<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, 1996 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: $158,451,723 as of March 4, 1997.
At March 4, 1997, 7,412,959 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, 1996 (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 5, 1997, 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>
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 1996.
1
<PAGE>
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"
(page 20). 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 1996 and 1995" (pages 8 and 9), "Fiscal Years 1995 and 1994" (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 19). 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>
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 5, 1997, which will be filed with the
Securities and Exchange Commission by not later than April 30, 1997.
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 5, 1997, which will be filed with the
Securities and Exchange Commission by not later than April 30, 1997.
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 5, 1997, which will be filed with the
Securities and Exchange Commission by not later than April 30, 1997.
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 5, 1997, which will be filed with the
Securities and Exchange Commission by not later than April 30, 1997.
3
<PAGE>
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 19, are incorporated herein
by reference:
Report of Independent Public Accountants
Consolidated Statements of Income for the Years Ended December 31,
1996, 1995 and 1994
Consolidated Balance Sheets as of December 31, 1996 and 1995
Consolidated Statements of Shareholders' Equity for the Years Ended
December 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows for the Years Ended December 31,
1996, 1995 and 1994
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 Fourth Amendment to Amended and Restated Credit Agreement
dated October 25, 1996 between the Company and Union Bank of
California, N.A., Fleet Bank, N.A., and Bank of America
National Trust and Savings Association 7
4.2 $5,000,000 Optional Advance Facility dated October 16, 1996
between the Company and Union Bank of California, N.A. 11
11 Weighted Average Shares Composition 19
13 1996 Annual Report to Shareholders 20
27 Financial Data Schedule (filed electronically)
The following exhibits 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, 1996 (filed August 1, 1996) is hereby incorporated by reference herein:
4.1 Second Amendment to Amended and Restated Credit Agreement dated May
10, 1996.
4.2 Third Amendment to Amended and Restated Credit Agreement dated June
10, 1996.
Exhibit Number 4.1 (First Amendment to Amended and Restated Credit
Agreement dated June 16, 1995) 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, 1995 (filed March 29, 1996) is hereby incorporated by reference
herein.
Exhibit 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.
4
<PAGE>
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.
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 or 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>
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 31, 1997 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
- ----------------------- Executive Officer March 31, 1997
Robert P. McGrath
/s/ Delight Saxton Vice President, Chief Financial
- ----------------------- Officer, Secretary, and Director March 31, 1997
Delight Saxton
/s/ Joan M. McGrath Director March 31, 1997
- -----------------------
Joan M. McGrath
6
<PAGE>
FOURTH AMENDMENT
TO AMENDED AND RESTATED CREDIT AGREEMENT
THIS FOURTH AMENDMENT ("Fourth Amendment") is entered into as of October 25,
1996, between MCGRATH RENTCORP, a California corporation and UNION BANK OF
CALIFORNIA, NATIONAL ASSOCIATION, formerly known as The Bank of California,
National Association, as agent for Banks (sometimes "Agent", sometimes
individually "Bank" and sometimes with Fleet Bank, N. A. ,formerly known as
National Westminister Bank, USA, and Bank of America National Trust and Savings
Association, "Banks").
RECITALS
A. Borrower is obligated to Banks pursuant to that certain Amended and
Restated Credit Agreement dated as of June 14, 1994 (as amended from time to
time, "Agreement").
B. The parties mutually desire to amend the Agreement as set forth herein.
NOW, THEREFORE, the parties hereto agree as follows:
1. The definition of "Bank" in Section 1.1 is hereby deleted in its entirety
and replaced with the following:
" 'Bank' means, individually, Union Bank of California, N.A., Fleet Bank,
N.A., Bank of America, N.T. & S.A., and their respective successors, and
such other banks as may become party to this Agreement, collectively
referred to herein as "Banks".
2. The definition of "Commercial Account" in Section 1.1 is hereby deleted in
its entirety and replaced with the following:
" 'Commercial Account' means Borrower's commercial account number
001-2016481 at the office of Agent."
3. The definition of "Pro Rata Share" in Section 1.1 is hereby deleted in its
entirety and replaced with the following:
"Pro Rata Share" means, with respect to each Bank, the percentage set forth
next to that Bank's name as follows:
7
<PAGE>
Bank Pro Rata Share Commitment
---- -------------- ----------
Union Bank of
California, N.A. 45% $27,000,000
Bank of
America, NT&SA 27.5% $16,500,000
Fleet Bank, N.A. 27.5% $16,500,000
4. The definition of "Reserve Commitment Amount" in Section 1.1 is hereby
deleted in its entirety and replaced with the following:
" 'Reserve Commitment Amount' means the amount of Twenty Million Dollars
($20,000,000.00)".
5. In Section 2.3.2(a) the Applicable Margin of 1.000%, which applies to
Eurodollar Loans if the ratio of Liabilities to Tangible Net Worth is less than
or equal to 2:00 to 1 and the ratio of Adjusted Net Income to Debt Service (as
calculated in accordance with Section 7.12(e)) is greater than or equal to 2:00
to 1, is hereby deleted and replaced with .900%.
6. Section 2.8 is hereby deleted in its entirety and replaced with the
following:
"2.8 ADJUSTMENT OF THE COMMITMENT. Upon not less than three Business
Days' notice to the Agent at any time, and from time to time, Borrower may,
at any time reduce the amount of any component of the Commitment in
increments of One Million Dollars ($1,000,000) or integral multiples
thereof; provided, however, that no adjustment in the Basic Commitment
shall occur until the Reserve Commitment Amount shall have been reduced to
zero. Except as expressly provided in this Section 2.8, the Commitment may
not be adjusted by Borrower."
7. Effective as of May 10, 1996 (and in order to correspond to a previous
amendment of the Conversion Date and the Term Loan Maturity Date), the dates
"June 30, 1996" and "June 30, 2001" are hereby deleted and replaced with "June
30, 1997" and "June 30, 2002", respectively, where such dates or either of them
appear in the following Sections or Exhibits:
Section 1.1, definition of "Revolving Loan Termination Date"
Section 3.2.1.
Section 3.2.2.
Exhibit E
Exhibit F
8. CONDITIONS PRECEDENT. Borrower understands that this Amendment shall not
be effective and the Banks shall have no obligation to amend the terms of the
Loan Documents as provided herein unless and until Borrower shall have executed
and delivered to Agent, not later October 31, 1996, this Amendment and a new
Revolving Note for each Bank, reflecting such Bank's Pro Rata Share of the
Commitment.
8
<PAGE>
9. 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 Fourth Amendment, the preceding
amendments and the Agreement shall be read together as one document.
10. REPRESENTATIONS AND WARRANTIES. As part of the consideration for the Banks
to enter into this Fourth Amendment, the Borrower represents and warrants to the
Banks as follows:
(a) The execution, delivery and performance by the Borrower of this Fourth
Amendment are within the Borrower's corporate powers, have been duly
authorized by all necessary corporate 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 Fourth 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 Fourth 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 Fourth
Amendment on behalf of the Borrower has been duly authorized by appropriate
corporate resolutions to so execute and deliver this Fourth Amendment.
11. COUNTERPARTS. This Fourth 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 Fourth Amendment.
9
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Fourth Amendment to
become effective as of the date and year first written above.
BANKS: BORROWER:
UNION BANK OF CALIFORNIA, MCGRATH RENTCORP, a
NATIONAL ASSOCIATION California corporation
as a Bank and as Agent
By: By:
-------------------------- --------------------------
Title: Title:
----------------------- ----------------------
FLEET BANK, N. A.,
By:
--------------------------
Title:
-----------------------
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION
By:
--------------------------
Title:
-----------------------
10
<PAGE>
October 16, 1996
Ms. Delight Saxton
Vice President-Administration
Chief Financial Officer
MCGRATH RENTCORP
2500 Grant Avenue
San Lorenzo, CA 94580
RE: $5,000,000.00 Optional Advance Facility
Dear Ms. Saxton:
Union Bank of California, N.A. (the "Bank") is pleased to offer MCGRATH
RENTCORP, a California corporation ("Borrower") an optional advance facility in
the maximum principal amount of FIVE MILLION AND NO/100 DOLLARS ($5,000,000.00)
which, at Bank's sole discretion, may be available from time to time until June
30, 1997 (the "Facility"), to be governed by the terms of the enclosed Optional
Advance Note ("Note"). The term "Agreement" as used herein shall mean the
Amended and Restated Credit Agreement dated June 14, 1994, as amended from time
to time between Borrower and Bank, and Bank of America National Trust & Savings
Association and Fleet Bank, N.A. Terms used but not defined herein shall have
the meanings given them in the Agreement. Borrower hereby agrees as follows:
(i) In the event the Agreement terminates or expires prior to the
termination or expiration of the Facility, the representations and
covenants of the Agreement shall nevertheless survive as between Borrower
and Bank with respect to the Facility and shall continue in effect until
the Facility terminates or expires. No amendment or waiver of any
provision of the Agreement after the date hereof shall be effective with
respect to this Facility unless Bank so agrees in writing.
(ii) Borrower acknowledges that any amount outstanding under the Note
is included within the definition of "Debt" and "Outside Debt" under the
Agreement, and is therefore subject to, among other things, the limitations
of Section 8.5(c) of the Agreement.
(iii) Borrower shall comply with, and repeats as if fully set forth
herein as of the date hereof, all of the representations, warranties,
covenants and obligations of Borrower under Articles 6, 7 and 8 of the
Agreement. Delivery of each Compliance Certificate to the Bank pursuant to
11
<PAGE>
Ms. Delight Saxton
October 16, 1996
Page 2
Section 7.3(d) of the Agreement shall be deemed delivery of such certificate
to the Bank for the purposes of this Facility. Delivery of each Borrowing
Base Certificate to the Bank pursuant to Section 7.4 of the Agreement shall
be deemed delivery of such certificate to the Bank for the purposes of this
Facility.
(iv) During the term of the Note until the performance of all
obligations of Borrower to Bank, Borrower will not, without Bank's prior
written consent, create, incur, assume or permit to exist any Lien on any
of Borrower's property, except Liens permitted under Section 8.3 of the
Agreement, Liens in favor of Bank and Liens which have been approved by
Bank in writing prior to the date of the Note. This covenant is not
intended to constitute a Lien, deed of trust, or equitable mortgage, or
security interest of any kind on any of Borrower's property, and this
agreement shall not be recorded or recordable.
If the proceeds of any advances under the Note are, at Borrower's request, to
wire-transferred to Borrower or any other individual or entity, such transfer
shall be subject to all applicable law and regulations, and the policy of the
Board of Governors of the Federal Reserve System on Reduction of Payments System
Risk in effect from time to time. Borrower recognizes and agrees that Bank
cannot effectively determine whether a specific request purportedly made by or
on behalf of Borrower is actually authorized or authentic. Borrower assumes all
risks regarding the validity, authenticity and due authorization of any request
purporting to be made by or on behalf of Borrower and promises to repay any
sums, with interest, that are advanced by Bank pursuant to any request which
Bank in good faith believes to be authorized.
This Facility reflects the Bank's general willingness to extend credit to you,
but does not involve any obligation on the part of the Bank to make funds
available. Therefore, no commitment or facility fee will be charged. In its
sole discretion, for any reason or for no reason and with or without notice,
Bank may decline to make any or all requested advances under this Facility, may
decline to continue or renew this Facility, and may terminate this Facility at
any time. Since this is not a committed facility, Borrower acknowledges that it
should not rely on this Facility to meet its liquidity needs.
Enclosed is the original Note and a copy of this Facility letter together with
Authorization to Pay Proceeds of Note and Loan Disbursement Instructions any
other contract, instrument or document Bank requires to be executed in
connection with the Note (each a "Loan Document"). Your signing and returning
the Loan Documents constitutes your agreement to the terms and conditions of the
Facility.
This offer expires on October 31, 1996, unless a copy of the Facility letter,
the Note and other Loan Documents are returned to the Bank duly executed by such
date. If the Bank does not have on file a current borrowing resolution, please
provide one at the time you return the Loan Documents.
12
<PAGE>
Ms. Delight Saxton
October 16, 1996
Page 3
We look forward to serving you.
Very truly yours,
Union Bank of California, N.A.
By:
--------------------------
Robert John Vernagallo
Vice President
Accepted and Agreed:
MCGRATH RENTCORP
By:
-------------------------------
Its:
------------------------------
Dated: 10/29/96
------------------------
13
<PAGE>
OPTIONAL ADVANCE NOTE
(BASE RATE)
SAN FRANCISCO, CALIFORNIA $5,000,000.00 Date: October 16, 1996
FOR VALUE RECEIVED, on June 30, 1997, the undersigned ("Debtor") promises to pay
to the order of UNION BANK OF CALIFORNIA, N.A. ("Bank"), as indicated below, the
principal sum of FIVE MILLION DOLLARS ($5,000,000.00), or so much thereof as is
disbursed by Bank from time to time in its sole discretion, together with
interest on the balance of such principal from time to time outstanding, at the
per annum rates and at the times set forth below.
1. ADVANCES. At Debtor's option, and in the sole discretion of Bank, Debtor
may request advances hereunder for an Interest Period selected by Debtor;
provided that for Interest Periods of 1 day to and including 6 days the minimum
amount of such advance must be $2,500,000, and for Interest Periods of 7 days to
and including 45 days the minimum amount of such advance must be $1,000,000.
Advances in excess of either such minimum must be in increments of $250,000.
Each advance shall bear interest at a Base Interest Rate quoted by Bank and
accepted by Debtor for the Interest Period selected by Debtor. Debtor may
obtain a quote of a Base Interest Rate (for a new advance or the continuation of
an existing advance) from Bank by telephoning an authorized lending officer of
Bank located at Bank's San Francisco Office, or such other office as may be
designated by Bank from time to time, prior to 10:00 a.m., San Francisco time,
on any Business Day and advising such officer of the amount of such advance and
the length of the Interest Period selected by Debtor. Bank has no obligation to
provide any quote and Debtor has no obligation to accept any quote. If Bank
provides a quote and is willing to make or continue such advance, Debtor must
accept such quote prior to 12:00 noon, San Francisco time, on such Business Day.
Each Base Interest Rate will become effective (and the related advance will be
made or continued) two Business Days after the Business Day it is accepted.
In the event Debtor wishes an advance to remain outstanding after the end of the
initial Interest Period, or any subsequent Interest Period, Debtor must accept
Bank's quote of a Base Interest Rate for a new Interest Period, prior to 12:00
noon, San Francisco time, on the Business Day which is two Business Days prior
to the last Business Day of such expiring Interest Period.
Bank will confirm the terms of the election in writing by mail to Debtor
promptly after the quote is accepted. Failure to send such confirmation shall
not affect Bank's rights to collect interest at the rate selected. If Bank is
unable or unwilling for any reason to provide a quote of a Base Interest Rate
for a requested advance, such advance will not be made. If Bank is unable or
unwilling for any reason to provide a quote of a Base Interest Rate for an
existing advance, such advance will be immediately due and payable at the
expiration of the existing Interest Period. Bank reserves the right to fund any
advance from any source of funds notwithstanding any Base Interest Rate selected
by Debtor.
14
<PAGE>
Any Base Interest Rate selected by Debtor may not be changed, altered or
otherwise modified until the expiration of the Interest Period for which it was
selected. Each advance shall be as recorded in Bank's records, which records
shall be prima facie evidence of the amount borrowed, the Base Interest Rate and
the Interest Period; provided, however, that failure of Bank to make any such
notation in its records shall not discharge Debtor from its obligations to repay
in full with interest all amounts borrowed.
In Bank's sole discretion, at any time prior to the maturity of this note,
subject to the provisions of paragraph 4, of this note, Debtor may borrow, repay
and reborrow hereon so long as the total outstanding at any one time does not
exceed the principal amount of this note.
2. PAYMENTS. Debtor shall pay all amounts due under this note in lawful money
of the United States at Bank's San Francisco Office, or such other office as may
be designated by Bank, from time to time.
a. INTEREST PAYMENTS. Debtor shall pay interest on the last day of each
month (commencing October 31, 1996). Should interest not be paid when due,
it shall become part of the principal and bear interest as herein provided.
All computations of interest under this note shall be made on the basis of
a year of 360 days, for actual days elapsed.
b. PRINCIPAL PAYMENTS. All outstanding principal shall be paid on the
date of the expiration of the Interest Period applicable to such principal,
unless Debtor has prior to such date accepted a quote provided by Bank for
a Base Interest Rate applicable to a continuation Interest Period. All
principal not earlier paid shall be due and payable on June 30, 1997.
3. INTEREST RATE FOLLOWING DEFAULT. In the event of default, at the option of
Bank, and, to the extent permitted by law, interest shall be payable on the
outstanding principal under this note at a per annum rate equal to five percent
(5%) in excess of the Reference Rate which rate shall change as the Reference
Rate changes, calculated from the date of default until all amounts payable
under this note are paid in full.
4. PREPAYMENT.
a. Amounts outstanding under this note may only be prepaid in whole or in
part provided Bank has received not less than five (5) Business Days prior
written notice of an intention to make such prepayment and Debtor pays a
prepayment fee to Bank in an amount equal to: (i) the difference between
(a) the Adjusted Libor Rate portion of the Base Interest Rate applicable to
the principal amount which Debtor intends to prepay, and (b) the return
which Bank could obtain if it used the amount of such prepayment of
principal to purchase at bid price regularly quoted securities issued by
the United States having a maturity date most closely coinciding with the
relevant Base Rate Maturity Date and such securities were held by Bank
until the relevant Base Rate Maturity Date ("Yield Rate"); (ii) the above
difference, if greater than zero, is multiplied by a fraction, the
numerator of which is the number of days in the period between the date of
prepayment and the relevant Base Rate Maturity Date and the denominator of
which is 360 days; (iii) the above product is multiplied by the amount of
the principal so prepaid (except in the event that principal payments are
15
<PAGE>
required and have been made as scheduled under the terms of the Base
Interest Rate Loan being prepaid, then the amount multiplied in this
section shall be the lesser of the amount prepaid or 50% of the total of
the amount prepaid and the amount of principal scheduled under the terms
of the Base Interest Rate Loan being prepaid to be outstanding at the
relevant Base Rate Maturity Date); and (iv) the above product is then
discounted to present value using the Yield Rate as the annual discount
factor.
b. In no event shall Bank be obligated to make any payment or refund to
Debtor, nor shall Debtor be entitled to any setoff or other claim against
Bank, should the return which Bank could obtain under the above prepayment
formula exceed the interest that Bank would have received if no prepayment
had occurred. All prepayments shall include payment of accrued interest on
the principal amount so prepaid and shall be applied to payment of interest
before application to principal. A determination by Bank as to the
prepayment fee amount, if any, shall be conclusive.
c. Such prepayment fee, if any, shall also be payable if prepayment
occurs as the result of the acceleration of the principal of this note by
Bank because of any default hereunder. If, following such acceleration,
all or any portion of a Base Interest Rate Loan is satisfied, whether
through sale of property encumbered by a security agreement or other
agreement securing this note, if any, at a foreclosure sale held thereunder
or through the tender of payment any time following such acceleration, but
prior to such a foreclosure sale, then such satisfaction shall be deemed an
evasion of the prepayment conditions set forth above, and Bank shall,
automatically and without notice or demand, be entitled to receive,
concurrently with such satisfaction the prepayment fee set forth above, and
the obligation to pay such prepayment fee shall be added to the principal.
DEBTOR HEREBY ACKNOWLEDGES AND AGREES THAT BANK WOULD NOT LEND TO DEBTOR
THE LOAN EVIDENCED BY THIS NOTE WITHOUT DEBTOR'S AGREEMENT, AS SET FORTH
ABOVE, TO PAY BANK A PREPAYMENT FEE UPON THE SATISFACTION OF ALL OR ANY
PORTION OF THE PRINCIPAL BEARING INTEREST AT A BASE INTEREST RATE FOLLOWING
THE ACCELERATION OF THE MATURITY DATE HEREOF BY REASON OF A DEFAULT.
5. DEFAULT AND ACCELERATION OF TIME FOR PAYMENT. A default under this note
shall mean any of the following: (a) the failure of Debtor to make any payment
required under this note when due, (b) the occurrence of an Event of Default as
defined in that certain Amended and Restated Credit Agreement dated June 14,
1994, as amended from time to time, or (c) failure of Borrower to comply with
any provision of the letter agreement between Borrower and Bank of even date
herewith. Upon the occurrence of any such default, Bank, in its discretion, may
cease to advance funds hereunder and may declare all obligations under this note
immediately due and payable; however, upon the occurrence of an Event of Default
under Section 9.1(f) or 9.1(g) of the Agreement relating to bankruptcy and
similar matters, all principal and interest shall automatically become
immediately due and payable.
6. ADDITIONAL AGREEMENTS OF DEBTOR. If any amounts owing under this note are
not paid when due, Debtor promises to pay all costs and expenses, including
reasonable attorneys' fees, incurred by Bank in the collection or enforcement of
this note. Debtor and any endorsers of this note, for the maximum period of
time and the full extent permitted by law, (a) waive diligence, presentment,
16
<PAGE>
demand, notice of nonpayment, protest, notice of protest, and notice of every
kind; (b) waive the right to assert the defense of any statute of limitations
to any debt or obligation hereunder; and (c) consent to renewals and extensions
of time for the payment of any amounts due under this note. The receipt of any
check or other item of payment by Bank, at its option, shall not be considered
a payment on account until such check or other item of payment is honored when
presented for payment at the drawee bank. Bank may delay the credit of such
payment based upon Bank's schedule of funds availability, and interest under
this note shall accrue until the funds are deemed collected. In any action
brought under or arising out of this note, Debtor and any Obligor, including
their successors or assigns, hereby consent to the jurisdiction of any
competent court within the State of California, as provided in any alternative
dispute resolution agreement executed between Debtor and Bank, and consent to
service of process by any means authorized by California law. The term "Bank"
includes, without limitation, any holder of this note. This note shall be
construed in accordance with and governed by the laws of the State of
California. This note hereby incorporates any alternative dispute resolution
agreement previously, concurrently or hereafter executed between Debtor and
Bank. This note is subject to the terms of the facility letter between Debtor
and Bank of even date herewith but in the event of any conflict between the
terms of such facility letter and this note the terms of this note shall
prevail.
7. DEFINITIONS. As used herein, the following terms shall have the meanings
respectively set forth below: "ADJUSTED LIBOR-RATE" shall mean the LIBOR Base
Rate as adjusted for reserve requirements imposed on Bank from time to time.
"BASE INTEREST RATE" shall mean the per annum interest rate which may, in Bank's
sole discretion, be quoted by Bank to Borrower from time to time and consisting
of an Adjusted Libor-Rate plus a spread over such Adjusted Libor-Rate determined
by Bank in its sole discretion. "BASE INTEREST RATE LOAN" shall mean amounts
outstanding under this note that bear interest at a Base Interest Rate. "BASE
RATE MATURITY DATE" shall mean the last day of the Interest Period with respect
to principal outstanding on which a Base Interest Rate has been selected by
Debtor. "BUSINESS DAY" shall mean a day which is not a Saturday or Sunday on
which Bank is open for business in California and on which dealings in U.S.
dollar deposits outside of the United States may be carried on by Bank.
"INTEREST PERIOD" shall mean any calendar period of one to forty-five days;
provided that, in no event shall any Interest Period extend beyond the maturity
date of this note. In determining an Interest Period, a month means a period
that starts on one Business Day in a month and ends on and includes the day
preceding the numerically corresponding day in the next month. For any month in
which there is no such numerically corresponding day, then as to that month,
such day shall be deemed to be the last calendar day of such month. Any
Interest Period which would otherwise end on a non-Business Day shall end on the
next succeeding Business Day unless that is the first day of a month, in which
event such Interest Period shall end on the next preceding Business Day. "LIBOR
BASE RATE" shall mean for each Interest Period the rate per annum (rounded
upward, if necessary, to the nearest 1/100 of 1%) at which dollar deposits, in
immediately available funds and in lawful money of the United States would be
offered to Bank, outside of the United States, for a term coinciding with such
Interest Period and for an amount equal to the amount of principal covered by
Debtor's selection of a Base Interest Rate. "REFERENCE RATE" shall mean the
rate announced by Bank from time to time at its corporate headquarters at its
Reference Rate. The Reference Rate is an index rate determined by Bank from
time to time as a means of pricing certain extensions of credit and is neither
directly tied to any external rate of interest or index nor necessarily the
lowest rate of interest charged by Bank at any given time.
17
<PAGE>
MCGRATH RENTCORP
By:
-------------------------------
Title:
-------------------------------
18
<PAGE>
EXHIBIT 11
McGrath RentCorp
Weighted Average Shares Composition
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
PRIMARY
-------
Weighted common shares issued and outstanding 7,551,194 7,974,362 8,279,350
Common stock equivalents 101,707 109,885 135,920
--------- --------- ---------
Shares used for EPS calculation 7,652,901 8,084,247 8,415,270
--------- --------- ---------
--------- --------- ---------
FULLY DILUTED
-------------
Weighted common shares issued and outstanding 7,551,194 7,974,362 8,279,350
Common stock equivalents 125,365 125,017 147,409
--------- --------- ---------
Computed fully diluted shares 7,676,559 8,099,379 8,426,759
--------- --------- ---------
--------- --------- ---------
</TABLE>
19
<PAGE>
1996
-----
ANNUAL
REPORT
McGRATH RENTCORP
----------------------------
<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.
CONSOLIDATED FINANCIAL HIGHLIGHTS
- ----------------------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Operations Data:
- ------------------------------------------------------------
Percent
Year ended December 31, 1996 1995 Change
- ------------------------------------------------------------ -------- -------- --------
<S> <C> <C> <C>
Rental Revenues $ 48,986 $ 46,063 6%
Sales and Related Services Revenues 30,175 15,839 91
Total Revenues 89,005 71,273 25
Net Income 15,522 13,843 12
Net Income Per Share 2.03 1.71 19
Cash Dividends Per Share 0.56 0.48(1) 17
Balance Sheet Data (YEAR-END):
- ------------------------------------------------------------
Rental Equipment, net $137,292 $127,608 8%
Total Assets 200,035 175,130 14
Notes Payable 53,850 37,080 45
Shareholders' Equity 88,808 85,893 3
</TABLE>
- --------------------------------------------------------------------------------
Footnote
- -------------------------------------------------------------------------------
1. DIVIDEND OF $0.11 PER SHARE DECLARED IN JANUARY 1995 IS EXCLUDED FROM THE
1995 AMOUNT.
<PAGE>
A Message
To Our
Shareholders
First, we would like to recall our business strategy, as we have discussed in
previous reports, and then tell you how that strategy paid off this year
when the "gods of class size reduction" smiled down on us.
Last year we stated that our business strategy for modulars calls for
creating facility capabilities that our competitors cannot duplicate. This would
enable us to quickly and efficiently modify buildings to meet our customers'
needs. Our goal was to be more responsive at less expense. This efficiency and
responsiveness would be enhanced by our computer based relational database
programs that control our internal operations.
We further stated that executing these operational plans required dedication,
a willingness to embrace change and painstaking work. 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.
This strategy is starting to show results. We have moved into our new and
more efficient Houston and Southern California facilities and we will be in our
new Northern California facility by August.
In 1996 the governor of California introduced a plan to increase the
educational benefits California public school students were receiving by
reducing the class size from approximately 30 students to 20 students. This was
started and funded for the lower grades. The program provided a great incentive
to the school districts to rapidly implement the program which meant more
classrooms and more teachers.
The Company had to move rapidly as well. Because of our ongoing commitment to
our business strategy mentioned above, we were in a position to respond quickly
and efficiently to bring our classroom inventory into readiness and move these
buildings into the school system.
Enviroplex, a manufacturer of DSA portable classrooms, which is 73% owned by
the Company, received a similar rush of orders. For Enviroplex the big benefit
is that it can remain at full production even during the normal slack months.
Where does this class size reduction program go from here? We feel the future
looks positive since there is such a groundswell of support which we feel will
manifest itself in the required funding to move this program into the other
grades. There is great political pressure to make this happen. On the other
hand, there are no guarantees and much of future funding depends upon the
economic health (and therefore tax revenues) of the State. Further, with demand
outstripping supply, there are new players who are becoming classroom
manufacturers. At some point, there may well be over capacity with the resultant
pricing pressures. We welcome the challenges.
The initial results of class size reduction show up in our 1996 results.
Please note that most of the classrooms going out on rent were not shipped until
late in the year. This means that the costs of putting those units out on rent
occurred in 1996 but most of the rental stream will occur in future years.
The improving economic climate in California has been good for the commercial
end of our modular business and we look for continued improvement.
If class size reduction had not been so important, this letter to
shareholders would undoubtedly have placed more emphasis on our electronic
instrument rental groups. Both our general purpose group and telecommunications
group had an excellent year. We want to acknowledge our people in electronics
who made this possible. Part of this success can be attributed to a program to
keep calibrated equipment on the shelf and ready to ship rather than calibrating
after the order is placed. We also feel we have improved systems for selecting
and ordering new equipment. We are pleased to report that both groups set a
record for new rental bookings for each quarter of 1996 compared to the similar
quarter of 1995.
We are pleased that total revenues for 1996 increased 25% over 1995 to
$89,005,000; net income increased 12% to $15,522,000; and net income per share
increased 19% to $2.03 per share. Once again this was the best year in our
history.
Cash flow continues strong. Rental assets increased by $16,156,000;
improvements increased by $7,527,000; dividends paid were $4,084,000; and stock
repurchased was $8,779,000; while our debt increased by only $16,770,000.
We will work hard to make 1997 another record year. Thank you for your
confidence.
Sincerely,
/s/ ROBERT P. MCGRATH /s/ DENNIS C. KAKURES
Robert P. McGrath Dennis C. Kakures
Chairman and Chief Executive President and Chief Operating
Officer Officer
P.S. This is Dennis Kakures' second year as president. He's doing great. His
bold thinking on class size reduction and positioning us to take advantage of
those challenges have really paid off. Thank you Dennis.
RPM
Robert P. McGrath
[PHOTO]
Dennis C. Kakures
[PHOTO]
1
<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, 1996 1995 1994 1993 1992
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
RELOCATABLE MODULAR OFFICES
- -----------------------------------------------------------------------------------------------
Rental Operations:
Rental $ 31,931 $ 31,577 $ 33,386 $ 30,565 $ 31,103
Rental Related Services 9,525 9,103 9,181 7,429 6,755
--------- --------- --------- --------- ---------
41,456 40,680 42,567 37,994 37,858
Sales and Related Services 14,359 6,572 9,039 6,153 5,799
--------- --------- --------- --------- ---------
Total Revenues $ 55,815 $ 47,252 $ 51,606 $ 44,147 $ 43,657
--------- --------- --------- --------- ---------
Percentage of Total Revenues 62.7% 66.3% 75.6% 77.3% 80.0%
--------- --------- --------- --------- ---------
Original Cost (YEAR-END) $ 158,377 $ 150,389 $ 148,111 $ 140,100 $ 133,546
--------- --------- --------- --------- ---------
Net Book Value (YEAR-END) $ 110,014 $ 106,266 $ 109,392 $ 106,827 $ 106,024
--------- --------- --------- --------- ---------
Average Utilization Rate (1) 72.1% 73.9% 79.3% 77.0% 78.8%
--------- --------- --------- --------- ---------
ELECTRONIC TEST AND MEASUREMENT INSTRUMENTS
- -----------------------------------------------------------------------------------------------
Rental Operations:
Rental $ 17,055 $ 14,486 $ 12,763 $ 10,128 $ 7,654
Rental Related Services 319 268 265 245 189
--------- --------- --------- --------- ---------
17,374 14,754 13,028 10,373 7,843
Sales and Related Services 5,610 4,492 3,661 2,615 3,072
--------- --------- --------- --------- ---------
Total Revenues $ 22,984 $ 19,246 $ 16,689 $ 12,988 $ 10,915
--------- --------- --------- --------- ---------
Percentage of Total Revenues 25.8% 27.0% 24.4% 22.7% 20.0%
--------- --------- --------- --------- ---------
Original Cost (YEAR-END) $ 43,335 $ 35,168 $ 29,732 $ 26,825 $ 21,325
--------- --------- --------- --------- ---------
Net Book Value (YEAR-END) $ 27,279 $ 21,342 $ 17,852 $ 16,604 $ 13,657
--------- --------- --------- --------- ---------
Average Utilization Rate (1) 54.9% 55.2% 56.0% 52.3% 46.7%
--------- --------- --------- --------- ---------
ENVIROPLEX, INC. (MAJORITY OWNED SUBSIDIARY)
- -----------------------------------------------------------------------------------------------
Sales and Related Services $ 10,206 $ 4,775 $ -- $ -- $ --
--------- --------- --------- --------- ---------
Total Revenues $ 10,206 $ 4,775 $ -- $ -- $ --
--------- --------- --------- --------- ---------
Percentage of Total Revenues 11.5% 6.7% -- -- --
TOTAL COMPANY REVENUES $ 89,005 $ 71,273 $ 68,295 $ 57,135 $ 54,572
- ----------------------------------------
- -----------------------------------------------------------------------------------------------
</TABLE>
Footnote
- -------------------------------------------------------------------------------
1. 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 314 employees. The operational compatibility between the two
rental product lines results in the efficient use of overhead.
No single customer of any 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 and sale 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 or sell. 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 moved 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 and most recently class
size reduction. 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.
[PHOTO1]
- -----------------------------------------
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.
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 1996 sales to direct-use customers, 58%
arose from the Company's rental operations (43% were new equipment and 57% were
used) and
3
<PAGE>
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.
OUR
PRODUCTS
- --------
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 40% of the
Company's relocatable modular rental revenues during 1996 compared to 34% in
1995. This increase can be attributed to the Class Size Reduction Program
instituted by the state of California. School districts were given great
incentive to reduce class size in the lower grades from a typical 30 students to
no greater than 20 students. This highly popular program has created a great
demand for both purchasing and renting classroom buildings.
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. It is also anticipated that new
legislation will be introduced that extends the September 30, 1997 date for the
elimination of the waiver process.
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 existing laws or new laws may not adversely affect the Company's future
classroom rental business.
4
<PAGE>
The following table shows the relationship of 24'x40' standard DOH classrooms
to DSA equipment marketed to school districts as of December 31, 1996, 1995 and
1994.
Equipment Comparison
- ------------------------------------------------------------------------
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
Balance At December 31, 1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
24'X 40' Standard DOH Classrooms:
Original Cost On Rent $ 13,738 $ 10,449 $ 13,114
Original Cost Off Rent 1,834 5,015 3,258
--------- --------- ---------
Total Original Cost $ 15,572 $ 15,464 $ 16,372
--------- --------- ---------
Net Book Value $ 8,952 $ 9,324 $ 10,650
--------- --------- ---------
Utilization(1) 88.2% 67.6% 80.1%
--------- --------- ---------
DSA Equipment:
Original Cost On Rent $ 26,488 $ 17,454 $ 18,644
Original Cost Off Rent 611 3,653 1,829
--------- --------- ---------
Total Original Cost $ 27,099 $ 21,107 $ 20,473
--------- --------- ---------
Net Book Value $ 22,399 $ 17,115 $ 17,304
--------- --------- ---------
Utilization(1) 97.7% 82.7% 91.1%
- --------------------------------------------------------------------------
</TABLE>
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.
OUR
PRODUCTS
- --------
Electronic Test and Measurement Instruments
- ------------------------------------------------------------------------
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 locators, 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.
[PHOTO2]
[PHOTO3]
- -----------------------------------------
5
<PAGE>
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
<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 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
-------- ---------- ------- --------- --------- ---------- -------- ------- -------------
Total 1994 68,295 24,546 13,004 1.55 0.44(1) 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
-------- ---------- ------- --------- --------- ---------- -------- ------- -------------
Quarter
1st 17,705 5,734 3,074 0.39 0.14 128,214 175,557 35,855 85,934
2nd 19,641 6,753 3,652 0.48 0.14 127,801 179,321 42,375 84,499
3rd 25,497 7,875 4,464 0.59 0.14 130,112 188,647 45,725 85,247
4th 26,162 7,797 4,332 0.58 0.14 137,292 200,035 53,850 88,808
-------- ---------- ------- --------- --------- ---------- -------- ------- -------------
Total 1996 89,005 28,159 15,522 2.03 0.56 137,292 200,035 53,850 88,808
-------- ---------- ------- --------- --------- ---------- -------- ------- -------------
</TABLE>
- --------------------------------------------------------------------------------
1. INCLUDES DIVIDEND OF $0.11 PER SHARE 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 66% of total revenues in 1996. Over
the past three years relocatable modular offices comprised 69% of the cumulative
rental revenues, and test and measurement instruments comprised 31% 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 26% of total revenues over the last three
years.
FISCAL YEARS
1996 AND
1995
- ------------
The Company has experienced a significant increase in orders during the last
six months of 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.
Rental revenues increased $2,923,000 (6%) over 1995 with electronics
contributing $2,569,000 and relocatable modular offices contributing $354,000 of
the increase. Average utilization in 1996 for modular equipment declined, from
73.9% to 72.1%, and slightly declined for electronic equipment, from 55.2% to
54.9%, as compared to 1995. However, as a result of the significant volume of
shipment to school districts during the last five months of 1996, modular
utilization has increased to 78.6% as of December 31, 1996 compared to 71.0% as
of December 31, 1995. Rental revenues for 1996 reflect only a partial year of
rental revenues associated with the classrooms shipped in the last five months
of 1996.
Rental related services revenues in 1996 increased $473,000 (5%) over 1995
due to additional site requirements and the significant increase in the movement
of classrooms to school districts. Gross margins declined from 41% in 1995 to
39% in 1996 due to additional incentive fees earned by the Company in 1995 for
equipment management which were not repeated in 1996.
Sales and related services revenues in 1996 increased $14,336,000 (91%) over
1995. Of the increase in sales and related services revenues, $7,787,000 relates
to the Company's modular equipment sales arising from its rental operations,
$5,431,000 relates to the Company's majority owned subsidiary, Enviroplex, Inc.,
which manufactures and sells portable classrooms directly to school districts,
and $1,118,000 relates to electronic test and measurement equipment. The
significant increase in modular equipment sales and related services in 1996 is
primarily due to the higher demand by school districts because of the class size
reduction program in California. Of the sales of modular equipment in 1996, 67%
were new and 33% were used equipment. The single largest sale was for $1,517,000
by Enviroplex, Inc. to a school district consisting of manufactured portable
classrooms of various sizes. Gross margin on sales and related services remained
consistent at 32% in both 1996 and 1995. Sales and related services from quarter
to quarter and year to year have fluctuated depending on customer requirements.
Depreciation on rental equipment in 1996 increased $918,000, an 8% increase
over 1995 due to the increase in rental equipment. Equipment supplies, repair,
direct labor and other increased $1,348,000 (20%) from 1995 due to material,
repair and labor costs directly related to the modular equipment movement during
the last five months of 1996. Of the $1,348,000 increase, direct labor costs
accounted for $608,000 due to the additional use of outside contract labor,
increased staffing, and overtime premiums to assist in the preparation of
modular equipment for potential lease and sale opportunities.
Selling and administrative expenses increased $2,872,000 (27%) over 1995.
However, during the first quarter of 1995, the Company had recognized an
acceleration of $330,000 in additional leasehold improvement expense related to
a rented facility it vacated. Excluding this 1995 nonrecurring expense, selling
and administrative expenses increased $3,202,000 (31%) for 1996,
8
<PAGE>
net of the reduction in facilities rental expense due to the relocation of
modular office operations in Southern California and Texas to owned facilities.
Personnel costs accounted for $2,134,000 of the increase which included higher
staffing levels and increases in sales and performance bonuses. Additionally,
expense increases of $239,000 by the Company's majority owned subsidiary,
Enviroplex Inc., also contributed to the overall increase.
Income before provision for taxes increased $2,266,000 (10%) in 1996 over
1995 while net income increased $1,678,000 (12%) due to a lower effective tax
rate in 1996 of 38.6% compared to 39.8% in 1995. Earnings per share increased
19%, from $1.71 per share in 1995 to $2.03 per share in 1996, as a result of
higher earnings coupled with fewer outstanding shares.
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.
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 1996, 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 1996, the Company demonstrated its strong cash flow by
increasing rental assets by $16,156,000, increasing land improvements, furniture
and equipment by $7,527,000, repurchasing $8,779,000 of common stock, paying
dividends of $4,084,000, and paying income taxes of $7,405,000, while increasing
its debt by only $16,770,000 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 lines of credit to its current $65,000,000 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. The Company had a total liabilities to equity ratio of 1.25 to 1 and
1.04 to 1 as of December 31, 1996 and 1995, respectively. The debt (notes
payable) to equity ratio was 0.61 to 1 and 0.43 to 1 at December 31, 1996 and
1995, respectively.
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). During 1996, the Company repurchased 420,550
shares of its outstanding common stock for an aggregate purchase price of
$8,779,000 (or an average price of $20.87 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 1997 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 the
Southern California facility. The completion of the development of the Northern
California facility and the relocation of branch and corporate offices is
anticipated to occur by August 1997.
The following table sets forth for each branch the acres leased, the acres
owned, and the total acres at December 31, 1996.
Facilities
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
Acres
---------------------------------
Leased Owned Total
------ -------- -----
<S> <C> <C> <C>
San Francisco Bay Area 14.3 146.6(1) 160.9
Los Angeles Area -- 98.5 98.5
Houston Area 14.0 50.0(2) 64.0
Dallas Area(3) -- -- --
------ -------- -----
28.3 295.1 323.4
</TABLE>
- --------------------------------------------------------------------------------
Footnotes
- -------------------------------------------------------------------------------
1. INCLUDES AN 8.9 ACRE PARCEL WITH A 74,000 SQUARE FOOT MANUFACTURING FACILITY
FOR ENVIROPLEX, INC.; 45 ACRES OF THE REMAINING 137.7 ACRE PARCEL HAVE BEEN
DEVELOPED AND ARE BEING USED FOR STORAGE.
2. 34 ACRES ARE BEING USED. THE REMAINING 16 ACRES WILL BE DEVELOPED FOR
STORAGE.
3. 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, 1996 and
1995, and the related consolidated statements of income, shareholders' equity
and cash flows for each of the three years in the period ended December 31,
1996. 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, 1996 and 1995, and the results of its operations and its cash flows for each
of the three years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles.
San Francisco, California
February 18, 1997 ARTHUR ANDERSEN LLP
CONSOLIDATED STATEMENTS OF INCOME
- ----------------------------------------------------------------------
<TABLE>
<CAPTION>
Year ended December 31, 1996 1995 1994
------------ ----------- ------------
<S> <C> <C> <C>
REVENUES
------------------------------------------------------
Rental Operations:
Rental $ 48,986,436 $46,062,913 $46,148,783
Rental Related Services 9,843,744 9,371,098 9,445,843
------------ ----------- ------------
58,830,180 55,434,011 55,594,626
Sales and Related Services 30,174,858 15,838,800 12,700,114
------------ ----------- ------------
Total Revenues 89,005,038 71,272,811 68,294,740
------------ ----------- ------------
COSTS & EXPENSES
------------------------------------------------------
Direct Costs of Rental Operations:
Depreciation 12,456,193 11,538,628 11,017,574
Rental Related Services 6,019,398 5,543,173 6,279,402
Equipment Supplies, Repair, Direct Labor, and Other 8,198,592 6,850,853 6,971,675
------------ ----------- ------------
26,674,183 23,932,654 24,268,651
Cost of Sales and Related Services 20,531,687 10,734,775 8,634,057
------------ ----------- ------------
47,205,870 34,667,429 32,902,708
------------ ----------- ------------
Gross Margin 41,799,168 36,605,382 35,392,032
Selling and Administrative 13,640,556 10,768,543 10,846,298
------------ ----------- ------------
Income from Operations 28,158,612 25,836,839 24,545,734
Interest 2,886,609 2,830,863 2,166,541
------------ ----------- ------------
Income Before Provision for Income Taxes 25,272,003 23,005,976 22,379,193
Provision for Income Taxes 9,750,391 9,162,831 9,375,172
------------ ----------- ------------
Net Income $ 15,521,612 $13,843,145 $13,004,021
- -----------------------------------------------------------------------------------------------------------------
Net Income Per Common and Common
Equivalent Share $ 2.03 $ 1.71 $ 1.55
- -----------------------------------------------------------------------------------------------------------------
Weighted Average Number of Common and
Common Equivalent Shares Outstanding 7,652,901 8,084,247 8,415,270
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
12
<PAGE>
CONSOLIDATED BALANCE SHEETS
- ----------------------------------------------------------------------
<TABLE>
<CAPTION>
Balance at December 31, 1996 1995
------------ ------------
ASSETS
<S> <C> <C>
-------------------------------------------------------
Cash $ 686,333 $ 221,075
Accounts Receivable, less allowance for doubtful accounts
of $605,000 in 1996 and 1995 19,919,954 13,201,196
Rental Equipment, at cost:
Relocatable Modular Offices 158,376,950 150,388,694
Electronic Test Instruments 43,335,413 35,167,717
------------ ------------
201,712,363 185,556,411
Less -- Accumulated Depreciation (64,419,888) (57,948,456 )
------------ ------------
137,292,475 127,607,955
Land, at cost 20,167,647 19,489,300
Land Improvements, Furniture and Equipment, at cost, less
accumulated depreciation of $3,376,803 in 1996 and
$2,708,404 in 1995 19,572,015 12,713,095
Prepaid Expenses and Other Assets 2,396,935 1,897,700
------------ ------------
$200,035,359 $175,130,321
- ------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
-------------------------------------------------------
Liabilities:
Notes Payable $ 53,850,000 $37,080,000
Accounts Payable and Accrued Liabilities 15,280,543 11,701,417
Deferred Income 5,226,803 5,967,063
Deferred Income Taxes 36,869,734 34,488,695
------------ ------------
Total Liabilities 111,227,080 89,237,175
------------ ------------
Shareholders' Equity:
Common Stock, no par value -
Authorized -- 20,000,000 shares
Outstanding -- 7,410,209 shares in 1996
and 7,769,813 in 1995 7,161,168 8,913,311
Retained Earnings 81,647,111 76,979,835
------------ ------------
Total Shareholders' Equity 88,808,279 85,893,146
------------ ------------
$200,035,359 $175,130,321
- ------------------------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
13
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
- ----------------------------------------------------------------------
<TABLE>
<CAPTION>
Common Stock Total
---------------------- Retained Shareholders'
Shares Amount Earnings Equity
--------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
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
Net Income -- -- 15,521,612 15,521,612
Repurchase of Common Stock (420,550) (2,110,889) (6,667,886) (8,778,775 )
Common Stock Issued or
Reserved Under Long-Term
Stock Bonus Plan 10,910 197,739 -- 197,739
Repurchase of Common Stock
in Connection with the
Exercise of Stock Options (14,211) (298,489) -- (298,489 )
Exercise of Stock Options 64,247 459,496 -- 459,496
Dividends Declared of
$0.56 per share -- -- (4,186,450) (4,186,450 )
- -----------------------------------------------------------------------------------------------------
Balance, December 31, 1996 7,410,209 $ 7,161,168 $81,647,111 $ 88,808,279
- -----------------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
14
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
- ----------------------------------------------------------------------
<TABLE>
<CAPTION>
Year ended December 31, 1996 1995 1994
------------- ------------ -------------
<S> <C> <C> <C>
Increase (Decrease) in cash
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 15,521,612 $ 13,843,145 $ 13,004,021
Adjustments to Reconcile Net Income to Net Cash Provided
by Operating Activities:
Depreciation 13,285,130 12,441,786 11,443,965
Gain on Sale of Rental Equipment (4,815,533) (3,281,144) (3,474,741 )
Change in:
Accounts Receivable (6,718,758) (538,983) (1,651,786 )
Prepaid Expenses and Other Assets (499,235) 206,213 (279,635 )
Accounts Payable and Accrued Liabilities 3,674,404 1,384,566 2,287,032
Deferred Income (740,260) (1,280,584) 539,568
Deferred Income Taxes 2,381,039 1,206,414 2,881,288
------------- ------------ -------------
Net Cash Provided by Operating Activities 22,088,399 23,981,413 24,749,712
------------- ------------ -------------
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of Rental Equipment (29,924,430) (17,251,729) (21,172,069 )
Purchase of Land (678,347) (4,750) --
Purchase of Land Improvements, Furniture and Equipment (7,687,857) (6,339,843) (2,457,641 )
Proceeds from Sale of Rental Equipment 12,599,250 8,630,079 9,816,458
------------- ------------ -------------
Net Cash Used in Investing Activities (25,691,384) (14,966,243) (13,813,252 )
------------- ------------ -------------
CASH FLOW FROM FINANCING ACTIVITIES:
Net Borrowings (Payments) Under Line of Credit 16,770,000 1,130,000 (4,150,000 )
Net Proceeds from the Exercise of Stock Options 161,007 66,348 30,128
Repurchase of Common Stock (8,778,775) (7,374,279) (2,532,591 )
Payment of Dividends (4,083,989) (3,767,812) (3,564,358 )
------------- ------------ -------------
Net Cash Provided (Used) by Financing Activities 4,068,243 (9,945,743) (10,216,821 )
------------- ------------ -------------
Net Increase (Decrease) in Cash 465,258 (930,573) 719,639
Cash Balance, Beginning of Period 221,075 1,151,648 432,009
------------- ------------ -------------
Cash Balance, End of Period $ 686,333 $ 221,075 $ 1,151,648
------------- ------------ -------------
Interest Paid During the Period $ 2,832,537 $ 2,835,280 $ 2,138,725
------------- ------------ -------------
Income Taxes Paid During the Period $ 7,404,686 $ 7,456,575 $ 6,537,003
------------- ------------ -------------
Dividends Declared but not yet Paid $ 1,037,814 $ 935,353 $ --
------------- ------------ -------------
- -------------------------------------------------------------------------------------------------------
</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 40% in 1996, 34% in 1995, and 38% in 1994 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. Enviroplex
sales were $10,587,633 in 1996 and $4,867,064 in 1995.
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its majority owned subsidiary, Enviroplex, Inc. All significant intercompany
accounts and transactions are eliminated. Net income is reduced by the portion
of earnings of Enviroplex, Inc. related to the minority shareholder's interest
which is included in Selling and Administrative expenses in the Consolidated
Statements of Income.
REVENUES
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 of the
equipment to the customer. 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:
<TABLE>
<S> <C>
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 5 to 50 years, no residual value
</TABLE>
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).
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company believes that its financial instruments (cash and notes payable)
carrying amounts approximate fair value.
16
<PAGE>
USE OF ESTIMATES
The preparation of consolidated 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. Actual results could differ from those estimates.
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.
RECLASSIFICATIONS
Certain 1995 and 1994 balances have been reclassified to conform to
classifications used during the current year.
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, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
<S> <C> <C>
1996 1995
----------- ----------
Gross minimum lease receivable $ 4,457,079 $4,127,199
Less -- Unearned interest (899,531) (875,735)
----------- ----------
Net investment in sales
type lease receivables $ 3,557,548 $3,251,464
- --------------------------------------------------------------------------------
</TABLE>
The future minimum lease payments as of December 31, 1996 are as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
<S> <C>
Year ended December 31,
1997 $2,395,266
1998 1,140,693
1999 593,162
2000 230,100
2001 71,871
2002 and thereafter 25,987
----------
$4,457,079
- ---------------------------------------------------------------------
</TABLE>
NOTE 4 -- NOTES PAYABLE
The Company maintains unsecured lines of credit agreements (the "Agreements")
with its banks which expire June 30, 1997 and permit it to borrow up to
$65,000,000 of which $53,850,000 was outstanding as of December 31, 1996. The
Agreements require the Company to pay interest at prime or, at the Company's
election, other rate options available under the Agreements. In addition, the
Company pays a commitment fee on the daily average unused portion of the
available line. Among other restrictions, the Agreements require (i) 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 at December 31, 1996 is $77,761,000), (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 Agreements 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.
The following information relates to the lines of credit for each of the
following periods:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
<S> <C> <C>
Year ended December 31, 1996 1995
------------ -----------
Maximum amount outstanding $ 53,850,000 $41,035,000
Average amount outstanding $ 41,881,000 $36,838,000
Weighted average interest rate 6.58% 7.33%
Effective interest rate at end of period 6.57% 7.04%
Prime interest rate at end of period 8.25% 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,
1996:
FEDERAL $ 6,031,974 $ 2,218,606 $ 8,250,580
STATE 1,337,378 162,433 1,499,811
----------- ----------- -----------
$ 7,369,352 $ 2,381,039 $ 9,750,391
----------- ----------- -----------
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
- ---------------------------------------------------------------------------------
</TABLE>
The reconciliation of the federal statutory tax rate to the Company's
effective tax rate is as follows:
<TABLE>
<CAPTION>
Year ended December 31, 1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Federal statutory rate 35.00% 35.00% 35.00%
State taxes, net of federal
income tax benefit 3.86 3.41 4.33
Other (.28) 1.42 2.56
--------- --------- ---------
38.58% 39.83% 41.89%
- ---------------------------------------------------------------------------------
</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, 1996 and 1995:
<TABLE>
<CAPTION>
Year ended December 31, 1996 1995
------------ -----------
<S> <C> <C>
Excess of tax over book depreciation $ 41,338,486 $40,644,594
State income taxes (2,617,118) (2,421,043)
Accrued liabilities not currently deductible (976,089) (1,040,426)
Revenue deferred for financial
reporting purposes (1,813,099) (2,272,315)
Other, net 937,554 (422,115)
------------ -----------
$ 36,869,734 $34,488,695
- ------------------------------------------------------------------------
</TABLE>
18
<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 $650,000 was approved for 1996 and
$550,000 for both 1995 and 1994.
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,
$13.875, and $21.50 per share. The options become exercisable over the term of
the related option agreements. Option activity and options exercisable including
weighted average excercise price for the three years ended December 31, 1996,
1995 and 1994 were as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
1996 1995 1994
------------------ ------------------ ------------------
WTD. AVG. Wtd. Avg. Wtd. Avg.
SHARES EX. PRICE Shares Ex. Price Shares Ex. Price
------- --------- ------- --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at January 1 256,423 9.74 322,292 9.22 326,692 9.19
Options granted during the year 80,000 21.50 -- -- -- --
Options exercised during the year (64,247) 7.15 (59,719) 6.75 (4,400) 6.85
Options terminated during the year (1,950) 13.88 (6,150) 11.87 -- --
- -------------------------------------------------------------------------------------------------------------------------------
Options outstanding at December 31 270,226 13.80 256,423 9.74 322,292 9.22
- -------------------------------------------------------------------------------------------------------------------------------
Options exercisable at December 31 139,211 9.58 163,328 8.65 186,827 7.95
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The weighted average remaining contractual life of the 270,226 options
outstanding at December 31, 1996 is 5.1 years. As of December 31, 1996, 586,790
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 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, 1996,
51,041 shares of common stock have been granted, of which 30,582 shares of
common stock are vested. Future grants of 35,163 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 1996, 1995 and 1994 under these plans was $197,739, $76,318, and $53,726,
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 Company adopted Statement of Financial Accounting Standards No. 123 --
"Accounting for Stock-Based Compensation" (FAS 123) in 1996. The effect of FAS
123 for the years presented in the financial statements is not significant.
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. In 1996,
the Company repurchased 420,550 shares of common stock for an aggregate
repurchase price of $8,778,775 or an average price of $20.87 per share. As of
December 31, 1996, 387,200 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. If the fourth
quarter dividend for 1994 had been declared in December 1994, the cumulative
dividends for 1995 and 1994 would have been $0.48 per share and $0.44 per share,
respectively.
19
<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 1995 and 1996, according to the automated quotation system of
the NASDAQ, was as follows:
<TABLE>
<CAPTION>
--------------------------------------------------------------
1995 High Bid Low Bid
-----------------------------------------------------------------------
<S> <C> <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
<CAPTION>
-----------------------------------------------------------------------
1996 High Bid Low Bid
-----------------------------------------------------------------------
<S> <C> <C> <C>
First Quarter 20 17 3/4
Second Quarter 22 1/2 19 1/4
Third Quarter 27 1/4 16 3/4
Fourth Quarter 27 23 1/2
<CAPTION>
-----------------------------------------------------------------------
</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 March 4, 1997, the Company's common stock was held by approximately 124
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 5, 1997 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
20
<PAGE>
P.S. "HERE ARE OUR GREAT PEOPLE!"
- ----------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
PETER ABREUS LAURA CISSELL RAMIRO GONZAELS RUDY LOPEZ JOE PASSANISI MARTIN SANDE
JOANNE ACEVES NANCI CLIFTON MARCOS GONZALES JOSEPH LUNA EMILIANO PATINO JERI SANDERS
ROBERTO AGUILAR LONA COLBY ROBERT GONZALES ROSEMARY MACEDO JOSE PATINO TOM SANDERS
ESDRAS ALDANA ROBERT COMBS CARLOS GONZALEZ MARIA MACIAS DEBBIE PEEBLES TOM SAUER
SCOTT ALEXANDER CHRIS CONARD ROGELIO GRANADOS SERGIO MAGANA- DONNA PEGUERO DELIGHT SAXTON
NORMA ALLEN MIGUEL CONTRERAS CYNTHIA GRAVES GUTIERREZ ALFREDO PENAFOLOR WILLIAM SEABROOK
JUAN DE LEON URIEL CONTRERAS LISA GRAY JOSE MALDONADO GERARDO PEREZ KEVIN SEYMOUR
ALVARADO ROBERT COOK VENA GROSS MANUAL MANCERA GLORIA PEREZ CAROLE SILVA
DAVID ALVAREZ JEFFREY COOPER JANICE GUERRERO KIM MANTEUFEL KELLY PETERSEN JOHN SKENESKY
CARL ANDERS VICTOR CORONA- JAVIER GUZMAN TOMMY MARTINEZ TIMOTHY PETRIN KENNETH SMITH
EMILIOAN ANDRADE RAMIREZ JIM HALL JOSEPH MASSAH RICHARD PINEDA JAVIER SOLIS
MAX ANDREWS JOSE COTTO BETH HAMILTON VICKIE MASSOLA STEVEN PINGEL ALVARO SOSA
RUSSELL ANDREWS JENNIFER COUCH WESLEY HAMILTON DENIS MAXSON ARTHUR PORTOCARRERO KEN SPINK
ARTHUR ARREDONDO STEVEN COWLES ALBERT HAMMONS MARTIN MAYERS JOYCE PRASAD STACI STREETER
CELSO ARROYO KEVIN COX LORI HANRAHAN JOAN MCGRATH CONRADO PULGO JOE SUBLETT
DEBORAH ABRAMS MARIA CRAIG DANA HANSON ROBERT MCGRATH SHARON QURAISHI PHILLIP SUBLETT
JOSE AVALOS-CALZADA RANDY CROOKS JOHN HARTUNG EFREN MEDINA BRENDA RALSTON RITA SUBLETT
JOSE AVALOS-GAMEZ RHONDA CROUSE ROBERT HEHMAN JOSE MENDEZ ENRIQUE RAMIREZ VANESSA SURRELL
JESUS AVILA DONALD CURTIS HUGO HERNANDEZ CATE MESMER GILBERT RAMIREZ ROGELIO TALAVERA
OBED AVILA GRACE DAQUINAG JAIME HERNANDEZ DORIE METTLER LEONARDO RAMIREZ WILLIAM TAYLOR
JACKIE BANKS ANNE DAVIS SANTIAGO HERNANDEZ WARREN MEYER LUIS RAMIREZ KENNETH THOMAS
JOHN BARNETT DOYLTON DAVIS ROBERT HERRERA ANTONIO MEZA- OSCAR RAMIREZ DAVID THOMPSON
RICARDO BARRON JUANITA DEFOREST JAMES HILL ARMENDARIS RICARDO RAMIREZ BONNY THROWER
MARLYS BARSKEY ANTHONY DE LA RIVA FREDRICK HOWE MICHAEL MISEMER RALPH RAMON YAVONNE THROWER
DONALD BEEBE DAVID DELEON CATHERINE HUNT LUCIANO MONTES- RYAN RANTZOW CARMELO TORRES
MATT BENAS JOSE DELGADO THOMAS JACKSON ARIZMENDIZ JACK RAY GENARO TORRES
ROBERT BENNETT MATTHEW DERRING JESSICA JALLORINA GABRIEL MONTANEZ ENRIQUE RECIO LUIS TORRES
VINCENT BINO ED DIAZ EVARARDO JARAMILLO JAMES MONTOYA DONALD REED MATILDE TORREZ
JOHN BOEHM ALLEN DIXON BRIAN JENSEN DARREN MOORE GUSTAVO REYES TAMMY TRICKEL
JEFFREY BOOGAARD MICHAEL DOWD RONALD JENSEN CLAUDIO MORENO KRISTY REYES BRETT TURLEY
FRANK BOSSI JAMES DUNN JOSE JIMENEZ JR. JEANNE MORFORD PABLO REYES LAURA MOYER
TARA BRANDOW JEFF EMERSON MARLIN JOHNSON SHARON MORRISON JOSE RICO MARCOS VALENZUELA
MIKE BREMERTHON PAUL ESCARCEGA LINDA JONES SANTOS MORROW SAM RIVERA KRISSY VANTREASE
JONATHAN BRILL ROBERT ESQUIVEL DIANA KAKOS GREGORY MOSS CHRISTINA RIZZO DAVID VANZANDT
DINA BROWN LUIS ESTRADA DENNIS KAKURES TONY MOTON CHERIE RODERICK JORGE VASQUEZ
RICHARD BROWN JAIME FABIAN LYDIA KATEN MARK MURRELL ALEJANDRO RODRIGUEZ JOSE VELASCO
MARIO BUENROSTRO MARK FAGLEY THERESA KERR DANIEL NAVA JESUS RODRIGUEZ ISIDORE VIGIL
DIANA BURTON MIGUEL FAVIAN JOYCE KETRON FELIX NAVARRO LEO RODRIGUEZ VICTOR VILLA
KELLY CALLIHAN LYNNETTE FLANAGAN PATRICIA KINGCAID TIMOTHY NEEL NASARIO RODRIGUEZ EDUARDO VILLEGAS
GRACE CAMP DAVID FLIN RICK KINNEAR BOB NICHOLSON THOMAS ROMERO ROBERT VIVEROS
ROSEMARY CAMPOS JOSE FLORES CATHRYN KLEIN EDWARD NORIEGA GUSTAVO ROSALES SANDY WAGGONER
ERNESTINA CANTU MARIO LUIS FLORES FRANCISCO LANDIN SALLY NUNES JESUS ROSALES MANUEL WALDO
AIDA CARMONA LYNNETTE FORSTER JOSE LARA ELADIO OLVERA DEBORAH ROSE KARLA WALKER
JON CARR DIANE FRESE LUIS LARIOS KIMBERLY ONEAL SUSAN ROSEBERRY GREGORY WENKER
URBANO CARRILLO DAVID FRUECHTING CYNTHIA LAWIN MICHAEL ORONA TIMOTHY RUSSELL DENNIS WHEELAND
FRANCISCO CARRILLO ISIDRO FRUTOS EDWARD LAWSON JUAN OROZCO ABDO SABA KIMBERLY WHITE
MANUEL CEBREROS VICTOR GAMEZ LAURIE LEAHY RAFAEL ORTIZ MICHAEL SALAZAR TIFFANY WHITE
CLAUDIA CELOTTI FRANCISCO GARCIA JAIME LEON SHANE OVERSTREET JUAN SALINAS PATSY WILLIAMS
RAMON CERDA JOSE GARCIA ROGELIO LEON DELORISE OWENS RAMIRO SALINAS CRAIG WILSON
JUAN CERNA-VERDUSCO JULIAN GARCIA WILLIAM LIGHTFOOT BARRY OXENRIDER ALFONSO SANCHEZ FRANCES WILSON
BENITO CERVANTES JUAN GARZA MOISES LLANOS IVETTE PACHECO JOSE SANCHEZ VANESSA WILSON
WILLIAM CHAPMAN RUBEN GASPAR ROBERT LIMON JAMES PALTJON SARA SANCHEZ BRADLEY WOON
JAIME CHAVEZ MICHAEL GASTON GUADALUPE LOMELI TONI PANIAGUA SARA SANCHEZ BILL YANDELL
EDUARDO CHIN- DENNIS GEORGE EMILIO LOPEZ KALYANI PARULKAR SAUL SANCHEZ FRANK ZARATE
HERNANDEZ LUCIUS GETWOOD PEDRO LOPEZ DAWN PASCALE DIONICIO SANTOGO ROBIN ZIRZOW
</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
[LOGO] detail, and
2500 GRANT AVENUE - always doing what I say I am
SAN LORENZO, CA 94580 going to do, with integrity.
(510) 276-2626 CUSTOMER SATISFACTION IS MY JOB!
<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, 1996 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-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 686
<SECURITIES> 0
<RECEIVABLES> 20,525
<ALLOWANCES> (605)
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 244,829<F1>
<DEPRECIATION> (67,128)<F2>
<TOTAL-ASSETS> 200,035
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 7,161
<OTHER-SE> 81,647
<TOTAL-LIABILITY-AND-EQUITY> 200,035
<SALES> 89,005
<TOTAL-REVENUES> 89,005
<CGS> 47,206
<TOTAL-COSTS> 47,206
<OTHER-EXPENSES> 13,641
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,887
<INCOME-PRETAX> 25,272
<INCOME-TAX> 9,750
<INCOME-CONTINUING> 15,522
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,522
<EPS-PRIMARY> 2.03
<EPS-DILUTED> 0
<FN>
<F1>Includes Rental Equipment, Land, Land Improvements, Furniture and Equipment
<F2>Accumulated Depreciation related to footnote 16 above
</FN>
</TABLE>
