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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999 COMMISSION FILE NUMBER 0-13292
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MCGRATH RENTCORP
(Exact name of registrant as specified in its Charter)
<TABLE>
<S> <C>
CALIFORNIA 94-2579843
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
</TABLE>
5700 LAS POSITAS ROAD, LIVERMORE, CA 94550
(Address of principal executive offices)
Registrant's telephone number: (925) 606-9200
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Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Title of each class Name of each exchange on which registered
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<S> <C>
NONE NONE
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
Title of Class
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COMMON STOCK
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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. [X]
State the aggregate market value of voting stock, held by nonaffiliates
of the registrant: $142,890,197 as of March 17, 2000.
At March 17, 2000, 12,328,382 shares of Registrant's Common Stock were
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
McGrath RentCorp's definitive Proxy Statement with respect to its Annual
Shareholders' Meeting to be held May 31, 2000, 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.
Exhibit index appears on page 35.
<PAGE> 2
PART I
ITEM 1. BUSINESS.
GENERAL
McGrath RentCorp ("MGRC") is a California corporation organized in 1979.
McGrath RentCorp and its majority owned subsidiary, Enviroplex, Inc.
("Enviroplex"), collectively referred to herein as the "Company", manufactures,
rents, and sells relocatable modular offices and rents and sells communications,
fiber optic and electronic test equipment with related accessories primarily in
California and Texas. The Company's corporate offices are located in Livermore,
California. In addition to the corporate offices, certain branch functions are
conducted from this facility.
Under the trade name "Mobile Modular Management Corporation" ("MMMC"),
the Company rents and sells modular equipment and related accessories to fulfill
customers' temporary space needs. These units are used as temporary offices
adjacent to existing facilities, and are used as sales offices, construction
field offices, classrooms and for a variety of other purposes. MMMC purchases
the modulars from various manufacturers who build them to MMMC's design
specifications. MMMC operates from two branch offices in California and one in
Texas. Although MMMC's primary emphasis is on rentals, sales of modulars
routinely occur and can fluctuate quarter to quarter and from year to year
depending on customer demands and requirements. Rentals and sales to school
districts by MMMC represent a significant portion of MMMC's total revenues.
Under the trade name "McGrath-RenTelco", the Company rents and sells
electronic equipment from Livermore, California and Richardson, Texas.
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, communications, network
systems, industrial, research and aerospace companies. The majority of
McGrath-RenTelco's rental inventory consists of instruments manufactured by
Hewlett-Packard and Tektronix.
MGRC owns 73.2% of Enviroplex, a California corporation organized in
1991. Enviroplex manufactures portable classrooms built to the requirements of
the California Division of the State Architect ("DSA") and sells directly to
school districts. Enviroplex conducts its sales and manufacturing operations
from its facility located in Stockton, California. Since inception, MGRC has
assisted Enviroplex in a variety of corporate functions such as accounting,
human resources, facility improvements, and insurance. MGRC has not purchased
significant quantities of manufactured product from Enviroplex. Enviroplex sales
revenues were $11,150,000, $20,672,000, and $21,287,000 for 1999, 1998, and
1997, respectively.
The rental and sale of modulars to school districts for use as portable
classrooms, restroom buildings and administrative offices for kindergarten
through grade twelve (K-12) are a significant portion of the Company's revenues.
School business comprised approximately 34%, 45%, and 52% of the Company's
consolidated rental and sales revenues for 1999, 1998, and 1997 respectively.
Please see Note 8 to the Consolidated Financial Statements on page 29
for more information on the Company's business segments.
The Company has 364 employees, of whom 41 are primarily administrative
and executive personnel, and the remaining 323 are engaged in manufacturing or
rental operations. None of the employees are represented by unions. The
operations of the Company share common facilities, financing, senior management,
and operating and accounting systems which results in the efficient use of
overhead. Each product line has its own sales and technical personnel.
No single customer has accounted for more than 10% of the Company's
total revenues generated in any given year. The Company's 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.
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The Company operates with a marketing sense throughout. The Company is
constantly searching for ways to streamline its service and to raise the quality
of each relocatable office, classroom or instrument it rents, sells or
manufactures. The Company not only rents, sells and manufactures products, it
sells an old-fashioned idea: Paying attention to our customers pays off.
The Company's common stock is traded on the NASDAQ National Market
System under the symbol "MGRC".
This Annual Report on Form 10-K 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.
RELOCATABLE MODULAR OFFICES
DESCRIPTION
Modulars are designed for use as temporary office space and may be moved
from one location to another. Modulars vary from simple single-unit construction
site offices to attractive multi-modular facilities, complete with wood
exteriors and mansard roofs. The rental fleet includes a full range of styles
and sizes. The Company considers its modulars to be among the most attractive
and well designed available. The units are constructed with wood siding,
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.
MMMC purchases new modulars from various manufacturers who build to
MMMC's design specifications. None of the principal suppliers are affiliated
with the Company. During 1999, the Company purchased 51% of its modular product
from one manufacturer with multiple operations in several states. The Company
believes that the loss of its primary manufacturer of modulars would not have a
material adverse effect on its operations, however the Company could experience
higher prices and longer lead times for modular product until other
manufacturers increased their capacity.
MARKETING
The market for modulars is broad. Businesses which have a need for
additional space and have adjacent land or a parking lot are potential
customers. The Company's largest single demand is for temporary classrooms.
Management believes the demand for classrooms is caused by shifting and
fluctuating school populations, the lack of state funds for new construction,
the need for temporary classroom space during reconstruction of older schools
and, most recently, class size reduction (see "Classroom Rentals and Sales"
below). Other applications include sales offices, administrative offices for
health care facilities, universities and museums. Large multi-modular complexes
are used by manufacturing, entertainment, energy and utility companies, and
governmental agencies. The Company's branch offices, as well as the corporate
office, are housed in various sizes of modulars.
Since most of MMMC's customer requirements are to fill temporary space
needs, the Company's marketing emphasis is on rentals rather than sales. MMMC
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 a branch office, which itself is a
working example of a modular application.
Because service is a major competitive factor in the rental of modulars,
MMMC offers quick response to requests for information, assistance in the choice
of a suitable size and floor plan, rapid delivery and timely
2
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maintenance of its units, both prior to delivery of the unit and while it is on
rent. MMMC has sales and maintenance staffs trained in the Company's
understanding of excellence in service.
RENTALS
Rental periods range from one month to ten 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 MMMC.
The customer is responsible for the costs of insuring the unit,
transporting the unit to the site, preparation of the site, installation of the
unit, dismantle and return of the unit to one of MMMC's three inventory centers
and certain costs for customization. MMMC maintains the units in good working
order while on rent. Upon return, the units are refurbished for subsequent use.
Refurbishment work can include floor tile repairs, roof maintenance, cleaning,
painting and other cosmetic repairs.
At December 31, 1999, MMMC had 16,230 new or previously rented modulars
in its rental fleet with an aggregate original cost including accessories of
$238,449,000 or an average cost per unit of $14,700. Utilization is calculated
each month by dividing the cost of rental equipment on rent by the total cost of
rental equipment, excluding accessory equipment. At December 31, 1999, fleet
utilization was 78.1% and average fleet utilization during 1999 was 78.4%.
Excluding new equipment not previously rented, fleet utilization at December 31,
1999 was 80.2% and average fleet utilization during 1999 was 81.6%.
SALES
In addition to operating its rental fleet, MMMC sells modulars to
customers who have a permanent use for such units. These sales arise out of its
marketing efforts for the rental fleet. Such sales can be of either new units or
used units from the rental fleet, which permits an orderly turnover of older
units. During 1999, MMMC's largest sale of modulars was for new classrooms to a
school district for approximately $1,004,000. This sale represented
approximately 6% of MMMC's sales, 3% of the Company's consolidated sales, and
less than 1% of the Company's consolidated revenues.
MMMC provides limited 90-day warranties on used modulars and passes
through manufacturers' warranties on new units. Warranty costs have not been
significant to MMMC's operations to date, and MMMC attributes this to its
commitment to high quality standards and regular maintenance programs.
In addition to MMMC's sales, the Company's subsidiary, Enviroplex,
manufactures and sells portable classrooms to school districts in California
(see "Classroom Sales by Enviroplex" below).
COMPETITION
This section contains statements that constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. See "General" above for cautionary information with respect to such
forward-looking statements.
Competition in the rental and sale of relocatable modular offices is
intense. Many firms are engaged in the rental of modulars, and some have
substantially greater financial resources than MMMC. Significant competitive
factors in the rental business include availability, price, services,
reliability, appearance and functionality of the product. MMMC markets
high-quality, well constructed and attractive modulars. MMMC believes that part
of the strategy for modulars should be to create facilities and infrastructure
capabilities that its competitors cannot easily duplicate. The Company's
facilities and related infrastructure enable it to modify modulars efficiently
and cost effectively to meet its customers' needs. Management's goal is to be
more responsive at less expense. Management believes this strategy, together
with its emphasis on prompt and efficient customer service, gives MMMC a
competitive advantage. The Company is determined to offer quick response to
requests for information, experienced assistance for the first-time user, rapid
delivery and timely maintenance of its units. The efficiency and responsiveness
continues to be enhanced by the Company's computer based relational database
programs that control its internal operations. MMMC anticipates strong
competition in the future and believes the process of improvement is ongoing.
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CLASSROOM SALES BY ENVIROPLEX
This section contains statements that constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. See "General" above for cautionary information with respect to such
forward-looking statements.
Enviroplex manufactures moment-resistant, rigid steel framed portable
classrooms built to the requirements of the DSA and sells directly to school
districts. The moment-resistant, rigid steel framed classroom is engineered to
have the structural columns support the weight of the building. This offers the
customer greater design flexibility as to overall classroom size and the
placement of doors and windows. Enviroplex fabricates most of the structural
steel component parts using only mill certified sheet steel. Enviroplex's
standard designs have been engineered for strength and durability using lighter
weight steel. Customers are offered a wide variety of the DSA pre-approved
classroom sizes and features with market established pricing which could save
them valuable time on their classroom project. Additional customization features
include restrooms, computer lab setups, interior offices, cabinetwork and
kitchen facilities. During 1999, Enviroplex's largest sale was for $1,596,000 of
new classrooms to a school district. This sale represented 14% of Enviroplex's
sales, 4% of the Company's consolidated sales and 1% of the Company's
consolidated revenues.
Competition in the manufacture of DSA classrooms is broad, intense, and
highly competitive. Several manufacturers have greater capacity for production
and have been in business longer than Enviroplex. Larger manufacturers with
greater capacity have a larger appetite for the standard classroom while
Enviroplex caters to schools' requirements for more customized classrooms. The
remaining manufacturers are of a similar size or smaller and do not have the
production capacity nor the financial resources of Enviroplex.
Enviroplex manufactures solid, attractive classrooms. Through value
engineering, Enviroplex has simplified its manufacturing process by changing
materials, determining which components are made in-house versus purchased,
reducing the number of components and increasing the production efficiency at an
overall lower cost without sacrificing quality. Enviroplex's strategy is to
improve the quality and flexibility of its product. Enviroplex understands that
its customers want more than a quality classroom, competitively priced and
delivered on time, and believes its niche is providing customers with choices in
design flexibility and customization. Management believes this strategy gives
Enviroplex a competitive edge.
Enviroplex provides a one-year warranty on equipment manufactured.
Warranty costs have not been significant to Enviroplex's operations to date
which can be attributed to Enviroplex's dedication to manufacturing and
delivering a quality, problem-free product.
Enviroplex purchases raw materials from a variety of suppliers. Each
component part has multiple suppliers. Enviroplex believes the loss of any one
of these suppliers would not have a material adverse affect on its operations.
CLASSROOM RENTALS AND SALES
The rental and sales of modulars to public school districts for use as
portable classrooms, restroom buildings and administrative offices for
kindergarten through grade twelve (K-12) are a significant portion of the
Company's revenues. The following table shows the approximate percentages
schools are of the Company's modular rental and sales revenues, and of its
consolidated rental and sales revenues for the past five years:
SCHOOLS AS A PERCENTAGE OF RENTAL AND SALES REVENUES
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Percentage of: 1999 1998 1997 1996 1995
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Modular Rental Revenues 48% 44% 45% 40% 34%
Modular Sales Revenues 52% 78% 74% 54% 38%
Consolidated Rental and Sales Revenues 34% 45% 52% 37% 27%
</TABLE>
The increased sales shown for 1998, 1997 and 1996 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 created a great demand for both purchasing and renting classroom
buildings.
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In California (where most of the Company's rentals to public school
districts have occurred), school districts are permitted to purchase only
portable classrooms built to the requirements of the DSA. However, school
districts may rent classrooms that meet either the Department of Housing ("DOH")
or the 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 almost
all new classrooms have been built to the DSA requirements. In 1988, California
adopted a law which limited the term for which school districts may rent
portable classrooms built to DOH standards to three years (under a waiver
process), and which also required the school board to indemnify the State
against any claims arising out of the use of such classrooms. In 1993, a new law
went into effect that allowed school districts which 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 were restricted to the
three year limitation as before. In 1996, legislation was adopted that
eliminated the issuance of new waivers after September 30, 1997. Prior to
September 30, 1997, additional legislation was passed to extend all existing
waivers until September 30, 2000. At December 31, 1999, the net book value of
DOH classrooms represented approximately 2% of the total assets of the Company
and management believes that actions it has taken will mitigate the impact of
the expiration. Currently, regulations are in place that allow the ongoing use
of the DOH classrooms to meet the shorter term space needs of school districts
for periods up to 24 months, provided they receive a "Temporary Certification"
from the DSA. As a consequence, the tendency is for school districts to rent the
DOH classrooms for shorter periods and to rent the DSA classrooms for longer
periods.
The Company's DOH classrooms are also suitable for rent to non-school
customers for commercial uses; however, the 24' x 40' standard classrooms are
not as popular for commercial use. The following table shows the comparison of,
and shift from, 24' x 40' standard DOH classrooms to DSA classrooms marketed to
school districts as of December 31, 1999, 1998, 1997, 1996 and 1995. Please note
how the inventory has shifted to the DSA classrooms.
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<CAPTION>
CLASSROOM COMPARISON
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(dollar amounts in thousands) DECEMBER 31,
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1999 1998 1997 1996 1995
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<S> <C> <C> <C> <C> <C>
24' X 40' STANDARD DOH CLASSROOMS
Rental Equipment, at cost, on rent $10,483 $12,704 $13,960 $13,738 $10,449
Rental Equipment, at cost, off rent 4,320 2,249 765 1,834 5,015
------- ------- ------- ------- -------
Total Rental Equipment, at cost $14,803 $14,953 $14,725 $15,572 $15,464
------- ------- ------- ------- -------
Total Rental Equipment, net book value $ 6,783 $ 7,368 $ 7,849 $ 8,952 $ 9,324
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Utilization (year-end)(1) 70.8% 85.0% 94.8% 88.2% 67.6%
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DSA CLASSROOMS
Rental Equipment, at cost, on rent $72,248 $55,697 $44,452 $26,488 $17,454
Rental Equipment, at cost, off rent 5,488 2,724 1,308 611 3,653
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Total Rental Equipment, at cost $77,736 $58,421 $45,760 $27,099 $21,107
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Total Rental Equipment, net book value $66,833 $50,630 $39,535 $22,399 $17,115
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Utilization (year-end)(1) 92.9% 95.3% 97.1% 97.7% 82.7%
------- ------- ------- ------- -------
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</TABLE>
(1) Utilization is calculated as of December 31, by dividing the original cost
of equipment on rent by the original cost of all equipment in the rental
equipment category, excluding new classrooms not previously rented and accessory
equipment.
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ELECTRONIC TEST AND MEASUREMENT INSTRUMENTS
DESCRIPTION
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.
The Company also rents electronic instruments from other rental companies and
re-rents the instruments to customers.
At December 31, 1999, the Company had an aggregate cost of electronics
rental inventory and accessories of $72,832,000. Utilization is calculated each
month by dividing the cost of the rental equipment on rent by the total cost of
the rental equipment, excluding accessory equipment. At December 31, 1999
utilization was 54.4%, and the average utilization during 1999 was 53.8%. The
Company rents electronic equipment for a typical rental period of one to six
months at monthly rental rates ranging from approximately 3.0% to 10.0% of the
current manufacturers' list price. The Company depreciates its equipment over 5
to 8 years.
The Company endeavors to keep its equipment fresh and attempts to sell
equipment so that the majority of the inventory is less than five years old. The
Company generally sells used equipment after approximately four years of service
to permit an orderly turnover and replenishment of the electronics inventory. In
1999, approximately 26% of the electronics revenues were derived from sales. The
largest electronics sale during 1999 represented 1% of electronics sales and
less than 1% of the Company's consolidated revenues.
MARKET
The business of renting electronic test and measurement instruments is
an industry which today has equipment on rent or available for rent in the
United States with an aggregate original cost in excess of a half billion
dollars. While there is a broad customer base for the rental of such
instruments, most rentals are to electronics, communications, network systems,
industrial, research and aerospace companies. The Company markets its electronic
equipment throughout the United States.
The Company believes that customers rent electronic test and measurement
instruments for many reasons. Customers frequently need equipment for short-term
projects, for backup to avoid costly downtime 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. The Company also
believes that a substantial portion of electronic test and measurement
instruments is 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 industry consists of three major companies. One of these companies
is much larger than the Company, has substantially greater financial resources
and is well established in the industry with a large inventory of equipment,
several branch offices and experienced personnel.
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PRODUCT HIGHLIGHTS
The following table shows the revenue components, percentage of total
revenues, rental equipment (at cost), rental equipment (net book value), number
of relocatable modular offices, year-end and average utilization, average rental
equipment (at cost), annual yield on average rental equipment (at cost) and
gross margin on sales by product line for the past five years.
<TABLE>
<CAPTION>
PRODUCT HIGHLIGHTS
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(dollar amounts in thousands) YEAR ENDED DECEMBER 31,
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1999 1998 1997 1996 1995
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<S> <C> <C> <C> <C> <C>
RELOCATABLE MODULAR OFFICES
(operates under MMMC and Enviroplex)
Revenues
Rental $ 51,622 $ 47,957 $ 41,514 $ 31,931 $ 31,577
Rental Related Services 12,542 11,007 9,898 8,399 7,527
-------- -------- -------- -------- --------
Total Modular Rental Operations 64,164 58,964 51,412 40,330 39,104
-------- -------- -------- -------- --------
Sales -- MMMC 16,100 23,171 33,522 14,359 6,572
Sales -- Enviroplex 11,150 20,672 21,287 10,206 4,775
-------- -------- -------- -------- --------
Total Modular Sales 27,250 43,843 54,809 24,565 11,347
-------- -------- -------- -------- --------
Other 500 448 656 885 1,415
-------- -------- -------- -------- --------
Total Modular Revenues $ 91,914 $103,255 $106,877 $ 65,780 $ 51,866
======== ======== ======== ======== ========
Percentage of Total Revenues 70.7% 76.2% 79.2% 73.9% 72.8%
Rental Equipment, at cost (year-end) $238,449 $216,444 $196,133 $158,377 $150,389
Rental Equipment, net book value (year-end) $171,166 $156,790 $142,816 $110,014 $106,266
Number of Units (year-end) 16,230 15,139 14,240 11,582 10,868
Utilization (year-end)(1) 78.1% 78.3% 78.7% 78.6% 71.0%
Average Utilization(1) 78.4% 77.6% 79.7% 72.1% 73.9%
Average Rental Equipment, at cost $227,235 $204,914 $172,680 $151,818 $149,371
Annual Yield on Average Rental Equipment, at cost 22.7% 23.4% 24.0% 21.0% 21.1%
Gross Margin on Sales 29.5% 30.8% 31.2% 30.7% 29.3%
ELECTRONIC TEST AND MEASUREMENT INSTRUMENTS
(operates under McGrath-RenTelco)
Revenues
Rental $ 27,132 $ 24,010 $ 20,174 $ 17,055 $ 14,486
Rental Related Services 501 521 380 319 268
-------- -------- -------- -------- --------
Total Electronics Rental Operations 27,633 24,531 20,554 17,374 14,754
Sales 9,789 7,201 7,212 5,610 4,492
Other 626 441 333 241 161
-------- -------- -------- -------- --------
Total Electronics Revenues $ 38,048 $ 32,173 $ 28,099 $ 23,225 $ 19,407
======== ======== ======== ======== ========
Percentage of Total Revenues 29.3% 23.8% 20.8% 26.1% 27.2%
Rental Equipment, at cost (year-end) $ 72,832 $ 66,573 $ 50,351 $ 43,335 $ 35,168
Rental Equipment, net book value (year-end) $ 46,012 $ 43,238 $ 31,270 $ 27,279 $ 21,342
Utilization (year-end)(1) 54.4% 51.5% 52.6% 51.8% 53.8%
Average Utilization(1) 53.8% 54.6% 54.9% 54.9% 55.2%
Average Rental Equipment, at cost $ 68,420 $ 56,859 $ 46,483 $ 39,335 $ 32,255
Annual Yield on Average Rental Equipment, at cost 39.7% 42.2% 43.4% 43.4% 44.9%
Gross Margin on Sales 29.7% 32.9% 33.2% 37.3% 39.6%
TOTAL REVENUES $129,962 $135,428 $134,976 $ 89,005 $ 71,273
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</TABLE>
(1) Utilization is calculated each month by dividing the cost of rental
equipment on rent by the total cost of rental equipment, excluding
accessory equipment. The average utilization for the year is calculated
using the average of the monthly equipment figures.
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ITEM 2. 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 Livermore, 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-modular offices, serving as working models of the Company's product.
Electronic test and measurement instrument rental and sales operations are
conducted from the Livermore facility and from a facility in Richardson, Texas
(Dallas Area). The Company's majority owned subsidiary, Enviroplex, manufactures
portable classrooms from its facility in Stockton, California (San Francisco Bay
Area).
During 1999, the Company purchased 2.6 acres of land in Plano, Texas for
the development of a 40,000 square foot office and warehouse facility. The
primary purpose for constructing the new facility is to relocate the currently
rented Richardson, Texas electronics operation. The Company intends to rent out
approximately half the facility. Construction of the facility started in January
2000 and will be completed by July 2000 at an estimated cost of $2,000,000.
The following table sets forth for each property the total acres, square
footage of office space, square footage of warehouse space and total square
footage at December 31, 1999. Except as noted, all properties are owned by the
Company.
<TABLE>
<CAPTION>
FACILITIES
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Square Footage
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Total
Acres Office Warehouse Total
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<S> <C> <C> <C> <C>
CORPORATE OFFICES
Livermore, California(1) -- 9,840 -- 9,840
RELOCATABLE MODULAR OFFICES
Livermore, California(1, 2) 139.7 7,680 53,440 61,120
Mira Loma, California 78.5 7,920 45,440 53,360
Pasadena, Texas 50.0 3,868 24,000 27,868
ELECTRONIC TEST AND MEASUREMENT INSTRUMENTS
Livermore, California(1) -- 8,400 7,920 16,320
Richardson, Texas(3) -- 2,640 3,971 6,611
Plano, Texas(4) 2.6 -- -- --
ENVIROPLEX, INC.
Stockton, California 13.9 3,365 102,050 105,415
OTHER
Corona, California(5) 10.4 -- -- --
Arlington, Texas(6) 1.8 1,680 2,387 4,067
----- ------- ------- -------
296.9 45,393 239,208 284,601
===== ======= ======= =======
- -------------------------------------------------------------------------------------------------
</TABLE>
(1) The modular office complex in Livermore, California is 33,840 square feet
and includes the Corporate offices and both modulars and electronics
branch operations.
(2) Of the 139.7 acres owned, 2.2 acres with an 8,000 square foot warehouse
facility is rented out to a third party through March, 2008, and 35.8
acres are undeveloped.
(3) Leased office and warehouse space through April 2000, subsequently rented
on a month to month basis.
(4) 40,000 square foot office and warehouse facility under construction with
expected completion in July 2000
(5) Facility is for sale or lease.
(6) Facility rented out to a third party on a month to month basis.
ITEM 3. LEGAL PROCEEDINGS.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
8
<PAGE> 10
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's common stock is traded in the NASDAQ National Market
System under the symbol "MGRC".
The market price (as quoted by NASDAQ) and cash dividends declared, per
share of the Company's common stock, by calendar quarter for the past two years
were as follows:
<TABLE>
<CAPTION>
STOCK ACTIVITY
- --------------------------------------------------------------------------------------------------
1999 1998
------------------------------------ ------------------------------------
4Q 3Q 2Q 1Q 4Q 3Q 2Q 1Q
------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
High $19.00 $20.38 $20.50 $22.50 $24.75 $24.50 $23.56 $24.50
Low $15.88 $17.63 $17.13 $16.75 $13.88 $16.88 $19.00 $19.25
Close $17.50 $18.00 $20.00 $18.25 $22.00 $17.00 $21.13 $19.88
Dividends Declared $ 0.12 $ 0.12 $ 0.12 $ 0.12 $ 0.10 $ 0.10 $ 0.10 $ 0.10
- --------------------------------------------------------------------------------------------------
</TABLE>
As of March 17, 2000, the Company's common stock was held by
approximately 108 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.
The Company has declared a quarterly dividend on its common stock every
quarter since 1990. Subject to its continued profitability and favorable cash
flow, the Company intends to continue the payment of quarterly dividends.
In March 2000, the Company issued an aggregate of 20,920 shares of its
common stock to Dennis C. Kakures and Thomas J. Sauer, both officers of the
Company, pursuant to the Company's Long-Term Stock Bonus Plan (as described in
the Company's Proxy Statement). Under the same Plan, the Company had issued to
the same two officers an aggregate of 33,486 shares of common stock in March
1999 and 36,840 shares of common stock in April 1998. These issuances were
exempt from the registration requirements of the Securities Act of 1933 by
virtue of section 4(2) thereof and Regulation 230.506.
9
<PAGE> 11
ITEM 6. SELECTED FINANCIAL DATA.
The following table summarizes the Company's selected financial data for
the five years ended December 31, 1999 and should be read in conjunction with
the more detailed Consolidated Financial Statements and related notes reported
in Item 8.
<TABLE>
<CAPTION>
SELECTED CONSOLIDATED FINANCIAL DATA
- -------------------------------------------------------------------------------------------------------------------------
(dollar and share amounts in thousands, except per share data) Year Ended December 31,
--------------------------------------------------------------
1999 1998 1997 1996 1995
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Operations Data
Revenues
Rental $ 78,754 $ 71,967 $ 61,688 $ 48,986 $ 46,063
Rental Related Services 13,043 11,528 10,278 8,718 7,795
--------- --------- --------- --------- ---------
Rental Operations 91,797 83,495 71,966 57,704 53,858
Sales 37,039 51,044 62,021 30,175 15,839
Other 1,126 889 989 1,126 1,576
--------- --------- --------- --------- ---------
Total Revenues 129,962 135,428 134,976 89,005 71,273
--------- --------- --------- --------- ---------
Costs and Expenses
Direct Costs of Rental Operations
Depreciation 19,780 16,862 14,358 12,456 11,539
Rental Related Services 7,153 6,531 6,287 5,515 5,024
Other 14,284 13,390 10,375 8,703 7,370
--------- --------- --------- --------- ---------
Total Direct Costs of Rental Operations 41,217 36,783 31,020 26,674 23,933
Cost of Sales 26,078 35,189 42,550 20,532 10,735
--------- --------- --------- --------- ---------
Total Costs 67,295 71,972 73,570 47,206 34,668
--------- --------- --------- --------- ---------
Gross Margin 62,667 63,456 61,406 41,799 36,605
Selling and Administrative 17,103 16,220 15,957 13,147 10,459
--------- --------- --------- --------- ---------
Income from Operations 45,564 47,236 45,449 28,652 26,146
Interest 6,606 6,326 4,070 2,887 2,831
--------- --------- --------- --------- ---------
Income before Provision for Income Taxes 38,958 40,910 41,379 25,765 23,315
Provision for Income Taxes 14,874 16,010 16,323 9,885 9,375
--------- --------- --------- --------- ---------
Income before Minority Interest 24,084 24,900 25,056 15,880 13,940
Minority Interest in Income of Subsidiary 251 1,005 1,011 358 97
--------- --------- --------- --------- ---------
Income before Effect of Accounting Change 23,833 23,895 24,045 15,522 13,843
Cumulative Effect of Accounting Change, net of tax(1) (1,367) -- -- -- --
--------- --------- --------- --------- ---------
Net Income $ 22,466 $ 23,895 $ 24,045 $ 15,522 $ 13,843
========= ========= ========= ========= =========
Earnings Per Share:
Basic
Income before Cumulative Effect of $ 1.80 $ 1.69 $ 1.60 $ 1.03 $ 0.87
Accounting Change
Cumulative Effect of Accounting Change, net of tax(1) (0.10) -- -- - --
--------- --------- --------- --------- ---------
Net Income $ 1.70 $ 1.69 $ 1.60 $ 1.03 $ 0.87
========= ========= ========= ========= =========
Diluted
Income before Cumulative Effect of $ 1.78 $ 1.67 $ 1.58 $ 1.01 $ 0.86
Accounting Change
Cumulative Effect of Accounting Change, net of tax(1) (0.10) -- -- - --
--------- --------- --------- --------- ---------
Net Income $ 1.68 $ 1.67 $ 1.58 $ 1.01 $ 0.86
========= ========= ========= ========= =========
Shares Used in Per Share Calculation:
Basic 13,235 14,163 14,982 15,102 15,949
Diluted 13,383 14,349 15,181 15,306 16,168
Cash Dividends Declared Per Common Share $ 0.48 $ 0.40 $ 0.32 $ 0.28 $ 0.24
Pro Forma Amounts Assuming Change had been in
effect during 1998, 1997, 1996 and 1995
Net Income $ 23,833 $ 23,697 $ 23,816 $ 15,400 $ 13,863
Earnings Per Share - Basic $ 1.80 $ 1.67 $ 1.59 $ 1.02 $ 0.87
Earnings Per Share - Diluted $ 1.78 $ 1.65 $ 1.57 $ 1.01 $ 0.86
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
10
<PAGE> 12
<TABLE>
<CAPTION>
SELECTED CONSOLIDATED FINANCIAL DATA (continued)
- -----------------------------------------------------------------------------------------------------------------
(dollar and share amounts in thousands,
except per share data) Year Ended December 31,
------------------------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data (at period end)
Rental Equipment, net $217,178 $200,028 $174,086 $137,292 $127,608
Total Assets $297,722 $278,676 $252,392 $200,035 $175,130
Notes Payable $110,300 $ 97,000 $ 82,000 $ 53,850 $ 37,080
Shareholders' Equity $ 95,403 $105,394 $ 98,646 $ 88,808 $ 85,893
Shares Issued and Outstanding 12,546 13,970 14,522 14,820 15,540
Book Value Per Share $ 7.60 $ 7.54 $ 6.79 $ 5.99 $ 5.53
Debt (Notes Payable) to Equity 1.16 0.92 0.83 0.61 0.43
Return on Average Equity 22.7% 24.0% 24.5% 18.0% 16.4%
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
(1) See "Management's Discussion and Analysis of Financial Condition and Results
of Operations - Fiscal Years 1999 and 1998" below for a discussion of the change
in accounting method for rental revenue recognition in response to SAB No. 101.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
RESULT OF OPERATIONS
GENERAL
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, private
placement of long-term debt and conventional bank financing.
The major portion of the Company's revenue is derived from rental
operations comprising approximately 71% of consolidated revenues in 1999 and 62%
of consolidated revenues for the three years ended December 31, 1999. Over the
past three years modulars comprised 71% of the cumulative rental operations, and
electronics comprised 29% of the cumulative rental operations.
The Company sells both modular and electronic equipment that is new,
previously available for rent, or manufactured by its majority owned subsidiary,
Enviroplex. In the case of some modular equipment, the Company acts as a dealer
of relocatable modular offices and is licensed as a dealer by governmental
agencies in California and Texas. Revenues from sales of both modular and
electronic equipment have comprised approximately 28% of the Company's
consolidated revenues in 1999 and 37% of the Company's consolidated revenues
over the last three years. During these three years, modular sales represented
84% and electronic sales represented 16%.
The rental and sale of modulars to public school districts is a
significant part of the Company's business. School business comprised 34%, 45%,
and 52% of the Company's consolidated rental and sales revenues for 1999, 1998,
1997. The increases in the Company's sales and rental revenues in 1997 can be
attributed primarily to the Class Size Reduction Program implemented by the
state of California in 1996. Sales revenues declined significantly in 1999 and
1998 as school districts' demand for classrooms declined as school districts
finished implementing the Class Size Reduction Program. (See "Business -
Relocatable Modular Offices - Classroom Rentals and Sales" above.)
11
<PAGE> 13
The following table sets forth for the periods indicated the results of
operations as a percentage of revenues and the percentage of changes in such
items as compared to the indicated prior period:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Percent of Revenues Percent Change
--------------------------------------- ----------------
Three
Years Year Ended December 31, 1999 over 1998 over
1999-1997 1999 1998 1997 1998 1997
--------------------------------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Revenues
Rental 53% 61% 53% 46% 9% 17%
Rental Related Services 9 10 9 8 13 12
--- --- --- ---
Rental Operations 62 71 62 54 10 16
Sales 37 28 38 46 (27) (18)
Other 1 1 nm nm nm nm
--- --- --- ---
Total Revenues 100% 100% 100% 100% (4)% nm
--- --- --- ---
Costs and Expenses
Direct Costs of Rental Operations
Depreciation 13 15 12 11 17 17
Rental Related Services 5 6 5 5 10 4
Other 9 11 10 7 7 29
--- --- --- ---
Total Direct Costs of Rental Operations 27 32 27 23 12 19
Cost of Sales 26 20 26 32 (26) (17)
--- --- --- ---
Total Costs 53 52 53 55 (6) (2)
--- --- --- ---
Gross Margin 47 48 47 45 (1) 3
Selling and Administrative 12 13 12 11 5 2
--- --- --- ---
Income from Operations 35 35 35 34 (4) 4
Interest 5 5 5 3 4 55
--- --- --- ---
Income before Provision for Income Taxes 30 30 30 31 (5) (1)
Provision for Income Taxes 12 11 12 12 (7) (2)
--- --- --- ---
Income before Minority Interest 18 19 18 19 (3) (1)
Minority Interest in Income of Subsidiary nm 1 nm 1 nm nm
--- --- --- ---
Income before Effect of Accounting Change 18 18 18 18 nm nm
Cumulative Effect of Accounting Change, net of tax nm 1 nm nm nm nm
--- --- --- --- --- ---
Net Income 18% 17% 18% 18% (6%) nm
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
nm = not meaningful
FISCAL YEARS 1999 AND 1998
This section contains statements that constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. See "General" above for cautionary information with respect to such
forward-looking statements.
As anticipated, during 1999 increased revenues from rental operations
have significantly offset the decline in sales revenues. However, net income for
1999 was reduced by the impact of both a noncash pre-tax compensation charge of
$885,000, as well as a one-time, noncash, after-tax charge of $1,367,000
reflecting the cumulative effect through December 31, 1998 of the Company's
change in accounting method for rental revenues as of January 1, 1999. After
considering the impact of these two charges, net income for 1999 was
$22,466,000, or $1.68 per diluted share compared to last year's reported net
income of $23,895,000, or $1.67 per diluted share. Excluding the impact of these
two charges, net income in 1999 would have been $24,361,000, or $1.82 per
diluted share. Assuming the newly adopted accounting method had been in effect
in 1998, net income for 1998 would have been $23,697,000, or $1.65 per diluted
share, and comparative earnings per diluted share would have increased 10% in
1999 as a result of higher earnings and fewer outstanding shares.
12
<PAGE> 14
Rental revenue is recognized under the "operating method" of accounting
for the majority of leases. Effective January 1, 1999, rental revenue is
recognized ratably over the month on a daily basis. Rental billings for periods
extending beyond the month end are recorded as deferred income. In prior years,
only rental billings extending beyond a one-month period were recorded as
deferred income. The new method of recognizing revenue was adopted in response
to the Security and Exchange Commission's Staff Accounting Bulletin (SAB) No.
101, "Revenue Recognition." The effect is reported as a change in accounting
method in accordance with Accounting Principles Board Opinion ("APB") No. 20,
"Accounting Changes." The cumulative effect of changing to a new method of
accounting effective January 1, 1999 was to decrease net income by $1,367,000
(net of taxes of $883,000) or $0.10 per diluted share. The pro forma amounts
shown on the consolidated statements of income have been adjusted as if the new
method of revenue recognition had been in effect for all periods presented.
Rental revenues increased $6,787,000 (9%) over 1998, with MMMC
contributing $3,665,000 and McGrath-RenTelco contributing $3,122,000 of the
increase. As of December 31, 1999, rental equipment on rent increased for MMMC
by $16,586,000 and for McGrath-RenTelco by $5,331,000 compared to a year
earlier. Even though average utilization for modulars increased from 77.6% in
1998 to 78.4% in 1999, the annual yield declined for modulars from 23.4% to
22.7% as a result of lower rental rates due to competition. Average utilization
for electronics declined slightly from 54.6% in 1998 to 53.8% in 1999 with
electronics annual yield declining from 42.2% in 1998 to 39.7% in 1999 resulting
primarily from competitive pricing pressures.
Rental related services revenues in 1999 increased $1,515,000 (13%),
over 1998 as a result of a higher volume of modular equipment movements and site
requirements in 1999. Gross margins on these services increased from 43.4% in
1998 to 45.2% in 1999.
Sales in 1999 declined $14,005,000 (27%) primarily due to a reduction in
sales of manufactured classrooms by Enviroplex to school districts from the high
levels in 1998 caused by California's Class Size Reduction Program. Further,
increased business levels for Enviroplex anticipated from the $9.2 billion
California bond measure, which passed in November 1998, did not materialize in
1999. The single largest sale in 1999 was by Enviroplex for $1,596,000 of new
classrooms to a school district. 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, requirements
and funding. Consolidated gross margin on sales declined slightly from 31.1% in
1998 to 29.6% in 1999 due to the lower margin classroom projects sold during
1999.
Enviroplex's backlog of orders as of December 31, 1999 and 1998 was
$12,626,000 and $1,468,000, respectively. (Backlog is not significant in MMMC's
modular business or in McGrath-RenTelco's electronic business.)
Depreciation on rental equipment in 1999 increased $2,918,000 (17%) over
1998 due to additional rental equipment purchased during 1999. The average
modular rental equipment, at cost, increased $22,321,000 (11%) and average
electronics rental equipment, at cost, increased $11,561,000 (20%) over 1998.
Other direct costs of rental operations increased $894,000 (7%) over 1998
primarily due to increased maintenance and repair expenses of the modular fleet.
Additionally, during 1998 as in the prior year, a significant number of school
customers opted to include upfront charges in the rental rate resulting in
higher amortization expense of these related upfront costs over the lease term
in subsequent periods.
Selling and administrative expenses in 1999 increased $883,000 (5%) over
1998. During 1999, the Company repurchased 80,000 shares of stock at $18.00 per
share from an employee who had acquired the stock at $6.94 per share through the
exercise of a stock option, resulting in the recognition of a noncash
compensation expense of $885,000.
Interest expense in 1999 increased $280,000 (4%) over 1998 as a result
of higher average borrowing levels in 1999 offset by a lower weighted average
interest rate. The debt increase funded part of the significant rental equipment
purchases made during 1999.
Income before provision for taxes in 1999 decreased $1,952,000 (5%) from
1998 while net income before effect of the accounting change only decreased
$62,000 (less than 1%) from 1998. The lower percentage decrease for net income
before effect of the accounting change is due to the decrease in the minority
interest in income of Enviroplex combined with a lower effective tax rate in
1999 of 38.1% compared to 39.1% in 1998 as more business is derived outside of
California.
13
<PAGE> 15
FISCAL YEARS 1998 AND 1997
California's Class Size Reduction Program (a law enacted in July 1996)
provided for facility and operational funding for the reduction of classroom
size to 20 pupils for kindergarten through third grade. Due to the anticipated
increase in demand for the DSA classrooms at the time, MMMC increased its supply
of the DSA classrooms resulting in significantly higher levels of sales and
rentals to school districts in 1997 and 1998. In late 1997 and continuing into
1998, as the industry's capacity to produce classrooms increased and the school
districts' demand for new classrooms decreased, school districts were more often
able to purchase new classrooms directly from manufacturers rather than from
MMMC. MMMC's sales of new classrooms declined from $18,795,000 in 1997 to
$10,187,000 in 1998. Included in the 1998 MMMC classroom sales is one project
that accounted for 60% of the sales volume.
Rental revenues increased $10,279,000 (17%) over 1997, with MMMC
contributing $6,443,000 and McGrath-RenTelco contributing $3,836,000 of the
increase. The significant rental revenue increase by MMMC resulted from the
large quantities of equipment shipped to schools in the latter part of 1997. The
McGrath-RenTelco rental revenue increase resulted from additional market
penetration including telemarketing and regional sales efforts on the East
Coast. As of December 31, 1998, rental equipment on rent increased for MMMC by
$17,760,000 and for McGrath-RenTelco by $7,759,000 compared to a year earlier.
Rental related services revenues in 1998 increased $1,250,000 (12%),
over 1997. Gross margins on these services increased from 38.8% in 1997 to 43.4%
in 1998.
Sales in 1998 declined $10,977,000 (18%) due to fewer new classroom
sales to school districts by MMMC. Enviroplex and McGrath-RenTelco sales volumes
each declined slightly from 1997 and added to MMMC's expected decline in new
classroom sales. The single largest sale was for $6,110,000 by MMMC to a school
district during the third quarter of 1998 consisting of new classrooms of which
69% of the total contract was for demolition of existing buildings, site
improvements and installation of the new classrooms. This sale was unique as to
the volume of new classrooms sold in conjunction with the amount of site work
performed and is not likely to be repeated in the future.
Depreciation on rental equipment in 1998 increased $2,504,000 (17%) over
1997 due to additional rental equipment purchased during 1998. Average rental
equipment, at cost, during 1998 increased 19%. Other direct costs of rental
operations increased $3,015,000 (29%) over 1997 primarily due to increased
maintenance and repair expenses of the modular fleet. Additionally, during 1997,
a significant number of school customers opted to include upfront charges in the
rental rate resulting in higher amortization expense of these related upfront
costs over the lease term in the subsequent periods.
Selling and administrative expenses in 1998 increased $263,000 (2%) over
1997. During 1998, the primary factors contributing to increased selling and
administrative expenses were higher expenses for facility and equipment
depreciation ($585,000) and personnel and benefit costs ($539,000) offset by
fewer bad debt write-offs ($220,000), fewer legal and consulting expenses
($214,000), and eliminated facility rental, cleanup and moving expenses
($253,000).
Interest expense in 1998 increased $2,256,000 (55%) over 1997 as a
result of higher average borrowing levels in 1998. The debt increase funded in
part the rental equipment purchases made during 1998.
Income before provision for taxes in 1998 decreased $469,000 (1%) from
1997 while net income decreased $150,000 from 1997. Basic earnings per share
increased 6% from $1.60 in 1997 to $1.69 in 1998 due to fewer shares
outstanding.
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 "General" above for cautionary information with respect to such
forward-looking statements.
In 1999, as in prior years, the Company's primary use of cash has been
investing in its growth by purchasing additional rental inventory of relocatable
modular offices and electronic test and measurement instruments to satisfy
14
<PAGE> 16
customer requirements. During 1999, the Company purchased $47,310,000 of
equipment to add to its inventory available for rent to customers. During the
last three years, this growth in the rental inventory has been financed by cash
flow from operations, private placement of long-term debt and bank borrowings.
The Company's operations produced a positive cash flow of $53,235,000
during 1999 as compared to $41,967,000 and $41,405,000 during 1998 and 1997
respectively.
In July, 1998, the Company completed a private placement of $40,000,000
of 6.44% Senior Notes due in 2005. Interest on the notes is due semi-annually in
arrears and the principal is due in five equal installments commencing on July
15, 2001 (and thus, the outstanding balance at December 31, 1999, was
$40,000,000).
Bank borrowings have long been a source of funds for the Company's
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, which limit is currently $100,000,000. The Company increased its
borrowings under this line by $13,300,000 during the year, and at December 31,
1999, the outstanding borrowings under this line were $70,300,000. In addition
to the $100,000,000 line of credit, the Company has a $5,000,000 committed line
of credit facility related to its cash management services. The Company had a
total liabilities to equity ratio of 2.12 to 1 and 1.64 to 1 as of December 31,
1999 and 1998, respectively; and the debt (notes payable) to equity ratio was
1.16 to 1 and 0.92 to 1 at December 31, 1999 and 1998, respectively. Although no
assurance can be given, the Company believes it will continue to be able to
negotiate higher limits on its general bank lines of credit adequate to meet
capital requirements not otherwise met by operational cash flows and long term
debt.
In addition to increasing its rental inventory assets, the Company also
used $2,253,000 to add to its other fixed assets, and has used significant cash
to provide returns to its shareholders, both in the form of cash dividends and
by stock repurchases. 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 canceled and returned
to the status of authorized but unissued stock. As of March 17, 2000, 1,000,000
shares remain authorized for repurchase. The following table summarizes the
dividends paid and the repurchases of the Company's common stock during the past
three years.
<TABLE>
<CAPTION>
DIVIDEND AND REPURCHASE SUMMARY
- -------------------------------------------------------------------------------------------
(dollar and share amounts in
thousands, except per share data) Year Ended December 31,
----------------------------------- Three Year
1999 1998 1997 Totals
------- ------- ------- -------
<S> <C> <C> <C> <C>
Cash Dividends Paid $ 6,134 $ 5,386 $ 4,641 $16,161
Shares Repurchased 1,550 620 502 2,672
Average Price Per Share $ 18.21 $ 19.77 $ 20.99 $ 19.09
Aggregate Purchase Price $28,212 $12,247 $10,545 $51,004
Total Cash Returned to Shareholders $34,346 $17,633 $15,186 $67,165
- -------------------------------------------------------------------------------------------
</TABLE>
Please see the Company's Consolidated Statements of Cash Flows on page
21 for a more detailed presentation of the sources and uses of the Company's
cash.
The Company does not have any material commitments or obligations
requiring the expenditure of cash in the future inconsistent with its
expenditures in the periods reported herein. The Company believes that its needs
for working capital and capital expenditures through 2000 and beyond will be
adequately met by operational cash flow, bank borrowings and long-term debt. The
Company believes that it has the ability to reduce materially the amount of cash
it uses to purchase rental equipment, pay dividends and repurchase its common
stock in the future if a need to conserve cash should arise unexpectedly.
15
<PAGE> 17
MARKET RISK
This section contains statements that constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. See "General" above for cautionary information with respect to such
forward-looking statements.
The Company currently has no material derivative financial instruments
which 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. The table below presents principal cash flows and related
weighted average interest rates of the Company's notes payable at December 31,
1999 by expected maturity dates. Weighted average variable rates are based on
implied forward rates in the yield curve at the reporting date.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
(dollar amounts in
thousands)
Year Ended December 31,
--------------------------------------------------------------
2005
and Fair
2000 2001 2002 2003 2004 Thereafter Total Value
----- ------- ------- ------ ------ ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed Rate $ -- $ 8,000 $ 8,000 $8,000 $8,000 $8,000 $40,000 $40,000
Average Interest Rate 6.44% 6.44% 6.44% 6.44% 6.44% 6.44% 6.44%
Variable Rate $ -- $17,575 $52,725 $ -- $ -- $ -- $70,300 $70,300
Average Interest Rate 7.11% 7.11% 7.11% -- -- 7.11% --
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
YEAR 2000
The Company experienced no disruption in operations due to the
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. Capitalized
expenditures for this process totaled $1,850,000 for the period January 1, 1997
to December 31, 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." During 1999, the
Company capitalized internal personnel costs of $300,000 for software
development. There has been no material change in total cost estimates related
to Year 2000 remediation efforts. 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.
IMPACT OF INFLATION
Although the Company cannot precisely determine the effect of inflation,
from time to time it has experienced increases in costs of rental equipment,
manufacturing costs, operating expenses and interest. 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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
<TABLE>
<CAPTION>
INDEX PAGE
- ----- ----
<S> <C>
Report of Independent Public Accountants 17
Consolidated Financial Statements
Consolidated Statements of Income for the Years Ended December 31, 1999, 1998 and 1997 18
Consolidated Balance Sheets as of December 31, 1999, 1998 and 1997 19
Consolidated Statements of Shareholders' Equity for the Years Ended
December 31, 1999, 1998 and 1997 20
Consolidated Statements of Cash Flows for the Years Ended December 31, 1999, 1998 and 1997 21
Notes to Consolidated Financial Statements 22
</TABLE>
16
<PAGE> 18
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, 1999 and
1998, and the related consolidated statements of income, shareholders' equity
and cash flows for each of the three years in the period ended December 31,
1999. 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, 1999 and 1998, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1999, in
conformity with generally accepted accounting principles.
As explained in Note 2 to the consolidated financial statements, the
Company changed its method of accounting for rental revenue whereby all rental
revenues are recognized ratably over the month on a daily basis.
San Francisco, California
February 11, 2000 ARTHUR ANDERSEN LLP
17
<PAGE> 19
MCGRATH RENTCORP
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------
(in thousands, except per share amounts) 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES
Rental $ 78,754 $ 71,967 $ 61,688
Rental Related Services 13,043 11,528 10,278
--------- --------- ---------
Rental Operations 91,797 83,495 71,966
Sales 37,039 51,044 62,021
Other 1,126 889 989
--------- --------- ---------
Total Revenues 129,962 135,428 134,976
--------- --------- ---------
COSTS AND EXPENSES
Direct Costs of Rental Operations
Depreciation 19,780 16,862 14,358
Rental Related Services 7,153 6,531 6,287
Other 14,284 13,390 10,375
--------- --------- ---------
Total Direct Costs of Rental Operations 41,217 36,783 31,020
Cost of Sales 26,078 35,189 42,550
--------- --------- ---------
Total Costs 67,295 71,972 73,570
--------- --------- ---------
Gross Margin 62,667 63,456 61,406
Selling and Administrative 17,103 16,220 15,957
--------- --------- ---------
Income from Operations 45,564 47,236 45,449
Interest 6,606 6,326 4,070
--------- --------- ---------
Income before Provision for Income Taxes 38,958 40,910 41,379
Provision for Income Taxes 14,874 16,010 16,323
--------- --------- ---------
Income before Minority Interest 24,084 24,900 25,056
Minority Interest in Income of Subsidiary 251 1,005 1,011
--------- --------- ---------
Income before Effect of Accounting Change 23,833 23,895 24,045
Cumulative Effect of Accounting Change, net of tax
benefit of $883 (1,367) -- --
--------- --------- ---------
Net Income $ 22,466 $ 23,895 $ 24,045
========= ========= =========
Earnings Per Share:
Basic
Income before cumulative effect of accounting change $ 1.80 $ 1.69 $ 1.60
Cumulative effect of accounting change, net of tax (0.10) -- --
--------- --------- ---------
Net Income $ 1.70 $ 1.69 $ 1.60
========= ========= =========
Diluted
Income before cumulative effect of accounting change $ 1.78 $ 1.67 $ 1.58
Cumulative effect of accounting change, net of tax (0.10) -- --
--------- --------- ---------
Net Income $ 1.68 $ 1.67 $ 1.58
========= ========= =========
Shares Used in Per Share Calculation:
Basic 13,235 14,163 14,982
Diluted 13,383 14,349 15,181
Pro Forma Amounts Assuming Accounting Change had been in
effect during 1998 and 1997
Net Income $ 23,833 $ 23,697 $ 23,816
Earnings Per Share - Basic $ 1.80 $ 1.67 $ 1.59
Earnings Per Share - Diluted $ 1.78 $ 1.65 $ 1.57
- ---------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
18
<PAGE> 20
MCGRATH RENTCORP
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
--------------------------
(in thousands) 1999 1998
- ---------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash $ 490 $ 857
Accounts Receivable, less allowance for doubtful
accounts of $650 in 1999 and 1998 25,095 21,811
Rental Equipment, at cost:
Relocatable Modular Offices 238,449 216,414
Electronic Test Instruments 72,832 66,573
--------- ---------
311,281 282,987
Less Accumulated Depreciation (94,103) (82,959)
--------- ---------
Rental Equipment, net 217,178 200,028
--------- ---------
Land, at cost 19,303 18,953
Buildings, Land Improvements, Equipment and Furniture,
at cost, less accumulated depreciation of $5,116
in 1999 and $3,858 in 1998 31,668 31,460
Prepaid Expenses and Other Assets 3,988 5,567
--------- ---------
Total Assets $ 297,722 $ 278,676
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Notes Payable $ 110,300 $ 97,000
Accounts Payable and Accrued Liabilities 24,811 22,964
Deferred Income 9,511 5,574
Minority Interest in Subsidiary 2,836 2,584
Deferred Income Taxes 54,861 45,160
--------- ---------
Total Liabilities 202,319 173,282
--------- ---------
Shareholders' Equity:
Common Stock, no par value --
Authorized -- 40,000 shares
Issued and Outstanding -- 12,546 shares in
1999 and 13,970 shares in 1998 8,755 8,138
Retained Earnings 86,648 97,256
--------- ---------
Total Shareholders' Equity 95,403 105,394
--------- ---------
Total Liabilities and
Shareholders' Equity $ 297,722 $ 278,676
========= =========
- ---------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
19
<PAGE> 21
MCGRATH RENTCORP
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Common Stock Total
----------------------- Retained Shareholders'
(in thousands, except per share amounts) Shares Amount Earnings Equity
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1996 14,820 $ 7,161 $ 81,647 $ 88,808
Net Income -- -- 24,045 24,045
Repurchase of Common Stock (502) (507) (10,038) (10,545)
Noncash Compensation 28 497 -- 497
Exercise of Stock Options 176 606 -- 606
Dividends Declared of $0.32 Per Share -- -- (4,765) (4,765)
- -----------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1997 14,522 7,757 90,889 98,646
Net Income -- -- 23,895 23,895
Repurchase of Common Stock (620) (340) (11,907) (12,247)
Noncash Compensation 37 485 -- 485
Exercise of Stock Options 31 236 -- 236
Dividends Declared of $0.40 Per Share -- -- (5,621) (5,621)
- -----------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1998 13,970 8,138 97,256 105,394
Net Income -- -- 22,466 22,466
Repurchase of Common Stock (1,550) (1,381) (26,831) (28,212)
Noncash Compensation 35 1,343 -- 1,343
Exercise of Stock Options 91 655 -- 655
Dividends Declared of $0.48 Per Share -- -- (6,243) (6,243)
- -----------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1999 12,546 $ 8,755 $ 86,648 $ 95,403
- -----------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
20
<PAGE> 22
MCGRATH RENTCORP
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------
(in thousands) 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flow from Operating Activities:
Net Income $ 22,466 $ 23,895 $ 24,045
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation and Amortization 21,474 18,309 15,274
Cumulative Effect of Accounting Change, net of tax 1,367 -- --
Noncash Compensation 1,343 485 497
Gain on Sale of Rental Equipment (5,971) (5,404) (6,622)
Change In:
Accounts Receivable (3,284) (17) (1,874)
Prepaid Expenses and Other Assets 1,579 991 (4,161)
Accounts Payable and Accrued Liabilities 1,990 (3,850) 13,166
Deferred Income 1,687 (1,354) 1,702
Deferred Income Taxes 10,584 8,912 (622)
-------- -------- --------
Net Cash Provided by Operating Activities 53,235 41,967 41,405
-------- -------- --------
Cash Flow from Investing Activities:
Purchase of Rental Equipment (47,310) (51,159) (62,277)
Purchase of Land, Buildings, Land Improvements,
Equipment and Furniture (2,253) (4,041) (10,594)
Proceeds from Sale of Land, Buildings and
Land Improvements -- 2,190 --
Proceeds from Sale of Rental Equipment 16,352 13,759 17,748
-------- -------- --------
Net Cash Used in Investing Activities (33,211) (39,251) (55,123)
-------- -------- --------
Cash Flow from Financing Activities:
Net Borrowings (Repayments) under Bank Lines of Credit 13,300 (25,000) 28,150
Borrowings under Private Placement -- 40,000 --
Net Proceeds from the Exercise of Stock Options 655 236 606
Repurchase of Common Stock (28,212) (12,247) (10,545)
Payment of Dividends (6,134) (5,386) (4,641)
-------- -------- --------
Net Cash Provided by (Used in) Financing Activities (20,391) (2,397) 13,570
-------- -------- --------
Net Increase (Decrease) in Cash (367) 319 (148)
Cash Balance, Beginning of Period 857 538 686
-------- -------- --------
Cash Balance, End of Period $ 490 $ 857 $ 538
======== ======== ========
Interest Paid During the Period $ 6,473 $ 5,407 $ 4,010
======== ======== ========
Income Taxes Paid During the Period $ 4,290 $ 7,098 $ 16,945
======== ======== ========
Dividends Declared but not yet Paid $ 1,506 $ 1,397 $ 1,162
======== ======== ========
- ------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
21
<PAGE> 23
MCGRATH RENTCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION AND BUSINESS
McGrath RentCorp is a California corporation organized in 1979. McGrath
RentCorp and its majority owned subsidiary, Enviroplex, Inc. ("Enviroplex"),
collectively referred to herein as the "Company", manufactures, rents and sells
relocatable modular offices and rents and sells communications, fiber optic and
electronic test equipment with related accessories primarily in California and
Texas. The Company's corporate offices are located in Livermore, California. In
addition to the corporate offices, certain branch functions are conducted from
this facility.
Under the trade name "Mobile Modular Management Corporation", the
Company rents and sells modular equipment and related accessories from two
branch offices located in California and one located in Texas. The Company
purchases the modulars from various manufacturers who build them to the
Company's design specifications. Although Mobile Modular Management
Corporation's primary emphasis is on rentals, sales of modulars occur routinely
and can fluctuate quarter to quarter and from year to year depending on customer
demands and requirements.
Under the trade name "McGrath-RenTelco", the Company rents and sells
electronic instruments from Livermore, California and Richardson, Texas.
Engineers, scientists, technicians and field-service personnel 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,
communications, network systems, industrial, research and aerospace companies.
The majority of McGrath-RenTelco's rental inventory consists of instruments
manufactured by Hewlett-Packard and Tektronix.
McGrath RentCorp owns 73.2% of Enviroplex, a California corporation
organized in 1991. Enviroplex manufactures portable classrooms built to the
requirements of the California Division of the State Architect ("DSA") and sells
primarily to school districts. Enviroplex conducts its sales and manufacturing
operations from one facility located in Stockton, California.
The rental and sale of modulars to public school districts for use as
portable classrooms, restroom buildings and administrative offices for
kindergarten through grade twelve (K-12) are a significant portion of the
Company's revenues. School business comprised approximately 34%, 45% and 52% of
the Company's consolidated rental and sales revenues for 1999, 1998 and 1997,
respectively.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of McGrath
RentCorp and Enviroplex. All significant intercompany accounts and transactions
are eliminated.
REVENUES
Rental revenue is recognized under the "operating method" of accounting
for the majority of leases. Effective January 1, 1999, rental revenue is
recognized ratably over the month on a daily basis. Rental billings for periods
extending beyond the month end are recorded as deferred income. In prior years,
only rental billings extending beyond a one-month period were recorded as
deferred income. The new method of recognizing revenue was adopted in response
to the Security and Exchange Commission's Staff Accounting Bulletin (SAB) No.
101, "Revenue Recognition." The effect is reported as a change in accounting
method in accordance with Accounting Principles Board Opinion ("APB") No. 20,
"Accounting Changes." The cumulative effect of changing to a new method of
accounting effective January 1, 1999 was to decrease net income by $1,367,000
(net of taxes of $883,000) or $0.10 per diluted share. The pro forma amounts
shown on the consolidated statements of income have been adjusted as if the new
method of revenue recognition had been in effect for all periods presented.
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, and return
delivery and dismantle. Revenue related to these services is recognized in the
period the services are performed and accepted.
22
<PAGE> 24
MCGRATH RENTCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Sales 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 lease 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 4).
DEPRECIATION AND MAINTENANCE
Rental equipment, buildings, land improvements, equipment and furniture
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 or life to the equipment. Land
improvements consist of development costs incurred to build storage and
maintenance facilities at each of the relocatable modular branch offices. The
following estimated useful lives and residual values are used for financial
reporting purposes:
Rental equipment:
<TABLE>
<S> <C>
Relocatable modular offices 7 to 18 years, 0% to 18% residual value
Electronic test instruments 5 to 8 years, no residual value
Buildings, land improvements, equipment and furniture 5 to 50 years, no residual value
</TABLE>
Maintenance and repairs are expensed as incurred.
OTHER DIRECT COSTS OF RENTAL OPERATION
Other direct costs of rental operations primarily relate to costs
associated with relocatable modular offices and include equipment supplies and
repairs, direct labor, amortization of lease costs included in the rental rate,
property and liability insurance, property taxes, and business and license fees.
WARRANTY SERVICE COSTS
Sales of new relocatable modular offices, electronic test equipment and
related accessories not manufactured by the Company 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
and a one-year warranty on equipment manufactured by Enviroplex. 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 6).
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company believes that the carrying amounts of its financial
instruments (cash and notes payable) approximate fair value.
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 and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during each period
presented. Actual results could differ from those estimates.
23
<PAGE> 25
MCGRATH RENTCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
EARNINGS PER SHARE
Basic earnings per share ("EPS") is computed as net income divided by
the weighted average number of shares of common stock outstanding for the
reported period, excluding the dilutive effects of stock options and other
potentially dilutive securities. Diluted EPS is computed as net income divided
by the weighted average number of shares outstanding of common stock and common
stock equivalents for the reported period. Common stock equivalents result from
dilutive stock options computed using the treasury stock method with the average
share price for the reported period. The weighted average number of dilutive
options outstanding at December 31, 1999, 1998 and 1997 were 147,789, 186,624
and 199,215, respectively.
COMPREHENSIVE INCOME
SFAS No. 130, "Reporting Comprehensive Income," establishes standards to
measure all changes in equity that result from transactions and other economic
events other than transactions with shareholders. Comprehensive income is the
total of net income and all other non-shareholder changes in equity. Other than
net income, the Company has no comprehensive income.
RECLASSIFICATIONS
Certain prior period amounts have been reclassified to conform to
current year presentation.
NOTE 3. CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to
concentration of credit risk consist primarily of trade accounts receivable. The
Company sells primarily on 30-day terms, individually performs credit evaluation
procedures on its customers on each transaction and will require security
deposits or personal guarantees from its customers when a significant credit
risk is identified. Historically, the Company has not incurred significant
credit related losses, however, an allowance for potential credit losses is
maintained. Typically, most customers are established companies or are publicly
funded entities located in California or Texas. Although no one customer
accounts for more than 10% of the Company's consolidated revenues, credit risk
exists in trade accounts receivable primarily due to the significant amount of
business transacted with California public school districts (K-12) which
represents a significant portion of the Company's revenues (see Note 1). The
lack of fiscal funding or a significant reduction of funding from the State of
California to the public schools could have a material adverse effect on the
Company.
NOTE 4. 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 are as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
(in thousands) December 31,
----------------------
1999 1998
------- -------
<S> <C> <C>
Gross minimum lease payments receivable $ 6,992 $ 5,935
Less - unearned interest (1,253) (1,246)
------- -------
Net investment in sales type lease receivables $ 5,739 $ 4,689
- -------------------------------------------------------------------------------
</TABLE>
24
<PAGE> 26
MCGRATH RENTCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
As of December 31, 1999, the future minimum lease payments to be
received in 2000 and thereafter are as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------
(in thousands)
Year Ended December 31,
<S> <C>
2000 $ 4,460
2001 1,471
2002 642
2003 265
2004 101
2005 and thereafter 53
--------
Total minimum future lease payments $ 6,992
- -----------------------------------------------------
</TABLE>
NOTE 5. NOTES PAYABLE
On July 31, 1998, the Company completed a private placement of
$40,000,000 of 6.44% Senior Notes due in 2005. Interest on the notes is due
semi-annually in arrears and the principal is due in 5 equal installments
commencing on July 15, 2001. The outstanding balance at December 31, 1999 was
$40,000,000. Among other restrictions, the agreement requires (i) the Company to
maintain a minimum net worth of $80,000,000 plus 25% of all net income generated
subsequent to June 30, 1998, less an aggregate amount not to exceed $15,000,000
paid by the Company to repurchase its common stock after June 30, 1998,
(restricted equity at December 31, 1999 is $73,855,000), (ii) a fixed coverage
charge of not less than 2.0 to 1.0, (iii) a rolling fixed charges coverage ratio
of not less than 1.5 to 1.0, and (iv) senior debt not to exceed 275% of
consolidated net worth and consolidated total debt not to exceed 300% of
consolidated net worth.
The Company maintains an unsecured line of credit agreement, as amended,
(the "Agreement") with its banks which expires on June 30, 2001 and permits it
to borrow up to $100,000,000 of which $70,300,000 was outstanding as of December
31, 1999. The Agreement requires the Company to pay interest at prime or, at the
Company's election, at other rate options available under the Agreement. In
addition, the Company pays a commitment fee on the daily average unused portion
of the available line. Among other restrictions, the Agreement requires (i) the
Company to maintain shareholders' equity of not less than $75,000,000 plus 50%
of all net income generated subsequent to September 30, 1999 plus 90% of any new
stock issuance proceeds (restricted equity at December 31, 1999 is $77,990,000),
(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) debt service coverage (earnings before
interest, taxes, depreciation and amortization compared to the following year's
pro forma debt service) of not less than 1.15 to 1.0. If the Company does not
amend or renegotiate the present Agreement for an additional time period prior
to its expiration date, the principal amount outstanding at that time will be
converted to a two-year term loan with principal due and payable in eight (8)
consecutive quarterly installments.
In addition to the $100,000,000 unsecured line of credit, the Company
has a $5,000,000 committed line of credit facility (at prime rate) related to
its cash management services of which none was outstanding as of December 31,
1999. This committed line related to its cash management services will expire on
June 30, 2000.
25
<PAGE> 27
MCGRATH RENTCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The following information relates to the lines of credit for each of the
following periods:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
(dollar amounts in thousands) Year Ended December 31,
------------------------------
1999 1998
----------- -----------
<S> <C> <C>
Maximum amount outstanding $ 70,300 $ 103,500
Average amount outstanding $ 62,646 $ 79,326
Weighted average interest rate 6.08% 6.41%
Effective interest rate at end of period 7.11% 6.37%
Prime interest rate at end of period 8.50% 7.75%
- -----------------------------------------------------------------------------
</TABLE>
NOTE 6. INCOME TAXES
The provision (benefit) for income taxes is comprised of the following:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
(in thousands) Current Deferred Total
-------- -------- --------
<S> <C> <C> <C>
Year Ended December 31,
1999
Federal $ 3,067 $ 8,972 $ 12,039
State 1,223 729 1,952
-------- -------- --------
$ 4,290 $ 9,701 $ 13,991
-------- -------- --------
1998
Federal $ 5,526 $ 7,736 $ 13,262
State 1,572 1,176 2,748
-------- -------- --------
$ 7,098 $ 8,912 $ 16,010
-------- -------- --------
1997
Federal $ 14,075 $ (809) $ 13,266
State 2,870 187 3,057
-------- -------- --------
$ 16,945 $ (622) $ 16,323
- ----------------------------------------------------------------------
</TABLE>
In 1999, the total provision for income taxes includes a provision on
income before taxes of $14,874,000 and a tax benefit of $883,000 included with
the cumulative effect of accounting change on the consolidated statements of
income.
The reconciliation of the federal statutory tax rate to the Company's
effective tax rate is as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
Year Ended December 31,
---------------------------------
1999 1998 1997
---------------------------------
<S> <C> <C> <C>
Federal statutory rate 35.00% 35.00% 35.00%
State taxes, net of federal benefit 3.46 4.37 4.80
Other (0.35) (0.24) (0.35)
----- ----- -----
38.11% 39.13% 39.45%
- ---------------------------------------------------------------------------
</TABLE>
26
<PAGE> 28
MCGRATH RENTCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following table shows the tax effect of the Company's cumulative
temporary differences included in net deferred income taxes on the Company's
consolidated balance sheets:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
(in thousands) Year Ended December 31,
------------------------
1999 1998
-------- --------
<S> <C> <C>
Excess of tax over book depreciation $ 58,112 $ 51,417
State income taxes (3,333) (3,245)
Accrued liabilities not currently deductible (73) (146)
Revenue deferred for financial reporting purposes (2,753) (1,598)
Other, net 2,908 (1,268)
-------- --------
$ 54,861 $ 45,160
- --------------------------------------------------------------------------------
</TABLE>
NOTE 7. COMMON STOCK AND STOCK OPTIONS
The Company adopted a 1998 Stock Option Plan (the "1998 Plan"),
effective March 9, 1998, under which 2,000,000 shares are reserved for the grant
of options to purchase common stock to directors, officers, key employees and
advisors 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 1998 Plan, 345,500
options have been granted with exercise prices ranging from $18.25 to $20.81.
The options vest over 5 years and expire 10 years after grant. To date, no
options have been issued to any of the Company's advisors. As of December 31,
1999, 1,654,500 options remain available to issue under the 1998 plan.
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 $3.06, $6.94 and $10.75 per share. The options vest over 9.3 years and expire
10 years after grant. The 1987 Plan expired in December 1997 and no further
options can be issued under this plan.
Option activity and options exercisable including weighted average
exercise price for the three years ended December 31, 1999 are as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Year Ended December 31,
--------------------------------------------------------------------------------
1999 1998 1997
---------------------- --------------------- -----------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at January 1, 541,122 13.83 364,672 8.57 540,452 6.90
Options granted during the year 103,500 18.25 242,000 20.81 -- --
Options exercised during the year (91,250) 7.18 (31,282) 7.55 (175,780) 3.44
Options terminated during the year (36,850) 18.74 (34,268) 12.93 -- --
------- ------- -------
Options outstanding at December 31, 516,522 15.53 541,122 13.85 364,672 8.57
------- ------- -------
Options exercisable at December 31, 172,407 13.22 171,877 8.55 153,362 7.45
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
27
<PAGE> 29
MCGRATH RENTCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following table indicates the options outstanding and options
exercisable by exercise price with the weighted average remaining contractual
life for the options outstanding and the weighted average exercise price at
December 31, 1999:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
Options Outstanding Options Exercisable
------------------------------------ -----------------------------
Weighted
Average Weighted
Number Remaining Average Number Weighted
Outstanding Contractual Exercise Exercisable Average
Exercise Price at 12/31/99 Life (Years) Price at 12/31/99 Exercise Price
-------------- ----------- ------------ ----- ----------- --------------
<S> <C> <C> <C> <C> <C>
6.94 82,172 1.75 6.94 63,107 6.94
10.75 131,350 6.50 10.75 42,600 10.75
18.25 103,500 9.92 18.25 -- 18.25
20.25 15,500 8.50 20.25 12,000 20.25
20.81 174,000 8.25 20.81 52,200 20.81
21.69 10,000 8.67 21.69 2,500 21.69
------- -------
6.94 - 21.69 516,522 7.12 15.53 172,407 13.22
- ---------------------------------------------------------------------------------------------
</TABLE>
SFAS 123 "Accounting for Stock-Based Compensation" became effective for
the Company in 1996. As allowed by SFAS 123, the Company has elected to continue
to follow APB 25 "Accounting for Stock Issued to Employees" in accounting for
its stock option plans. Under APB 25, the Company does not recognize
compensation expense on the issuance of stock options because the option terms
are fixed and the exercise price equals the market price of the underlying stock
on the grant date. However, APB 25 requires recognition of noncash compensation
when the Company repurchases stock acquired by an employee through the exercise
of an incentive stock option. During 1999, the Company repurchased 80,000 shares
of stock at $18.00 per share from an employee who had acquired the stock at
$6.94 per share through the exercise of a stock option, resulting in the
recognition of noncash compensation expense of $885,000. The noncash
compensation of $885,000 is included in the Company's consolidated statements of
income in selling and administrative expense.
In accordance with SFAS 123, the fair value of each option grant is
estimated at the date of grant using the Black-Scholes option-pricing model. The
assumptions used in the 1999 and 1998 grants are as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------
Year Ended December 31,
-----------------------
1999 1998
---- ----
<S> <C> <C>
Risk-free interest rates 6.3% 6.5%
Expected dividend yields 2.7% 2.0%
Expected volatility 27.8% 27.1%
Expected option life (in years) 7.5 7.5
- ---------------------------------------------------------
</TABLE>
The fair value of the options granted subsequent to 1995 are $2,422,000,
$2,249,000 and $532,000 at December 31, 1999, 1998 and 1997, respectively.
28
<PAGE> 30
MCGRATH RENTCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The following pro forma net income and earnings per share data are computed
as if compensation cost for the Stock Option Plan had been determined consistent
with SFAS 123:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
(in thousands, except
per share amounts) Year Ended December 31,
-------------------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Net Income $ 22,466 $ 23,895 $ 24,045
Pro Forma net income 22,043 23,583 24,005
EPS
Basic 1.70 1.69 1.60
Diluted 1.68 1.67 1.58
Pro Forma EPS
Basic 1.67 1.67 1.60
Diluted 1.65 1.64 1.58
- --------------------------------------------------------------------------------
</TABLE>
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 cash contribution of $750,000 was approved in each year
for 1999, 1998 and 1997.
In 1991, the Board of Directors adopted a Long-Term Stock Bonus Plan (the
"LTB Plan") under which 400,000 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 financial goals 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, 1999, 198,559 shares
of common stock have been granted, of which 137,211 shares are vested. Future
grants of 35,364 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. The LTB Plan expired in December 1999 and no further
grants of common stock can occur under the LTB Plan. Compensation expense for
1999, 1998 and 1997 under these plans was $458,000, $485,000 and $497,000
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. As of December 31, 1999, 1998, and
1997, the unvested shares were 61,348, 64,457 and 57,709, respectively, with the
related weighted average grant-date fair value of these unvested shares of
$20.23, $20.42 and $18.10 per share, respectively.
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
1997, the Company repurchased 502,408 shares of common stock for an aggregate
repurchase price of $10,545,000 or an average price of $20.99 per share. In
1998, the Company repurchased 619,550 shares of common stock for an aggregate
repurchase price of $12,247,000 or an average price of $19.77 per share. In
1999, the Company repurchased 1,549,526 shares of common stock for an aggregate
repurchase price of $28,212,000 or an average price of $18.21 per share. As of
December 31, 1999, 685,940 shares remain authorized for repurchase.
NOTE 8. BUSINESS SEGMENTS
As of January 1, 1998, the Company adopted SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." The Company defined its
business segments based on the nature of operations for the purpose of reporting
under SFAS 131. The Company's three reportable segments are Mobile Modular
Management
29
<PAGE> 31
MCGRATH RENTCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Corporation (Modulars), McGrath-RenTelco (Electronics), and Enviroplex. The
operations of each of these segments is described in Note 1, Organization and
Business, and the accounting policies of the segments are described in Note 2,
Significant Accounting Policies. 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 years ended December 31, 1999, 1998, and 1997 for
the Company's reportable segments is shown in the following table:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
(in thousands) Modulars Electronics Enviroplex Consolidated
-------- ----------- ---------- ------------
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31,
1999
Rental Operations Revenues $ 64,164 $27,633 $ -- $ 91,797
Sales and Other Revenues 16,600 10,415 11,150 38,165
Total Revenues 80,764 38,048 11,150 129,962
Depreciation on Rental Equipment 10,811 8,969 -- 19,780
Interest Expense (Income) 5,097 1,724 (215) 6,606
Income before Provision for Income Taxes 23,838 13,641 1,479 38,958
Rental Equipment Acquisitions 30,443 16,867 -- 47,310
Accounts Receivable, net (year-end) 11,334 9,691 4,070 25,095
Rental Equipment, at cost (year-end) 238,449 72,832 -- 311,281
1998
Rental Operations Revenues $ 58,964 $24,531 $ -- $ 83,495
Sales and Other Revenues 23,619 7,642 20,672 51,933
Total Revenues 82,583 32,173 20,672 135,428
Depreciation on Rental Equipment 9,398 7,464 -- 16,862
Interest Expense 4,802 1,505 19 6,326
Income before Provision for Income Taxes 23,133 11,875 5,902 40,910
Rental Equipment Acquisitions 28,970 22,189 -- 51,159
Accounts Receivable, net (year-end) 10,765 6,900 4,146 21,811
Rental Equipment, at cost (year-end) 216,414 66,573 -- 282,987
1997
Rental Operations Revenues $ 51,412 $20,554 $ -- $ 71,966
Sales and Other Revenues 34,178 7,545 21,287 63,010
Total Revenues 85,590 28,099 21,287 134,976
Depreciation on Rental Equipment 8,154 6,204 -- 14,358
Interest Expense 3,148 880 42 4,070
Income before Provision for Income Taxes 24,708 10,723 5,948 41,379
Rental Equipment Acquisitions 49,303 12,974 -- 62,277
Accounts Receivable, net (year-end) 10,449 6,567 4,778 21,794
Rental Equipment, at cost (year-end) 196,133 50,351 -- 246,484
- --------------------------------------------------------------------------------------------------
</TABLE>
30
<PAGE> 32
MCGRATH RENTCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 9. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Quarterly financial information for each of the two years ended December
31, 1999 is summarized below:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
(in thousands, except per share amounts) 1999
-----------------------------------------------------------
First Second Third Fourth Year
--------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
OPERATIONS DATA
Rental revenues $ 19,059 $ 19,019 $ 20,117 $ 20,559 $ 78,754
Total revenues 28,574 31,559 36,657 33,172 129,962
Gross margin 14,577 15,263 16,694 16,133 62,667
Income from operations 10,378 11,274 12,670 11,242 45,564
Income before income taxes 8,862 9,693 10,949 9,454 38,958
Income before effect of accounting change 5,420 5,798 6,636 5,979 23,833
Cumulative effect of accounting change, net of tax (1,367) -- -- -- (1,367)
Net income 4,053 5,798 6,636 5,979 22,466
Earnings per share:
Basic
Income before cumulative effect of accounting change $ 0.39 $ 0.43 $ 0.51 $ 0.47 $ 1.80
Cumulative effect of accounting change, net of tax (0.10) -- -- -- (0.10)
--------- -------- -------- -------- ---------
Net Income $ 0.29 $ 0.43 $ 0.51 $ 0.47 $ 1.70
========= ======== ======== ======== =========
Diluted
Income before cumulative effect of accounting change $ 0.39 $ 0.43 $ 0.50 $ 0.47 $ 1.78
Cumulative effect of accounting change, net of tax (0.10) -- -- -- (0.10)
--------- -------- -------- -------- ---------
Net Income $ 0.29 $ 0.43 $ 0.50 $ 0.47 $ 1.68
========= ======== ======== ======== =========
Dividends declared per share $ 0.12 $ 0.12 $ 0.12 $ 0.12 $ 0.48
========= ======== ======== ======== =========
Shares used in per share calculation:
Basic 13,820 13,403 13,067 12,649 13,235
Diluted 13,991 13,568 13,220 12,751 13,383
BALANCE SHEET DATA
Rental equipment net $ 199,008 $205,797 $213,089 $217,178 $ 217,178
Total assets 274,776 286,700 292,889 297,722 297,722
Notes payable 101,450 102,900 108,700 110,300 110,300
Shareholders' equity 97,937 99,476 92,274 95,403 95,403
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
31
<PAGE> 33
MCGRATH RENTCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 9. QUARTERLY FINANCIAL INFORMATION (UNAUDITED) (continued)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
(in thousands, except per share amounts) 1998
-----------------------------------------------------------
First Second Third Fourth Year
--------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
OPERATIONS DATA
Rental Revenues $ 16,981 $ 17,340 $ 18,385 $ 19,261 $ 71,967
Total revenues 27,350 33,475 44,478 30,125 135,428
Gross margin 13,565 15,863 18,680 15,348 63,456
Income from operations 9,860 12,024 14,120 11,232 47,236
Income before income taxes 8,409 10,441 12,434 9,626 40,910
Net income 4,968 5,974 7,088 5,865 23,895
Earnings per share:
Basic $ 0.34 $ 0.42 $ 0.50 $ 0.42 $ 1.69
Diluted $ 0.34 $ 0.42 $ 0.50 $ 0.41 $ 1.67
Dividends declared per share $ 0.10 $ 0.10 $ 0.10 $ 0.10 $ 0.40
Shares used in per share calculation:
Basic 14,436 14,122 14,062 13,996 14,163
Diluted 14,635 14,213 14,231 14,173 14,349
Pro forma amounts assuming accounting change had been in
effect during 1998:
Net income $ 4,941 $ 5,923 $ 6,988 $ 5,845 $ 23,697
Earnings per share:
Basic $ 0.34 $ 0.42 $ 0.50 $ 0.42 $ 1.67
Diluted $ 0.34 $ 0.42 $ 0.49 $ 0.41 $ 1.65
BALANCE SHEET DATA
Rental equipment, net $178,003 $186,883 $190,461 $200,028 $200,028
Total assets 256,968 266,575 274,932 278,676 278,676
Notes payable 97,747 103,500 100,000 97,000 97,000
Shareholders' equity 93,587 97,168 101,049 105,394 105,394
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
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 May 31, 2000, which will be filed with the
Securities and Exchange Commission by not later than May 1, 2000.
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 May 31, 2000, which will be filed with the
Securities and Exchange Commission by not later than May 1, 2000.
32
<PAGE> 34
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 May 31, 2000, which will be filed with the
Securities and Exchange Commission by not later than May 1, 2000.
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 May 31, 2000, which will be filed with the
Securities and Exchange Commission by not later than May 1, 2000.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Index of documents filed as part of this report:
1. The following Consolidated Financial Statements of McGrath RentCorp are
included in Item 8.
<TABLE>
<CAPTION>
PAGE OF
THIS REPORT
-----------
<S> <C>
Report of Independent Public Accountants 17
Consolidated Financial Statements
Consolidated Statements of Income for the Years Ended December 31, 1999, 1998 and 1997 18
Consolidated Balance Sheets as of December 31, 1999 and 1998 19
Consolidated Statements of Shareholders' Equity for the Years Ended December 31, 1999,
1998 and 1997 20
Consolidated Statements of Cash Flows for the Years Ended December 31, 1999,
1998 and 1997 21
Notes to Consolidated Financial Statements 22
</TABLE>
2. Financial Statement Schedules. None
3. Exhibits. See Index of Exhibits on page 35 of this report.
(b) Reports on Form 8-K. None.
Schedules and exhibits required by Article 5 of Regulation S-X other than
those listed are omitted because they are not required, are not applicable, or
equivalent information has been included in the consolidated financial
statements, and notes thereto, or elsewhere herein.
33
<PAGE> 35
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 17, 2000 MCGRATH RENTCORP
by: /s/ Robert P. McGrath
---------------------------
Robert P. McGrath
Chairman of the Board
and 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.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<S> <C> <C>
/s/ William J. Dawson Director March 17, 2000
- --------------------------
William J. Dawson
/s/ Robert C. Hood Director March 17, 2000
- --------------------------
Robert C. Hood
/s/ Joan M. McGrath Director March 17, 2000
- --------------------------
Joan M. McGrath
/s/ Robert P. McGrath Chairman of the Board and March 17, 2000
- -------------------------- Chief Executive Officer
Robert P. McGrath
/s/ Thomas J. Sauer Vice President
- -------------------------- and Chief Financial Officer March 17, 2000
Thomas J. Sauer (Chief Accounting Officer)
/s/ Delight Saxton Senior Vice President and Director March 17, 2000
- --------------------------
Delight Saxton
/s/ Ronald H. Zech Director March 17, 2000
- --------------------------
Ronald H. Zech
</TABLE>
34
<PAGE> 36
MCGRATH RENTCORP
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
NUMBER DESCRIPTION METHOD OF FILING
- ------ ----------- ----------------
<S> <C> <C>
3.1 Articles of Incorporation of McGrath RentCorp Filed as exhibit 19.1 to the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1988 (filed August 14,
1988), and incorporated herein by reference.
3.1.1 Amendment to Articles of Incorporation of Filed as exhibit 3.1 to the Company's Registration Statement on
McGrath RentCorp Form S-1 (filed March 28, 1991 Registration No. 33-39633), and
incorporated herein by reference.
3.1.2 Amendment to Articles of Incorporation of Filed as exhibit 3.1.2 to the Company's Annual Report on Form 10-K
McGrath RentCorp for the year ended December 31, 1997 (filed March 31, 1998),
incorporated herein by reference.
3.2 Amended and Restated By-Laws of McGrath Filed as exhibit 3.1 to the Company's Annual Report on Form 10-K for
RentCorp the year ended December 31, 1990 (filed March 28, 1991), incorporated
herein by reference.
3.2.1 Amendment of By-Laws of McGrath RentCorp Filed as exhibit 3.2.1 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1997 (filed March 31, 1998),
incorporated herein by reference.
3.2.2 Amendment of By-Laws of McGrath RentCorp Filed as exhibit 3.2.2 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1998 (filed March 31, 1999, amended
June 25, 1999), incorporated herein by reference.
3.2.3 Amendment of By-Laws of McGrath RentCorp Filed as exhibit 3.1 to the Company's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1999 (filed May 14, 1999, amended
June 25, 1999) and incorporated herein by reference.
3.2.4 Amendment of By-Laws of McGrath RentCorp Filed herewith.
4.1 Amended and Restated Credit Agreement Filed as exhibit 4.1 to the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1997 (filed August 1, 1997), and
incorporated herein by reference.
4.1.1 First Amendment to the Restated Credit Filed as exhibit 4.1.1 to the Company's Annual Report on Form 10-K
Agreement for the year ended December 31, 1997 (filed March 31, 1998),
incorporated herein by reference.
4.1.2 Second Amendment to the Restated Credit Filed as exhibit 4.1.2 to the Company's Annual Report on Form 10-K
Agreement for the year ended December 31, 1997 (filed March 31, 1998),
incorporated herein by reference.
4.1.3 Third Amendment to the Restated Credit Filed as exhibit 4.1 to the Company's Quarterly Report on Form 10-Q
Agreement for the quarter ended March 31, 1998 (filed May 13, 1998),
incorporated herein by reference.
4.1.4 Facility Reduction Letter for Restated Credit Filed as exhibit 4.1 to the Company's Quarterly Report on Form 10-Q
Agreement for the quarter ended September 30, 1998 (filed November 12, 1998),
incorporated herein by reference.
4.1.5 Fourth Amendment to the Restated Credit Filed as exhibit 4.1 to the Company's Quarterly Report on Form 10-Q
Agreement for the quarter ended March 31, 1999 (filed May 14, 1999, amended
June 25, 1999) and incorporated herein by reference.
4.1.6 Amended and Restated Credit Agreement Filed as exhibit 4.1 to the company's Quarterly Report on Form 10-Q
June, 1999 for the quarter ended June 30, 1999 (filed August 11, 1999) and
incorporated herein by reference.
4.1.7 First Amendment to the Restated Credit Filed herewith.
Agreement June, 1999
4.2 Note Purchase Agreement Filed as exhibit 4.3 to the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1998 (filed November 12, 1998),
and incorporated herein by reference.
4.2.1 Schedule of Notes with Sample Note Filed as exhibit 4.3 to the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1998 (filed August 11, 1998), and
incorporated herein by reference.
10.1 The McGrath RentCorp 1987 Incentive Stock Filed as exhibit 19.3 to the Company's Quarterly Report on Form 10-Q
Option Plan for the quarter ended June 30, 1988 (filed August 14, 1988), and
incorporated herein by reference.
10.1.1 Exemplar of the Form of the Incentive Stock Filed as exhibit 19.3 to the Company's Quarterly Report on Form 10-Q
Option Agreement for the quarter ended June 30, 1988 (filed August 14, 1988), and
incorporated herein by reference.
10.2 The 1998 Stock Option Plan Filed as exhibit 10.1 to the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1998 (filed November 12, 1998), and
incorporated herein by reference.
</TABLE>
35
<PAGE> 37
<TABLE>
<S> <C> <C>
10.2.1 Exemplar of Incentive Stock Option for Filed as exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for
Employees Under the 1998 Stock Option Plan the quarter ended September 30, 1998 (filed November 12, 1998), and
incorporated herein by reference.
10.2.2 Exemplar of Non-Qualified Stock Option for Filed as exhibit 10.3 to the Company's Quarterly Report on Form 10-Q
Directors under the 1998 Stock Option Plan for the quarter ended September 30, 1998 (filed November 12, 1998),
and incorporated herein by reference.
10.2.3 Schedule of Options Granted to Members of the Filed as exhibit 10.4 to the Company's Quarterly Report on Form 10-Q
Board of Directors for the quarter ended September 30, 1998 (filed November 12, 1998),
and incorporated herein by reference.
10.2.4 Schedule of Options Granted to Members of the Filed herewith.
Board Of Directors
10.3 Exemplar of the Form of the Directors, Filed as exhibit 19.5 to the Company's Quarterly Report on Form 10-Q
Officers Other Agents Indemnification for the quarter and ended June 30, 1988 (filed August 14, 1988),
Agreements and incorporated herein by reference.
10.3.1 Exemplar Form of Indemnification Agreement Filed as exhibit 10.5 to the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1998 (filed November 12, 1998),
and incorporated herein by reference.
10.4 Long-Term Stock Bonus Plan together with Filed as exhibit 10.3 to the Company's Annual Report on Form 10-K
Exemplar Long-Term Stock Bonus Agreement for the year ended December 31, 1990 (filed March 28, 1991), and
incorporated herein by reference.
23 Written Consent of Arthur Andersen, LLP Filed herewith.
27 Financial Data Schedule Filed electronically.
</TABLE>
The exhibits listed above may be obtained from McGrath RentCorp, 5700
Las Positas Road, Livermore, California 94550-7800 upon written request. Each
request should specify the name and address of the requesting person and the
title of the exhibit or exhibits desired. A reasonable fee for copying any
exhibit requested plus postage will be charged by McGrath RentCorp prior to
furnishing such exhibit(s).
See http://www.sec.gov/edaux/formlynx.htm for the Company's most recent
filings.
36
<PAGE> 1
EXHIBIT 3.2.4
MCGRATH RENTCORP
ACTION BY THE BOARD OF DIRECTORS
BY UNANIMOUS WRITTEN CONSENT
December 22, 1999
Amendment of By-Laws
RESOLVED: Section 3.2 of the By-Laws of this corporation is hereby amended to
read in its entirety as follows:
"3.2 NUMBER OF DIRECTORS. The number of directors of this corporation
shall be not less than four (4) nor more than seven (7). The exact
number of directors shall be six (6) until changed, within the limits
specified above, by an amendment to this section 3.2 duly adopted by
either the Board of Directors or the shareholders. The indefinite number
of directors may be changed, or a definite number fixed without
provision for an indefinite number, by an amendment to this section 3.2
adopted by the vote or written consent of a majority of the outstanding
shares entitled to vote."
<PAGE> 1
EXHIBIT 4.1.7
AMENDMENT NO. 1
TO
AMENDED AND RESTATED CREDIT AGREEMENT
This Amendment No. 1 to Amended and Restated Credit Agreement (this
"Amendment") is dated as of December 15, 1999, by and among McGRATH RENTCORP, a
California corporation (the "Borrower"), the banks listed on the signature pages
hereof (individually a "Bank" and collectively "Banks"), and UNION BANK OF
CALIFORNIA, N.A., as agent (the "Agent") for Banks.
Recitals
A. Agent, Banks and Borrower are parties to an Amended and Restated Loan
Agreement dated as of June 30, 1999 (as amended, modified and supplemented from
time to time, the "Credit Agreement").
B. Borrower wishes to increase the aggregate Commitment from the Banks
from $75 million to $100 million and to relax the minimum tangible net worth
requirements of the Credit Agreement. Banks are willing to so increase the
Commitment and to amend the Credit Agreement in other respects on and subject to
the terms and conditions set forth in this Amendment.
C. Each capitalized term used but not otherwise defined herein shall
have the meaning ascribed thereto in the Credit Agreement.
NOW, THEREFORE, the parties hereto hereby agree as follows:
ARTICLE I
AMENDMENTS TO CREDIT AGREEMENT
This Amendment shall be deemed to be an amendment to the Credit
Agreement and shall not be construed in any way as a replacement or substitution
therefor. All of the terms and conditions of, and terms defined in, this
Amendment are hereby incorporated by reference into the Credit Agreement as if
such terms and provisions were set forth in full therein.
1.1 Borrower has requested that Banks amend the Credit Agreement in
certain respects, including the extension of additional credit in the form of a
$25 million increase in the Commitment. Banks are willing to increase the
Commitment and to amend the Credit Agreement on the terms and conditions set
forth in this Amendment .
1.2 Article 1 of the Credit Agreement, entitled "Definitions," is hereby
amended as follows:
(a) The definition of "Commitment" is amended by replacing the
reference to "Seventy-Five Million Dollars ($75,000,000)" therein to "One
Hundred Million Dollars ($100,000,000)."
(b) A new defined term "Leverage Ratio" is added, as follows:
"Leverage Ratio" means, as of any date of determination, the
ratio of Borrower's Liabilities as of such date to Tangible Net
Worth as of such date.
(c) The first sentence of Section 1.2 of the Credit Agreement,
"Accounting Terms," is hereby amended and restated in its entirety, to read
follows:
"All accounting terms not specifically defined in this Agreement
shall be construed, and all financial data and ratios required to
be submitted pursuant to this Agreement shall be prepared in
conformity with GAAP and on a consolidated basis for Borrower and
its Subsidiaries, except as otherwise specifically provided in
this Agreement."
1.3 Section 2.3.2 of the Credit Agreement is hereby amended and restated
in its entirety as follows:
2.3.2 Rate Options and Applicable Margins. The Rate Options and
Applicable Margins for Loans shall be determined based upon the
type of Loan and the current Leverage Ratio, as set forth in the
table below:
<PAGE> 2
<TABLE>
<CAPTION>
TYPE OF LOAN/ APPLICABLE MARGIN APPLICABLE MARGIN ON
RATE OPTION LEVERAGE RATIO ON REVOLVING LOANS TERM LOANS
- ----------- -------------- ------------------ --------------------
<S> <C> <C> <C>
Eurodollar Loans/ Equal to or greater 1.25% 1.50%
Interbank Rate than 2.25 to 1.00
(Reserve
Adjusted):
Equal to or greater 1.00% 1.25%
than 1.75 to 1.00
but less than 2.25
to 1.00
Equal to or greater 0.85% 1.10%
than 1.25 to 1.00
but less than 1.75
to 1.00
Less than 1.25 to 0.70% 0.95%
1.00
Reference Rate
Loans/Reference [Not applicable] 0.00% 0.25%
Rate:
</TABLE>
The Applicable Margin shall be subject to reduction or increase,
as applicable and as set forth in the table above, on a quarterly
basis according to the performance of Borrower as measured by the
Leverage Ratio for the immediately preceding fiscal quarter of
Borrower. Any such increase or reduction in the Applicable Margin
shall be effective on the next Business Day after receipt by
Agent of the applicable financial statements and the
corresponding Compliance Certificate. If the financial statements
and the Compliance Certificate of Borrower setting forth the
Leverage Ratio is not received by the Agent by the date required
pursuant to this Agreement, the Applicable Margin shall be
determined as if the Leverage Ratio exceeds 2.25 to 1.00,
commencing on the date when Borrower's time to deliver such
financial statements and Compliance Certificate shall have
expired and continuing until such time as such financial
statements and Compliance Certificate are received and any Event
of Default resulting from a failure to timely deliver such
financial statements or Compliance Certificate has been waived in
writing by the Required Banks.
Effective as of the date of this Amendment and continuing until
the next adjustment required under Section 2.3.2, the Applicable Margin on
outstanding Revolving Loans is 0.85%, based on Borrower's most recently reported
Leverage Ratio.
1.4 The form of Compliance Certificate referenced in Section 7.3(c) of
the Credit Agreement and attached thereto as Exhibit A is hereby replaced in its
entirety with the form of Compliance Certificate attached to this Amendment as
Exhibit "A".
1.5 Section 7.11(a) of the Credit Agreement is hereby amended and
restated in its entirety as follows:
(a) Tangible Net Worth at all times of at least the sum of (i)
Seventy-Five Million Dollars ($75,000,000), plus (ii) fifty percent
(50%) of Borrower's Net Income (without reduction for any Net Loss)
generated after September 30, 1999, plus (iii) ninety percent (90%)
of the proceeds from the issuance of Borrower's capital stock after
September 30, 1999, excluding the first Two Million Dollars
($2,000,000) of such proceeds from the exercise of stock options
after September 30, 1999.
1.6 A new Section 10.9 is added to Article 10 of the Credit Agreement,
as follows:
10.9 IRS WITHHOLDING REPRESENTATION. Each Bank represents and
warrants that it is entitled to receive any payments hereunder
without the withholding of any tax and will furnish to Agent such
forms, certifications, statements and other documents as Agent may
request from time to time to evidence such Bank's exemption from the
withholding of any tax imposed by any jurisdiction or to enable
Agent to comply with any applicable laws or regulations relating
thereto.
Without limiting the effect of the foregoing, if any Bank is not
created or organized under the laws of the United States or any
state thereof, such Bank further represents and warrants that it is
engaged in the conduct of a business within the United States and
that the payments made hereunder are or are reasonably
<PAGE> 3
expected to be effectively connected with the conduct of that trade
or business and are or will be includible in its gross income or, if
Bank is not engaged in a U.S. trade or business with which such
payments are effectively connected, that such Bank is entitled to
the benefits of a tax convention which exempts the income from U.S.
withholding tax and that it has satisfied all requirements to
qualify for the exemption from tax.
Each Bank agrees that it will, immediately upon the request of
Agent, furnish to Agent Form 4224 or Form 1001 of the Internal
Revenue Service, or such other forms, certifications, statements or
documents, duly executed and completed by such Bank as evidence of
its exemption from the withholding of U.S. tax with respect thereto.
If any Bank determines that, as a result of any change in applicable
law, regulation, or treaty or in any official application or
interpretation thereof, it ceases to qualify for exemption from any
tax imposed by any jurisdiction with respect to payments made
hereunder, such Bank shall promptly notify Agent of such fact and
Agent may, but shall not be required to withhold the amount of any
such applicable tax from amounts paid to such Bank hereunder. Agent
shall not be obligated to make any payments hereunder to such Bank
in respect of its Loans until such Bank shall have furnished to
Agent the requested form, certification, statement or document and
may withhold the amount of such applicable tax from amounts paid to
Bank hereunder.
Each Bank shall reimburse, indemnify and hold Agent harmless for any
and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements of any
kind or nature whatsoever which may be imposed upon, incurred by or
asserted against Agent due to its reliance upon the representation
hereby made that such Bank is exempt from withholding of tax. Unless
Agent receives written notice to the contrary, each Bank shall be
deemed to have made the representations contained in this Section
and in each subsequent tax year of such Bank.
1.7 For purposes of Section 11.20 of the Credit Agreement, the addresses
of the parties set forth on the signature pages to this Amendment shall
supercede, and be used for notices and other communications after the date
hereof instead of the addresses set forth on the signature pages to the Credit
Agreement.
ARTICLE II
CONDITIONS TO EFFECTIVENESS
OF AMENDMENT
2.1 The effectiveness of this Amendment is subject to the fulfillment to
the satisfaction of Agent, in its sole discretion, of the following conditions
precedent:
(a) Borrower shall have executed and delivered to Banks this
Amendment, and the three (3) replacement Revolving Notes, one payable to each
Bank, in the form attached hereto as Exhibit "B";
(b) Borrower shall have paid to Agent for ratable distribution to
Banks, a one-time facility fee in the amount of $40,000 in connection with the
increase in the Commitment and this Amendment, and shall have reimbursed Agent
its costs and expenses, including attorneys' fees and costs not to exceed
$1,500.00, incurred in connection with the negotiation, preparation and closing
of this Amendment.
(c) Agent shall have received appropriate authorization
documents, including borrowing resolutions and certificates of incumbency,
confirming to Agent's satisfaction that all necessary corporate and
organizational actions have been taken to authorize Borrower to enter into this
Amendment ; and
(d) Agent shall have received such other documents, instruments
or agreements as Agent may require to effectuate the intents and purposes of
this Amendment.
<PAGE> 4
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Borrower hereby represents and warrants to Agent and each Bank that:
3.1 After giving effect to the amendment of the Credit Agreement
pursuant to this Amendment and the consummation of the transactions contemplated
hereby (i) each of the representations and warranties set forth in Article 6 of
the Credit Agreement is true and correct in all respects as if made on the date
hereof (with references to the Credit Agreement being deemed to include this
Amendment), and (ii) there exists no Default or Event of Default under the
Credit Agreement after giving effect to this Amendment.
3.2 Borrower has full corporate power and authority to execute and
deliver this Amendment, to make and deliver the replacement Revolving Notes, and
to perform the obligations of its part to be performed thereunder and under the
Credit Agreement as amended hereby. Borrower has taken all necessary action,
corporate or otherwise, to authorize the execution and delivery of this
Amendment and each of the documents described herein. No consent or approval of
any person, no consent or approval of any landlord or mortgagee, no waiver of
any lien or similar right and no consent, license, approval or authorization of
any governmental authority or agency is or will be required in connection with
the execution or delivery by Borrower of this Amendment or the performance by
Borrower of the Credit Agreement as amended hereby.
3.3 This Amendment, the replacement Revolving Notes and the Credit
Agreement as amended hereby are, or upon delivery thereof to Banks will be, the
legal, valid and binding obligations of Borrower, enforceable against Borrower
in accordance with their respective terms, except as such enforceability may be
limited by bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally.
ARTICLE IV
MISCELLANEOUS
4.1 The Credit Agreement, the other Loan Documents and all agreements,
instruments and documents executed and delivered in connection with any of the
foregoing shall each be deemed to be amended hereby to the extent necessary, if
any, to give effect to the provisions of this Amendment. Except as so amended
hereby, the Credit Agreement and the other Loan Documents shall remain in full
force and effect in accordance with their respective terms.
4.2 Borrower agrees to pay Agent on demand reasonable fees and costs of
attorneys up to $1,500.00, incurred by Agent in connection with the preparation,
negotiation and execution of this Amendment and any document required to be
furnished hereunder. IN WITNESS WHEREOF, Borrower, Banks and Agent have executed
this Amendment as of the date set forth in the preamble hereto.
MCGRATH RENTCORP
---------------------------------------------------
By: Thomas J. Sauer
Title: Vice President and Chief Financial Officer
Notice Address:
--------------
5700 Las Positas Road
Livermore, California 94550
Attention: Mr. Thomas Sauer, Chief Financial Officer
Fax: (925) 453-3200
UNION BANK OF CALIFORNIA, N.A.,
individually and as Agent
---------------------------------------------------
By: Robert John Vernagallo
Title: Vice President
<PAGE> 5
<TABLE>
<S> <C>
Notice Address: Commitment: $34,000,000
-------------- Pro Rata Share: 34%
350 California Street, 6th Floor
San Francisco, CA 94104
Attention: Mr. Robert John Vernagallo
Fax No.: (415) 705-7566
FLEET BANK, N.A.
----------------------------------------------
By:
Title
Notice Address: Commitment: $33,000,000
-------------- Pro Rata Share: 33%
100 Federal Street
Mail Stop: 01-08-02
Boston, MA 02110
Attention: Mr. Chip Gaysunas
Fax No.: (617) 434-0816
BANK OF AMERICA, N.A., formerly known as BANK
OF AMERICA, NATIONAL TRUST AND SAVINGS ASSOCIATION
----------------------------------------------
By: Lisa M. Thomas
Title Vice President
Notice Address: Commitment: $33,000,000
-------------- Pro Rata Share: 33%
300 Lakeside Drive, Suite 250
Oakland, CA 94612
Attention: Ms. Lisa M. Thomas
Fax No.: (510) 273-5299
</TABLE>
EXHIBIT "B"
TO
AMENDMENT NO. 1 TO AMENDED AND
RESTATED CREDIT AGREEMENT
[Replacement Revolving Notes]
REVOLVING NOTE
NOT TO EXCEED
$34,000,000.00 San Francisco, California
December __, 1999
FOR VALUE RECEIVED, the undersigned, McGrath Rentcorp, a
California corporation ("Borrower"), promises to pay to UNION BANK OF
CALIFORNIA, N.A. (the "Bank", or order, on or before the Revolving Loan
Termination Date, or as otherwise provided in the Amended and Restated Credit
Agreement dated as of June 30, 1999 among the Borrower, certain banks parties
thereto, and Union Bank of California, N.A., as Agent for the Banks, as from
time to time modified, supplemented or amended, (the "Agreement), the lesser of
(i) the principal sum of THIRTY-FOUR MILLION DOLLARS ($34,000,000) or (ii) the
aggregate
<PAGE> 6
unpaid principal amount of all Revolving Loans made by the Bank to Borrower
pursuant to the Agreement. Terms defined in the Agreement have the same meanings
herein.
Borrower further promises to pay to the Bank, or order, interest
on the unpaid principal amount hereunder from time to time outstanding from the
date hereof until such amount shall have become due and payable (whether at the
stated maturity, by acceleration, or otherwise) at the rate(s) of interest and
at the times provided in the Agreement. Borrower further promises to pay
interest on any overdue payment of principal and (to the extent permitted by
law) interest as set forth in the Agreement.
Bank is authorized, but not required, to record the date, amount,
type, interest rate and Eurodollar Period (if applicable) of each Loan made by
the Bank to Borrower, and each payment made on account thereof, on its books and
records or on the schedule annexed hereto, and, in the absence of manifest
error, such recordation shall constitute prima facie evidence of the accuracy of
the information so recorded; provided, however, that failure by the Bank to make
any such recordation shall not affect any of the Obligations of Borrower.
All payments of principal, interest, fees, or other amounts due
from Borrower hereunder, shall be in Dollars and in immediately available funds,
without setoff, counterclaim or other deduction of any nature, and shall be made
to Agent, at its address set forth on the signature pages of the Agreement,
prior to 10:00 a.m., San Francisco time, on the last date permitted therefor.
Except as otherwise provided in the Agreement, if any payment of
principal or interest hereunder shall become due on a day which is not a
Business Day, such payment shall be made on the next following Business Day and
such extension of time shall be included in computing interest in connection
with such payment.
This Revolving Note is one of the "Revolving Notes" referred to
in, evidences obligations of Borrower under, and is entitled to the benefits of,
the Agreement, which, among other things, provides for the acceleration of the
maturity hereof upon the occurrence of certain circumstances and upon certain
terms and conditions. This Revolving Note supersedes and replaces that certain
Revolving Note dated June 30, 1999, as amended from time to time, in the
principal amount not to exceed Twenty-Five Million Five Hundred Thousand Dollars
($25,500,000), executed by Borrower in favor of Bank (the "Previous Note"). As
of the effective date of the Agreement, 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
Revolving Note.
Borrower hereby expressly waives presentment, demand, notice of
dishonor, protest, as such terms are defined in Division 3 of the California
Commercial Code, and all other demands and notices in connection with the
delivery, acceptance, performance, default or enforcement of this Revolving Note
and the Agreement.
This Revolving Note shall be governed by, construed and enforced
in accordance with the laws of the State of California.
MCGRATH RENTCORP
By:_______________________________________________
Name: Thomas J. Sauer
Title: Vice President and Chief Financial Officer
SCHEDULE OF LOANS
This Revolving Note evidences Loans made, continued or converted
under the Agreement to Borrower, on the dates, in the principal amounts, of the
types, bearing interest at the rates and having Eurodollar Periods (if
applicable) set forth below, subject to the payments, prepayments, continuations
and conversions of principal set forth below:
<TABLE>
<CAPTION>
Amount
Date Paid
Made, Principal Duration Prepaid
Continued Amount Type of Continued Unpaid
or of of Interest Eurodollar or Principal Notation
Converted Loan Loan Rate Period Converted Amount Made By
- --------- --------- ---- ---- ------ --------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
</TABLE>
<PAGE> 7
REVOLVING NOTE
NOT TO EXCEED
$33,000,000.00 San Francisco, California
December __, 1999
FOR VALUE RECEIVED, the undersigned, McGrath Rentcorp, a
California corporation ("Borrower"), promises to pay to FLEET BANK, N.A. (the
"Bank"), or order, on or before the Revolving Loan Termination Date, or as
otherwise provided in the Amended and Restated Credit Agreement dated as of June
30, 1999 among the Borrower, certain banks parties thereto, and Union Bank of
California, N.A., as Agent for the Banks, as from time to time modified,
supplemented or amended, (the "Agreement), the lesser of (i) the principal sum
of THIRTY-THREE MILLION DOLLARS ($33,000,000) or (ii) the aggregate unpaid
principal amount of all Revolving Loans made by the Bank to Borrower pursuant to
the Agreement. Terms defined in the Agreement have the same meanings herein.
Borrower further promises to pay to the Bank, or order, interest
on the unpaid principal amount hereunder from time to time outstanding from the
date hereof until such amount shall have become due and payable (whether at the
stated maturity, by acceleration, or otherwise) at the rate(s) of interest and
at the times provided in the Agreement. Borrower further promises to pay
interest on any overdue payment of principal and (to the extent permitted by
law) interest as set forth in the Agreement.
Bank is authorized, but not required, to record the date, amount,
type, interest rate and Eurodollar Period (if applicable) of each Loan made by
the Bank to Borrower, and each payment made on account thereof, on its books and
records or on the schedule annexed hereto, and, in the absence of manifest
error, such recordation shall constitute prima facie evidence of the accuracy of
the information so recorded; provided, however, that failure by the Bank to make
any such recordation shall not affect any of the Obligations of Borrower.
All payments of principal, interest, fees, or other amounts due
from Borrower hereunder, shall be in Dollars and in immediately available funds,
without setoff, counterclaim or other deduction of any nature, and shall be made
to Agent, at its address set forth on the signature pages of the Agreement,
prior to 10:00 a.m., San Francisco time, on the last date permitted therefor.
Except as otherwise provided in the Agreement, if any payment of
principal or interest hereunder shall become due on a day which is not a
Business Day, such payment shall be made on the next following Business Day and
such extension of time shall be included in computing interest in connection
with such payment.
This Revolving Note is one of the "Revolving Notes" referred to
in, evidences obligations of Borrower under, and is entitled to the benefits of,
the Agreement, which, among other things, provides for the acceleration of the
maturity hereof upon the occurrence of certain circumstances and upon certain
terms and conditions. This Revolving Note supersedes and replaces that certain
Revolving Note dated June 30, 1999, as amended from time to time, in the
principal amount not to exceed Twenty-Four Million Seven Hundred Fifty Thousand
Dollars ($24,750,000), executed by Borrower in favor of Bank (the "Previous
Note"). As of the effective date of the Agreement, 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 Revolving Note.
Borrower hereby expressly waives presentment, demand, notice of
dishonor, protest, as such terms are defined in Division 3 of the California
Commercial Code, and all other demands and notices in connection with the
delivery, acceptance, performance, default or enforcement of this Revolving Note
and the Agreement.
This Revolving Note shall be governed by, construed and enforced
in accordance with the laws of the State of California.
MCGRATH RENTCORP
By:_______________________________________________
Name: Thomas J. Sauer
Title: Vice President and Chief Financial Officer
<PAGE> 8
SCHEDULE OF LOANS
This Revolving Note evidences Loans made, continued or converted
under the Agreement to Borrower, on the dates, in the principal amounts, of the
types, bearing interest at the rates and having Eurodollar Periods (if
applicable) set forth below, subject to the payments, prepayments, continuations
and conversions of principal set forth below:
<TABLE>
<CAPTION>
Amount
Date Paid
Made, Principal Duration Prepaid
Continued Amount Type of Continued Unpaid
or of of Interest Eurodollar or Principal Notation
Converted Loan Loan Rate Period Converted Amount Made By
- --------- --------- ---- ---- ------ --------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
</TABLE>
REVOLVING NOTE
NOT TO EXCEED
$33,000,000.00 San Francisco, California
December __, 1999
FOR VALUE RECEIVED, the undersigned, McGrath Rentcorp, a
California corporation ("Borrower"), promises to pay to BANK OF AMERICA, N.A.,
formerly known as Bank of America, National Trust and Savings Association (the
"Bank"), or order, on or before the Revolving Loan Termination Date, or as
otherwise provided in the Amended and Restated Credit Agreement dated as of June
30, 1999 among the Borrower, certain banks parties thereto, and Union Bank of
California, N.A., as Agent for the Banks, as from time to time modified,
supplemented or amended, (the "Agreement), the lesser of (i) the principal sum
of THIRTY-THREE MILLION DOLLARS ($33,000,000) or (ii) the aggregate unpaid
principal amount of all Revolving Loans made by the Bank to Borrower pursuant to
the Agreement. Terms defined in the Agreement have the same meanings herein.
Borrower further promises to pay to the Bank, or order, interest
on the unpaid principal amount hereunder from time to time outstanding from the
date hereof until such amount shall have become due and payable (whether at the
stated maturity, by acceleration, or otherwise) at the rate(s) of interest and
at the times provided in the Agreement. Borrower further promises to pay
interest on any overdue payment of principal and (to the extent permitted by
law) interest as set forth in the Agreement.
Bank is authorized, but not required, to record the date, amount,
type, interest rate and Eurodollar Period (if applicable) of each Loan made by
the Bank to Borrower, and each payment made on account thereof, on its books and
records or on the schedule annexed hereto, and, in the absence of manifest
error, such recordation shall constitute prima facie evidence of the accuracy of
the information so recorded; provided, however, that failure by the Bank to make
any such recordation shall not affect any of the Obligations of Borrower.
All payments of principal, interest, fees, or other amounts due
from Borrower hereunder, shall be in Dollars and in immediately available funds,
without setoff, counterclaim or other deduction of any nature, and shall be made
to Agent, at its address set forth on the signature pages of the Agreement,
prior to 10:00 a.m., San Francisco time, on the last date permitted therefor.
Except as otherwise provided in the Agreement, if any payment of
principal or interest hereunder shall become due on a day which is not a
Business Day, such payment shall be made on the next following Business Day and
such extension of time shall be included in computing interest in connection
with such payment.
This Revolving Note is one of the "Revolving Notes" referred to
in, evidences obligations of Borrower under, and is entitled to the benefits of,
the Agreement, which, among other things, provides for the acceleration of the
maturity hereof upon the occurrence of certain circumstances and upon certain
terms and conditions. This Revolving Note supersedes and replaces that certain
Revolving Note dated June 30, 1999, as amended from time to time, in the
principal amount not to exceed Twenty-Four Million Seven Hundred Fifty Thousand
Dollars ($24,750,000), executed by Borrower in favor of Bank (the "Previous
Note"). As of the effective date of the Agreement, all unpaid principal,
interest and other amounts accrued and outstanding under
<PAGE> 9
the Previous Note shall for all purposes be and constitute unpaid amounts
outstanding under and evidenced by this Revolving Note.
Borrower hereby expressly waives presentment, demand, notice of
dishonor, protest, as such terms are defined in Division 3 of the California
Commercial Code, and all other demands and notices in connection with the
delivery, acceptance, performance, default or enforcement of this Revolving Note
and the Agreement.
This Revolving Note shall be governed by, construed and enforced
in accordance with the laws of the State of California.
MCGRATH RENTCORP
By:_______________________________________________
Name: Thomas J. Sauer
Title: Vice President and Chief Financial Officer
SCHEDULE OF LOANS
This Revolving Note evidences Loans made, continued or converted
under the Agreement to Borrower, on the dates, in the principal amounts, of the
types, bearing interest at the rates and having Eurodollar Periods (if
applicable) set forth below, subject to the payments, prepayments, continuations
and conversions of principal set forth below:
<TABLE>
<CAPTION>
Amount
Date Paid
Made, Principal Duration Prepaid
Continued Amount Type of Continued Unpaid
or of of Interest Eurodollar or Principal Notation
Converted Loan Loan Rate Period Converted Amount Made By
- --------- --------- ---- ---- ------ --------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
</TABLE>
EXHIBIT "A"
COMPLIANCE CERTIFICATE
This Compliance Certificate is furnished pursuant to Section 7.3(c) of that
certain Amended and Restated Credit Agreement dated as of June 30, 1999, among
the Borrower, certain Banks parties thereto and Union Bank of California, N.A.,
as Agent for the Banks, as from time to time modified, supplemented or amended
(the "Agreement"). Unless otherwise defined, all capitalized terms used in this
Compliance Certificate have the respective meanings ascribed to them in the
Agreement.
Borrower hereby represents and warrants as follows:
1. I am familiar with the Agreement and the business and operations of
Borrower.
2. Except as otherwise specifically indicated, the information contained
in this Certificate is true and accurate on and as of ______________________, __
(the "Certification Date").
3. As of the Certification Date and at all times during the quarter
ending on the Certification Date, Borrower has performed all obligations to be
performed by it under (a) the Agreement, (b) any instrument or agreement to
which Borrower is a party or under which Borrower is obligated, and (c) any
judgment, decree, or order of any court or governmental authority binding on
Borrower. No Default or Event of Default has occurred, whether or not the same
was cured, during such quarter.
4. As of the Certification Date, the information set forth below is
true, accurate and complete:
<TABLE>
<S> <C> <C>
(a) Section 7.11(a): Tangible Net Worth
Tangible Net Worth $__________
Minimum Tangible Net Worth calculation:
Base amount $75,000,000
-----------
</TABLE>
<PAGE> 10
<TABLE>
<S> <C> <C>
Plus: Fifty percent of Net Income (without
reduction for Net Loss) after September 30, 1999 $__________
Plus: 90% of the gross proceeds from stock issuance
(excluding the first $2,000,000 of proceeds from the
exercise of stock options after September 30, 1999) $__________
Minimum Tangible Net Worth Total $__________
(b) Section 7.11(b): Liabilities to Net Worth
Liabilities $__________
Less Deferred Taxes ($__________)
Total (A) $__________
Tangible Net Worth (B) $__________
Ratio of A to B
Maximum permitted: 3:1
(c) Section 7.11(c): Interest Expense Ratio
EBIT (A) $__________
Interest expense (B) $__________
Ratio of A to B
Minimum required: 2 to 1
(d) Section 7.11(d): Debt Service Coverage
Adjusted Net Income (A) $__________
Debt Service (B) $__________
Ratio of A to B
Minimum required: 1.15 to 1
Calculation of Adjusted Net Income:
EBIT $__________
Depreciation and amortization $__________
Adjusted Net Income (A) $__________
Calculation of Debt Service:
Loans $__________
Years (ended to nearest qtr) to Term Loan Maturity Date ____________
$__________
Assumed principal payments $__________
Debt (other than Loans) $__________
Other Debt principal payments due in next four quarters $__________
Interest on Loans in next four quarters $__________
Interest on other Debt in next four quarters $__________
Interest rate used for computation (floating rate Debt) $__________.
</TABLE>
5. The Borrowing Base and the Adjusted Borrowing Base as of the
Certification Date are as set forth below. Borrower hereby further certifies the
information set forth below is true, accurate and complete and the aggregate
amount of the Loans outstanding under the Agreement, after giving effect to any
new Loan made as of the Certification Date, is not in excess of the Commitment
or the Adjusted Borrowing Base.
<TABLE>
<S> <C> <C>
(a) Borrowing Base
Eligible Equipment $__________
Less: 25% $__________
Borrowing Base $__________
(b) Adjusted Borrowing Base
Borrowing Base $__________
Less: Outside Debt $__________
Adjusted Borrowing Base $__________
(c) Excess of Adjusted Borrowing Base over Loans Outstanding $__________
Adjusted Borrowing Base $__________
Less: Loans outstanding $__________
Excess of Adjusted Borrowing Base over Loans Outstanding $__________
</TABLE>
Executed this _____ day of ______________, _.
By: _________________________________________
Name: _______________________________________ Title: _________________________
<PAGE> 1
EXHIBIT 10.2.4
OPTIONS GRANTED TO BOARD OF DIRECTORS
<TABLE>
<CAPTION>
NUMBER OF EXERCISE
NAME GRANT DATE OPTIONS PRICE
---------- --------- --------
<S> <C> <C> <C>
Robert C. Hood December 22, 1999 10,000 18.25
William J. Dawson December 22, 1999 4,000 18.25
Ronald H. Zech December 22, 1999 4,000 18.25
</TABLE>
<PAGE> 1
EXHIBIT 23
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our reports included in this Form 10-K, into the Company's
previously filed Registration Statement File No. 333-6112 and 333-74089.
Arthur Andersen LLP
San Francisco, California
March 22, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MCGRATH
RENTCORP FORM 10-K 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-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 490
<SECURITIES> 0
<RECEIVABLES> 26,555
<ALLOWANCES> (650)
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 367,368<F1>
<DEPRECIATION> (99,219)<F2>
<TOTAL-ASSETS> 297,722
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 8,755
<OTHER-SE> 86,648
<TOTAL-LIABILITY-AND-EQUITY> 297,722
<SALES> 129,962
<TOTAL-REVENUES> 129,962
<CGS> 67,295
<TOTAL-COSTS> 67,295
<OTHER-EXPENSES> 17,103
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,606
<INCOME-PRETAX> 38,958
<INCOME-TAX> 14,874
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (1,367)<F3>
<NET-INCOME> 22,466
<EPS-BASIC> 1.70
<EPS-DILUTED> 1.68
<FN>
<F1> (PP&E) Includes rental equipment, Land, Buildings, Land Improvements
Furniture and Equipment.
<F2> (DEPRECIATION) Accumulated depreciation related to PP&E footnote above.
<F3> (NET-INCOME) Net income includes reduction of minority interest in income
of subsidiary.
</FN>
</TABLE>
