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McGRATH RENTCORP
5700 LAS POSITAS ROAD, LIVERMORE, CA 94550
(Address of principal executive offices)
FORM 10-Q/A
(Amendment No. 1)
ADDITIONAL INFORMATION
THE FOLLOWING AMENDS McGRATH RENTCORP'S FORM 10-Q FOR THE THREE MONTHS ENDED
MARCH 31, 2000 IN ITS ENTIRETY WHICH WAS FILED MAY 12, 2000 AT 1:05 PM EASTERN
TIME. DUE TO AN ERROR BY THE FINANCIAL FILING AGENT, THE 10-Q PREVIOUSLY FILED
PRESENTED INFORMATION NOT RELATED TO McGRATH RENTCORP.
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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
------------------------------------------
FORM 10-Q/A
(Amendment No. 1)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED MARCH 31, 2000 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 May 10, 2000, 12,303,882 shares of Registrant's Common Stock were
outstanding.
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<PAGE> 3
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MCGRATH RENTCORP
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
THREE MONTHS ENDED
MARCH 31,
-----------------------
(in thousands, except per share amounts) 2000 1999
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
REVENUES
Rental $ 21,381 $ 19,059
Rental Related Services 3,322 2,434
-------- --------
Rental Operations 24,703 21,493
Sales 6,693 6,863
Other 247 218
-------- --------
Total Revenues 31,643 28,574
-------- --------
COSTS AND EXPENSES
Direct Costs of Rental Operations
Depreciation 5,356 4,666
Rental Related Services 1,732 1,338
Other 3,781 3,133
-------- --------
Total Direct Costs of Rental Operations 10,869 9,137
Costs of Sales 4,821 4,860
-------- --------
Total Costs 15,690 13,997
-------- --------
Gross Margin 15,953 14,577
Selling and Administrative 4,695 4,199
-------- --------
Income from Operations 11,258 10,378
Interest 1,944 1,516
-------- --------
Income Before Provision for Income Taxes 9,314 8,862
Provision for Income Taxes 3,632 3,478
-------- --------
Income Before Minority Interest 5,682 5,384
Minority Interest in Income (Loss) of Subsidiary (21) (36)
-------- --------
Income before Effect of Accounting Change 5,703 5,420
Cumulative Effect of Accounting Change, Net of tax benefit of $833 -- (1,367)
-------- --------
Net Income $ 5,703 $ 4,053
======== ========
Earnings Per Share:
Basic
Income before Effect of Accounting Change $ 0.46 $ 0.39
Cumulative Effect of Accounting Change, net of tax -- (0.10)
-------- --------
Net Income $ 0.46 $ 0.29
======== ========
Diluted
Income before Effect of Accounting Change $ 0.45 $ 0.39
Cumulative Effect of Accounting Change, net of tax -- (0.10)
-------- --------
Net Income $ 0.45 $ 0.29
======== ========
Shares Used in Per Share Calculation:
Basic 12,500 13,820
Diluted 12,593 13,991
- --------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
1
<PAGE> 4
MCGRATH RENTCORP
CONSOLIDATED BALANCE SHEETS
(unaudited)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
MARCH 31, DECEMBER 31,
--------- ------------
(in thousands) 2000 1999
- ---------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash $ 757 $ 490
Accounts Receivable, less allowance for doubtful
accounts of $650 in 2000 and 1999 22,946 25,095
Rental Equipment, at cost:
Relocatable Modular Offices 241,950 238,449
Electronic Test Instruments 78,449 72,832
--------- ---------
320,399 311,281
Less Accumulated Depreciation (97,704) (94,103)
--------- ---------
Rental Equipment, net 222,695 217,178
--------- ---------
Land, at cost 19,303 19,303
Buildings, Land Improvements, Equipment and Furniture,
at cost, less accumulated depreciation of $5,562
in 2000 and $5,116 in 1999 31,627 31,668
Prepaid Expenses and Other Assets 4,495 3,988
--------- ---------
Total Assets $ 301,823 $ 297,722
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Notes Payable $ 114,000 $ 110,300
Accounts Payable and Accrued Liabilities 25,920 24,811
Deferred Income 8,501 9,511
Minority Interest in Subsidiary 2,814 2,836
Deferred Income Taxes 55,564 54,861
--------- ---------
Total Liabilities 206,799 202,319
--------- ---------
Shareholders' Equity:
Common Stock, no par value -
Authorized -- 40,000 shares
Outstanding -- 12,304 shares in 2000 and
12,546 shares in 1999 8,588 8,755
Retained Earnings 86,436 86,648
--------- ---------
Total Shareholders' Equity 95,024 95,403
--------- ---------
Total Liabilities and Shareholders' Equity $ 301,823 $ 297,722
========= =========
- ---------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
2
<PAGE> 5
MCGRATH RENTCORP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED
MARCH 31,
- -----------------------------------------------------------------------------------------------------------------
(in thousands) 2000 1999
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 5,703 $ 4,053
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
Depreciation and Amortization 5,802 5,059
Cumulative Effect of Accounting Change, net of tax -- 1,367
Gain on Sale of Rental Equipment (1,426) (1,313)
Change In:
Accounts Receivable 2,150 6,094
Prepaid Expenses and Other Assets (507) 1,009
Accounts Payable and Accrued Liabilities 871 (3,056)
Deferred Income (1,010) (2,901)
Deferred Income Taxes 703 3,479
-------- --------
Net Cash Provided by Operating Activities 12,286 13,791
-------- --------
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of Rental Equipment (13,315) (5,901)
Purchase of Land, Buildings, Land Improvements, Equipment and Furniture (405) (724)
Proceeds from Sale of Rental Equipment 3,866 3,567
-------- --------
Net Cash Used in Investing Activities (9,854) (3,058)
-------- --------
CASH FLOW FROM FINANCING ACTIVITIES:
Net Borrowings Under Notes Payable 3,700 4,450
Proceeds from the Exercise of Stock Options 19 --
Repurchase of Common Stock (4,379) (9,894)
Payment of Dividends (1,505) (1,397)
-------- --------
Net Cash Used in Financing Activities (2,165) (6,841)
-------- --------
Net Increase in Cash 267 3,892
Cash Balance, Beginning of Period 490 857
-------- --------
Cash Balance, End of Period $ 757 $ 4,749
======== ========
Interest Paid During the Period $ 2,400 $ 2,075
======== ========
Income Taxes Paid During the Period $ 2,929 $ (2)
======== ========
Dividends Declared but not yet Paid $ 1,723 $ 1,616
======== ========
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</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE> 6
MCGRATH RENTCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
NOTE 1. CONSOLIDATED FINANCIAL INFORMATION
The consolidated financial information for the three months ended March
31, 2000 has not been audited, but in the opinion of management, all adjustments
(consisting of only normal recurring accruals, consolidation and eliminating
entries) necessary for the fair presentation of the consolidated results of
operations, financial position, and cash flows of McGrath RentCorp (the
"Company") have been made. The consolidated results of the three months ended
March 31, 2000 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. 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 three
months ended March 31, 2000 and 1999 for the Company's reportable segments is
shown in the following table:
4
<PAGE> 7
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
(in thousands) MODULARS(1) ELECTRONICS(2) ENVIROPLEX CONSOLIDATED
----------- -------------- ---------- ------------
<S> <C> <C> <C> <C>
THREE MONTHS ENDED MARCH 31,
2000
Rental Operation Revenues $ 16,805 $ 7,898 $ -- $ 24,703
Sales and Other Revenues 3,089 2,405 1,446 6,940
Total Revenues 19,894 10,303 1,446 31,643
Depreciation on Rental Equipment 2,838 2,518 -- 5,356
Interest Expense 1,501 526 (83) 1,944
Income before Income Taxes 5,563 3,913 (162) 9,314
Rental Equipment Acquisitions 5,415 7,900 -- 13,315
Accounts Receivable, net (period end) 10,246 9,102 3,598 22,946
Rental Equipment, at cost (period end) 241,950 78,449 -- 320,399
1999
Rental Operation Revenues $ 14,925 $ 6,568 $ -- $ 21,493
Sales and Other Revenues 2,688 2,395 1,998 7,081
Total Revenues 17,613 8,963 1,998 28,574
Depreciation on Rental Equipment 2,498 2,168 -- 4,666
Interest Expense 1,161 399 (44) 1,516
Income before Income Taxes 5,868 3,210 (216) 8,862
Rental Equipment Acquisitions 3,465 2,436 -- 5,901
Accounts Receivable, net (period end) 6,554 7,379 1,784 15,717
Rental Equipment, at cost (period end) 218,335 66,686 -- 285,021
- --------------------------------------------------------------------------------------------------------------
</TABLE>
1 Operates under the trade name Mobile Modular Management Corporation
2 Operates under the trade name McGrath-RenTelco
5
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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 MONTHS ENDED MARCH 31, 2000 AND 1999
The Company's core rental businesses both continue to grow steadily.
Rental revenues for the three months ended March 31, 2000 increased $2,322,000
(12%) over the comparative period in 1999. Mobile Modular Management Corporation
("MMMC") contributed $1,038,0000 and McGrath-RenTelco contributed $1,284,000 of
the three-month increase. MMMC's rental revenues increased as a result of having
an average of $18,424,000 more equipment on rent compared to a year earlier even
though the average monthly yield for all modular equipment has declined from
1.94% in 1999 to 1.90% in 2000. Modular average utilization for the three months
ended March 31, 2000, excluding new equipment inventory, was 80.4% compared to
82.2% for the same period in 1999. McGrath-RenTelco's rental revenue increase
can be attributed to strong communication equipment rental activity, which
resulted in an average of $7,958,000 more equipment on rent compared to a year
earlier. Additionally, the average monthly yield for all electronics equipment
increased from 3.22% in 1999 to 3.40% in 2000. Electronics average utilization
for the three months ended March 31, 2000 was 56.3% compared to 51.3% for the
same period in 1999.
Rental related services revenues for the three months ended March 31,
2000 increased $888,000 (36%) over the comparative period in 1999. One large
project with extensive modification and site related work accounted for 46% of
the increase. Gross margin on rental related services for the three-month period
increased from 45% in 1999 to 48% in 2000.
Sales for the three months ended March 31, 2000 declined $170,000 (2%)
as compared to the same period in 1999. Consolidated gross margin on sales
declined slightly for the three-month period from 29% in 1999 to 28% in 2000.
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 March 31, 2000 and 1999 was
$15,397,000 and $4,043,000, respectively. Backlog is not significant in MMMC's
modular business or in McGrath-RenTelco's electronics business.
Depreciation on rental equipment for the three months ended March 31,
2000 increased $690,000 (15%) over the comparative period in 1999 due to higher
amounts of rental equipment. For the three months ended March 31, 2000, average
modular rental equipment, at cost, increased $22,741,000 (10%) and average
electronics rental equipment, at cost, increased $8,224,000 (12%) over the 1999
comparative period. Other direct costs of operations for the three months ended
March 31, 2000 increased $648,000 (21%) over the same period in 1999 primarily
due to increased maintenance and repair expenses related to the modular fleet.
6
<PAGE> 9
Selling and administrative expenses for the three months ended March
31, 2000 increased $496,000 (12%) over the comparative period in 1999 primarily
due to higher personnel and benefit costs, including performance and incentive
bonuses.
Interest expense for the three months ended March 31, 2000 increased
$428,000 (28%) over the 1999 comparative period as a result of a higher average
borrowing level and a higher average interest rate in 2000. The average debt
increase resulted from rental equipment purchases, repurchases of the Company's
common stock and dividend payments made during the last twelve months.
Income before provision for taxes for the three months ended March 31,
2000 increased $452,000 (5%) to $9,314,000 while net income increased $1,650,000
(41%) to $5,703,000 or $0.45 per diluted share over the comparative period in
1999. The higher percentage increase in net income is due to the impact of a
one-time charge of $1,367,000 recognized in the first quarter of 1999
representing the cumulative effect of an accounting change, net of tax.
Excluding the impact of this one-time charge, net income for the three months
ended March 31, 1999 was $5,420,000 or $0.39 per diluted share resulting in
comparative earnings increasing 5% and comparative earnings per share increasing
15% in 2000.
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 three
months ended March 31, 2000 of $12,286,000 as compared to $13,791,000 for the
year earlier period. During 2000, 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 2.18 to 1 and
2.12 to 1 as of March 31, 2000 and December 31, 1999, respectively. The debt
(notes payable) to equity ratios were 1.20 to 1 and 1.16 to 1 as of March 31,
2000 and December 31, 1999, respectively. Both ratios have increased since
December 31, 1999 partially 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 three months ended March 31,
2000, the Company repurchased 265,360 shares of its outstanding common stock for
an aggregate purchase price of $4,379,000 (or an average price of $16.50 per
share). As of May 4, 2000, 975,500 shares remain authorized for repurchase.
The Company believes that its needs for working capital and capital
expenditures through 2000 and beyond will be adequately met by cash flow and
bank borrowings.
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 March 31, 2000, the Company believes that the carrying
amounts of its financial instruments (cash and notes payable) approximate fair
value.
7
<PAGE> 10
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 Company experienced no disruption in operations due to transition to
the Year 2000. A number of major system projects were initiated in 1997, 1998
and 1999 to upgrade core computer hardware, networking and software systems.
These projects replaced existing systems as opposed to simply fixing Year 2000
problems; they are now complete and operational. There are no known trends or
deferred capital spending related to Year 2000 issues that are likely to affect
the Company's results of operations.
PART II OTHER INFORMATION
ITEM 3. OTHER INFORMATION
On March 17, 2000, the Company declared a quarterly dividend on its
Common Stock; the dividend was $0.14 per share. Subject to its continued
profitability and favorable cash flow, the Company intends to continue the
payment of quarterly dividends.
ITEM 4. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. No exhibits included.
(b) Reports on Form 8-K.
No reports on Form 8-K have been filed during the quarter for which
this report is filed.
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: May 10, 2000 MCGRATH RENTCORP
By: /s/ Thomas J. Sauer
------------------------------
Thomas J. Sauer
Vice President and Chief
Financial Officer (Chief
Accounting Officer)
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EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
27.1 Financial Data Schedule.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM McGRATH
RENTCORP FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2000 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 757
<SECURITIES> 0
<RECEIVABLES> 23,596
<ALLOWANCES> (650)
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 376,891<F1>
<DEPRECIATION> (103,266)<F2>
<TOTAL-ASSETS> 273,625
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 8,588
<OTHER-SE> 86,436
<TOTAL-LIABILITY-AND-EQUITY> 301,823
<SALES> 31,643
<TOTAL-REVENUES> 31,643
<CGS> 15,690
<TOTAL-COSTS> 15,690
<OTHER-EXPENSES> 4,695
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,944
<INCOME-PRETAX> 9,314
<INCOME-TAX> 3,632
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,703<F3>
<EPS-BASIC> 0.46
<EPS-DILUTED> 0.45
<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>
