<PAGE>
----------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
--------------------------------------
For Fiscal Year ended: Commission File Number:
December 31, 1995 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 94580-1810
(Address of principal executive offices)
Registrant's telephone number: (510) 276-2626
-----------------------------------------
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
- ------------------- ------------------------
NONE NONE
TITLE OF CLASS
--------------
COMMON STOCK
----------------------------------------
(Cover page 1 of 2)
<PAGE>
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
---- ----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
State the aggregate market value of voting stock, held by nonaffiliates of
the registrant: $120,981,380 as of March 6, 1996.
At March 6, 1996, 7,793,715 shares of Registrant's Common Stock were
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
McGrath RentCorp's Annual Report to Shareholders for the year ended
December 31, 1995 (hereinafter referred to as the "Annual Report"), is filed
herewith as Exhibit 13 and incorporated by reference into:
Part I - Items 1 and 2
Part II - Items 5, 6, 7 and 8
McGrath RentCorp's definitive Proxy Statement with respect to its Annual
Shareholders' Meeting to be held June 13, 1996, which will be filed with the
Securities and Exchange Commission within 120 days after the end of its fiscal
year, is incorporated by reference into Part III, Items 10, 11, 12 and 13.
See page 4 for an index of Exhibits
(Cover page 2 of 2 pages)
<PAGE>
McGrath RentCorp
1995 Form 10-K
PART I
------
ITEM 1. BUSINESS.
- -----------------
The information required by this Item is contained in the Annual Report
under the headings "Company Profile" (pages 2 and 3), "Our Products" (pages 3
through 6). Such information is incorporated by reference and filed herewith.
ITEM 2. PROPERTIES.
- -------------------
The information required by this Item is contained in the Annual Report
under the heading "Properties" (page 11). Such information is incorporated by
reference and filed herewith.
ITEM 3. LEGAL PROCEEDINGS.
- --------------------------
The Company is not a party to any material pending legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS.
- --------------------------------------------------------
There were no matters submitted to a vote of shareholders during the fourth
quarter of 1995.
1
<PAGE>
McGrath RentCorp
1995 Form 10-K
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
- ------------------------------------------------------------------------------
The information required by this Item is contained in the Annual Report
under the headings "Shareholder Matters - Stock Activity", "Shareholder Matters
- - Number of Shareholders", and "Shareholders Matters - Dividend Policy" on the
inside back cover. Such information is hereby incorporated by reference and
filed herewith.
ITEM 6. SELECTED FINANCIAL DATA.
- --------------------------------
The unaudited information required by this Item is contained in the Annual
Report under the heading "Consolidated Quarterly (Unaudited) and Five Year
Selected Financial Data" (page 7). Such information is hereby incorporated by
reference and filed herewith.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
- -------------------------------------------------------------------------------
The information required by this Item is contained in the Annual Report
under the headings "Management Discussion and Analysis" (page 8), "Fiscal Years
1995 and 1994" (page 8), "Fiscal Years 1994 and 1993" (page 9), "Liquidity and
Capital Resources" and "Impact of Inflation" (page 10). Such information is
hereby incorporated by reference and filed herewith.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
- ----------------------------------------------------
The information required by this Item is contained in the Annual Report
(pages 12 through 20). Such information is hereby incorporated by reference and
filed herewith.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
- -----------------------------------------------------------------------
None.
2
<PAGE>
McGrath RentCorp
1995 Form 10-K
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
- ------------------------------------------------------------
The information required by this Item is incorporated by reference to
McGrath RentCorp's definitive Proxy Statement with respect to its Annual
Shareholders' Meeting to be held June 13, 1996, which will be filed with the
Securities and Exchange Commission by not later than May 1, 1996.
ITEM 11. EXECUTIVE COMPENSATION.
- --------------------------------
The information required by this Item is incorporated by reference to
McGrath RentCorp's definitive Proxy Statement with respect to its Annual
Shareholders' Meeting to be held June 13, 1996, which will be filed with the
Securities and Exchange Commission by not later than May 1, 1996.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
- -----------------------------------------------------------------------
The information required by this Item is incorporated by reference to
McGrath RentCorp's definitive Proxy Statement with respect to its Annual
Shareholders' Meeting to be held June 13, 1996, which will be filed with the
Securities and Exchange Commission by not later than May 1, 1996.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
- --------------------------------------------------------
The information required by this Item is incorporated by reference to
McGrath RentCorp's definitive Proxy Statement with respect to its Annual
Shareholders' Meeting to be held June 13, 1996, which will be filed with the
Securities and Exchange Commission by not later than May 1, 1996.
3
<PAGE>
McGrath RentCorp
1995 Form 10-K
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
----------------------------------------------------------------
(a) (1) FINANCIAL STATEMENTS.
---------------------
The following financial statements and independent auditors report
appearing in the Annual Report, on pages 12 through 20, are incorporated herein
by reference:
Report of Independent Public Accountants
Consolidated Statements of Income for the Years Ended December 31, 1995,
1994 and 1993
Consolidated Balance Sheets as of December 31, 1995 and 1994
Consolidated Statements of Shareholders' Equity for the Years Ended
December 31, 1995, 1994 and 1993
Consolidated Statements of Cash Flows for the Years Ended December 31,
1995, 1994 and 1993
Notes to Consolidated Financial Statements
(a) (2) FINANCIAL STATEMENT SCHEDULES.
------------------------------
None.
(a) (3) EXHIBITS.
---------
Index to exhibits filed herewith as part of this report:
EXHIBIT
NUMBER TITLE PAGE
- ------- ----- ----
4.1 First Amendment to Amended and Restated Credit Agreement
dated June 16, 1995 between the Company and The Bank of
California, N.A., National Westminster Bank, USA and Bank
of America National Trust and Savings Association 7
11 Weighted Average Shares Composition 10
13 1995 Annual Report to Shareholders 11
27 Financial Data Schedule (filed electronically)
Exhibit Number 4.1 (Amended and Restated Credit Agreement dated June 14,
1994) to the Company's Quarterly Report Under Section 13 or 15 (d) of the
Securities Exchange Act of 1934 for the quarter ended June 30, 1994 (filed
August 13, 1994) is hereby incorporated by reference herein.
Exhibit Number 10.4 (Real Property Lease Extension-Grant Avenue, San
Lorenzo, California) to the Company's Annual Report pursuant to Section 13 or 15
(d) of the Securities Exchange Act of 1934 for the year ended December 31, 1991
(filed March 28, 1992) is hereby incorporated by reference herein.
Exhibit Number 3.1 (Amendment to the Company's Articles of Incorporation)
to the Company's Registration Statement under the Securities Act of 1933 (filed
March 28, 1991, Registration No. 33-39633), is hereby incorporated by
reference herein.
4
<PAGE>
McGrath RentCorp
1995 Form 10-K
The following exhibits to the Company's Annual Report Pursuant to Section
13 or 15 (d) of the Securities Exchange Act of 1934 for the year ended December
31, 1990 (filed March 28, 1991) are incorporated by reference herein:
3.1 Amended Bylaws of the Company
10.3 Long-Term Bonus Plan, together with attached exemplar Long-Term Stock
Bonus Agreement
Exhibit Number 19.3 (Real Property Lease-8.8 Acres, Cota Street, Corona,
California) to the Company's Quarterly Report Under Section 13 or 15 (d) of
the Securities Exchange Act of 1934 for the quarter ended September 30, 1989
(filed November 14, 1989) is hereby incorporated by reference herein.
The following exhibits to the Company's Quarterly Report Under Section 13
and 15 (d) of the Securities Exchange Act of 1934 for the quarter ended June 30,
1988 (filed August 14, 1988) are hereby incorporated by reference herein:
19.1 The Amended and Restated Articles of Incorporation of the Company,
filed with the California Secretary of State's Office on June 6, 1988.
19.3 The McGrath RentCorp 1987 Incentive Stock Option Plan.
19.4 Exemplar of the form of Incentive Stock Option Agreement entered into
by the Company with participants in the McGrath RentCorp 1987
Incentive Stock Option Plan.
19.5 Exemplar of the form of Indemnification Agreement entered into by the
Company with Directors, Officers and other agents of the Company
approved by the Company's Board of Directors.
Exhibit Number 10.3 (Real Property Lease - 2500 Grant Avenue, San Lorenzo,
California) to the Company's Annual Report pursuant to Section 13 or 15 (d) of
the Securities Exchange Act of 1934 for the year ended December 31, 1986 (filed
March 31, 1987) is hereby incorporated by reference herein.
(b) REPORTS ON FORM 8-K.
--------------------
No report on Form 8-K has been filed during the last quarter of the
period covered by this report.
5
<PAGE>
McGrath RentCorp
1995 Form 10-K
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Date: March 29, 1996 MCGRATH RENTCORP
By: /s/ Robert P. McGrath
---------------------
Robert P. McGrath,
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons in the capacities and on
the dates as indicated.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ Robert P. McGrath Chairman of the Board, and Chief March 29, 1996
- ------------------------ Executive Officer
Robert P. McGrath
/s/ Delight Saxton Vice President, Chief Financial March 29, 1996
- ------------------------ Officer, Secretary, and Director
Delight Saxton
/s/ Joan M. McGrath Director March 29, 1996
- ------------------------
Joan M. McGrath
6
<PAGE>
EXHIBIT 4.1
<PAGE>
FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT
--------------------------------------------------------
This FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT ("First
Amendment") is made this 16th day of June, 1995, among McGRATH RENTCORP., a
California corporation (the "Borrower"), and THE BANK OF CALIFORNIA, NATIONAL
ASSOCIATION, NATIONAL WESTMINSTER BANK, USA and BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION (each a "Bank" and collectively the "Banks") and THE
BANK OF CALIFORNIA, NATIONAL ASSOCIATION, as agent (the "Agent") for the Banks.
RECITALS
--------
A. The Borrower is currently indebted to Banks pursuant to the terms and
conditions of that certain Amended and Restated Credit Agreement dated June 14,
1994 (the "Agreement"), pursuant to which Banks extended to the Borrower certain
Loans (as defined in the Agreement).
B. The Borrower and the Banks have agreed to amend the Agreement to reflect
certain changes in the terms and conditions set forth in the Agreement.
AGREEMENT
---------
NOW, THEREFORE, the Borrower, the Banks and the Agent hereby agree as follows:
1. DEFINITIONS. Unless otherwise expressly provided herein, each capitalized
-----------
term used in this First Amendment shall have the same meaning as set forth in
the Agreement.
2. AMENDMENT OF SECTION 8.4. Section 8.4 of the Agreement is hereby amended
------------------------
in its entirety to read as follows:
"8.4. GUARANTIES. Except guaranties in existence as of the date of
----------
this agreement in connection with Borrower's Investor-Owner Sales Program,
Borrower shall not become liable, directly or indirectly, as guarantor or
otherwise, for any obligation of any other person or entity in excess of
One Million Five Hundred Thousand Dollars ($1,500,000) in the aggregate, at
any time."
3. FULL FORCE AND EFFECT. Except as specifically provided herein, all terms
---------------------
and conditions of the Agreement and each Loan Document remain in full force and
effect, without waiver or modification. This First Amendment shall not be
construed as a waiver of or a consent to any default under or breach of the
Agreement. This First Amendment and the Agreement shall be read together as one
document.
-7-
<PAGE>
4. REPRESENTATIONS AND WARRANTIES As part of the consideration for the Banks
------------------------------
and Agent to enter into this First Amendment, the Borrower represents and
warrants to the Banks and Agent as follows:
(a) The execution, delivery and performance by the Borrower of this First
Amendment are within the Borrower's corporate powers, have been duly authorized
by all necessary corporate action, and require no action by or in respect of, or
filing with, any governmental body, agency or official, and the execution,
delivery and performance by the Borrower of this First Amendment do not
contravene, or constitute a default under, any provision of applicable law or
requirements or of the certificate or articles of incorporation or the by-laws
of the Borrower or of any material agreement, judgment, injunction, order,
decree or other instrument binding upon the Borrower or any assets of the
Borrower, or result in the creation or imposition of any Lien on any asset of
the Borrower.
(b) This First Amendment constitutes the valid and binding obligation of
the Borrower, enforceable against it in accordance with its terms, except as
enforceability may be subject to applicable bankruptcy, insolvency,
reorganization, equity of redemption, moratorium or other laws now or hereafter
in effect relating to creditors rights, and to general principles of equity
(regardless of whether enforcement is sought in a proceeding in equity or at
law).
(c) No Event of Default has occurred and is continuing, and the
representations and warranties of the Borrower in the Agreement and other Loan
Documents delivered pursuant thereto are true and correct in all material
respects as of the date hereof as if made on the date hereof.
(d) The officer of the Borrower executing and delivering this First
Amendment on behalf of the Borrower has been duly authorized by appropriate
corporate resolutions to so execute and deliver this First Amendment.
-8-
<PAGE>
5. COUNTERPARTS. This First Amendment may be executed by the parties hereto
------------
in one or more counterparts and all such counterparts, when taken together,
shall constitute one and the same First Amendment.
IN WITNESS WHEREOF, the Borrower, the Banks and the Agent have executed this
First Amendment as of the date first set forth above.
BORROWER: McGRATH RENTCORP.,
A California corporation
By: /s/ Delight Saxton
----------------------
Its: Vice President of Admin. CFO
-------------------------------
BANKS: THE BANK OF CALIFORNIA, NATIONAL ASSOCIATION
By: /s/ Robert J. Vernagallo
----------------------------
Its: Vice President
NATIONAL WESTMINSTER BANK, USA
By:
--------------------------
Its:
--------------------------
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
By:
---------------------------
Its:
---------------------------
AGENT: THE BANK OF CALIFORNIA, NATIONAL ASSOCIATION,
as Agent
By: /s/ Robert J. Vernagallo
---------------------------
Its: Vice President
-9-
<PAGE>
EXHIBIT 11
<PAGE>
EXHIBIT 11
McGrath RentCorp
Weighted Average Shares Composition
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------
1995 1994 1993
---- ---- ----
Primary
-------
<S> <C> <C> <C>
Weighted common shares issued and outstanding 7,974,362 8,279,350 8,306,641
Common stock equivalents 109,885 135,920 101,349
--------- --------- ---------
Shares used for EPS calculation 8,084,247 8,415,270 8,407,990
--------- --------- ---------
--------- --------- ---------
Fully Diluted
-------------
Weighted common shares issued and outstanding 7,974,362 8,279,350 8,306,641
Common stock equivalents 125,017 147,409 119,579
--------- --------- ---------
Computed fully diluted shares 8,099,379 8,426,759 8,426,220
--------- --------- ---------
--------- --------- ---------
</TABLE>
-10-
<PAGE>
THE CORPORATION
- -------------------------------------------------------------------------------
2500 Grant Avenue, San Lorenzo, CA 94580 (510) 276-2626
McGrath RentCorp is engaged in the business of renting and selling
relocatable modular offices and classrooms, and electronic test and
measurement instruments with related accessories. Although the Company's
primary emphasis is on rentals, both modulars and instruments are also sold
to direct-use customers. The Company uses the tradenames "Mobile Modular" and
"Rentelco". The Company manufactures portable classrooms through its
subsidiary, Enviroplex, Inc., which sells directly to school districts.
[PHOTO OF SIGNS]
CONSOLIDATED FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Operations Data:
- ------------------------------
Percent
Year ended December 31, 1995 1994 Change
-------- -------- -------
Rental Revenues $ 46,063 $ 46,149 -%
Total Revenues 71,273 68,295 4
Net Income 13,843 13,004 6
Net Income Per Share 1.71 1.55 10
Cash Dividends Per Share 0.48(1) 0.44(1) 9
Balance Sheet Data (YEAR-END):
- ------------------------------
Rental Equipment, net $127,608 $127,244 -%
Total Assets 175,130 169,923 3
Notes Payable 37,080 35,950 3
Shareholders' Equity 85,893 83,839 2
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Footnote
- -------------------------------------------------------------------------------
1. DIVIDEND OF $0.11 PER SHARE DECLARED IN JANUARY 1995 IS EXCLUDED FROM
THE 1995 AMOUNT AND INCLUDED IN THE 1994 AMOUNT.
<PAGE>
A MESSAGE
TO OUR
SHAREHOLDERS
- ------------
Robert P. McGrath
Dennis C. Kakures
Over the last several years we have talked about the real inner strength
of the Company. In 1995 we instituted a program we call Exemplary Customer
Service (ECS). Our Credo, developed and pledged by our staff reads:
I will, as a team member of McGrath, embrace our customers'
needs, and deliver exemplary service to earn customer loyalty.
I will do this by:
- focusing on doing things right the first time
- providing the utmost attention to detail, and
- always doing what I say I am going to do, with integrity.
Each of our offices conducts series of short meetings wherein our staff
acknowledges those peers who have performed beyond the call of duty, either in
the service of our customers or in the improvement of our product. This program
has become much more than lip service; it is becoming an integral part of the
McGrath way of doing business.
A year ago we cautioned that our record results were impacted positively by
the 1994 Northridge earthquake, and that it would be difficult to make up those
earnings in 1995. We are pleased that total revenues for 1995 increased 4% over
1994 to $71,273,000, net income increased 6% to $13,843,000, and net income per
share increased 10% to $1.71 per share. Once again this was the best year in
our history.
Cash flow continues strong. Rental assets increased by $7,713,000,
improvements increased by $5,796,000, dividends paid were $3,768,000 and stock
repurchased was $7,374,000 while our debt increased by only $1,130,000.
Last year we discussed our purchase of Rentelco three years earlier, and
how that fits in with our philosophy--good people in a good working environment
produce the best results. 1995 was again an excellent year for Rentelco.
This year we want to discuss Enviroplex. Several years ago we funded this
startup company which wanted to make a contribution as a manufacturer of
portable classrooms. In January 1995, we converted our note to a 73% ownership
interest and the results are now part of our consolidated financial statements.
President Joe Sublett has done an excellent job and brings a wealth of
manufacturing know-how to Enviroplex. We like to think that Joe produces the
best portable classrooms in the industry and his repeat customers tend to
confirm this position. The head of the General Services Administration singled
out a "School Project of the Future" produced by a private contractor. That
award-winning project had classrooms provided by Enviroplex. This same
philosophy of good people and a good working environment has again produced good
results.
Our business strategy calls for creating facility capabilities that our
competitors cannot duplicate. This will enable us to quickly and efficiently
modify buildings to meet our customer's needs. Our goal is to be more
responsive at less expense. There is solid progress. Our new Houston facility
came on line in June 1995; we plan to move into our new Southern California
facility by the time you receive this report; the move to our new Northern
California facility is scheduled for the end of 1996. Our new computer based
relational database programs that control our internal operations are about 70%
operational.
Executing these operational plans requires dedication, a willingness to
embrace change and painstaking work. As we said last year, shareholders like to
hear about pizzazz and we are serving up bricks, mortar and computers. However,
we continue to emphasize that our long-term success lies in our ability to
provide a better service to our customers with our per transaction cost less
than that of our competitors. We continue to look for investment opportunities
in related areas.
After the California school bond issue failed to pass in 1994, the money
for classroom modernization programs slowed down. On March 26, 1996, California
voters passed a 3 billion dollar bond measure. A certain amount will be spent
on modernization programs and we are looking forward to participating in this
business.
Given our strong balance sheet and cash flow and our prospects for 1996, we
are increasing our next quarterly dividend to $0.14 per share.
Sincerely,
/s/ Robert P. McGrath /s/ Dennis C. Kakures
- ----------------------------------- -------------------------------------
Robert P. McGrath Dennis C. Kakures
Chairman and Chief Executive Officer President and Chief Operating Officer
P.S. In his first year as President, Dennis Kakures has more than met our
expectations. His thirteen years with the Company have prepared him well. He
brings energy and persistence to the development and marketing of our products,
to the streamlining of our operations and the development of our management.
The results are already visible.
RPM
1
[PHOTO OF CHAIRMAN
PHOTO OF PRESIDENT]
<PAGE>
COMPANY
PROFILE
- -------
Since its founding and incorporation in 1979, McGrath RentCorp has
rented and sold relocatable modular offices designed to fill customers'
temporary space needs. These units are used as temporary offices adjacent to
existing facilities, and as classrooms, sales offices, construction field
offices and for a variety of other purposes. Under the trade name "Mobile
Modular Management Corporation", the Company conducts its rental and sales
operations of relocatable modular offices from branch offices, two in
California and one in Texas.
In 1985, the Company expanded its operations into the rental of
electronic test and measurement instruments. Engineers, scientists and
technicians use these instruments in evaluating the performance of their own
electrical and electronic equipment, developing products, controlling
manufacturing processes and in field service applications. These instruments
are rented primarily to electronics, industrial, research and aerospace
companies. The majority of the Company's inventory consists of instruments
manufactured by Hewlett-Packard and Tektronix. The Company conducts rental
and sales operations of electronic instruments from its Northern California
branch office and telecommunications test equipment from its Dallas, Texas
branch office.
In January 1995, the Company converted a $300,000 note receivable to a
73.2% ownership interest in Enviroplex, Inc. Enviroplex, Inc. manufactures
portable classrooms built to the requirements of the California Division of
the State Architect ("DSA") and sells primarily to school districts.
The following table shows the revenue components, percentage of total
revenues, original cost and net book value of equipment, and average
utilization by product line for the past five years.
PRODUCT HIGHLIGHTS
- -------------------------------------------------------------------------------
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
Year ended December 31, 1995 1994 1993 1992 1991
-------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
RELOCATABLE MODULAR OFFICES
- ---------------------------
Rental Operations:
Rental $ 31,577 $ 33,386 $ 30,565 $ 31,103 $ 30,523
Rental Related Services 9,103 9,181 7,429 6,755 6,822
-------- -------- -------- -------- --------
40,680 42,567 37,994 37,858 37,345
Sales and Related Services(1) 11,347 9,039 6,153 5,799 10,356
-------- -------- -------- -------- --------
Total Revenues $ 52,027 $ 51,606 $ 44,147 $ 43,657 $ 47,701
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Percentage of Total Revenues 73.0% 75.6% 77.3% 80.0% 85.6%
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Original Cost (YEAR-END) $146,868 $144,674 $136,729 $130,075 $118,671
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Net Book Value (YEAR-END) $104,069 $107,341 $104,830 $103,802 $ 97,885
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Average Utilization Rate(2) 73.9% 79.3% 77.0% 78.8% 81.9%
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
ELECTRONIC TEST AND
MEASUREMENT INSTRUMENTS
- ---------------------------
Rental Operations:
Rental $ 14,486 $ 12,763 $ 10,128 $ 7,654 $ 6,418
Rental Related Services 268 265 245 189 114
-------- -------- -------- -------- --------
14,754 13,028 10,373 7,843 6,532
Sales and Related Services 4,492 3,661 2,615 3,072 1,531
-------- -------- -------- -------- --------
Total Revenues $ 19,246 $ 16,689 $ 12,988 $ 10,915 $ 8,063
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Percentage of Total Revenues 27.0% 24.4% 22.7% 20.0% 14.4%
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Original Cost (YEAR-END) $ 34,933 $ 29,542 $ 26,692 $ 21,218 $ 20,585
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Net Book Value (YEAR-END) $ 21,208 $ 17,735 $ 16,524 $ 13,550 $ 14,498
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Average Utilization Rate(2) 55.2% 56.0% 52.3% 46.7% 47.5%
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
</TABLE>
Footnote
- -------------------------------------------------------------------------------
1. INCLUDES REVENUES OF THE COMPANY'S MAJORITY OWNED SUBSIDIARY.
2. UTILIZATION IS CALCULATED AS OF THE END OF EACH MONTH BY DIVIDING THE
ORIGINAL COST OF EQUIPMENT ON RENT BY THE TOTAL ORIGINAL COST OF ALL
EQUIPMENT IN THE RENTAL INVENTORY; AND THE FIGURES SHOWN ARE THE AVERAGE OF
SUCH MONTHLY FIGURES FOR EACH YEAR.
2
<PAGE>
The Company has 252 employees. The operational compatibility between
the two rental product lines results in the efficient use of overhead.
No single customer of either product line has accounted for more than 10%
of the Company's total revenues generated in any given year. Our business is
not seasonal, except for the rental of classrooms, which is heaviest in the
several months prior to the opening of school each fall.
We are a company with a marketing sense throughout. We are constantly
searching for ways both to streamline our service and to raise the quality of
each relocatable office or instrument we rent. We are not only renting
products, we are selling an old-fashioned idea: Paying attention to our
customers pays off.
OUR
PRODUCTS
- --------
RELOCATABLE MODULAR OFFICES
- -------------------------------------------------------------------------------
Relocatable modular offices are designed for use as temporary office
space and may be towed from one location to another. Offices vary from
simple single-unit construction site offices to attractive multi-module
facilities, complete with wood exteriors and mansard roofs. The rental fleet
includes a full range of styles and sizes. We consider our relocatable
offices to be among the most attractive and well designed available. The
units are constructed with wood siding which are sturdily built and
physically capable of a useful life often exceeding 18 years. Units are
provided with installed heat, air conditioning, lighting, electricity and
floor covering, and may have customized interiors including partitioning,
carpeting, cabinetwork and plumbing facilities.
The market for relocatable modular offices is broad. Businesses which
have a need for additional space and have adjacent land or a parking lot are
potential customers. Our largest single demand is for temporary classrooms.
We believe the demand for classrooms is caused by shifting and fluctuating
school populations, the lack of state funds for new construction, and the
need for temporary classroom space during reconstruction of older schools.
Other applications include sales offices, administrative offices for health
care facilities, universities and museums. Large multi-modular complexes are
used by the aerospace, energy and utility industries, and governmental
agencies. Our branch offices, as well as our corporate office, are housed in
various sizes of relocatable buildings.
The Company purchases new relocatable modular offices from various
manufacturers who build to the Company's design specifications. None of the
principal suppliers are affiliated with the Company. The Company believes
that the loss of any one of these suppliers would not have a material adverse
effect on its operations.
Since most of our customer requirements are to fill temporary space
needs, the Company's marketing emphasis is on rentals rather than sales. The
Company solicits customers through extensive yellow-page advertising,
telemarketing and direct mail. Customers are encouraged to visit an
inventory center to view different models on display and to see the branch
office, which itself is a working example of a relocatable modular office.
Rental periods range from one month to five years, with a typical rental
period of one year. Most rental agreements provide no purchase options, and
when a rental agreement does provide the customer with a purchase option, it
is generally on terms attractive to the Company.
3
[PHOTO OF BUILDING]
<PAGE>
OUR
PRODUCTS
- --------
The customer is responsible for the cost of transporting the unit to the
site, preparation of the site, installation of the unit, dismantle and return
of the unit to one of the Company's three inventory centers, and certain
costs for customization. We maintain the units in good working order while
on rent. Upon return, the units are refurbished for subsequent use including
floor tile repairs, roof maintenance, cleaning, painting and cosmetic work.
In addition to operating its rental fleet, the Company sells relocatable
offices to customers who have a direct and permanent use for such units.
These sales arise out of our marketing efforts for the rental fleet and
manufactured classrooms. Such sales can be of either new units or used units
from the rental fleet or new manufactured classrooms. Of 1995 sales to
direct-use customers, 58% arose from the Company's rental operations (20%
were new equipment and 80% were used) and 42% were newly manufactured
classrooms from Enviroplex, Inc.
Competition in the rental and sale of relocatable modular offices is
intense. Many firms are engaged in the rental of relocatable modular
offices, and some have substantially greater financial resources than the
Company. Significant competitive factors in the rental business include
availability, price, services, reliability and the quality and attractiveness
of the units. McGrath RentCorp markets high-quality, well constructed and
attractive offices. We believe that this strategy, together with our emphasis
on prompt and efficient customer service, gives us a competitive advantage.
We are determined to offer quick response to requests for information,
experienced assistance for the first-time user, rapid delivery and timely
maintenance of our units. The Company has a sales and maintenance staff
trained in the Company's tradition of excellence in service.
We are eager to be accountable for the quality of the product we rent
and for the excellence of our response to customer requests. In fact, we
enjoy the satisfaction of a job well done, and we take pains to see that we
never lose this company ethic.
CLASSROOM RENTALS
- -------------------------------------------------------------------------------
The rental of relocatable modular offices to school districts for use as
portable classrooms, restroom buildings and administrative offices for
kindergarten through grade twelve (K-12) accounted for approximately 34% of
the Company's relocatable modular rental revenues during 1995 compared to 38%
in 1994. The Company believes the decline in rental revenues derived from
school districts is the result of a lack of available modernization and
reconstruction funds due to the failed 1994 school bond measure.
In California (where most of the Company's rentals to school districts
have occurred), school districts are permitted to purchase only portable
classrooms which have been built to the requirements of the California
Division of the State Architect ("DSA"). However, school districts may rent
classrooms that meet either the Department of Housing ("DOH") or DSA
requirements. Prior to 1988, the majority of the classrooms in the Company's
rental fleet were built to the DOH requirements, and since 1988 the majority
of new classrooms have been built to the DSA requirements. In 1988,
California adopted a law which limits the term for which school districts may
rent portable classrooms built to DOH standards to three years (under a
waiver process), and which also requires the school board to indemnify the
State against any claims arising out of the use of such classrooms. As a
consequence, the tendency is for the Company to rent the DOH classrooms for
shorter periods and to rent the DSA classrooms for longer periods. In 1993,
a new law went into effect that allowed school districts that already had DOH
classrooms to continue to rent them for an additional three years (i.e. up to
six years in total). New orders for DOH classrooms placed after 1992 are
restricted to the three year limitation as before.
New legislation has been adopted that eliminates the waiver process
after September 30, 1997 or the expiration of the waiver in effect, whichever
is longer. New regulations are in place that allow the use of the DOH
classrooms for periods up to 24 months anytime after September 30, 1997,
provided they receive a "Temporary Certification" from DSA.
4
<PAGE>
All of the Company's DOH classrooms, with the exception of the 24'x40'
standard classrooms, are also suitable for rent to non-school customers for
commercial uses. Generally, the 24'x40' standard classrooms are not popular
for commercial use. The Company has continued to rent returned DOH 24'x40'
standard classrooms to school districts since 1988 and there is no reason to
believe that it will not continue to do so in the future. However, there can
be no assurance that this law or new laws may not adversely affect the
Company's future classroom rental business.
The following table shows the relationship of 24'x40' standard DOH
classrooms to DSA equipment marketed to school districts as of December 31,
1995, 1994 and 1993.
EQUIPMENT COMPARISON
- -------------------------------------------------------------------------------
(DOLLAR AMOUNTS IN THOUSANDS)
Balance At December 31, 1995 1994 1993
------- ------- -------
24'x40' Standard DOH Classrooms:
Original Cost On Rent $10,449 $13,114 $15,014
Original Cost Off Rent 5,015 3,258 1,928
------- ------- -------
Total Original Cost $15,464 $16,372 $16,942
------- ------- -------
------- ------- -------
Net Book Value $ 9,324 $10,650 $11,986
------- ------- -------
------- ------- -------
Utilization(1) 67.6% 80.1% 88.6%
------- ------- -------
------- ------- -------
DSA Equipment:
Original Cost On Rent $17,454 $18,644 $17,281
Original Cost Off Rent 3,653 1,829 1,236
------- ------- -------
Total Original Cost $21,107 $20,473 $18,517
------- ------- -------
------- ------- -------
Net Book Value $17,115 $17,304 $16,026
------- ------- -------
------- ------- -------
Utilization(1) 82.7% 91.1% 93.3%
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Footnote
- -------------------------------------------------------------------------------
1. UTILIZATION IS CALCULATED AS OF DECEMBER 31 BY DIVIDING THE ORIGINAL COST
OF EQUIPMENT ON RENT BY THE TOTAL ORIGINAL COST OF ALL EQUIPMENT IN THE
RENTAL INVENTORY CATEGORY.
5
<PAGE>
ELECTRONIC TEST AND MEASUREMENT INSTRUMENTS
- -------------------------------------------------------------------------------
OUR
PRODUCTS
- --------
McGrath RentCorp commenced its electronic test and measurement
instrument rental business in 1985, carrying primarily general purpose
equipment. In 1991, the Company expanded its rental equipment base through
the purchase of a telecommunication test equipment rental business conducted
under the name "Rentelco" in Richardson, Texas (Dallas Area).
The Company's rental inventory includes electronic instruments such as
oscilloscopes, spectrum analyzers, logic analyzers, signal generators,
frequency counters, protocol analyzers, cable locaters, fiber optic and sonet
equipment. A typical rental period is from one to six months. The Company
also rents electronic instruments from other rental companies and re-rents
the instruments to customers. The Company endeavors to keep its equipment
fresh and attempts to sell equipment so that the majority of the inventory is
less than five years old.
The business of renting electronic test and measurement instruments is
an industry which emerged approximately 30 years ago, and which today has
equipment on rent or available for rent in the United States with an
aggregate original cost of several hundred million dollars. While there is a
broad customer base for the rental of such instruments, most rentals are to
electronics, industrial, research and aerospace companies. Although the
Company has targeted the rental market in California and Texas, test
equipment is shipped to other states.
The industry is dominated by four major companies. Two of these
companies are much larger than the Company, have substantially greater
financial resources and are well established in the industry with large
inventories of equipment, several branch offices and experienced staffs.
We believe that customers rent electronic test and measurement
instruments for many reasons. Customers frequently need equipment for
short-term projects, for back-up to avoid costly down-time and to evaluate
new products. Delivery times for the purchase of such equipment can be
lengthy; thus, renting allows the customer to obtain the equipment
expeditiously. We also believe that a substantial portion of electronic test
and measurement instruments are used for research and development projects
where the relative certainty of rental costs can facilitate cost control and
be useful in bidding for government contracts. Finally, as is true with the
rental of any equipment, renting rather than purchasing may better satisfy
the customer's budgetary constraints.
The electronic test and measurement and the relocatable modular office
product lines share common facilities, financing, senior management, and
operating and accounting systems. Each product line has its own sales and
technical personnel.
6
[PHOTO OF TWO EMPLOYEES
PHOTO OF PIECE OF TEST EQUIPMENT]
<PAGE>
CONSOLIDATED QUARTERLY (UNAUDITED)
AND FIVE YEAR SELECTED FINANCIAL DATA
- -------------------------------------
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Operations Data Balance Sheet Data
--------------------------------------------------- -----------------------------------------------
Income Net Rental
Total From Net Income Dividends Equipment, Total Notes Shareholders'
Revenues Operations Income Per Share Per Share Net Assets Payable Equity
-------- ---------- ------- --------- --------- ---------- -------- ------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total 1991 $55,764 $21,371 $11,366 $1.38 $0.32 $114,695 $137,024 $36,850 $63,157
-------- ---------- ------- --------- --------- ---------- -------- ------- -------------
Total 1992 54,572 18,404 10,145 1.18 0.36 119,681 144,223 35,000 68,700
-------- ---------- ------- --------- --------- ---------- -------- ------- -------------
Total 1993 57,135 19,083 10,637 1.27 0.40 123,431 161,427 40,100 76,071
-------- ---------- ------- --------- --------- ---------- -------- ------- -------------
Quarter
1st 16,351 5,581 3,138 0.37 0.11 124,052 162,772 36,700 78,302
2nd 16,251 5,888 3,303 0.39 0.11 127,708 166,716 37,275 80,695
3rd 20,091 6,787 3,800 0.45 0.11 127,150 169,565 37,025 82,127
4th 15,602 6,290 2,763 0.33 0.11(1) 127,244 169,923 35,950 83,839
-------- ---------- ------- --------- --------- ---------- -------- ------- -------------
Total 1994 68,295 24,546 13,004 1.55 0.44 127,244 169,923 35,950 83,839
-------- ---------- ------- --------- --------- ---------- -------- ------- -------------
Quarter
1st 16,649 5,935 3,177 0.38 0.12 126,761 170,510 34,050 84,451
2nd 17,121 6,157 3,264 0.39 0.12 127,901 174,540 37,315 85,270
3rd 19,067 6,627 3,506 0.44 0.12 128,308 177,065 39,925 82,801
4th 18,436 7,118 3,896 0.49 0.12 127,608 175,130 37,080 85,893
-------- ---------- ------- --------- --------- ---------- -------- ------- -------------
Total 1995 71,273 25,837 13,843 1.71 0.48 127,608 175,130 37,080 85,893
-------- ---------- ------- --------- --------- ---------- -------- ------- -------------
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
1. DECLARED JANUARY 1995.
7
<PAGE>
MANAGEMENT'S
DISCUSSION
AND ANALYSIS
- ------------
Revenues are derived primarily from the rental of relocatable modular
offices and electronic test and measurement instruments. The Company has
expanded the rental inventory of relocatable modular offices and electronic
instruments. This expansion has been funded through internal cash flow and
conventional bank financing.
The major portion of the Company's revenue is derived from rentals and
rental related services, comprising approximately 78% of total revenues in
1995. Over the past three years relocatable modular offices comprised 76% of
the cumulative rental revenues, and test and measurement instruments
comprised 24% of the cumulative rental revenues. Classrooms are a
significant part of the Company's business (see "Our Products" - "Classroom
Rentals").
The Company sells both previously rented and new relocatable modular
offices to customers who have a direct and permanent use for such units, and
through its majority owned subsidiary Enviroplex, Inc., sells DSA classrooms
directly to school districts. The Company also acts as a dealer of new
relocatable modular offices and is licensed as a dealer by governmental
agencies in California and Texas. The Company also sells units from its
rental inventory of test and measurement equipment. Revenues from sales of
both modular and electronic equipment have comprised approximately 19% of
total revenues over the last three years.
FISCAL YEARS
1995 AND
1994
- ------------
Rental revenues for 1995 decreased $86,000 from 1994. The rental revenue
increase from electronics of $1,723,000 was offset by a $1,809,000 decrease
in rental revenues from relocatable modular offices. The rental revenue
decline for modulars was primarily due to the return of a significant amount
of equipment (220 unit complex) from a single customer which had generated
rental billings of $1,290,000 per year. Average utilization declined for
both modular equipment, from 79.3% to 73.9%, and for electronics equipment,
from 56.0% to 55.2%, as compared to 1994. Rental related services for 1995
decreased $75,000 from 1994 with gross margin increasing from 34% in 1994 to
41% in 1995. The increase in gross margin was due to additional incentive
fees earned by the Company for equipment management.
Sales and related services in 1995 increased $3,139,000 (25%) over 1994.
The sales volume increase is due to the contribution of the Company's
majority owned subsidiary, Enviroplex, Inc., which had sales of $4,775,000.
Gross margin on sales and related services remained the same at 32% for 1995
and 1994. Sales and related services fluctuate from quarter to quarter and
from year to year depending on customer demands and requirements.
Interest expense in 1995 increased $664,000 (31%) over 1994 as a result of
slightly higher borrowing levels combined with a higher average interest rate of
7.3% in 1995 versus 5.6% in 1994.
Income before provision for taxes increased $627,000 (3%) in 1995 over 1994
while net income increased $839,000 (6%) due to a lower effective tax rate in
1995 of 39.8% compared to 41.9% in 1994. Earnings per share increased 10%, from
$1.55 in 1994 to $1.71 in 1995, primarily as a result of fewer outstanding
shares.
8
<PAGE>
FISCAL YEARS
1994 AND
1993
- ------------
Rental revenues for 1994 increased $5,456,000 (13%) over 1993. Rentals
from both modular and electronic equipment contributed to the increase in
rental revenues, with 52% ($2,821,000) derived from modulars due in part to
the requirements caused by the January 1994 earthquake in Northridge,
California and 48% ($2,635,000) derived from electronics. Generally, rates
on new leases in 1994 were higher than in 1993. Average utilization improved
for both modular equipment, from 77.0% to 79.3%, and electronics equipment,
from 52.3% to 56.0%, as compared to 1993.
Rental related services increased $1,772,000 (23%) over 1993. The
increase in rental related services resulted from significant requirements
for site work on five projects (one earthquake related) of $1,063,000,
coupled with increased shipments of modular equipment in part related to the
Northridge earthquake. Gross margin for rental related services increased
from 29% in 1993 to 34% in 1994.
Sales and related services in 1994 increased $3,932,000, a 45% increase
over 1993. During 1994, ten significant sales of rental equipment accounted
for $4,653,000 (37%) of the sales volume. The largest sale for the year
occurred to a school district in the amount of $1,183,000 and consisted of
modular classrooms which had been on rent to the school district. Sales and
related services from year to year have fluctuated depending on customer
requirements. Gross margin on sales and related services increased from 28%
in 1993 to 32% in 1994.
Depreciation on rental equipment in 1994 increased $576,000, a 6%
increase over 1993 due to the increase in rental equipment.
Selling and administrative expenses increased $1,763,000, a 15% increase
over 1993 primarily due to increased personnel costs which includes bonuses,
additional support staff, modular repair and maintenance labor and temporary
labor costs.
Interest expense in 1994 increased $406,000, a 23% increase over 1993,
as a result of an increase in the average interest rate from 4.5% in 1993 to
5.6% in 1994 while average borrowing levels remained approximately the same
during 1994.
Income before provision for income taxes increased 29% in 1994 over 1993
and represented 33% of the total revenues compared with 30% in 1993. Net
income increased only 22% due to a higher effective tax rate of 41.9% in 1994
as compared to 38.6% in 1993.
9
<PAGE>
LIQUIDITY
AND
CAPITAL
RESOURCES
- ---------
The Company requires substantial capital in order to maintain an
available inventory of relocatable modular offices and electronic test and
measurement instruments necessary to satisfy customer requirements in a
timely manner. In 1995, as in prior years, the primary use of cash was for
the purchase of rental equipment. During the last three years, the growth of
the rental inventory has been financed primarily by cash flow from operations
and bank borrowings. During 1995, the Company demonstrated its strong cash
flow by purchasing $17,252,000 of rental equipment, purchasing $6,340,000 of
land improvements, furniture and equipment, repurchasing $7,374,000 of common
stock, paying dividends of $3,768,000, and paying income taxes of $7,457,000,
while increasing its debt by only $1,130,000 during the year.
The Company believes that bank borrowings will continue to be a source
of funds for the purchase of rental equipment. As the Company's assets have
grown, it has been able to negotiate increases in the borrowing limit under
its general bank line of credit to its current $50,000,000 limit consistent
with its increased asset base. Although no assurance can be given, the
Company believes it will continue to be able to negotiate higher limits on
its general bank line of credit adequate to meet capital requirements not
otherwise met by operational cash flows. Additionally, the Company
guarantees a $1,000,000 line of credit for its majority owned subsidiary.
The Company had a total liabilities to equity ratio of 1.04 to 1 and 1.03 to
1 as of December 31, 1995 and 1994, respectively. The debt (notes payable)
to equity ratio was 0.43 to 1 at December 31, 1995 and 1994.
During 1994, the Company repurchased 158,354 shares of its outstanding
common stock for an aggregate purchase price of $2,533,000 (or an average
price of $15.99 per share). During 1995, the Company repurchased 436,066
shares of its outstanding common stock for an aggregate purchase price of
$7,374,000 (or an average price of $16.91 per share). These repurchases were
made in the over-the-counter market (NASDAQ) and through privately
negotiated, large block transactions.
The Company believes that its needs for working capital and capital
expenditures through 1996 and beyond will adequately be met by cash flow and
bank borrowings.
IMPACT OF
INFLATION
- ---------
Although the Company cannot precisely determine the effect of inflation,
from time to time it has experienced increases in the cost of rental
equipment, as well as operating and interest expenses. Because most of its
rentals are relatively short term, the Company has generally been able to
pass on such increased costs through increases in rental rates and selling
prices.
10
<PAGE>
PROPERTIES
- ----------
The Company currently conducts its operations from five locations.
Inventory centers, at which relocatable modular offices are displayed,
refurbished and stored are located in San Lorenzo, California (San Francisco
Bay Area), Mira Loma, California (Los Angeles Area), and Pasadena, Texas
(Houston Area). These three branches conduct rental and sales operations
from multi-unit, relocatable modular offices, serving as working models of
the Company's product. Electronic test and measurement instrument rental and
sales operations are conducted from the San Lorenzo facility and from the
Rentelco facility in Richardson, Texas (Dallas Area). The Company's majority
owned subsidiary, Enviroplex, Inc., manufactures portable classrooms from its
facility in Stockton, California (San Francisco Bay Area).
The Company has purchased land at three of the branch locations during
the last few years; 137.7 acres in Livermore, California (San Francisco Bay
Area) in 1991, 50 acres in Pasadena, Texas (Houston Area) in 1992 and 78.5
acres in Mira Loma, California (Los Angeles Area) in 1993. These land
purchases will allow the Company to consolidate its relocatable modular
office storage lots and operations into one location in each of Northern
California, Southern California and Texas. The Company has completed the
Pasadena, Texas facility and anticipates completion of the development of the
remaining land and the relocation of branch office operations during 1996 and
1997.
The following table sets forth for each branch the acres leased, the
acres owned, and the total acres at December 31, 1995.
FACILITIES
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Acres
-----------------------------
Leased Owned Total
------ ----- -----
San Francisco Bay Area 23.2(1) 137.7(2) 160.9
Los Angeles Area 8.8 98.5(3) 107.3
Houston Area - 50.0(4) 50.0
Dallas Area(5) - - -
------ ----- -----
32.0 286.2 318.2
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Footnotes
- --------------------------------------------------------------------------------
1. INCLUDES AN 8.9 ACRE PARCEL WITH A 74,000 SQUARE FOOT MANUFACTURING
FACILITY.
2. 45 ACRES OF A 137.7 ACRE PARCEL HAVE BEEN DEVELOPED AND ARE BEING USED
FOR STORAGE.
3. 80 ACRES ARE BEING USED FOR STORAGE. THE ADDITIONAL 18.5 ACRES
DEDICATED TO OFFICE SPACE, MAINTENANCE SHOP AND STORAGE ARE SCHEDULED FOR
COMPLETION IN MARCH 1996.
4. 34 ACRES ARE BEING USED. THE REMAINING 16 ACRES WILL BE DEVELOPED FOR
STORAGE.
5. LEASED OFFICE SPACE AND WAREHOUSE FACILITY OF APPROXIMATELY 6,611 SQUARE
FEET.
11
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
- ------------------------------------------------------------------------------
To the Shareholders and Board of Directors of McGrath RentCorp:
We have audited the accompanying consolidated balance sheets of McGrath
RentCorp (a California corporation) and subsidiary as of December 31, 1995
and 1994, and the related consolidated statements of income, shareholders'
equity and cash flows for each of the three years in the period ended
December 31, 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatements. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of McGrath RentCorp
as of December 31, 1995 and 1994, and the results of its operations and its
cash flows for each of the three years in the period ended December 31,
1995, in conformity with generally accepted accounting principles.
San Francisco, California
February 16, 1996 ARTHUR ANDERSEN LLP
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
- --------------------------------------------------------------------------------------------
Year ended December 31, 1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
REVENUES
- ---------------------------------------------
Rental Operations:
Rental $46,062,913 $46,148,783 $40,693,085
Rental Related Services 9,371,098 9,445,843 7,673,707
----------- ----------- -----------
55,434,011 55,594,626 48,366,792
Sales and Related Services 15,838,800 12,700,114 8,768,313
----------- ----------- -----------
Total Revenues 71,272,811 68,294,740 57,135,105
----------- ----------- -----------
COSTS & EXPENSES
- ---------------------------------------------
Direct Costs of Rental Operations:
Depreciation 11,538,628 11,017,574 10,441,180
Rental Related Services 5,543,173 6,279,402 5,447,563
Other 4,190,313 4,471,245 4,294,031
----------- ----------- -----------
21,272,114 21,768,221 20,182,774
Cost of Sales and Related Services 10,734,775 8,634,057 6,285,459
----------- ----------- -----------
32,006,889 30,402,278 26,468,233
----------- ----------- -----------
Gross Margin 39,265,922 37,892,462 30,666,872
Selling and Administrative 13,429,083 13,346,728 11,583,900
----------- ----------- -----------
Income from Operations 25,836,839 24,545,734 19,082,972
Interest 2,830,863 2,166,541 1,760,887
----------- ----------- -----------
Income Before Provision
for Income Taxes 23,005,976 22,379,193 17,322,085
Provision for Income Taxes 9,162,831 9,375,172 6,684,880
----------- ----------- -----------
Net Income $13,843,145 $13,004,021 $10,637,205
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
Net Income Per Common and Common
Equivalent Share $ 1.71 $ 1.55 $ 1.27
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
Weighted Average Number of Common and
Common Equivalent Shares Outstanding 8,084,247 8,415,270 8,407,990
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
12
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------------------------
Balance at December 31, 1995 1994
------------ ------------
<S> <C> <C>
ASSETS
- ------------------------------------------------------------
Cash $ 221,075 $ 1,151,648
Accounts Receivable, less allowance for doubtful accounts
of $605,000 in 1995 and $1,400,000 in 1994 13,201,196 12,662,213
Rental Equipment, at cost:
Relocatable Modular Offices 146,867,850 144,674,027
Electronic Test Instruments 34,932,807 29,541,687
Accessory Equipment 3,755,754 3,627,776
------------ ------------
185,556,411 177,843,490
Less - Accumulated Depreciation (57,948,456) (50,599,702)
------------ ------------
127,607,955 127,243,788
Land, at cost 19,489,300 19,484,550
Land Improvements, Furniture and Equipment, at cost, less
accumulated depreciation of $2,708,404 in 1995 and
$2,348,664 in 1994 12,713,095 7,276,411
Prepaid Expenses and Other Assets 1,897,700 2,103,913
------------ ------------
$175,130,321 $169,922,523
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------------------------------
Liabilities:
Notes Payable $ 37,080,000 $ 35,950,000
Accounts Payable and Accrued Liabilities 11,701,417 9,603,107
Deferred Income 5,967,063 7,247,647
Deferred Income Taxes 34,488,695 33,282,281
------------ ------------
Total Liabilities 89,237,175 86,083,035
------------ ------------
Shareholders' Equity:
Common Stock, no par value -
Authorized - 20,000,000 shares
Outstanding - 7,769,813 shares in 1995
and 8,158,687 in 1994 8,913,311 15,999,633
Retained Earnings 76,979,835 67,839,855
------------ ------------
Total Shareholders' Equity 85,893,146 83,839,488
------------ ------------
$175,130,321 $169,922,523
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
13
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
- ---------------------------------------------------------------------------------------------
Common Stock Total
------------ Retained Shareholders'
Shares Amount Earnings Equity
--------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Balance, December 31, 1992 8,304,641 $18,445,346 $50,254,379 $68,699,725
Net Income - - 10,637,205 10,637,205
Exercise of Stock Options 8,000 56,750 - 56,750
Dividends Declared of
$0.40 per share - - (3,322,656) (3,322,656)
- ---------------------------------------------------------------------------------------------
Balance, December 31, 1993 8,312,641 18,502,096 57,568,928 76,071,024
- ---------------------------------------------------------------------------------------------
Net Income - - 13,004,021 13,004,021
Repurchase of Common Stock (158,354) (2,532,591) - (2,532,591)
Exercise of Stock Options 4,400 30,128 - 30,128
Dividends Declared of
$0.33 per share (Note 6) - - (2,733,094) (2,733,094)
- ---------------------------------------------------------------------------------------------
Balance, December 31, 1994 8,158,687 15,999,633 67,839,855 83,839,488
- ---------------------------------------------------------------------------------------------
Net Income - - 13,843,145 13,843,145
Repurchase of Common Stock (436,066) (7,374,279) - (7,374,279)
Common Stock Issued or
Reserved Under Long-Term
Stock Bonus Plan 6,786 221,609 - 221,609
Repurchase of Common Stock
in Connection with the
Exercise of Stock Options (19,313) (336,941) - (336,941)
Exercise of Stock Options 59,719 403,289 - 403,289
Dividends Declared of
$0.59 per share (Note 6) - - (4,703,165) (4,703,165)
- ---------------------------------------------------------------------------------------------
Balance, December 31, 1995 7,769,813 $ 8,913,311 $76,979,835 $85,893,146
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
14
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
- -------------------------------------------------------------------------------------------------------
Increase (Decrease) in cash
Year ended December 31, 1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $13,843,145 $13,004,021 $10,637,205
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation 12,441,786 11,443,965 10,915,984
Gain on Sale of Rental Equipment (3,281,144) (3,474,741) (1,513,626)
Change in:
Accounts Receivable (538,983) (1,651,786) (2,843,326)
Prepaid Expenses and Other Assets 206,213 (279,635) (319,846)
Accounts Payable and Accrued Liabilities 1,384,566 2,287,032 1,300,434
Deferred Income (1,280,584) 539,568 (814,717)
Deferred Income Taxes 1,206,414 2,881,288 4,163,389
----------- ----------- -----------
Net Cash Provided by Operating Activities 23,981,413 24,749,712 21,525,497
----------- ----------- -----------
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of Rental Equipment (17,251,729) (21,172,069) (17,040,369)
Purchase of Land (4,750) - (9,695,966)
Purchase of Land Improvements, Furniture
and Equipment (6,339,843) (2,457,641) (1,491,550)
Proceeds from Sale of Rental Equipment 8,630,079 9,816,458 4,363,198
----------- ----------- -----------
Net Cash Used in Investing Activities (14,966,243) (13,813,252) (23,864,687)
----------- ----------- -----------
CASH FLOW FROM FINANCING ACTIVITIES:
Net Borrowings (Payments) Under Line of Credit 1,130,000 (4,150,000) 5,100,000
Net Proceeds from the Exercise of Stock Options 66,348 30,128 56,750
Repurchase of Common Stock (7,374,279) (2,532,591) -
Payment of Dividends (3,767,812) (3,564,358) (3,238,810)
----------- ----------- -----------
Net Cash Provided (Used) by Financing Activities (9,945,743) (10,216,821) 1,917,940
----------- ----------- -----------
Net Increase (Decrease) in Cash (930,573) (719,639) (421,250)
Cash Balance, Beginning of Period 1,151,648 432,009 853,259
----------- ----------- -----------
Cash Balance, End of Period $ 221,075 $ 1,151,648 $ 432,009
----------- ----------- -----------
----------- ----------- -----------
Interest Paid During the Period $ 2,835,280 $ 2,138,725 $ 1,742,028
----------- ----------- -----------
----------- ----------- -----------
Income Taxes Paid During the Period $ 7,456,575 $ 6,537,003 $ 2,459,942
----------- ----------- -----------
----------- ----------- -----------
Dividends Declared but not yet Paid $ 935,353 $ - $ 831,264
----------- ----------- -----------
----------- ----------- -----------
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
15
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -----------------------------------------------------------------------------
NOTE 1 - ORGANIZATION AND BUSINESS
McGrath RentCorp (the "Company"), also doing business as "Mobile Modular
Management Corporation" and "Rentelco", is engaged in the business of renting
and selling relocatable modular offices and electronic test and measurement
instruments with related accessories primarily in California and Texas.
Although the Company's primary emphasis is on rentals, both modulars and
instruments are also sold to direct-use customers. The rental of
relocatable modular offices to school districts for use as portable
classrooms, restroom buildings and administrative offices for kindergarten
through grade twelve (K-12) accounted for approximately 34% in 1995 and 38%
in 1994 and 1993 of the Company's modular rental revenues.
In January 1995, McGrath RentCorp converted a $300,000 note receivable
to a 73.2% ownership interest in Enviroplex, Inc. Enviroplex, Inc.
manufactures portable classrooms built to the requirements of the California
Division of the State Architect ("DSA") and sells primarily to school
districts. During 1995, Enviroplex sales were $4,867,064 which included
$92,388 of sales to the Company.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and its majority owned subsidiary. All significant intercompany
accounts and transactions have been eliminated.
RENTAL, RENTAL RELATED SERVICES AND SALES AND RELATED SERVICES REVENUE
Rental revenue is recognized under the "operating method" of accounting
for the majority of leases. Revenue is recognized on a straight-line basis
in those cases where equipment is leased with uneven payment terms. Rental
billings for more than one month are recorded as deferred income and
recognized as rental revenue when earned.
Rental related services revenue is primarily associated with relocatable
modular office leases and consists of billings to customers for delivery,
installation, modifications, skirting, additional site related work, return
delivery and dismantle. These services are recognized in the period the
services are performed and accepted.
Sales and related services revenue is recognized upon delivery and
acceptance of the equipment by the customer.
SALES TYPE LEASES
Certain leases meeting the requirements of Statement of Financial
Accounting Standards ("SFAS") No. 13, "Accounting for Leases", are accounted
for as sales type leases. For these leases, sales revenue and the related
accounts receivable are recognized upon execution of the leases and unearned
interest is recognized over the lease term on a basis which results in a
constant rate of return on the unrecovered lease investment (See Note 3).
DEPRECIATION AND MAINTENANCE
Rental equipment, land improvements, furniture and equipment are
depreciated on a straight-line basis for financial reporting purposes and on
an accelerated basis for income tax purposes. The costs of major
refurbishment of relocatable modular offices are capitalized to the extent
the refurbishment significantly improves the quality and adds value to the
equipment. Land improvements consist of development costs incurred to build
storage and maintenance facilities at each of the relocatable modular branch
offices. The following estimated useful lives and residual values are used
for financial reporting purposes:
Rental equipment:
Relocatable modular offices 18 years, 18% residual value
Electronic test instruments 5 to 8 years, no residual value
Accessory equipment 7 to 18 years, 0% to 18% residual value
Land improvements, furniture
and equipment 3 to 50 years, no residual value
Maintenance and repairs are expensed as incurred.
WARRANTY SERVICE COSTS
Sales of new relocatable modular offices, electronic test equipment and
related accessories are typically covered by warranties provided by the
manufacturer of the products sold. The Company provides limited 90-day
warranties for certain sales of used rental equipment. Although the
Company's policy is to provide reserves for warranties when required for
specific circumstances, the Company has not found it necessary to establish
such reserves to date.
INCOME TAXES
Provision has been made for deferred income taxes based upon the amount
of taxes payable in future years, after considering changes in tax rates and
other statutory provisions that will be in effect in those years (See Note 5).
16
<PAGE>
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company believes that its financial instruments (cash and notes
payable) carrying amounts approximate fair value.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions in determining reported amounts of assets, liabilities, revenues
and expenses.
NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE
Net income per common and common equivalent share is computed by
dividing net income by the weighted average number of shares of common stock
and dilutive common equivalent shares outstanding during each period. Common
stock equivalents result from dilutive stock options computed using the
treasury stock method. The difference between primary and fully diluted
earnings per share was not significant in any period presented.
NOTE 3 - SALES TYPE LEASE RECEIVABLES
The Company has entered into several sales type leases. The minimum
lease payments receivable and the net investment included in accounts
receivable for such leases at December 31, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
---------------------------------------------------------------
1995 1994
------------ -------------
<S> <C> <C>
Gross minimum lease receivable $ 4,127,199 $ 4,226,079
Less - Unearned interest (875,735) (919,602)
----------- -----------
Net investment in sales
type lease receivables $ 3,251,464 $ 3,306,477
---------------------------------------------------------------
---------------------------------------------------------------
</TABLE>
The future minimum lease payments as of December 31, 1995 are as follows:
<TABLE>
<CAPTION>
------------------------------------------
Year ended December 31,
<S> <C>
1996 $ 2,222,428
1997 1,003,370
1998 574,971
1999 223,664
2000 67,805
2001 and thereafter 34,961
------------
$ 4,127,199
------------------------------------------
------------------------------------------
</TABLE>
NOTE 4 - NOTES PAYABLE
The Company's unsecured line of credit agreement (the "Agreement") with
its banks expires June 30, 1996 and permits it to borrow up to $50,000,000 of
which $37,075,000 was outstanding as of December 31, 1995. The Agreement
requires the Company to pay interest at prime or, at the Company's election,
other rate options available under the Agreement. In addition, the Company
pays a commitment fee on the daily average unused portion of the available
line. Among other restrictions, the Agreement requires (i) the Company to
maintain shareholders' equity of not less than $68,752,000 plus 50% of all
net income generated subsequent to December 31, 1993 plus 90% of any new
stock issuance proceeds (restricted equity at December 31, 1995 is
$82,176,000), (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) no payment of
cash dividends in excess of 50% of one year's earnings without the bank's
consent. If the Company does not amend or renegotiate the present Agreement
for an additional time period prior to its expiration date, the principal
amount outstanding at that time will be converted to a five-year term loan
with principal due and payable in twenty (20) consecutive quarterly
installments. Additionally, the Company guarantees a $1,000,000 line of
credit at the prime rate for its majority owned subsidiary of which $5,000
was outstanding as of December 31, 1995.
The following information relates to the lines of credit for each of the
following periods:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------
Year ended December 31, 1995 1994
------------- -------------
<S> <C> <C>
Maximum amount outstanding $ 41,035,000 $ 40,100,000
Average amount outstanding $ 36,838,000 $ 36,340,000
Weighted average interest rate 7.33% 5.59%
Effective interest rate at end of period 7.04% 7.20%
Prime interest rate at end of period 8.50% 8.50%
-----------------------------------------------------------------------
-----------------------------------------------------------------------
</TABLE>
17
<PAGE>
NOTE 5 - INCOME TAXES
The provision for income taxes is comprised of the following:
<TABLE>
<CAPTION>
Current Deferred Total
------------ ------------ ------------
<S> <C> <C> <C>
Year ended December 31,
1995:
FEDERAL $ 6,785,118 $ 1,177,522 $ 7,962,640
STATE 1,171,299 28,892 1,200,191
------------ ------------ ------------
$ 7,956,417 $ 1,206,414 $ 9,162,831
------------ ------------ ------------
------------ ------------ ------------
1994:
Federal $ 5,500,987 $ 2,795,237 $ 8,296,224
State 992,897 86,051 1,078,948
------------ ------------ ------------
$ 6,493,884 $ 2,881,288 $ 9,375,172
------------ ------------ ------------
------------ ------------ ------------
1993:
Federal $ 1,910,248 $ 3,542,288 $ 5,452,536
State 611,243 621,101 1,232,344
------------ ------------ ------------
$ 2,521,491 $ 4,163,389 $ 6,684,880
---------------------------------------------------------------------------
---------------------------------------------------------------------------
</TABLE>
The components of the deferred provision are as follows:
<TABLE>
<CAPTION>
Year ended December 31, 1995 1994 1993
----------- ------------ ------------
<S> <C> <C> <C>
Excess of tax over book depreciation $ 1,281,460 $ 2,349,543 $ 2,849,600
Alternative minimum credit carryover 131,690 1,186,803 1,123,718
State income taxes (8,191) (346,340) (212,734)
Nondeductible accruals (48,396) (191,649) (69,930)
Revenue deferred for financial
reporting purposes 264,532 (86,449) 251,060
Other, net (414,681) (30,620) 221,675
----------- ------------ ------------
$ 1,206,414 $ 2,881,288 $ 4,163,389
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
</TABLE>
18
<PAGE>
The reconciliation of the federal statutory tax rate to the Company's
effective tax rate is as follows:
<TABLE>
<CAPTION>
Year ended December 31, 1995 1994 1993
-------- -------- -------
<S> <C> <C> <C>
Federal statutory rate 35.00% 35.00% 34.00%
State taxes, net of federal
income tax benefit 3.41 4.33 4.70
Other 1.42 2.56 (0.11)
-------- -------- -------
39.83% 41.89% 38.59%
---------------------------------------------------------------------
---------------------------------------------------------------------
</TABLE>
The following table shows the tax effect of the Company's cumulative
temporary differences included in deferred income taxes on the Company's Balance
Sheets as of December 31, 1995 and 1994:
<TABLE>
<CAPTION>
Year ended December 31, 1995 1994
------------ -------------
<S> <C> <C>
Excess of tax over book depreciation $ 40,644,594 $ 39,363,134
State income taxes (2,421,043) (2,412,852)
Nondeductible accruals (1,040,426) (992,030)
Revenue deferred for financial
reporting purposes (2,272,315) (2,536,847)
Other, net (422,115) (139,124)
------------ -------------
$ 34,488,695 $ 33,282,281
--------------------------------------------------------------------------
--------------------------------------------------------------------------
</TABLE>
19
<PAGE>
NOTE 6 - COMMON STOCK AND STOCK OPTIONS
In 1985, the Company established an Employee Stock Ownership Plan, as
amended. Under the terms of the plan, the Company makes annual contributions in
the form of cash or common stock of the Company to a trust for the benefit of
eligible employees. The amount of the contribution is determined annually by
the Board of Directors. A contribution of $550,000 was approved for 1995 and
1994 and $525,000 for 1993.
The Company adopted a 1987 Incentive Stock Option Plan (the "1987 Plan"),
effective December 14, 1987, under which options to purchase common stock may be
granted to officers and key employees 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 1987 Plan, options have been granted with an exercise price of $6.125
and $13.875 per share. The options become exercisable over the term of the
related option agreements. Option activity and options exercisable for the
three years ended December 31, 1995, 1994 and 1993 were as follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Options outstanding at January 1 322,292 326,692 339,382
Options granted during the year - - -
Options exercised during the year (59,719) (4,400) (8,000)
Options terminated during the year (6,150) - (4,690)
-------------------------------------------------------------------------
Options outstanding at December 31 256,423 322,292 326,692
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Options exercisable at December 31 163,328 186,827 153,717
-------------------------------------------------------------------------
-------------------------------------------------------------------------
</TABLE>
As of December 31, 1995, 664,840 options remain available for future grant
under the 1987 Plan.
In 1991, the Board of Directors adopted a Long-Term Stock Bonus Plan (the
"LTB Plan") under which 200,000 shares of common stock are reserved for grant to
officers and other key employees. The stock bonuses granted under the LTB Plan
are evidenced by written Stock Bonus Agreements covering specified performance
periods. The LTB Plan provides for the grant of stock bonuses upon achievement
of certain levels of return on equity during a specified period. Stock bonuses
earned under the LTB Plan vest over 5 years from the grant date contingent on
the employee's continued employment with the Company. As of December 31, 1995,
37,041 shares of common stock have been granted, of which 24,242 shares of
common stock are vested. Future grants of 36,798 shares of common stock are
authorized by the Board of Directors to be issued under the LTB Plan in the
event the Company reaches the highest level of achievement. Compensation
expense for 1995, 1994 and 1993 under these plans was $76,318, $53,726 and
$31,742, respectively, and is based on a combination of the anticipated shares
to be granted, the amount of vested shares previously issued and fluctuations in
market price of the Company's common stock.
The Board of Directors has authorized the repurchase of shares of the
Company's outstanding common stock. These purchases are to be made in the
over-the-counter market and/or through large block transactions at such
repurchase price as the officers shall deem appropriate and desirable on
behalf of the Company. All shares repurchased by the Company are to be
canceled and returned to the status of authorized but unissued shares of
common stock. In 1994, the Company repurchased 158,354 shares of common
stock for an aggregate repurchase price of $2,532,591 or an average price of
$15.99 per share. In 1995, the Company repurchased 436,066 shares of common
stock for an aggregate repurchase price of $7,374,279 or an average price of
$16.91 per share. As of December 31, 1995, 495,000 shares remain authorized
for repurchase.
In January 1995, the Board of Directors declared a quarterly dividend on
its common stock of $0.11 per share related to fourth quarter 1994. The
dividend was paid on January 31, 1995.
20
<PAGE>
SHAREHOLDER MATTERS
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
STOCK ACTIVITY
- -------------------------------------------------------------------------
The Company's common stock is traded in the NASDAQ National Market
System under the symbol "MGRC". The range of reported high and low bid
quotations for each quarter in 1994 and 1995, according to the automated
quotation system of the NASDAQ, was as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------
1994 High Bid Low Bid
- ---------------------------------------------
<S> <C> <C>
First Quarter $ 17 3/4 $ 14 1/4
Second Quarter 17 1/4 15
Third Quarter 17 15
Fourth Quarter 17 1/4 15 1/4
- ---------------------------------------------
<CAPTION>
1995 High Bid Low Bid
- ---------------------------------------------
<S> <C> <C>
First Quarter 17 14 1/2
Second Quarter 17 1/2 15 1/4
Third Quarter 19 16 1/2
Fourth Quarter 19 1/2 17 1/2
- ---------------------------------------------
</TABLE>
Such over-the-counter market quotations reflect inter-dealer prices,
without retail markup, markdown, or commission, and may not necessarily
represent actual transactions.
NUMBER OF SHAREHOLDERS
- -------------------------------------------------------------------------
On February 28, 1996, the Company's Common Stock was held by
approximately 142 shareholders of record, which does not include shareholders
whose shares are held in street or nominee name. The Company believes that
when holders in street or nominee name are added, the number of holders of
the Company's Common Stock exceeds 500.
DIVIDEND POLICY
- -------------------------------------------------------------------------
The Company has declared a quarterly dividend on its common stock every
quarter since 1990. (See Consolidated Quarterly (Unaudited) and Five Year
Selected Financial Data on page 7). Subject to its continued profitability
and favorable cash flow, the Company intends to continue the payment of
quarterly dividends. The Company has agreed with its lending banks that it
will not pay dividends or make other distributions to shareholders in excess
of 50% of its net income in any year. The Company's current dividend policy
is in compliance with this restriction.
STOCK TRANSFER AGENT
- -------------------------------------------------------------------------
U.S. Stock Transfer
1745 Gardena Avenue - Second Floor
Glendale, CA 91204
(818) 502-1404
AUDITORS
- -------------------------------------------------------------------------
Arthur Andersen LLP
Spear Street Tower
One Market Plaza
San Francisco, CA 94105
GENERAL COUNSEL
- -------------------------------------------------------------------------
Christopher Ream, Esq.
1717 Embarcadero Road
Palo Alto, CA 94303
ANNUAL MEETING
- -------------------------------------------------------------------------
The Annual Meeting of the Shareholders of McGrath RentCorp will be held
at 2:00 p.m. on Thursday, June 13, 1996 at our San Lorenzo Corporate Office.
MCGRATH RENTCORP
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
OFFICERS
- -------------------------------------------------------------------------
Robert P. McGrath
Chairman of the Board
and Chief Executive Officer
Dennis C. Kakures
President and Chief Operating Officer
Delight Saxton
Vice-President of Administration,
Chief Financial Officer and Secretary
Thomas J. Sauer
Vice-President and Treasurer
DIRECTORS
- -------------------------------------------------------------------------
Bryant J. Brooks
Independent Financial Consultant
Joan M. McGrath
McGrath RentCorp
Robert P. McGrath
Chairman of the Board
and Chief Executive Officer
McGrath RentCorp
Delight Saxton
Vice-President of Administration,
Chief Financial Officer and Secretary
McGrath RentCorp
Ronald H. Zech
President and Chief Executive Officer
GATX Corporation
SPECIAL CONSULTANT
TO THE BOARD OF DIRECTORS
- -------------------------------------------------------------------------
Claude N. Rosenberg, Jr.
Senior Partner
Rosenberg Capital Management
Chairman, RREEF Corporation
OFFICES
- -------------------------------------------------------------------------
San Francisco (Corporate Office)
Modular and Electronic Inventory Centers
2500 Grant Avenue
San Lorenzo, CA 94580
(510) 276-2626
Modular Manager - Scott Alexander
Electronic Manager - Nanci Clifton
Los Angeles
Modular Inventory Center
11450 Mission Boulevard
Mira Loma, CA 91752
(909) 360-6600
Modular Manager - Tom Sanders
Houston
Modular Inventory Center
4445 East Sam Houston Parkway South
Pasadena, TX 77505
(713) 487-9222
Modular Manager - Doylton Davis
Dallas
Rentelco - Electronic Inventory Center
1901 North Glenville Drive
Richardson, TX 75081
(214) 234-2422
Electronic Manager - Bill Chapman
Enviroplex, Inc. (Majority Owned Subsidiary)
Manufacturer of Classrooms
4777 E. Carpenter Road
Stockton, CA 95215
(209) 466-8000
President - Joe Sublett
<PAGE>
P.S. "HERE ARE OUR GREAT PEOPLE!"
- -------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C>
JOANNE ACEVES MICHAEL COOPER ROBERT HERRERA SHARON MORRISON SUSAN ROSEBERRY
MARK ACEVES ISMAEL CORONA FREDRICK HOWE SANTOS MORROW TIM SALKEN
ROBERTO AGUILAR JENNIFER COUCH CATHERINE HUNT MICHAEL MOSS ALFONSO SANCHEZ
SCOTT ALEXANDER STEVEN COWLES JILL IAMESI TONY MOTON SARA SANCHEZ
NORMA ALLEN KEVIN COX NANCY ISRAELS MARK MURRELL MARTIN SANDE
DAVID ALVAREZ MARIA CRAIG JESSICA JALLORINA DANIEL NAVA JERI SANDERS
CARL ANDERS DANA CRAMER EVARARDO JARAMILLO TIMOTHY NEEL TOM SANDERS
MAX ANDREWS RANDY CROOKS BRIAN JENSEN BOB NICHOLSON TOM SAUER
ARTHUR ARREDONDO RHONDA CROUSE RONALD JENSEN SALLY NUNES DELIGHT SAXTON
DEBORAH ATHERTON DONALD CURTIS BEVERLY JOHNSON ELADIO OLVERA WILLIAM SEABROOK
JOSE AVALOS-CALZADA GRACE DAQUINAG LINDA JONES MICHAEL ORONA KEVIN SEYMOUR
JOSE AVALOS-GAMEZ DOYLTON DAVIS CHAD JORGENSEN JUAN OROZCO JOHN SKENESKY
SUZANNE AZEVEDO JUANITA DEFOREST DIANA KAKOS RAFAEL ORTIZ JAVIER SOLIS
RICARDO AVILA DAVID DELEON DENNIS KAKURES DELORISE OWENS ALVARO SOSA
JACKIE BANKS MATTHEW DERRING LYDIA KATEN BARRY OXENRIDER KEN SPINK
JOHN BARNETT ED DIAZ THERESA KERR IVETTE PACHECO JASON STAYSA
RICARDO BARRON ALLEN DIXON JOYCE KETRON JAMES PALTJON STACI STREETER
DONALD BEEBE MICHAEL DOWD MATTHEW KILLINGSWORTH TONI PANIAGUA JOE SUBLETT
SABRINA BEER JAMES DUNN CYNTHIA LAWIN JOE PASSANISI PHILLIP SUBLETT
ROBERT BENNETT ROBERT ESQUIVEL MATTHEW LAZARZ EMILIANO PATINO RITA SUBLETT
KAREN BICKERSTAFF LUIS ESTRADA LAURIE LEAHY JOSE PATINO DAVID THOMPSON
BRANDI BOATRIGHT IONATONA FAAULI JAIME LEON DEBBIE PEEBLES BONNY THROWER
JOHN BOEHM JAIME FABIAN ROGELIO LEON DONNA PEGUERO CARMELO TORRES
JEFFREY BOOGAARD MIGUEL FAVIAN WILLIAM LIGHTFOOT ALFREDO PENAFOLOR GENARO TORRES
JERRY BRANCH LYNNETTE FLANAGAN MOISES LLANOS GLORIA PEREZ MATILDE TORREZ
MIKE BREMERTHON DAVID FLIN RUDY LOPEZ TIMOTHY PETRIN TAMMY TRICKEL
DINA BROWN DAVID FRUECHTING ROSEMARY MACEDO RICHARD PINEDA BRETT TURLEY
RICHARD BROWN VICTOR GAMEZ MARIA MACIAS STEVEN PINGEL LAURA UHE
MARIO BUENROSTRO FRANCISCO GARCIA SERGIO MAGANA-GUTIERREZ ANNETTE POWELL KRISSY VANTREASE
DIANA BURTON JULIAN GARCIA JOSE MALDONADO CONRADO PULGO DAVID VANZANDT
ROSEMARY CAMPOS STEVEN GARNER KIM MANTEUFEL SHARON QURAISHI JIM VARIAN
ERNESTINA CANTU JUAN GARZA TOMMY MARTINEZ BRENDA RALSTON JORGE VASQUEZ
AIDA CARMONA MICHAEL GASTON JOSEPH MASSAH GILBERT RAMIREZ ISIDORE VIGIL
JON CARR DENNIS GEORGE MARTIN MAYERS RICARDO RAMIREZ EDUARDO VILLEGAS
URBANO CARRILLO LUCIUS GETWOOD PAMELA MCGINTY RALPH RAMON SANDY WAGGONER
LYNN CATLEY GARY GIBSON JOAN MCGRATH CARLEEN RANTZOW KARLA WALKER
MANUEL CEBREROS ROBERT GONZALES ROBERT MCGRATH RYAN RANTZOW DENNIS WHEELAND
CLAUDIA CELOTTI ROGELIO GRANADOS JACKIE MCKENZIE JACK RAY KIMBERLY WHITE
RAMON CERDA CYNTHIA GRAVES EFREN MEDINA ENRIQUE RECIO TIFFANY WHITE
JUAN CERNA-VERDUSCO VENA GROSS RICHARD MEDINA DONALD REED PATSY WILLIAMS
BENITO CERVANTES JANICE GUERRERO CATE MESMER GUSTAVO REYES CRAIG WILSON
WILLIAM CHAPMAN JAVIER GUZMAN DORIE METTLER KRISTY REYES FRANCES WILSON
JAIME CHAVEZ JIM HALL ANTONIO MEZA-ARMENDARIS PABLO REYES VANESSA WILSON
EDUARDO CHIN-HERNANDEZ BETH HAMILTON MICHAEL MISEMER RAMIRO RIVAS BRADLEY WOON
LAURA CISSELL ALBERT HAMMONS LUCIANO MONTES-ARIZMENDIZ SERGIO RIVAS ANTHONY WREN
NANCI CLIFTON LORI HANRAHAN JAMES MONTOYA CHRISTINA RIZZO BILL YANDELL
CHRIS CONARD DANA HANSON BONNIE MOODY CHERIE RODERICK DEBRA YOCUM
URIEL CONTRERAS JOHN HARTUNG DARREN MOORE LEO RODRIGUEZ FRANK ZARATE
ROBERT COOK HUGO HERNANDEZ CLAUDIO MORENO NASARIO RODRIGUEZ
JEFFREY COOPER JAIME HERNANDEZ JEANNE MORFORD GUSTAVO ROSALES
SANTIAGO HERNANDEZ JESUS ROSALES
</TABLE>
OUR CREDO
I will, as a team member of McGrath,
embrace our customers' needs,
and deliver exemplary service to earn
customer loyalty.
I will do this by:
- - focusing on doing things right the first time,
- - providing the utmost attention to detail, and
- - always doing what I say I am going to do, with integrity.
CUSTOMER SATISFACTION IS MY JOB!
2500 Grant Avenue
San Lorenzo, CA 94580
(510) 276-2626
[LOGO]
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from McGrath
Rentcorp Annual Report (10K) for the year ending December 31, 1995 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 221
<SECURITIES> 0
<RECEIVABLES> 13,806
<ALLOWANCES> (605)
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 220,467<F1>
<DEPRECIATION> (60,657)<F2>
<TOTAL-ASSETS> 175,130
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 8,913
<OTHER-SE> 76,980
<TOTAL-LIABILITY-AND-EQUITY> 175,130
<SALES> 71,273
<TOTAL-REVENUES> 71,273
<CGS> 32,007
<TOTAL-COSTS> 32,007
<OTHER-EXPENSES> 13,429
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,831
<INCOME-PRETAX> 23,006
<INCOME-TAX> 9,163
<INCOME-CONTINUING> 13,843
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,843
<EPS-PRIMARY> 1.71
<EPS-DILUTED> 0
<FN>
<F1>Includes Rental Equipment, Land, Land Improvements, Furniture and Equipment.
<F2>Accumulated Depreciation related to footnote 16 above
</FN>
</TABLE>
