<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended September 30, 1996
Commission File No. 0-13292
McGRATH RENTCORP
(Exact name of registrant as specified in its Charter)
California 94-2579843
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
2500 Grant Avenue
San Lorenzo, California 94580
(Address of principal executive offices)
Registrant's telephone number: (510) 276-2626
-------------------------
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the Registrant was required to file such reports) and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No
------ -------
At November 7, 1996, 7,398,959 shares of Registrant's Common Stock
were outstanding.
-------------------------
<PAGE>
McGrath RentCorp
Third Quarter 1996 Form 10-Q
Page 1
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
----------------------- -----------------------
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES:
Rental operations-
Rental $12,321,796 $11,928,853 $35,573,650 $34,524,914
Rental related services 3,920,071 3,032,306 7,672,245 6,832,034
----------- ----------- ----------- -----------
16,241,867 14,961,159 43,245,895 41,356,948
Sales and related services 9,255,338 4,106,228 19,598,040 11,480,755
----------- ----------- ----------- -----------
Total revenues 25,497,205 19,067,387 62,843,935 52,837,703
----------- ----------- ----------- -----------
COSTS & EXPENSES:
Direct costs of rental operations-
Depreciation 3,108,151 2,930,235 9,188,972 8,532,567
Rental related services 2,048,185 1,925,257 4,227,682 4,325,845
Other 1,752,510 1,256,333 3,855,515 3,593,837
----------- ----------- ----------- -----------
6,908,846 6,111,825 17,272,169 16,452,249
Cost of sales and related services 6,064,184 2,793,706 13,257,615 7,698,983
----------- ----------- ----------- -----------
12,973,030 8,905,531 30,529,784 24,151,232
----------- ----------- ----------- -----------
Gross margin 12,524,175 10,161,856 32,314,151 28,686,471
Selling and administrative expenses 4,648,965 3,534,800 11,952,094 9,967,180
----------- ----------- ----------- -----------
Income from operations 7,875,210 6,627,056 20,362,057 18,719,291
Interest expense 744,275 759,920 2,061,701 2,122,581
----------- ----------- ----------- -----------
Income before provision
for income taxes 7,130,935 5,867,136 18,300,356 16,596,710
Provision for income taxes 2,667,070 2,361,414 7,110,824 6,649,630
----------- ----------- ----------- -----------
Net income $ 4,463,865 $ 3,505,722 $11,189,532 $ 9,947,080
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Net income per share $ 0.59 $ 0.44 $ 1.45 $ 1.22
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
McGrath RentCorp
Third Quarter 1996 Form 10-Q
Page 2
CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30, December 31,
1996 1995
------------ ------------
ASSETS
Cash $ 1,067,236 $ 221,075
Accounts receivable, less allowance for doubtful
accounts of $605,000 in 1996 and 1995 18,581,472 13,201,196
Rental equipment, at cost:
Relocatable modular offices 148,253,732 146,867,850
Electronic test instruments 40,458,394 34,932,807
Accessory equipment 3,931,249 3,755,754
------------ ------------
192,643,375 185,556,411
Less - Accumulated depreciation (62,531,036) (57,948,456)
------------ ------------
130,112,339 127,607,955
Land 20,167,647 19,489,300
Land improvements, furniture and equipment,
at cost, less accumulated depreciation of
$3,160,174 in 1996 and $2,708,404 in 1995 16,391,873 12,713,095
Prepaid expenses and other assets 2,326,195 1,897,700
------------ ------------
$188,646,762 $ 175,130,321
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Notes payable $ 45,725,000 $ 37,080,000
Accounts payable and accrued liabilities 15,733,551 11,701,417
Deferred income 5,625,178 5,967,063
Deferred income taxes 36,315,667 34,488,695
------------ ------------
Total liabilities 103,399,396 89,237,175
------------ ------------
Shareholders' equity:
Common stock, no par value -
Authorized - 2O,OOO,OOO shares
Outstanding - 7,398,959 shares in 1996
and 7,760,247 in 1995 5,585,817 8,913,311
Retained earnings 79,661,549 76,979,835
------------ ------------
Total shareholders' equity 85,247,366 85,893,146
------------ ------------
$188,646,762 $ 175,130,321
------------- -----------
The accompanying notes are an integral part of these financial statements.
<PAGE>
McGrath RentCorp
Third Quarter 1996 Form 10-Q
Page 3
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (decrease) in cash
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended
September 30,
-----------------------------
1996 1995
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 11,189,532 $ 9,947,080
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 9,787,419 9,274,334
Gain on sale of rental equipment (3,606,691) (2,325,868)
Change in:
Accounts receivable (5,380,276) (2,507,781)
Prepaids and other assets (428,495) (429,354)
Accounts payable and accrued liabilities 3,931,629 2,113,140
Deferred income (341,885) (139,452)
Deferred income taxes 1,826,972 1,415,789
-----------------------------
Net cash provided by operating activities 16,978,205 17,347,888
-----------------------------
Cash flows from investing activities:
Purchase of rental equipment (17,598,298) (13,587,246)
Purchase of land (678,347) (4,750)
Purchase of land improvements, furniture and equipment (4,277,225) (4,761,776)
Proceeds from sale of rental equipment 9,511,633 6,316,019
-----------------------------
Net cash used in investing activities (13,042,237) (12,037,753)
-----------------------------
Cash flows from financing activities:
Net borrowings 8,645,000 3,975,000
Payment of dividends (3,048,133) (2,836,584)
Repurchase of common stock (8,778,775) (7,374,279)
Net proceeds from the exercise of stock options 92,101 41,416
-----------------------------
Net cash provided (used) by financing activities (3,089,807) (6,194,447)
-----------------------------
Net increase (decrease) in cash 846,161 (884,312)
Cash balance, beginning of period 221,075 1,151,648
-----------------------------
Cash balance, end of period $ 1,067,236 $ 267,336
=============================
Interest paid during period $ 2,028,226 $ 2,110,541
=============================
Income taxes paid during period $ 5,256,506 $ 4,750,000
=============================
Dividends declared but not yet paid $ 1,035,854 $ 931,230
=============================
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
McGrath RentCorp
Third Quarter 1996 Form 10-Q
Page 4
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996
____________________________________________
1. The consolidated financial information for the nine months ended
September 30, 1996 has not been audited, but in the opinion of management,
all adjustments (consisting only of normal recurring accruals,
consolidation and eliminating entries) necessary for the fair presentation
of the consolidated results of operations, financial position, and cash
flows of McGrath RentCorp (the "Company") have been made. The consolidated
results of the nine months ended September 30, 1996 should not be
considered as necessarily indicative of the results for the entire year.
It is suggested that these consolidated financial statements be read in
conjunction with the financial statements and notes thereto included in the
Company's latest Form 10-K.
2. The number of outstanding shares and equivalent shares used in the
earnings per common share calculations were as follows:
Primary Fully Diluted
--------- -------------
Three months ended: September 30, 1996 7,586,204 7,597,150
September 30, 1995 7,958,848 7,960,787
Nine months ended: September 30, 1996 7,701,993 7,734,126
September 30, 1995 8,158,890 8,166,221
3. In May 1996, the Company's unsecured line of credit agreement
(the "Agreement") with its banks was amended to extend the expiration
date of the Agreement to June 30, 1997. In addition to extending the
expiration date, the amendment requires the Company to maintain
shareholders' equity of not less than $70,000,000 plus 50% of all net
income generated subsequent to December 31, 1995 plus 90% of any new
stock issuance proceeds (restricted equity as of September 30, 1996 is
$75,595,000).
<PAGE>
McGrath RentCorp
Third Quarter 1996 Form 10-Q
Page 5
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
The Company has experienced a significant increase in orders during the
three months ended September 30, 1996 primarily related to a law enacted on
July 15, 1996 in California which provided operational funding for a
reduction of classroom size for kindergarten through third grade to 20
pupils and additional legislation which made available $200 million of
state funds for facilities to accomplish that goal. The law requires that
the new classrooms be in place by February 1997 to be eligible for the
state funding.
Rental revenues for the three and nine months ended September 30, 1996
increased slightly over the same periods in 1995. For the nine month
period, the $1,794,715 increase in rental revenues from electronics was
offset by a $745,979 decline in rental revenues from relocatable modular
offices. The rental revenue decline for modulars is primarily due to an
increase in rental customers electing to purchase modulars they had on rent
and to the return of modular equipment related to several large expired
leases during the first part of 1996. Average utilization for the first
nine months declined for modular equipment, from 74.6% to 70.5%, and
remained the same for electronic equipment (55.2%), as compared to the same
period in 1995. However, as a result of the significant volume of
shipments to school districts during August and September 1996, modular
utilization has increased to 74.9% as of September 30, 1996 from 71.0% as
of December 31, 1995. Rental revenues for the three months ended September
30, 1996 reflect only a partial quarter of rental revenues associated with
the modular equipment shipped in August and September 1996.
Rental related services for the three and nine months ended September
30, 1996 increased $887,765 (29%) and $840,211 (12%), respectively,
over the same periods in 1995. The nine month increase was primarily due
to additional site requirements and the significant increase in the
movement of modular equipment to school districts.
Sales and related services for the three and nine months ended
September 30, 1996 increased $5,149,110 (125%) and $8,117,285 (71%),
respectively, over the same periods in 1995. Of the nine month increase
in sales and related services, $4,964,022 relates to the Company's modular
equipment, $2,164,259 relates to the Company's majority owned subsidiary,
Enviroplex, Inc., which manufactures and sells portable classrooms directly
to school districts and $989,004 relates to electronic test and measurement
equipment. The significant increase in modular equipment sales and related
services is due to a high number (17) of large sales in 1996 of both new
and used relocatable modular equipment amounting to $4,050,881. Of the
sales of modular equipment through September 30, 1996, 33% are new and
67% are used. As of September 30, 1996, the largest single sale was for
$1,517,337 by Enviroplex, Inc. to a school district consisting of
<PAGE>
McGrath RentCorp
Third Quarter 1996 Form 10-Q
Page 6
manufactured portable classrooms of various sizes. Sales and related
services from quarter to quarter have fluctuated depending on customer
requirements. Gross margin on sales and related services for the nine
month period was 32% in 1996 compared with 33.0% in 1995.
Depreciation on rental equipment for the three and nine months ended
September 30, 1996 increased $177,916 (6%) and $656,405 (8%), respectively,
over the same periods in 1995 due to the increases in electronics rental
equipment. Other direct costs for the three and nine months ended
September 30, 1996 have increased $496,177 (39%) and $261,678 (7%)
respectively, compared to the same periods in 1995 due to material and
repair costs directly related to the modular equipment movement during the
third quarter of 1996.
Selling and administrative expenses for the three and nine months ended
September 30, 1996 increased $1,114,165 (32%) and $1,984,914 (20%),
respectively, over the same periods in 1995. However, during the first
quarter of 1995, the Company recognized an acceleration of $330,000 in
additional leasehold improvement expense related to a rented facility in
Southern California in which the lease was terminated. Excluding this 1995
nonrecurring expense, selling and administrative expenses increased
$2,314,914 (23%) for the nine months ended September 30, 1996 compared to
the same period in 1995. The nine month increase is primarily due to
increases in staffing levels for sales and support, personnel costs,
temporary contract labor to assist in the preparation of modular offices
for potential lease and sale opportunities, and increases in the expenses
of the Company's majority owned subsidiary, Enviroplex, Inc. The increase
in expenses are net of the reduction in facilities rental expense due to
the relocation of modular office operations in Southern California and
Texas to owned facilities.
Net income for the three and nine months ended September 30, 1996
increased $958,143 (27%) and $1,242,452 (12%), respectively, over the same
periods in 1995. Earnings per share for the three and nine months ended
September 30, 1996 increased 34%, from $0.44 to $0.59, and 19%, from $1.22
to $1.45, over the comparative 1995 period as a result of higher earnings
and fewer outstanding shares.
LIQUIDITY AND CAPITAL RESOURCES.
The debt (notes payable) to equity ratio was 0.54 to 1 at September 30,
1996 compared to 0.43 to 1 at December 31, 1995. The debt (total
liabilities) to equity ratio at the end of the current period was 1.21 to 1
as compared to 1.04 to 1 as of December 31, 1995.
The Company continues to make purchases of shares of its common stock
from time to time in the over-the-counter market (NASDAQ) and/or through
privately negotiated, large block transactions under an authorization of
<PAGE>
McGrath RentCorp
Third Quarter 1996 Form 10-Q
Page 7
the Board of Directors. The Board of Directors believes that the
repurchase of its shares continues to be a good investment for the Company.
Shares repurchased by the Company will be cancelled and returned to the
status of authorized but unissued stock. From January 1, 1996 thru
November 7, 1996, the Company repurchased a total of 420,550 shares of its
common stock at an aggregate cost of $8,778,775 or an average price of
$20.87 per share. As of November 7, 1996, 387,200 shares remain authorized
for repurchase.
The Company's primary use of funds is to purchase rental equipment, and
funds will continue to be used for this purpose in the future.
Additionally, the Company plans to make further improvements to the land at
their inventory facility located in Northern California. The Company also
pays quarterly dividends, which will constitute an additional use of cash
in 1996.
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
On August 30, 1996 the Company declared a quarterly dividend on its
Common Stock; the dividend was $0.14 per share. Subject to its continued
profitability and favorable cash flow, the Company intends to continue the
payment of quarterly dividends. The Company's loan agreement with the Bank
prohibits payment of dividends in excess of 50% of net income in any one
year without the bank's consent.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS. No exhibits included.
(b) REPORTS ON FORM 8-K. No reports on form 8-K have been filed during
the quarter for which this report is filed.
<PAGE>
McGrath RentCorp
Third Quarter 1996 Form 10-Q
Page 8
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934
the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
Date: November 7, 1996 McGRATH RENTCORP
By:/s/ Delight Saxton
____________________________
Delight Saxton, Chief Financial
Officer and Vice President of
Administration
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MCGRATH
RENTCORP'S QUARTERLY REPORT (10Q) FOR QUARTER ENDING SEPTEMBER 30, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 1,067
<SECURITIES> 0
<RECEIVABLES> 19,186
<ALLOWANCES> (605)
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 232,362<F1>
<DEPRECIATION> (65,691)<F2>
<TOTAL-ASSETS> 188,647
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 5,585
<OTHER-SE> 79,662
<TOTAL-LIABILITY-AND-EQUITY> 188,647
<SALES> 62,843
<TOTAL-REVENUES> 62,843
<CGS> 30,529
<TOTAL-COSTS> 30,529
<OTHER-EXPENSES> 11,952
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,062
<INCOME-PRETAX> 18,300
<INCOME-TAX> 7,110
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,190
<EPS-PRIMARY> 1.45
<EPS-DILUTED> 0
<FN>
<F1>16) Includes Rental Equipment, Land, Land Improvements, Furniture and Equipment
<F2>17) Accumulated Depreciation related to 16 above
</FN>
</TABLE>
