FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________________
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended June 30, 1996
Commission File No. 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.)
2500 GRANT AVENUE
SAN LORENZO, CALIFORNIA 94580
(Address of principal executive offices)
Registrant's telephone number: (510) 276-2626
_________________________
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 1, 1996, 7,505,625 shares of Registrant's Common Stock
were outstanding.
_________________________
McGrath RentCorp
Second Quarter 1996 Form 10-Q
Page 1
PART 1. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three months ended Six months ended
June 30, June 30,
----------------------- -----------------------
1996 1995 1996 1995
----------- ----------- ----------- -----------
REVENUES:
Rental operations-
Rental $11,694,056 $11,521,962 $23,251,854 $22,596,061
Rental related services 2,093,788 1,768,990 3,752,174 3,799,728
----------- ----------- ----------- -----------
13,787,844 13,290,952 27,004,028 26,395,789
Sales and related services 5,853,535 3,829,895 10,342,702 7,374,527
----------- ----------- ----------- -----------
Total revenues 19,641,379 17,120,847 37,346,730 33,770,316
----------- ----------- ----------- -----------
COSTS & EXPENSES:
Direct costs of rental operations-
Depreciation 3,075,168 2,847,952 6,080,821 5,602,332
Rental related services 1,152,907 1,224,937 2,179,497 2,400,588
Other 874,875 1,185,086 2,103,005 2,337,504
----------- ----------- ----------- -----------
5,102,950 5,257,975 10,363,323 10,340,424
Cost of sales and related services 4,092,606 2,576,378 7,193,431 4,905,277
----------- ----------- ----------- -----------
9,195,556 7,834,353 17,556,754 15,245,701
----------- ----------- ----------- -----------
Gross margin 10,445,823 9,286,494 19,789,976 18,524,615
Selling and administrative expenses 3,692,656 3,129,694 7,303,129 6,432,380
----------- ----------- ----------- -----------
Income from operations 6,753,167 6,156,800 12,486,847 12,092,235
Interest expense 682,152 687,207 1,317,426 1,362,661
----------- ----------- ----------- -----------
Income before provision
for income taxes 6,071,015 5,469,593 11,169,421 10,729,574
Provision for income taxes 2,418,925 2,205,204 4,443,754 4,288,216
----------- ----------- ----------- -----------
Net income $ 3,652,090 $ 3,264,389 $ 6,725,667 $ 6,441,358
=========== =========== =========== ===========
Net income per share $ 0.48 $ 0.39 $ 0.87 $ 0.78
=========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements.
McGrath RentCorp
Second Quarter 1996 Form 10-Q
Page 2
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
June 30, December 31,
1996 1995
------------ ------------
ASSETS
Cash $ 576,111 $ 221,075
Accounts receivable, less allowance for doubtful
accounts of $605,000 in 1996 and 1995 14,791,636 13,201,196
Rental equipment, at cost:
Relocatable modular offices 145,843,127 146,867,850
Electronic test instruments 39,213,091 34,932,807
Accessory equipment 3,881,912 3,755,754
------------ ------------
188,938,130 185,556,411
Less - Accumulated depreciation (61,136,775) (57,948,456)
------------ ------------
127,801,355 127,607,955
Land 19,489,300 19,489,300
Improvements, furniture and equipment, at cost,
less accumulated depreciation of $2,998,140
in 1996 and $2,708,404 in 1995 14,442,712 12,713,095
Prepaid expenses and other assets 2,219,795 1,897,700
------------ ------------
$179,320,909 $175,130,321
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Notes payable $ 42,375,000 $ 37,080,000
Accounts payable and accrued liabilities 11,890,376 11,701,417
Deferred income 4,672,838 5,967,063
Deferred income taxes 35,884,099 34,488,695
------------ ------------
Total liabilities 94,822,313 89,237,175
------------ ------------
Shareholders' equity:
Common stock, no par value -
Authorized - 2O,OOO,OOO shares
Outstanding - 7,503,625 shares in 1996
and 7,769,813 in 1995 6,276,958 8,913,311
Retained earnings 78,221,639 76,979,835
------------ ------------
Total shareholders' equity 84,498,597 85,893,146
------------ ------------
$179,320,910 $175,130,321
============ ============
The accompanying notes are an integral part of these financial statements.
McGrath RentCorp
Second Quarter 1996 Form 10-Q
Page 3
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH
(UNAUDITED)
Six months ended
June 30,
-------------------------
1996 1995
------------ ------------
Cash flows from operating activities:
Net income $ 6,725,667 $ 6,441,358
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 6,459,352 6,170,130
Gain on sale of rental equipment (2,242,807) (1,588,298)
Change in:
Accounts receivable (1,590,440) (971,864)
Prepaids and other assets (322,095) (304,599)
Accounts payable and accrued liabilities 73,524 945,895
Deferred income (1,294,225) (441,727)
Deferred income taxes 1,395,404 475,073
------------ ------------
Net cash provided by operating activities 9,204,380 10,725,968
------------ ------------
Cash flows from investing activities:
Purchase of rental equipment (10,345,648) (8,693,762)
Purchase of improvements, furniture and equipment (2,108,148) (4,061,745)
Proceeds from sale of rental equipment 6,314,234 4,022,660
------------ ------------
Net cash used in investing activities (6,139,562) (8,732,847)
------------ ------------
Cash flows from financing activities:
Net borrowings 5,295,000 1,365,000
Payment of dividends (1,997,348) (1,878,282)
Repurchase of Common Stock (6,276,090) (2,316,235)
Proceeds from the exercise of stock options 268,656 26,867
------------ ------------
Net cash used in financing activities (2,709,782) (2,802,650)
------------ ------------
Net increase (decrease) in cash 355,036 (809,529)
Cash balance, beginning of period 221,075 1,151,648
------------ ------------
Cash balance, end of period $ 576,111 $ 342,119
============ ============
Interest paid during period $ 1,307,290 $ 1,341,546
============ ============
Income taxes paid during period $ 3,096,306 $ 3,372,576
============ ============
Dividends declared but not yet paid $ 1,050,787 $ 958,300
============ ============
The accompanying notes are an integral part of these financial statements.
McGrath RentCorp
Second Quarter 1996 Form 10-Q
Page 4
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
__________________________________________
1. The consolidated financial information for the six months ended June
30, 1996 has not been audited, but in the opinion of management, all
adjustments (consisting 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 six months ended June 30, 1996 should not be considered as
necessarily indicative of the 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.
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: June 30, 1996 7,663,491 7,671,682
June 30, 1995 8,266,920 8,213,431
Six months ended: June 30, 1996 7,770,740 7,784,022
June 30, 1995 8,279,073 8,222,935
3. In May 1996, the Company's unsecured line of credit agreement (the
"Agreement") with its banks was amended to extend the expiration date of
the Agreement to June 30, 1997. In addition to extending the expiration
date, the amendment requires the Company to maintain shareholders' equity
of not less than $70,000,000 plus 50% of all net income generated
subsequent to December 31, 1995 plus 90% of any new stock issuance proceeds
(restricted equity as of June 30, 1996 is $73,362,833).
McGrath RentCorp
Second Quarter 1996 Form 10-Q
Page 5
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Three and Six Months Ended June 30, 1996 and 1995
Rental revenues for the three and six months ended June 30, 1996
increased $172,094 (1%) and $655,793 (3%), respectively, over the same
periods in 1995. For the six month period, the $1,330,911 increase in
rental revenues from electronics was offset by a $675,118 decline in rental
revenues from relocatable modular offices. The rental revenue decline for
modulars is primarily due to an increase in rental customers electing to
purchase modulars they had on rent and to the return of modular equipment
related to several large expired leases during the first six months of
1996. Average utilization during the first six months declined for modular
equipment, from 75.1% to 69.4%, and improved slightly for electronic
equipment, from 54.4% to 55.6%, as compared to the same period in 1995.
The Company has recently experienced a significant increase in orders
and inquiries for portable classrooms in California, and believes that this
is in part a result of a law enacted on July 15, 1996 in California
mandating a reduction of classroom size for kindergarten through third
grade to 20 pupils and providing $200 million of state funds for facilities
to accomplish that goal. The law requires that the new classrooms be in
place by February 1997 to be eligible for the state funding. Approximately
34% of the Company's 1995 modular rental revenues was related to portable
classroom rentals to California school districts. The Company anticipates
that demand for portable classrooms in California will remain strong for
the remainder of this year and through the February 1997 deadline.
Rental related services for the three months ended June 30, 1996
increased $324,798 (18%) and for the six months ended June 30, 1996
decreased $47,554 (1%), respectively, compared to the same periods in 1995.
The increase for the three month period was primarily due to additional
site requirements and increased movement of modular equipment. Gross
margins for rental related services for the six month period increased from
37% in 1995 to 42% in 1996.
Sales and related services for the three and six months ended June 30,
1996 increased $2,023,640 (30%) and $2,968,175 (28%), respectively, over
the same periods in 1995. The increase in sales and related services for
the six month period is primarily due to eight large sales of both new
and used relocatable modular equipment. Of the 1996 modular sales, 22% are
new and 78% are used. The largest single sale in 1996 occurred during the
second quarter for $706,893 to a university and consisted of a two story
modular building placed on a permanent foundation. Sales and related
services from quarter to quarter have fluctuated depending on customer
requirements. Gross margins on sales and related services for the six
month period declined from 33.9% in 1995 to 30.5% in 1996.
McGrath RentCorp
Second Quarter 1996 Form 10-Q
Page 6
Depreciation on rental equipment for the three and six months ended
June 30, 1996 increased $227,216 (8%) and $478,489 (9%), respectively, over
the same periods in 1995 due to the increase in electronics rental
equipment. Other direct costs for the three and six months ended June 30,
1996 have decreased by $310,211 (26%) and $234,499 (10%) respectively,
compared to the same periods in 1995 due to lower maintenance costs
incurred, net of customer charge-backs, for the modular office rental
fleet.
Selling and administrative expenses for the three and six months ended
June 30, 1996 increased $562,962 (18%) and $870,749 (14%), respectively,
over the same periods in 1995. However, during the first quarter of 1995,
the Company recognized an acceleration of $330,000 in additional leasehold
improvement expense related to a rented facility in Southern California in
which the lease was terminated. Excluding this 1995 nonrecurring expense,
selling and administrative expenses increased $1,200,749 (19%) for the six
months ended June 30, 1996 compared to the same period in 1995. The six
month increase is primarily due to increases in staffing levels for sales
and support, personnel costs, temporary contract labor to assist in the
preparation of modular offices for potential lease or sale opportunities,
and increases in expenses of the Company's majority owned subsidiary,
Enviroplex, Inc. The increase in expenses are net of the reduction in
facilities rental due to the relocation of modular office operations in
Southern California and Texas to owned facilities.
Income before provision for income taxes for the three and six months
ended June 30, 1996 increased $601,422 (11%) and $439,847 (4%),
respectively, over the same periods in 1995. Net income increased $387,701
(12%) for the three month period and $284,309 (4%) for the six month period
over the same periods in 1995. Earnings per share for the three and six
months ended June 30, 1996 increased 23%, from $0.39 to $0.48, and 12%,
from $0.78 to $0.87, over the comparative 1995 period as a result of higher
earnings and fewer outstanding shares.
LIQUIDITY AND CAPITAL RESOURCES.
The debt (notes payable) to equity ratio was 0.50 to 1 at June 30,
1996 compared to 0.43 to 1 at December 31, 1995. The debt (total
liabilities) to equity ratio at the end of the current period was 1.12 to 1
as compared to 1.04 to 1 as of December 31 1995.
The Company continues to make purchases of shares of its common stock
from time to time in the over-the-counter market (NASDQ) and/or through
privately negotiated, large block transactions under an authorization of
the Board of Directors. The Board of Directors believes that the
repurchase of its shares continues to be a good investment for the
Company. Shares repurchased by the Company will be cancelled and
returned to the status of authorized but unissued stock. From January 1,
1996 thru August 1, 1996, the Company repurchased a total of 318,961
shares of its common stock at an aggregate cost of $6,276,090 or an average
price of $19.68 per share.
McGrath RentCorp
Second Quarter 1996 Form 10-Q
Page 7
As of August 1, 1996, 500,000 shares remain authorized for repurchase.
The Company's primary use of funds is to purchase rental equipment,
and funds will continue to be used for this purpose in the future.
Additionally, the Company plans to make further improvements to the land at
their inventory facility located in Northern California. The Company also
pays quarterly dividends, which will constitute an additional use of cash
in 1996.
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
In June 1996, the Company declared a quarterly dividend on its Common
Stock; the dividend was $0.14 per share. Subject to its continued
profitability and favorable cash flow, the Company intends to continue the
payment of quarterly dividends. The Company's loan agreement with its
banks prohibits payment of dividends in excess of 50% of net income in any
one year without the banks' consent.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS.
Index to exhibits filed herewith as part of this report:
Exhibit
Number Title
4.1 Second Amendment to Amended and Restated Credit Agreement
dated May 10, 1996 between the Company and Union Bank of
California (formerly known as The Bank of California,
N.A.), Fleet Bank (formerly known as National Westminster
Bank, USA) and Bank of America National Trust and Savings
Association
4.2 Third Amendment to Amended and Restated Credit Agreement
dated June 10, 1996 between the Company and Union Bank of
California (formerly known as The Bank of California,
N.A.), Fleet Bank (formerly known as National Westminster
Bank, USA) and Bank of America National Trust and Savings
Association
(b) REPORTS ON FORM 8-K. No reports on form 8-K have been filed during the
quarter for which this report is filed.
McGrath RentCorp
Second Quarter 1996 Form 10-Q
Page 8
SIGNATURES
Pursuant to the requirements 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 1, 1996 McGRATH RENTCORP
By: /s/ Delight Saxton
___________________________
Delight Saxton, Chief Financial
Officer and Vice President
of Administration