<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
--------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED SEPTEMBER 30, 1999
COMMISSION FILE NUMBER 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.)
5700 LAS POSITAS ROAD, LIVERMORE, CA 94550
(Address of principal executive offices)
Registrant's telephone number: (925) 606-9200
--------------------
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the Registrant was required to file such reports) and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
--- ---
At November 2, 1999, 12,695,238 shares of Registrant's Common Stock were
outstanding.
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PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MCGRATH RENTCORP
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------- ---------------------
(in thousands, except per share amounts) 1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES
Rental $ 20,359 $ 18,385 $ 58,437 $ 52,706
Rental Related Services 4,511 4,062 10,045 9,012
-------- -------- -------- --------
Rental Operations 24,870 22,447 68,482 61,718
Sales 11,584 21,787 27,655 42,973
Other 445 244 895 612
-------- -------- -------- --------
Total Revenues 36,899 44,478 97,032 105,303
-------- -------- -------- --------
COSTS AND EXPENSES
Direct Costs of Rental Operations
Depreciation 5,072 4,618 14,491 12,275
Rental Related Services 2,237 1,943 5,400 5,151
Other 4,180 3,656 10,844 10,216
-------- -------- -------- --------
Total Direct Costs of Rental Operations 11,489 10,217 30,735 27,642
Costs of Sales 8,474 15,581 19,521 29,553
-------- -------- -------- --------
Total Costs 19,963 25,798 50,256 57,195
-------- -------- -------- --------
Gross Margin 16,936 18,680 46,776 48,108
Selling and Administrative 4,024 4,560 12,212 12,104
-------- -------- -------- --------
Income from Operations 12,912 14,120 34,564 36,004
Interest 1,721 1,686 4,818 4,720
-------- -------- -------- --------
Income Before Provision for Income Taxes 11,191 12,434 29,746 31,284
Provision for Income Taxes 4,318 4,899 11,601 12,326
-------- -------- -------- --------
Income Before Minority Interest 6,873 7,535 18,145 18,958
Minority Interest in Income of Subsidiary 88 447 142 928
-------- -------- -------- --------
Net Income $ 6,785 $ 7,088 $ 18,003 $ 18,030
======== ======== ======== ========
Earnings Per Share:
Basic $ 0.52 $ 0.50 $ 1.34 $ 1.27
======== ======== ======== ========
Diluted $ 0.51 $ 0.50 $ 1.32 $ 1.25
======== ======== ======== ========
Shares Used in Per Share Calculation:
Basic 13,067 14,062 13,430 14,218
======== ======== ======== ========
Diluted 13,220 14,231 13,593 14,406
======== ======== ======== ========
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial
statements.
1
<PAGE> 3
MCGRATH RENTCORP
CONSOLIDATED BALANCE SHEETS
(unaudited)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
SEPTEMBER 30, DECEMBER 31,
-------------- ------------
(in thousands) 1999 1998
- -----------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash $ 439 $ 857
Accounts Receivable, less allowance for doubtful
Accounts of $650 in 1999 and 1998 23,328 21,811
Rental Equipment, at cost:
Relocatable Modular Offices 235,603 216,414
Electronic Test Instruments 69,094 66,573
--------- ---------
304,697 282,987
Less Accumulated Depreciation (91,608) (82,959)
--------- ---------
Rental Equipment, net 213,089 200,028
--------- ---------
Land, at cost 19,303 18,953
Buildings, Land Improvements, Equipment and Furniture,
at cost, less accumulated depreciation of $5,032
in 1999 and $3,858 in 1998 31,700 31,460
Prepaid Expenses and Other Assets 5,030 5,567
--------- ---------
Total Assets $ 292,889 $ 278,676
--------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Notes Payable $ 108,700 $ 97,000
Accounts Payable and Accrued Liabilities 25,533 22,964
Deferred Income 9,351 5,574
Minority Interest in Subsidiary 2,727 2,584
Deferred Income Taxes 52,788 45,160
--------- ---------
Total Liabilities 199,099 173,282
--------- ---------
Shareholders' Equity:
Common Stock, no par value --
Authorized -- 40,000 shares
Outstanding -- 12,690 shares in 1999 and
13,970 shares in 1998 7,434 8,138
Retained Earnings 86,356 97,256
--------- ---------
Total Shareholders' Equity 93,790 105,394
--------- ---------
Total Liabilities and Shareholders' Equity $ 292,889 $ 278,676
========= =========
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial
statements.
2
<PAGE> 4
MCGRATH RENTCORP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------
(in thousands) 1999 1998
- ------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 18,003 $ 18,030
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation and Amortization 15,749 13,381
Gain on Sale of Rental Equipment (4,425) (4,397)
Change In:
Accounts Receivable (1,517) (4,927)
Prepaid Expenses and Other Assets 537 1,417
Accounts Payable and Accrued Liabilities 2,587 (4,988)
Deferred Income 3,777 419
Deferred Income Taxes 7,628 6,467
-------- --------
Net Cash Provided by Operating Activities 42,339 25,402
-------- --------
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of Rental Equipment (35,327) (35,501)
Purchase of Land, Buildings, Land Improvements,
Equipment and Furniture (1,848) (3,751)
Proceeds from Sale of Rental Equipment 12,198 11,248
-------- --------
Net Cash Used in Investing Activities (24,977) (28,004)
-------- --------
CASH FLOW FROM FINANCING ACTIVITIES:
Net Borrowings Under Notes Payable 11,700 18,000
Proceeds from the Exercise of Stock Options 617 215
Repurchase of Common Stock (25,486) (11,617)
Payment of Dividends (4,611) (3,987)
-------- --------
Net Cash Provided (Used in) Financing
Activities (17,780) 2,611
-------- --------
Net Increase (Decrease) in Cash (418) 9
Cash Balance, Beginning of Period 857 538
-------- --------
Cash Balance, End of Period $ 439 $ 547
======== ========
Interest Paid During the Period $ 5,345 $ 4,443
======== ========
Income Taxes Paid During the Period $ 3,782 $ 5,779
======== ========
Dividends Declared but not yet Paid $ 1,523 $ 1,400
======== ========
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE> 5
MCGRATH RENTCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
NOTE 1. CONSOLIDATED FINANCIAL INFORMATION
The consolidated financial information for the nine months ended
September 30, 1999 has not been audited, but in the opinion of management, all
adjustments (consisting of only normal recurring accruals, consolidation and
eliminating entries) necessary for the fair presentation of the consolidated
results of operations, financial position, and cash flows of McGrath RentCorp
(the "Company") have been made. The consolidated results of the nine months
ended September 30, 1999 should not be considered as necessarily indicative of
the consolidated results for the entire year. It is suggested that these
consolidated financial statements be read in conjunction with the financial
statements and notes thereto included in the Company's latest Form 10-K.
NOTE 2. NOTES PAYABLE
In June 1999, the Company amended its $75,000,000 unsecured line of
credit agreement with its banks to extend it to June 30, 2001 (other terms and
conditions remained the same). In addition, the Company amended its line of
credit related to its cash management services to increase it from $4,000,000 to
$5,000,000 and to extend it to June 30, 2000.
NOTE 3. BUSINESS SEGMENTS
The Company defines its business segments based on the nature of
operations for the purpose of reporting under Statement of Financial Accounting
Standard No. 131, "Disclosures about Segments of an Enterprise and Related
Information" (SFAS 131). The Company's three reportable segments are Mobile
Modular Management Corporation (Modulars), McGrath-RenTelco (Electronics), and
Enviroplex. The operations of these three segments are described in the notes to
the consolidated financial statements included in the Company's latest Form
10-K. As a separate corporate entity, Enviroplex revenues and expenses are
separately maintained from Modulars and Electronics. Excluding interest expense,
allocations of revenues and expenses not directly associated with Modulars or
Electronics are generally allocated to these segments based on their pro-rata
share of direct revenues. Interest expense is allocated between Modulars and
Electronics based on their pro-rata share of average rental equipment, accounts
receivable and customer security deposits. The Company does not report total
assets by business segment. Summarized financial information for the nine months
ended September 30, 1999 and 1998 for the Company's reportable segments is shown
in the following table:
4
<PAGE> 6
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
(in thousands) MODULARS(1) ELECTRONICS(2) ENVIROPLEX CONSOLIDATED
----------------------------------------------- ---------------
<S> <C> <C> <C> <C>
NINE MONTHS ENDED SEPTEMBER 30,
1999
Rental Operation Revenues $ 48,026 $ 20,456 $ -- $ 68,482
Sales and Other Revenues 12,897 7,908 7,745 28,550
Total Revenues 60,923 28,364 7,745 97,032
Depreciation on Rental Equipment 7,886 6,605 -- 14,491
Interest Expense 3,720 1,246 (148) 4,818
Income before Income Taxes 18,451 10,458 837 29,746
Rental Equipment Acquisitions 25,186 10,141 -- 35,327
Accounts Receivable, net (period end) 13,037 9,010 1,281 23,328
Rental Equipment, at cost (period end) 235,603 69,094 -- 304,697
1998
Rental Operation Revenues $ 43,976 $ 17,742 -- $ 61,718
Sales and Other Revenues 18,939 6,340 18,306 43,585
Total Revenues 62,915 24,082 18,306 105,303
Depreciation on Rental Equipment 6,895 5,380 -- 12,275
Interest Expense 3,583 1,095 42 4,720
Income before Income Taxes 17,136 8,670 5,478 31,284
Rental Equipment Acquisitions 20,121 15,380 -- 35,501
Accounts Receivable, net (period end) 13,948 6,710 6,063 26,721
Rental Equipment, at cost (period end) 209,507 60,747 -- 270,254
- ------------------------------------------------------------------------------------------------------
</TABLE>
- --------
(1) Operates under the trade name Mobile Modular Management Corporation
(2) Operates under the trade name McGrath-RenTelco
5
<PAGE> 7
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This Quarterly Report on Form 10-Q contains statements, which constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. These statements appear in a number of places.
Such statements can be identified by the use of forward-looking terminology such
as "believes", "expects", "may", "estimates", "will", "should", "plans" or
"anticipates" or the negative thereof or other variations thereon or comparable
terminology, or by discussions of strategy. Readers are cautioned that any such
forward-looking statements are not guarantees of future performance and involve
significant risks and uncertainties, and that actual results may vary materially
from those in the forward-looking statements as a result of various factors.
These factors include the effectiveness of management's strategies and
decisions, general economic and business conditions, new or modified statutory
or regulatory requirements and changing prices and market conditions. This
report identifies other factors that could cause such differences. No assurance
can be given that these are all of the factors that could cause actual results
to vary materially from the forward-looking statements.
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
Rental revenues for the three and nine months ended September 30, 1999
increased $1,974,000 (11%) and $5,731,000 (11%), respectively, over the
comparative periods in 1998. Mobile Modular Management Corporation ("MMMC")
contributed $2,995,000 and McGrath-RenTelco contributed $2,736,000 of the
nine-month increase. MMMC's rental revenues increased as a result of having an
average of $19,834,000 more equipment on rent compared to a year earlier even
though average monthly yield for all modular equipment has declined from 1.94%
in 1998 to 1.90% in 1999. Modular average utilization for the nine months ended
September 30, 1999, excluding new equipment inventory, was 81.9% compared to
82.8% for the same period in 1998. McGrath-RenTelco's rental revenues increased
as a result of having an average of $5,371,000 more equipment on rent compared
to a year earlier even though average monthly yield for all electronics
equipment has declined from 3.53% in 1998 to 3.31% in 1999. Electronics average
utilization for the nine months ended September 30, 1999 was 53.0% compared to
55.0% for the same period in 1998.
Rental related services revenues for the three and nine months ended
September 30, 1999 increased $449,000 (11%) and $1,033,000 (11%), respectively,
as compared to the same periods in 1998 as a result of higher volume of modular
equipment movements and site requirements in 1999. Gross margins on these
services for the nine-month period increased from 43% in 1998 to 46% in 1999.
Sales for the three and nine months ended September 30, 1999 declined
$10,203,000 (47%) and $15,318,000 (36%), respectively, as compared to the same
periods in 1998 primarily due to a reduction in sales by Enviroplex of
manufactured classrooms to school districts from the high levels in 1998 caused
by California's Class Size Reduction Program. Sales also have declined as a
result of the nonrepetitive nature of one large sale ($6,110,000) recorded by
MMMC in the third quarter of 1998. Further, for Enviroplex, increased business
levels anticipated from the $9.2 billion California bond measure, which passed
in November 1998, have not materialized. Consolidated gross margin on sales
declined for the nine-month period from 31% in 1998 to 29% in 1999 due to lower
margin classroom projects sold during the first nine months of 1999. Sales
continue to occur routinely as a normal part of the Company's rental business;
however, these sales can fluctuate from quarter to quarter and year to year
depending on customer demands and requirements.
Enviroplex's backlog of orders as of September 30, 1999 and 1998 was
$4,595,000 and $3,189,000, respectively. Backlog is not significant in MMMC's
modular business or in McGrath-RenTelco's electronics business.
Depreciation on rental equipment for the three and nine months ended
September 30, 1999 increased $454,000 (10%) and $2,216,000 (18%) over the
comparative periods in 1998 due to the additional rental equipment purchased.
For the nine months ended September 30, 1999, the average
6
<PAGE> 8
modular rental equipment, at cost, increased $26,311,000 (14%) and average
electronics rental equipment, at cost, increased $12,207,000 (22%) over the 1998
comparative period.
Selling and administrative expenses for the three and nine months ended
September 30, 1999 decreased $536,000 (12%) and increased $108,000 (1%),
respectively, over the comparative periods in 1998. Selling and administrative
expenses for each quarter in 1999 have been approximately the same with the
three-month period ending September 30, 1999 declining as compared with the
similar period in 1998 primarily due to lower personnel and temporary labor
costs ($411,000), including performance and incentive bonuses.
Interest expense for the nine months ended September 30, 1999 increased
$98,000 (2%) over 1998 as a result of a higher average borrowing level offset by
a lower average interest rate in 1999. The debt increase funded part of the
significant rental equipment purchases made during the last twelve months.
Income before provision for taxes for the three and nine months ended
September 30, 1999 decreased $1,243,000 (10%) and $1,538,000 (5%), respectively,
while net income decreased $303,000 (4%) and $27,000, respectively, from the
comparative periods in 1998. The percentage decrease for net income is lower
than the percentage decrease for income before provision for taxes as a result
of Enviroplex's smaller contribution to consolidated earnings and an effective
tax rate which declined from 39.4% in 1998 to 39.0% in 1999. Earnings per share
for the three and nine months ending September 30, 1999 increased to $0.52 per
share and $1.34 per share, respectively, on fewer outstanding shares.
LIQUIDITY AND CAPITAL RESOURCES
This section contains statements that constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. See the statement at the beginning of this Item for cautionary
information with respect to such forward-looking statements.
The Company's operations produced a positive cash flow for the nine
months ended September 30, 1999 of $42,339,000 as compared to $25,402,000 for
the year earlier period. During 1999, the primary uses of cash have been to
purchase additional rental inventory to satisfy customer requirements, to
repurchase shares of the Company's common stock on the open market, and to pay
dividends to the Company's shareholders.
The Company had a total liabilities to equity ratio of 2.12 to 1 and
1.64 to 1 as of September 30, 1999 and December 31, 1998, respectively. The debt
(notes payable) to equity ratios were 1.16 to 1 and 0.92 to 1 as of September
30, 1999 and December 31, 1998, respectively. Both ratios have increased since
December 31, 1998 as a result of the Company's stock repurchase program.
The Company has made purchases of shares of its common stock from time
to time in the over-the-counter market (NASDAQ) and/or through privately
negotiated, large block transactions under an authorization of the Board of
Directors. Shares repurchased by the Company are cancelled and returned to the
status of authorized but unissued stock. During the nine months ended September
30, 1999, the Company repurchased 1,399,860 shares of its outstanding common
stock for an aggregate purchase price of $25,485,584 (or an average price of
$18.21 per share). As of November 2, 1999, 733,640 shares remain authorized for
repurchase.
The Company believes that its needs for working capital and capital
expenditures through 1999 and beyond will be met adequately by cash flow and
bank borrowings.
7
<PAGE> 9
MARKET RISK
This section contains statements that constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. See the statement at the beginning of this Item for cautionary
information with respect to such forward-looking statements.
The Company currently has no material derivative financial instruments
that expose the Company to significant market risk. The Company is exposed to
cash flow and fair value risk due to changes in interest rates with respect to
its notes payable. As of September 30, 1999, the Company believes that the
carrying amounts of its financial instruments (cash and notes payable)
approximate fair value.
YEAR 2000
This section contains statements that constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. See the statement at the beginning of this Item for cautionary
information with respect to such forward-looking statements.
The "Year 2000" issue is the result of computer programs using two
digits rather than four to determine the applicable year. This could affect
date-sensitive calculations that treat "00" as the year 1900 rather than the
year 2000. An assessment of the Company's exposure related to the Year 2000
issues has been completed and it is not expected to have a significant impact on
the Company.
The Company initiated a number of major system projects in 1997 and 1998
to upgrade core computer hardware, networking and software systems. These
projects are replacing existing systems as opposed to simply fixing Year 2000
problems. Most of these projects have been completed and are operational; the
balance is expected to be operational by November 1999. Capitalized expenditures
for this process totaled $1,800,000 for the period January 1, 1997 to September
30, 1999 for external labor, hardware and software costs. This amount includes
the cost of new software applications installed as a result of strategic
replacement projects. Prior to December 31, 1998, the Company did not separately
track the internal costs incurred related to Year 2000 issues or the system
conversions described above. Such internal costs are principally the related
payroll costs for its information systems personnel and are not necessarily
considered incremental costs to the Company. Effective January 1, 1999, the
Company began to track and capitalize these internal costs in accordance with
Statement of Position 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use." The Company estimates approximately
$200,000 for completion of its system upgrades for the remainder of 1999. Future
costs will be funded from operating cash flow.
The Company does not significantly rely on "embedded technology" in its
critical processes. Embedded technology, which means microprocessor-controlled
devices as opposed to multi-purpose computers, does control some building and
security operations, such as electric power management, ventilation, and
building access. Building facilities have been evaluated, and the Company
believes all essential systems using embedded technology are Year 2000 ready.
The electronics test and measurement rental equipment has been evaluated, and it
appears only minor quantities of equipment pose a Year 2000 problem. If deemed
important, some equipment may be upgraded. The Company asks its customers to
seek definitive Year 2000 compliance guidance directly from the equipment
manufacturers.
The Company cannot predict the likelihood of a significant disruption
of its customers' or suppliers' businesses or the economy as a whole, either of
which could have a material adverse impact on the Company. However, because the
markets for the Company's products are comprised of numerous customers with a
variety of sizes and levels of sophistication, the noncompliance with Year 2000
of any one would not be expected to have a detrimental impact on the Company's
financial position or results of
8
<PAGE> 10
operations. As a normal course of business, the Company seeks to maintain
multiple suppliers where possible. The Company continues to communicate with
vendors, customers, suppliers, service providers, and government agencies to
monitor their compliance.
The Company presently believes that its Year 2000 exposures will not
present a material adverse risk to the Company's future consolidated results of
operations, liquidity, or capital resources. However, if all systems are not
completed in a timely manner, or the level of timely compliance by key suppliers
or service providers is not sufficient, the Year 2000 issue could have a
material adverse effect on the Company's operations. This includes, but is not
limited to, delays of equipment shipments resulting in loss of revenues,
increased operating costs, loss of customers and suppliers, or other significant
disruptions to the Company's business.
The Company's contingency plan includes (1) all critical computer
operating and financial data will be backed-up and printed at key dates to
provide the basis, if necessary, for a manual system, (2) in the event a
significant number of customers are unable to issue payments, the Company has
sufficient liquidity with its existing line of credit to function adequately,
and (3) the Company continues to look for multiple suppliers and is also
evaluating power and communication alternatives in the event of a loss of
service. The contingency plan is enhanced by the fact that existing management
has been in place since before computer systems were used.
PART II OTHER INFORMATION
ITEM 3. OTHER INFORMATION
On September 2, 1999, the Company declared a quarterly dividend on its
Common Stock; the dividend was $0.12 per share. Subject to its continued
profitability and favorable cash flow, the Company intends to continue the
payment of quarterly dividends.
ITEM 4. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
<TABLE>
<CAPTION>
NUMBER DESCRIPTION METHOD OF FILING
------ ----------- ----------------
<S> <C> <C>
4.1 $5,000,000 Committed Credit Facility Filed herewith.
</TABLE>
(b) Reports on Form 8-K.
No reports on form 8-K have been filed during the quarter for which
this report is filed.
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: November 2, 1999 MCGRATH RENTCORP
by: /s/ THOMAS J. SAUER
---------------------------
Thomas J. Sauer
Vice President and Chief
Financial Officer (Chief
Accounting Officer)
9
<PAGE> 11
Exhibit Index
<TABLE>
<CAPTION>
No. Description
---- -----------
<S> <C>
4.1 $5,000,000 Committed Credit Facility
27 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 4.1
September 1, 1999
Mr. Thomas J. Sauer
Vice President and Chief Financial Officer
McGrath RentCorp
5700 Las Positas Road
Livermore, CA 94550
Re: $5,000,000.00 Committed Credit Facility
Dear Mr Sauer:
Union Bank of California, N.A. ("Bank") is pleased to offer McGrath RentCorp, a
California corporation ("Borrower") a committed credit facility ("Facility")
under which the Bank will make advances to the Borrower from time to time up to
and including June 29, 2000, not to exceed at any time the maximum principal
amount of Five Million Dollars ($5,000,000), to be governed by the terms of the
enclosed Credit Line Note ("Credit Line Note") in favor of Bank, and subject to
the conditions and agreements set forth below.
1. This Facility is made available only in connection with Borrower's use of the
Bank's sweep service for management of its checking account balances ("Sweep
Service"). Therefore, this Facility shall terminate, if not earlier terminated,
on the date Borrower ceases to continue as a Sweep Service customer. Upon such
termination Bank shall have no further obligation to fund advances under this
Facility, and all amounts owing under the Credit Line Note shall become
immediately due and payable.
2. As provided in the Credit Line Note, the occurrence of an Event of Default
under the Multibank Agreement shall be a default under this Facility. The term
"Multibank Agreement" as used herein means that certain Amended and Restated
Credit Agreement dated as of June 30, 1999, by and among Borrower, Bank, Fleet
Bank, N.A. and Bank of America, National Trust & Savings Association, and shall
include any amendments thereto as are consented to by Bank. Each capitalized
term not otherwise defined herein shall have the meaning set forth in the
Multibank Agreement.
3. Borrower shall comply with, and repeats as if fully set forth herein as of
the date hereof, all of the representations, covenants and obligations of
Borrower set forth under Articles 6, 7, 8 and 11 (and including any definitions
and related provisions) of the Multibank Agreement. In the event the Multibank
Agreement terminates or expires prior to the termination or expiration of this
Facility the foregoing representations, covenants and obligations of Borrower
shall nevertheless survive as between Borrower and Bank with respect to this
Facility and shall continue in effect until this Facility terminates or expires.
No amendment or waiver of any provision of the Multibank Agreement after the
date hereof shall be effective with respect to this Facility unless the Bank
consents thereto in writing.
4. Borrower acknowledges that any amount outstanding under the Credit Line Note
is included within the definition of "Debt" and "Outside Debt" under the
Multibank Agreement.
5. Borrower shall pay to Bank a non-refundable commitment fee for this Facility
for the period of time during which this Facility is available. Such fee shall
be payable in arrears in quarterly installments on the last day of each March,
June, September, and December, and on the last day this Facility is available,
to be computed at the rate per annum equal to 0.125% on the average unused
amount of the Facility during such period, on the basis of a 360 day year.
6. This Facility letter will be governed by the laws of the State of California.
7. Borrower has an existing committed credit facility of Four Million Dollars
($4,000,000) evidenced by a letter agreement and credit line note, both dated as
of June 30, 1999 ("Existing Facility"). If this offer of a $5,000,000 Facility
is accepted by the Borrower and becomes effective pursuant to the terms of this
Facility letter, the Facility will replace the Existing Facility, in which case
the Existing Facility shall have no further force and effect as of the Effective
Date of the Facility. If the Existing Facility is so replaced, all unpaid
principal, interest, commitment fees, and any other amounts accrued and
outstanding under the Existing Facility will for all purposes
<PAGE> 2
be deemed to be obligations under, and payable at the times specified in, this
Facility letter and the Credit Line Note.
Enclosed is the original Credit Line Note and a copy of this Facility letter
together with an Authorization to Pay Proceeds of Note and Loan Disbursement
Instructions, and any other contract, instrument or document Bank requires to be
executed and delivered in connection with this Facility (each a "Loan
Document"). The Borrower's executing the Loan Documents and returning them to
Bank together with an appropriate corporate resolution and an incumbency
certificate (if necessary) acceptable to Bank constitutes its agreement to the
terms and conditions of this Facility.
BORROWER AND BANK HEREBY WAIVE ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND,
ACTION OR CAUSE OF ACTION ARISING UNDER THIS FACILITY LETTER, THE CREDIT LINE
NOTE OR ANY OTHER LOAN DOCUMENT OR IN ANY WAY CONNECTED WITH OR RELATED OR
INCIDENTAL HERETO OR THERETO, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER
ARISING, AND WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE; AND ANY SUCH
CLAIM, DEMAND ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT
A JURY. BORROWER OR BANK MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS
PARAGRAPH WITH ANY COURT AS WRITTEN EVIDENCE OF THIS CONSENT OF BORROWER AND
BANK TO WAIVE THEIR RIGHT TO TRIAL BY JURY.
This offer expires on September 10, 1999, unless the executed Loan Documents and
the appropriate corporate resolution and incumbency certificate (if necessary)
are returned to the Bank by that date. If the Facility has not become effective
by September 10, 1999, this Facility letter and the Credit Line Note shall
terminate and be of no further force and effect on such date. The Existing
Facility shall remain in full force and effect in accordance with its terms
unless and until the Facility becomes effective in accordance with this Facility
Letter.
We look forward to continuing to serve you.
Yours truly,
UNION BANK OF CALIFORNIA, N.A.
By:
-----------------------------
Robert J. Vernagallo
Vice President
ACCEPTED AND AGREED:
MCGRATH RENTCORP,
a California Corporation
By:
-----------------------------
Thomas J. Sauer
Vice President and Chief Financial Officer
Date:
-----------------------------
<PAGE> 3
CREDIT LINE NOTE
<TABLE>
<S> <C> <C>
==============================================================================================
Borrower Name
MCGRATH RENTCORP, a California corporation
- ---------------------------------------------------- ------------------- ---------------------
Borrower Address Office Loan Number
5700 Las Positas Road
Livermore, CA 94550 ------------------------- ---------------
Maturity Date Amount
June 29, 2000 $5,000,000
==================================================== ========================= ===============
</TABLE>
$5,000,000 Effective as of , 1999
--------------------
FOR VALUE RECEIVED, on June 29, 2000, 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), or so much thereof as is
disbursed, together with interest on the balance of such principal sum from time
to time outstanding, at a per annum rate equal to the Reference Rate, such per
annum rate to change as and when the Reference Rate shall change. Debtor may
borrow, repay and reborrow under this note.
As used herein, the term "Reference Rate" shall mean the rate announced by Bank
from time to time at its corporate headquarters as 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. All computations of interest under this note
shall be made on the basis of a year of 360 days, for actual days elapsed.
1. PAYMENTS.
1.1 INTEREST PAYMENTS. Debtor shall pay interest on the last day of each
month commencing on the first such date which occurs after the date of this
note. Should interest not be so paid, it shall become a part of the principal
and thereafter bear interest as herein provided.
1.2 PRINCIPAL PAYMENTS. All principal outstanding on this note is due
and payable on the earlier of June 29, 2000 or any accelerated maturity date.
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.
2. 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 two percent
(2%) in excess of the interest rate specified in the initial paragraph of this
note, calculated from the date of default until all amounts payable under this
note are paid in full.
3. DEFAULT AND ACCELERATION OF TIME FOR PAYMENT. Default shall include, but not
be limited to, any of the following: (a) the failure of Debtor to make any
payment required under this note when due; (b) any breach misrepresentation or
other default by Debtor, any guarantor, co-maker endorser, or any person or
entity other than Debtor providing security for this note (hereinafter
individually and collectively referred to as the "Obligor") under any security
agreement, guaranty or other agreement between Bank and any Obligor; (c) the
insolvency of any Obligor or the failure of any Obligor generally to pay such
Obligor's debts as such debts become due; (d) the commencement as to any Obligor
of any voluntary or involuntary proceeding under any laws relating to
bankruptcy, insolvency, reorganization, arrangement, debt adjustment or debtor
relief; (e) the assignment by any Obligor for the benefit of such Obligor's
creditors; (f), the appointment, or commencement of any proceedings for the
appointment, of a receiver, trustee, custodian or similar official for all or
substantially all of any Obligor's property; (g) the commencement of any
proceeding for the dissolution or liquidation of any Obligor; (h) the
termination of existence or death of any Obligor; (i) the failure of any Obligor
to comply with any order, judgment, injunction, decree, writ or
<PAGE> 4
demand of any court or other public authority; (j) the filing or recording
against any Obligor, or the property of any Obligor of any notice of levy,
notice to withhold, or other legal process for taxes other than property taxes;
(k) the default by any Obligor liable for amounts owed hereunder on any
obligation concerning the borrowing of money; (i) the issuance against any
Obligor or the property of any Obligor, of any writ of attachment, execution or
other; judicial lien; (m) the deterioration of the financial condition of any
Obligor which results in Bank deeming itself, in good faith, insecure, (n)
Debtor's failure to comply with any provision of the Multibank Agreement (as
defined in the facility letter between Debtor and Bank executed in connection
herewith), or (o) Debtor's failure to comply with any provision of the facility
letter between Debtor and Bank executed in connection 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 d, e, f,
g, or n all principal and interest shall automatically become immediately due
and payable.
4. 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, 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. If this note is signed by more
than one party, the term 'Debtor" includes each of the undersigned and any
successors in interest thereof; all of whose liability shall be joint and
several. 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 endorser of this note, including their successors and assigns,
hereby consents to the jurisdiction of any competent court within the State of
California, except as provided in any alternative dispute resolution agreement
executed between Debtor and Bank, and consents to service of process by any
means authorized by said state 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 is subject
to the terms of the facility letter between Debtor and Bank executed in
connection 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.
This note supersedes and replaces that certain credit line note dated June 30,
1999 in the maximum amount of Four Million Dollars ($4,000,000), executed by
Borrower in favor of Bank (the "Previous Note"). As of the effective date of
this note, all unpaid principal, interest and other amounts accrued and
outstanding under the Previous Note shall for all purposes be and constitute
unpaid amounts outstanding under, and evidenced by, this note.
MCGRATH RENTCORP,
a California corporation
By:
-----------------------------
Thomas J. Sauer
Vice President and Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM McGRATH
RENTCORP FORM 10-Q FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 439
<SECURITIES> 0
<RECEIVABLES> 23,978
<ALLOWANCES> (650)
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 360,732<F1>
<DEPRECIATION> (96,640)<F2>
<TOTAL-ASSETS> 292,889
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 7,434
<OTHER-SE> 86,356
<TOTAL-LIABILITY-AND-EQUITY> 292,889
<SALES> 97,032
<TOTAL-REVENUES> 97,032
<CGS> 50,256
<TOTAL-COSTS> 50,256
<OTHER-EXPENSES> 12,212
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,818
<INCOME-PRETAX> 29,746
<INCOME-TAX> 11,601
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,003<F3>
<EPS-BASIC> 1.34
<EPS-DILUTED> 1.32
<FN>
<F1>Includes rental equipment, Land, Buildings, Land Improvements, Furniture and
Equipment.
<F2>Accumulated depreciation related to PP&E footnote above.
<F3>Net income includes reduction of minority interest in income of subsidiary.
</FN>
</TABLE>
