cash
Provided by operating activities:Operating Activities:
Depreciation and Amortization 13,380,816 11,191,451 9,787,419
Gain on saleSale of rental equipmentRental Equipment (4,396,941) (5,453,700)
(3,606,691)Proceeds from Sale of Rental Equipment 11,247,675 14,756,222
Change in:In:
Accounts receivable (5,929,889) (5,380,276)
PrepaidsReceivable (4,926,517) (5,929,848)
Prepaid Expenses and other assetsOther Assets 1,416,587 (4,097,182)
(428,495)
Accounts payablePayable and accrued liabilitiesAccrued Liabilities (4,988,358) 7,313,283
3,931,629
Deferred incomeIncome 418,950 2,086,436
(341,885)
Deferred income taxesIncome Taxes 6,466,931 757,389 1,826,972
------------ ------------
Net cash providedCash Provided by operating activities 24,571,277 16,978,205Operating Activities 36,649,522 39,327,499
------------ ------------
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of Rental Equipment (35,501,146) (41,240,592)
Purchase of Land, Buildings, Land Improvements,
Equipment and Furniture (3,750,901) (6,498,689)
------------ ------------
Net Cash Used in Investing Activities (39,252,047) (47,739,281)
------------ ------------
CASH FLOW FROM FINANCING ACTIVITIES:
Net Borrowings Under Lines of Credit 18,000,000 11,950,000
Net Proceeds from the Exercise of Stock Options 214,632 556,894
Repurchase of Common Stock (11,617,155) --
Payment of Dividends (3,986,052) (3,439,447)
------------ ------------
Net Cash Provided (Used) by Financing
Activities 2,611,425 9,067,447
------------ ------------
Net Increase in Cash 8,900 655,665
Cash Balance, Beginning of Period 537,875 686,333
------------ ------------
Cash flows from investing activities:
PurchaseBalance, End of rental equipment (41,240,592) (17,598,298)
Purchase of land --- (678,347)
Purchase of land improvements, furniture
and equipment (6,498,689) (4,277,225)
Proceeds from sale of rental equipment 14,756,222 9,511,633
------------ ------------
Net cash used in investing activities (32,983,059) (13,042,237)
------------ ------------
Cash flows from financing activities:
Net borrowings 11,950,000 8,645,000
Payment of dividends (3,439,447) (3,048,133)
Repurchase of common stock --- (8,778,775)
Net proceeds from the exercise of stock options 556,894 92,101
------------ ------------
Net cash provided (used) by financing activities 9,067,447 (3,089,807)
------------ ------------
Net increase (decrease) in cash 655,665 846,161
Cash balance, beginning of period 686,333 221,075
------------ ------------
Cash balance, end of periodPeriod $ 546,775 $ 1,341,998
============ ============
Interest Paid During the Period $ 1,067,236
------------ ------------
------------ ------------
Interest paid during period4,442,593 $ 2,859,790
============ ============
Income Taxes Paid During the Period $ 2,028,226
------------ ------------
------------ ------------
Income taxes paid during period5,523,542 $ 8,274,674
$ 5,256,506
------------ ------------============ ============
Dividends declaredDeclared but not yet paidPaid $ 1,400,086 $ 1,201,753
$ 1,035,854
------------ ------------
------------ ------------============ ============
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial
statements.
4
McGrath RentCorp
Third Quarter 1997 Form 10-Q
Page 45
MCGRATH RENTCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SeptemberSEPTEMBER 30, 1997
__________________________________________1998
NOTE 1. CONSOLIDATED FINANCIAL INFORMATION
The consolidated financial information for the nine months ended
September 30, 19971998 has not been audited, but in the opinion of management, all
adjustments (consisting of only of 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 nine months
ended September 30, 19971998 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. The number of outstanding shares and equivalent shares used in the
earnings per common share calculations were as follows:
Primary Fully Diluted
---------- -------------
Three months ended: September 30, 1997 15,242,764 15,250,148
September 30, 1996 15,172,408 15,194,300
Nine months ended: September 30, 1997 15,192,887 15,235,692
September 30, 1996 15,403,986 15,468,252
3. The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards (SFAS) No. 128, "Earnings per Share", which modifies the
way in which earnings per share (EPS) is calculated and disclosed effective
for periods ending after December 15, 1997. Primary EPS will be replaced by
basic EPS which is computed by dividing reported net income by the weighted
average number of shares of common stock outstanding during the period. Fully
diluted EPS will be replaced with diluted EPS which is computed by dividing
reported net income by the weighted average number of shares of common stock
and dilutive common equivalent shares outstanding during the period. Common
stock equivalents result from dilutive stock options computed using the
treasury stock method with the average share price for the reported period.
When implemented, the effect of this accounting change on previously reported
EPS data is not significant.
4. InNOTES PAYABLE
On July 1997,31, 1998, the Company entered intorestructured a new credit agreement amendingportion of its debt to a
fixed rate by completing a private placement of $40,000,000 of 6.44% senior
notes due in 2005 through BancAmerica Robertson Stephens. Interest on the notes
is due semi-annually in arrears and restating it'sthe principal is due in 5 equal installments
commencing on July 31, 2001. Upon completion of the private placement, the
Company repaid a $15,000,000 interim loan with one of its banks. The remainder
of the proceeds was applied to reduce the existing revolver.
In August 1998, the Company reduced its capacity to borrow under its
unsecured line of credit (the "Agreement") with its banks which expires June 30, 1999from $90,000,000 to $75,000,000. All
other terms and permits it to borrow up to
$70,000,000. The Agreement requiresconditions under this facility remained the Company to pay interest at prime
or, at the Company's election, other rate options available under the
Agreement.same. In addition,
the Company pays a commitment fee onextended the daily
average unused portion of the available line. Among other terms, the
McGrath RentCorp
Third Quarter 1997 Form 10-Q
Page 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997
__________________________________________
Agreement requires (i) the Company to maintain shareholders' equity of not
less than $77,800,000 plus 50% of all net income generated subsequent to June
30, 1997, (ii) a debt-to-equity ratio (excluding deferred income taxes) of
not more than 3 to 1, (iii) interest coverage (income from operations
compared to interest expense) of not less than 2 to 1, and (iv) debt service
coverage of not less than 1.15 to 1. If the Company does not amend or
renegotiate this Agreement for an additional time period prior to its expiration date the principal amount outstanding at that time will be
converted to a two-year term loan with the principal due and payable in eight
(8) quarterly installments. In addition to the $70,000,000 unsecured line of credit, the Company has aits $3,000,000 committed line of
credit facility related to its cash management services to June 30, 1999 and
hasallowed the $10,000,000 of uncommitted optional advance
facilities allto expire.
NOTE 3. STOCK OPTIONS
The Company adopted a 1998 Stock Option Plan (the "1998 Plan"),
effective March 9, 1998, under which 2,000,000 shares are reserved for the grant
of whichoptions to purchase common stock to directors, officers, key employees and
advisors of the Company. The plan provides for the award of options at a price
not less than the fair market value of the stock as determined by the Board of
Directors on the date the options are granted. Under the 1998 Plan, 242,000
options have been granted with exercise prices ranging from $20.25 to $20.81. Of
the 242,000 options granted, key employees received 192,000. The options become
exercisable during term of the related option agreement and expire June 30, 1998.ten years
after grant.
5
McGrath RentCorp
Third Quarter 1997 Form 10-Q
Page 6
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Three and Nine Months Ended SeptemberOPERATIONS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 and 1996
McGrath RentCorp (the "Company") is engaged in the business of renting
and selling relocatable modular offices and classrooms under its trade name
"Mobile Modular," and electronic test and measurement instruments under the
names "McGrath RentCorp" and "Rentelco". Although the Company's primary
emphasis is on rentals, both modulars and electronics are sold to direct-use
customers. The Company also manufactures portable classrooms through its
majority owned (73.2%) subsidiary, Enviroplex, Inc., for direct sale to
school districts.
Rental revenues for the three and nine months ended September 30, 19971998
increased $3,745,945 (30%$2,317,285 (14%) and $9,564,902 (27%$7,567,342 (17%), respectively, over the
samecomparative periods in 1997. ModularsOf the nine-month increase, Mobile Modular
Management Corporation ("MMMC") contributed 71.2%$5,046,487 (67%) increasing from
$30,311,031 to $35,357,518 and 75.8% of theELECTRONICS contributed $2,520,855 (33%)
increasing from $14,827,521 to $17,348,376. The significant rental revenue
increase by MMMC resulted from the large quantities of equipment shipped to
schools in the latter part of 1997 and the ELECTRONICS rental revenue increase
resulted in part from market penetration by telemarketing and regional sales
efforts on the East Coast. As of September 30, 1998, rental equipment on rent
increased for MMMC by $19,224,379 and for ELECTRONICS increased by $4,961,500
compared to a year earlier. Average utilization for ELECTRONICS during the first
nine months increased from 54.7% in 1997 to 55.0% in 1998 and increased for
modulars from 81.0% in 1997 to 82.7% in 1998, exclusive of new equipment not
previously rented.
Rental related services revenues for the three and nine months ended
September 30, 1997.
Average utilization during the first nine months1998 increased for Modulars, from
70.5% to 80.0%, and slightly declined for Electronics, from 55.2% to 55.0% as
compared to the same period in 1996. The increase in utilization for Modulars
is primarily the result of rentals to implement the class size reduction
program in California schools.
Rental related service revenues for the three months ended September 30,
1997 decreased $311,179 (8%$704,102 (21%) and for the nine months ended September 30, 1997
increased $1,219,923 (16%$880,015 (11%), respectively, as
compared to the same periods in 1996. The three month comparative revenue decline resulted1997. Gross margins increased from many schools
opting40% to 43% in
1997 to include the normal upfront charges in the rental rate. The
nine month comparative increase was primarily due to one commercial project
with significant site work requirements which occurred in the first quarter
of 1997. The gross margins for rental related services declined1998 for the nine
month comparative period from 45% in 1996 to 37% in 1997 partially as a
result of the project noted above being performed at a lower gross margin.nine-month period.
Sales and related services for the three and nine months ended September 30, 1997 increased $16,420,158 (177%1998 declined
$3,888,162 (15%) and $32,023,887 (163%$8,648,798 (17%), respectively, as compared to the same
periods in 1997 due to fewer new classroom sales to school districts by MMMC.
Enviroplex and ELECTRONICS sales volumes increased 9% and 6%, respectively, over
the same periods1997 comparative nine-month period which partially offset MMMC's expected
decline in 1996. The table below indicates the sales and
related services contribution for Modulars, Enviroplex and Electronics for
nine months ended September 30, 1997 compared with the nine months ended
September 30, 1996.
Nine months ended September 30,
------------------------------- Increase Over
1997 1996 Prior Period
----------- ----------- -------------
Modulars $29,156,007 $ 9,216,794 $19,939,213
Enviroplex 16,755,733 6,150,920 10,604,813
Electronics 5,710,187 4,230,326 1,479,861
----------- ----------- ------------
$51,621,927 $19,598,040 $32,023,887
----------- ----------- ------------
----------- ----------- ------------
McGrath RentCorp
Third Quarternew classroom sales. (See 1997 Form 10-Q
Page 710-K Management Discussion and
Analysis for Fiscal Years 1997 and 1996.) Consolidated gross margin on sales
remained constant at 31% for 1997 and 1998. The significant increase in salessingle largest sale was for
$6,109,692 by MMMC to a school district during the third quarter of 1998
consisting of new classrooms of which 69% of the total contract was the
demolition of existing buildings, site improvements and related services for Modulars and
Enviroplex is directly relatedinstallation of the new
classrooms. This sale was unique as to the higher demand by school districtsvolume of new classrooms sold in
conjunction with the class size reduction program in California. Salesamount of site work performed and related service revenues from school districts comprised 77% and 33% of the
Modulars sales and related services revenues for the nine months ended
September 30, 1997 and 1996, respectively, while Enviroplex sells
substantially all of its productis not likely to school districts. Future sales under the
class size reduction program for the Company are subject to the state's
funding of the program, the requirements of the various school districts and
available supplies. Management believes the present sales and related
services revenue levels for Modulars, and to a lesser degree Enviroplex, may
not be
sustainablerepeated in the future. Management continuesSales continue to believe thatoccur routinely as a normal part of
the Company's rental business; however, these sales and related servicescan fluctuate from quarter
to quarter and year to year fluctuate baseddepending on customer requirements. Gross margins on salesdemands and related services
declined slightly for the nine month period from 32.4% in 1996 to 31.2% in
1997.requirements.
Depreciation on rental equipment for the three and nine months ended
September 30, 19971998 increased $541,420 (17%$968,103 (27%) and $1,348,372 (15%$1,737,253 (16%),
respectively, over the
samecomparative periods in 19961997 as a result of additions to the rental equipment of
both modulars and electronics. Rental equipment, at cost, increased 18% between
September 30, 1997 and September 30, 1998. Other direct costs of rental
operations for the three and nine months ended September 30, 1998 increased
$1,006,185 (38%) and $2,721,118 (36%) over the comparative periods in 1997
primarily due to increased maintenance and repair expenses of the additionsmodular fleet.
Additionally, during 1997, a significant number of both
modular and electroniccustomers opted to include
upfront charges in the rental equipment.rate resulting in higher amortization expense of
these related upfront costs over the lease term in the subsequent periods.
Selling and administrative expenses for the three and nine months ended
September 30, 1997 increased $1,700,268 (46%1998 decreased $401,835 (8%) and $3,394,562 (35%increased $95,343 (1%),
respectively, overcompared to the same periods in 1996. The increased business activity
in the modular business for class size reduction has also translated into
higher personnel costs for the nine months ended September 30, 1997 over the
same nine month period in 1996. Personnel costs increased $1,580,152 over the
same period in 1996 and include additional staff for sales and support,
increased temporary contract labor, and increased sales and performance
bonuses. Additionally,1997. Even though selling and
administrative expenses for Enviroplex
increased $908,894 during the nine month comparative period were approximately
the same, the three-month comparative period declined by 8% primarily due to
increased
sales activityhigher expenses for facility and includes the reduction of net incomeequipment depreciation ($174,819) and personnel
and benefit costs ($176,883) offset by the portion of
earnings of Enviroplex related to the minority shareholder's interest.reduced performance and incentive bonuses
($528,384), fewer bad debt writeoffs ($114,023), and eliminated facility rental,
cleanup and moving expenses ($114,215).
Interest expense for the three and nine months ended September 30, 19971998
increased $298,441 (40%$643,189 (62%) and $843,346 (41%$1,814,588 (62%), respectively, over the samecomparative periods in
19961997 as a result of 47% higher average borrowing
6
7
levels in 1998. The debt increase was primarily due to rental equipment
purchases made during the
comparative period.
Income before provision for1997 and 1998.
Net income taxes for the three and nine months ended September 30, 1997 increased $5,932,618 (83%) and $13,878,662 (68%),
respectively, over1998
decreased slightly as compared to the samecomparative periods in 1996. Net income increased $3,238,489
(73%) for the three month period and $7,513,957 (67%) for the nine month
period over the same periods in 1996.1997. Earnings per
share decreased slightly for the threethree-month and nine months endedincreased for the nine-month
periods in 1998 to $0.50 per share and $1.27 per share, respectively, due to
fewer shares outstanding.
LIQUIDITY AND CAPITAL RESOURCES
The Company had total liabilities to equity ratio of 1.72 to 1 and 1.56
to 1 as of September 30, 1998 and December 31, 1997, increased 76%, from $0.29 to $0.51, and
68%, from $0.73 to $1.23.
McGrath RentCorp
Third Quarter 1997 Form 10-Q
Page 8
Liquidity and Capital Resources.respectively. The debt
(notes payable) to equity ratio was 0.630.99 to 1 at September 30,
1997 compared to 0.61 to 1 at December 31, 1996. The debt (total liabilities)
to equity ratio at the end of the current period was 1.28 to 1 as compared to
1.25and 0.83 to 1 as of September 30,
1998 and December 31, 1996.1997, respectively.
The Company has made purchases of shares of its common stock from time
to time in the over-the-counter market (NASDQ)(NASDAQ) and/or through privately
negotiated, large block transactions under an authorization of the Board of
Directors. Shares repurchased by the Company will beare cancelled and returned to the
status of authorized but unissued stock. TheAs of November 5, 1998, the Company has
not
repurchased any587,050 shares of its outstanding common stock during 1997 and currently isthe year for
an aggregate purchase price of $11,617,155 (or an average price of $19.79 per
share). As of November 5, 1998, 852,400 shares remain authorized to purchase up to 1,000,000 shares.
The Company's primary use of funds is to purchase rental equipment and
sales inventory, and funds will continue to be used for this purpose in the
future.repurchase.
The Company also pays quarterly dividends, whichbelieves that its needs for working capital and capital
expenditures through 1998 and beyond will constitute an
additional use ofadequately be met by cash in 1997.
McGrath RentCorp
Third Quarter 1997 Form 10-Q
Page 9flow and
bank borrowings.
PART II.II OTHER INFORMATION
ITEM 5.3. OTHER INFORMATION
InOn September 1997,18, 1998, the Company declared a quarterly dividend on its
Common Stock; the dividend was $0.08$0.10 per share. Subject to its continued
profitability and favorable cash flow, the Company intends to continue the
payment of quarterly dividends.
ITEM 6.4. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS.
Index to exhibits filed herewith as part of this report:
Exhibit
Number Title
4.1 $3,000,000 Committed Credit Facility dated July 29, 1997
between the Company and Union Bank of California, N.A.
4.2 $5,000,000 Optional Advance Facility Extension dated July
29, 1997 between the Company and Union Bank of California,
N.A.
4.3 $5,000,000 Optional Advance Facility Extension dated
August 13, 1997 between the Company and Fleet Bank, N.A.Exhibits.
NUMBER DESCRIPTION METHOD OF FILING
- ------ ----------- ----------------
4.1 Facility Reduction Letter for the Restated Credit
Agreement Filed herewith.
4.2 Second Extension to the $3,000,000 Committed
Credit Facility Filed herewith.
4.3 Note Purchase Agreement Filed herewith.
10.1 The 1998 Stock Option Plan Filed herewith.
10.2 Examplar of Incentive Stock Option for
Employees Under the 1998 Stock Option Plan Filed herewith.
7
8
NUMBER DESCRIPTION METHOD OF FILING
- ------ ----------- ----------------
10.3 Examplar of Non-Qualified Stock Option for
Directors under the 1998 Stock Option Plan Filed herewith.
10.4 Schedule of Options Granted to Members of
the Board of Directors Filed herewith.
10.5 Examplar Form of Indemnification Agreement Filed herewith.
27 Financial Data Schedule Filed herewith.
(b) REPORTS ON FORMReports on Form 8-K.
No reports on formForm 8-K have been filed during the quarter for which
this report is filed.
McGrath RentCorp
Third Quarter 1997 Form 10-Q
Page 10
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act ofPURSUANT 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.THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
Date: November 11, 1997 McGRATH5, 1998 MCGRATH RENTCORP
By:/s/by: /s/ Delight Saxton
------------------------------------------------------------------------
Delight Saxton
Senior Vice President, Chief
Financial Officer (Chief Accounting
Officer) and Senior Vice PresidentSecretary
8
9
ITEM 4. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBIT INDEX
NUMBER DESCRIPTION METHOD OF FILING
- ------ ----------- ----------------
4.1 Facility Reduction Letter for the Restated Credit
Agreement Filed herewith.
4.2 Second Extension to the $3,000,000 Committed
Credit Facility Filed herewith.
4.3 Note Purchase Agreement Filed herewith.
10.1 The 1998 Stock Option Plan Filed herewith.
10.2 Examplar of Incentive Stock Option for
Employees Under the 1998 Stock Option Plan Filed herewith.
9
10
NUMBER DESCRIPTION METHOD OF FILING
- ------ ----------- ----------------
10.3 Examplar of Non-Qualified Stock Option for
Directors under the 1998 Stock Option Plan Filed herewith.
10.4 Schedule of Options Granted to Members of
the Board of Directors Filed herewith.
10.5 Examplar Form of Indemnification Agreement Filed herewith.
27 Financial Data Schedule Filed herewith.
10