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 March 31, 1997
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 May 1, 1997, 15,008,518 shares of Registrant's Common Stock were
outstanding.
-------------------------
McGrath RentCorp
First Quarter 1997 Form 10-Q
Page 1
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three months ended
March 31,
------------------------
1997 1996
----------- -----------
REVENUES:
Rental operations-
Rental $14,327,001 $11,557,798
Rental related services 2,913,012 1,658,386
----------- -----------
17,240,013 13,216,184
Sales and related services 9,601,497 4,489,167
----------- -----------
Total revenues 26,841,510 17,705,351
----------- -----------
COSTS & EXPENSES:
Direct costs of rental operations-
Depreciation 3,423,441 3,005,653
Rental related services 2,037,493 1,026,590
Equipment supplies, repair,
direct labor and other 2,528,406 1,961,356
----------- -----------
7,989,340 5,993,599
Cost of sales and related services 6,261,196 3,100,825
----------- -----------
14,250,536 9,094,424
----------- -----------
Gross margin 12,590,974 8,610,927
Selling and administrative expenses 3,543,144 2,877,247
----------- -----------
Income from operations 9,047,830 5,733,680
Interest expense 872,885 635,274
----------- -----------
Income before provision
for income taxes 8,174,945 5,098,406
Provision for income taxes 3,255,457 2,024,829
----------- -----------
Net income $4,919,488 $3,073,577
----------- -----------
----------- -----------
Net income per share $ 0.33 $ 0.20
----------- -----------
----------- -----------
The accompanying notes are an integral part of these financial statements.
McGrath RentCorp
First Quarter 1997 Form 10-Q
Page 2
CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31, December 31,
1997 1996
------------- -------------
ASSETS
Cash $ 1,376,797 $ 686,333
Accounts receivable, less allowance for
doubtful accounts of $611,000 in 1997
and $605,000 in 1996 17,695,950 19,919,954
Rental equipment, at cost:
Relocatable modular offices 163,130,441 158,376,950
Electronic test instruments 45,039,756 43,335,413
------------- -------------
208,170,197 201,712,363
Less - Accumulated depreciation (66,349,206) (64,419,888)
------------- -------------
141,820,991 137,292,475
Land, at cost 20,167,647 20,167,647
Land improvements, furniture and equipment,
at cost, less accumulated depreciation of
$3,540,708 in 1997 and $2,824,369 in 1996 21,120,233 19,572,015
Prepaid expenses and other assets 4,039,235 2,396,935
------------- -------------
$206,220,853 $200,035,359
------------- -------------
------------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Notes payable $ 52,000,000 $ 53,850,000
Accounts payable and accrued liabilities 16,807,950 15,280,543
Deferred income 5,013,473 5,226,803
Deferred income taxes 39,394,287 36,869,734
------------- -------------
Total liabilities 113,215,710 111,227,080
------------- -------------
Shareholders' equity:
Common stock, no par value -
Authorized - 40,000,000 shares
Outstanding - 14,976,518 shares in 1997
and 15,386,630 in 1996 7,639,225 7,161,168
Retained earnings 85,365,918 81,647,111
------------- -------------
Total shareholders' equity 93,005,143 88,808,279
------------- -------------
$206,220,853 $200,035,359
------------- -------------
------------- -------------
The accompanying notes are an integral part of these financial statements.
McGrath RentCorp
First Quarter 1997 Form 10-Q
Page 3
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (decrease) in cash
(Unaudited)
Three months ended
March 31,
-------------------------------
1997 1996
----------- -----------
Cash flows from operating activities:
Net income $ 4,919,488 $ 3,073,577
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 3,657,614 3,178,949
Gain on sale of rental equipment (1,513,842) (1,115,396)
Change in:
Accounts receivable 2,224,004 1,087,360
Prepaids and other assets (1,642,300) 142,136
Accounts payable and accrued liabilities 1,364,540 875,338
Deferred income (213,330) (1,212,778)
Deferred income taxes 2,524,553 1,814,025
----------- -----------
Net cash provided by operating activities 11,320,727 7,843,211
----------- -----------
Cash flows from investing activities:
Purchase of rental equipment (9,980,850) (5,501,792)
Purchase of land improvements, furniture and equipment (1,782,391) (1,374,781)
Proceeds from sale of rental equipment 3,542,735 3,005,926
----------- -----------
Net cash used in investing activities (8,220,506) (3,870,647)
----------- -----------
Cash flows from financing activities:
Net borrowings (payments) under line of credit (1,850,000) (1,225,000)
Proceeds from the exercise of stock options 478,057 252,125
Repurchase of common stock --- (2,215,127)
Payment of dividends (1,037,814) (935,353)
----------- -----------
Net cash used in financing activities (2,409,757) (4,123,355)
----------- -----------
Net increase (decrease) in cash 690,464 (150,791)
Cash balance, beginning of period 686,333 221,075
----------- -----------
Cash balance, end of period $ 1,376,797 $ 70,284
----------- -----------
----------- -----------
Interest paid during period $ 892,867 $ 641,163
----------- -----------
----------- -----------
Income taxes paid during period $ 731,200 $ 210,804
----------- -----------
----------- -----------
Dividends declared but not yet paid $ 1,200,681 $ 1,069,567
----------- -----------
----------- -----------
The accompanying notes are an integral part of these financial statements.
McGrath RentCorp
First Quarter 1997 Form 10-Q
Page 4
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
------------------------------------------
1. The consolidated financial information for the three months ended March 31,
1997 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 three months ended
March 31, 1997 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.
2. On March 27, 1997, the Company's Board of Directors declared a 2-for-1
stock split to be effective April 15, 1997. All share and per share calculations
retroactively reflect the stock split. The number of outstanding shares and
equivalent shares used in the earnings per common share calculations were as
follows:
Quarter ended March 31, Primary Fully Diluted
- ----------------------- ---------- -------------
1997 15,123,004 15,143,156
1996 15,756,370 15,762,590
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.
McGrath RentCorp
First Quarter 1997 Form 10-Q
Page 5
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Three Months Ended March 31, 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 first quarter of 1997 increased $2,769,203 (24%)
over 1996 with modulars contributing $2,128,809 of the increase and electronics
contributing $640,394. Average utilization during the first quarter increased
for modulars from 70.0% to 79.3% and declined for electronics from 56.7% to
53.9%, as compared to the same period in 1996. The increase in utilization for
modulars resulted from the large volume of shipments to school districts during
the last half of 1996 and first quarter 1997 due to the implementation of class
size reduction in California. Class size reduction has significantly contributed
to the increase in rental revenues.
Rental related services revenues for the first quarter of 1997 increased
$1,254,626 (76%) over the same period in 1996. Most of the increase resulted
from one commercial project with significant site work requirements performed at
a lower gross margin. Gross margins declined between comparative quarters, from
38% in 1996 to 30% in 1997, as a result of this commercial project compounded
with the earning of less incentive fees during the quarter for equipment
management.
Sales and related services revenues for the three months ended March 31,
1997 increased $5,112,330, a 114% increase, compared to the same period in 1996.
Of the increase in sales and related services revenues, $2,225,968 relates to
modulars, $2,621,819 relates to Enviroplex and $264,543 relates to electronics.
Again in 1997, the significant increase in sales for modulars and Enviroplex is
directly related to the higher demand by school districts because of the class
size reduction program in California. Of the consolidated total sales and
related services revenues for the Company, 61% were related to school districts.
Gross margin on sales and related services improved during first quarter 1997 to
35% from 31% for the comparative period in 1996. Sales and related services have
fluctuated from quarter to quarter and year to year depending on customer
requirements.
Depreciation on rental equipment for the three months ended March 31, 1997
increased $417,788 (14%) as a result of additions to the rental equipment for
both modulars and electronics. Equipment supplies, repair, direct labor and
other increased $567,050 (29%) over first quarter 1996 due to material, repair
and labor costs directly related to the modular equipment movement in the first
quarter 1997.
McGrath RentCorp
First Quarter 1997 Form 10-Q
Page 6
Selling and administrative expenses increased $665,897 (23%) for the three
months ended March 31, 1997 compared to the same period in 1996 due to increased
staffing levels and personnel costs necessitated by the increasing levels of
business. Additionally, expense increases of Enviroplex contributed to the
overall increase.
Income before provision for taxes increased $3,076,539 (60%) for the three
months ended March 31, 1997 from the same period in 1996 with after tax income
increasing $1,845,911 (60%). Earnings per share for the quarter increased from
$0.20 per share to $0.33 per share, a 65% increase, as a result of higher net
income and fewer outstanding shares.
Liquidity and Capital Resources.
The debt (notes payable) to equity ratio was 0.61 to 1 at March 31, 1997
compared to 0.56 to 1 at December 31, 1996. The debt (total liabilities) to
equity ratio at the end of the current period was 1.25 to 1 compared to 1.22 to
1 as of December 31, 1995.
The Company has made 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 Dircetors. 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. The
Company has not repurchased any of its common stock during 1997 and currently
has 1,000,000 shares 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 1997.
McGrath RentCorp
First Quarter 1997 Form 10-Q
Page 7
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
On March 27, 1997 the Company declared a quarterly dividend on its Common
Stock; the dividend was $0.08 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. No exhibits included.
(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
First Quarter 1997 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: May 1, 1997 McGRATH RENTCORP
By: /s/ Delight Saxton
---------------------------
Delight Saxton
Vice-President of Administration,
Chief Financial Officer and
Secretary