1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
------------------------------------------------------------------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997 COMMISSION FILE NUMBER 0-13292
------------------------------------------------------------------
MCGRATH RENTCORP
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
CALIFORNIA 94-2579843
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
5700 LAS POSITAS ROAD, LIVERMORE, CA 94550
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER: (925)606-9200
------------------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
NONE NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
TITLE OF CLASS
COMMON STOCK
------------------------------------------------------------------
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: $208,782,928 as of March 26, 1998.
At March 26, 1998, 14,107,890 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 June 5, 1998, 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 32.
================================================================================
2
PART I
ITEM 1. BUSINESS
GENERAL
McGrath RentCorp ("MGRC") and its majority owned subsidiary, Enviroplex,
Inc. ("Enviroplex"), collectively referred to herein as the "Company",
manufactures, rents and sells relocatable modular offices ("modulars") and
electronic test and measurement instruments ("electronics") with related
accessories primarily in California and Texas. The Company's corporate offices
are located in Livermore, California.
MGRC is a California corporation organized in 1979. Since the Company's
inception, under the trade name "Mobile Modular Management Corporation"
("MMMC"), MMMC has rented and sold 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.
The Company conducts electronics operations under the corporate name
("McGrath RentCorp") from its northern California modular branch office, which
includes the corporate offices. Engineers, scientists and technicians use these
instruments in evaluating the performance of their own electrical and electronic
equipment, developing products, controlling manufacturing processes and in field
service applications. These instruments are rented primarily to electronics,
industrial, research and aerospace companies. The majority of MGRC's rental
inventory consists of instruments manufactured by Hewlett-Packard and Tektronix.
The Company also conducts electronics operations specializing in
telecommunication test equipment under the trade name "RenTelco" from its branch
office in Richardson, Texas.
Enviroplex is 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 financed Enviroplex's
operations and assisted in a variety of corporate functions such as accounting,
human resources, facility improvements, and insurance. In 1995, MGRC converted a
$300,000 note receivable into a 73.2% ownership of Enviroplex. MGRC has not
purchased significant quantities of manufactured product from Enviroplex.
Enviroplex sales revenues were $21,287,000, $10,206,000 and $4,775,000 for 1997,
1996 and 1995, 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 52%, 37% and 27% of the Company's
consolidated rental and sales revenues for 1997, 1996 and 1995, respectively.
The Company has 359 employees, of whom 42 are primarily administrative and
executive personnel, and the remaining 317 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. Our business is not seasonal, except for
the rental and sale of classrooms, which is heaviest in the several months prior
to the opening of school each fall.
We are a company with a marketing sense throughout. We are constantly
searching for ways both to streamline our service and to raise the quality of
each relocatable office, classroom or instrument we
1
3
manufacture, rent or sell. We are not only manufacturing, renting and selling
products, we are selling 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-module facilities, complete with wood exteriors
and mansard roofs. The rental fleet includes a full range of styles and sizes.
We consider our 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. The Company believes that the loss of any one of these suppliers would
not have a material adverse effect on its operations.
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. Our largest single demand is for temporary classrooms. We believe the
demand for classrooms is caused by shifting and fluctuating school populations,
the lack of state funds for new construction, 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. Our
branch offices, as well as our corporate office, are housed in various sizes of
modulars.
Since most of our customer requirements are to fill temporary space needs,
MMMC'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 maintenance of its
units, both prior to delivery of the unit and while it is on rent. MMMC has a
sales and maintenance staff trained in the Company's understanding of excellence
in service.
2
4
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. We maintain 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, 1997, MMMC had 14,240 new or previously rented modulars in
its rental fleet with an aggregate original cost including accessories of
$196,132,895 or an average cost per unit of $13,773. 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, 1997, fleet
utilization was 78.7% and average fleet utilization during 1997 (average of all
the monthly figures) was 79.7%. While MMMC depreciates its modulars over 18
years, it prices its rental rates to return the equipment cost in approximately
27 to 40 months depending on the rental commitment of the customer and
customization of the product.
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 our 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 1997, MMMC's largest sale of modulars was for new classrooms to a school
district for approximately $3,759,000 and represented approximately 11% of
MMMC's sales, 6% of the Company's consolidated sales, and 3% of the Company's
consolidated revenues.
MMMC believes that the distinction of whether a modular is used rather than
new has no significant effect on its operations or profitability. While repair
and maintenance costs are generally greater on older units, the purchase price
of units has risen over time, and therefore the lower acquisition cost of older
units tends to offset their higher maintenance costs.
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 the
strategy for modulars calls for creating facility and infrastructure
capabilities that our competitors cannot duplicate. We have constructed three
new inventory facilities over the last few years. These facilities and related
infrastructure enable us to modify buildings efficiently and cost effectively to
meet our customers' needs. Our goal is to be more responsive at less expense. We
believe that this strategy, together with our emphasis on prompt and efficient
customer service, gives us a competitive advantage. We are determined to offer
quick response to requests for information, experienced assistance for the
first-time user,
3
5
rapid delivery and timely maintenance of our units. The efficiency and
responsiveness continues to be enhanced by our computer based relational
database programs that control our internal operations. MMMC anticipates strong
competition in the future and believes the process of improvement is ongoing.
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 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 offering the
customer more 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 DSA pre-approved classroom sizes
and features with market established pricing which can save them valuable time
on their classroom project. Additional customization features include restrooms,
computer lab setups, interior offices, cabinetwork and kitchen facilities.
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. We believe this strategy gives Enviroplex
a competitive edge.
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 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, and of its consolidated rental and sales
revenues for the past five years:
SCHOOLS AS A PERCENTAGE OF RENTAL AND SALES REVENUES
- --------------------------------------------------------------------------------
PERCENTAGE OF: 1997 1996 1995 1994 1993
-------------- ---- ---- ---- ---- ----
Modular Rental Revenues 45% 40% 34% 38% 38%
Modular Sales Revenues 74% 54% 38% 24% 30%
Consolidated Rental and Sales Revenues 52% 37% 27% 27% 29%
- --------------------------------------------------------------------------------
The increases shown for 1996 and 1997 can be attributed to the Class Size
Reduction Program instituted by the state of California. School districts were
given great incentive to reduce class size in the lower grades from a typical 30
students to no greater than 20 students. This highly popular program has created
a great demand for both purchasing and renting classroom buildings.
4
6
In California (where most of the Company's rentals to school districts have
occurred), school districts are permitted to purchase only portable classrooms
built to the requirements of DSA. However, school districts may rent classrooms
that meet either the Department of Housing ("DOH") or DSA requirements. Prior to
1988 the majority of the classrooms in the Company's rental fleet were built to
the DOH requirements, and since 1988 the majority of new classrooms have been
built to the DSA requirements. In 1988, California adopted a law which limits
the term for which school districts may rent portable classrooms built to DOH
standards to three years (under a waiver process), and which also requires the
school board to indemnify the State against any claims arising out of the use of
such classrooms. As a consequence, the tendency is for school districts to rent
the DOH classrooms for shorter periods and to rent the DSA classrooms for longer
periods. In 1993, a new law went into effect that allowed school districts 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. However,
still newer legislation has been adopted that eliminates the issuance of new
waivers after September 30, 1997 but extends all existing waivers until
September 30, 2000.
Unrelated to the waiver process, new regulations are in place that allow
the ongoing use of 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 DSA.
All of the Company's DOH classrooms, with the exception of the 24' x 40'
standard classrooms, are also suitable for rent to non-school customers for
commercial uses. Generally, the 24' x 40' standard classrooms are not 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, 1997, 1996, 1995, 1994, and 1993. Please note how the
inventory has shifted to the DSA classrooms.
CLASSROOM COMPARISON
- --------------------------------------------------------------------------------
DECEMBER 31,
-----------------------------------------------
1997 1996 1995 1994 1993
(DOLLAR AMOUNTS IN THOUSANDS) ------- ------- ------- ------- -------
24' x 40' Standard DOH Classrooms
Rental Equipment, at cost, on rent $13,960 $13,738 $10,449 $13,114 $15,014
Rental Equipment, at cost, off rent 765 1,834 5,015 3,258 1,928
------- ------- ------- ------- -------
Total Rental Equipment, at cost $14,725 $15,572 $15,464 $16,372 $16,942
------- ------- ------- ------- -------
Total Rental Equipment, net book value $ 7,849 $ 8,952 $ 9,324 $10,650 $11,986
------- ------- ------- ------- -------
Utilization (year-end)(1) 94.8% 88.2% 67.6% 80.1% 88.6%
------- ------- ------- ------- -------
DSA Classrooms
Rental Equipment, at cost, on rent $44,452 $26,488 $17,454 $18,644 $17,281
Rental Equipment, at cost, off rent 1,308 611 3,653 1,829 1,236
------- ------- ------- ------- -------
Total Rental Equipment, at cost $45,760 $27,099 $21,107 $20,473 $18,517
------- ------- ------- ------- -------
Total Rental Equipment, net book value $39,535 $22,399 $17,115 $17,304 $16,026
------- ------- ------- ------- -------
Utilization (year-end)(1) 97.1% 97.7% 82.7% 91.1% 93.3%
------- ------- ------- ------- -------
- --------------------------------------------------------------------------------
(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.
5
7
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, 1997, the Company had an aggregate cost of electronics
rental inventory and accessories of $50,350,777. 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, 1997
utilization was 52.6%, and the average utilization during 1997 (average of the
monthly figures) was 54.9%. The Company rents electronics 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
1997, approximately 26% of the electronics revenues were derived from sales. The
largest electronics sale during 1997 represented less than 1% of the Company's
consolidated revenues.
MARKET
The business of renting electronic test and measurement instruments is an
industry which emerged approximately 30 years ago, and which today has equipment
on rent or available for rent in the United States with an aggregate original
cost of several hundred million dollars. While there is a broad customer base
for the rental of such instruments, most rentals are to electronics, industrial,
research and aerospace companies. To date, the Company has focused its marketing
efforts in California and Texas and has shipped on a limited basis to other
states. Currently, the Company is emphasizing its marketing efforts beyond
California and Texas and has expanded its sales staff to include outside sales
representatives in other geographical areas of the United States.
We believe that customers rent electronic test and measurement instruments
for many reasons. Customers frequently need equipment for short-term projects,
for backup to avoid costly down-time and to evaluate new products. Delivery
times for the purchase of such equipment can be lengthy; thus, renting allows
the customer to obtain the equipment expeditiously. We also believe that a
substantial portion of electronic test and measurement instruments are used for
research and development projects where the relative certainty of rental costs
can facilitate cost control and be useful in bidding for government contracts.
Finally, as is true with the rental of any equipment, renting rather than
purchasing may better satisfy the customer's budgetary constraints.
The industry is dominated by three major companies. Two of these companies
are much larger than the Company, have substantially greater financial resources
and are well established in the industry with large inventories of equipment,
several branch offices and experienced personnel.
6
8
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.
PRODUCT HIGHLIGHTS
- --------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1997 1996 1995 1994 1993
(DOLLAR AMOUNTS IN THOUSANDS) -------- -------- -------- -------- --------
RELOCATABLE MODULAR OFFICES
(operates under MMMC and Enviroplex)
Revenues
Rental $ 41,514 $ 31,931 $ 31,577 $ 33,386 $ 30,565
Rental Related Services 9,898 8,399 7,527 7,893 6,320
-------- -------- -------- -------- --------
Total Modular Rental Operations 51,412 40,330 39,104 41,279 36,885
-------- -------- -------- -------- --------
Sales -- MMMC 33,522 14,359 6,572 9,039 6,153
Sales -- Enviroplex 21,287 10,206 4,775 -- --
-------- -------- -------- -------- --------
Total Modular Sales 54,809 24,565 11,347 9,039 6,153
-------- -------- -------- -------- --------
Other 690 908 1,432 1,165 1,019
-------- -------- -------- -------- --------
Total Modular Revenues $106,911 $ 65,803 $ 51,883 $ 51,483 $ 44,057
-------- -------- -------- -------- --------
Percentage of Total Revenues 79.2% 73.9% 72.8% 75.4% 77.1%
Rental Equipment, at cost (year-end) $196,133 $158,377 $150,389 $148,111 $140,100
Rental Equipment, net book value (year-end) $142,816 $110,014 $106,266 $109,392 $106,827
Number of Units (year-end) 14,240 11,582 10,868 10,892 10,691
Utilization (year-end)(1) 78.7% 78.6% 71.0% 78.3% 76.7%
Average Utilization(1) 79.7% 72.1% 73.9% 79.3% 77.0%
Average Rental Equipment, at cost $172,680 $151,818 $149,371 $144,847 $136,909
Annual Yield on Average Rental Equipment, at cost 24.0% 21.0% 21.1% 23.0% 22.3%
Gross Margin on Sales 31.2% 30.7% 29.3% 28.7% 26.4%
ELECTRONIC TEST AND MEASUREMENT INSTRUMENTS
(operates under McGrath RentCorp and RenTelco)
Revenues
Rental $ 20,174 $ 17,055 $ 14,486 $ 12,763 $ 10,128
Rental Related Services 380 319 268 265 245
-------- -------- -------- -------- --------
Total Electronics Rental Operations 20,554 17,374 14,754 13,028 10,373
Sales 7,212 5,610 4,492 3,661 2,615
Other 299 218 144 123 90
-------- -------- -------- -------- --------
Total Electronics Revenues $ 28,065 $ 23,202 $ 19,390 $ 16,812 $ 13,078
======== ======== ======== ======== ========
Percentage of Total Revenues 20.8% 26.1% 27.2% 24.6% 22.9%
Rental Equipment, at cost (year-end) $ 50,350 $ 43,335 $ 35,168 $ 29,732 $ 26,825
Rental Equipment, net book value (year-end) $ 31,269 $ 27,279 $ 21,342 $ 17,852 $ 16,604
Utilization (year-end)(1) 52.6% 51.8% 53.8% 55.6% 50.9%
Average Utilization(1) 54.9% 54.9% 55.2% 56.0% 52.3%
Average Rental Equipment, at cost $ 46,483 $ 39,335 $ 32,255 $ 27,754 $ 23,790
Annual Yield on Average Rental Equipment, at cost 43.4% 43.4% 44.9% 46.0% 42.6%
Gross Margin on Sales 33.2% 37.3% 39.6% 40.2% 32.7%
Total Revenues $134,976 $ 89,005 $ 71,273 $ 68,295 $ 57,135
- --------------------------------------------------------------------------------
(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 the average of the
monthly utilization figures.
7
9
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-unit,
relocatable modular offices, serving as working models of the Company's product.
Electronic test and measurement instrument rental and sales operations are
conducted from the Livermore facility and from the RenTelco 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).
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, 1997. Except as noted, all properties are owned by the
Company.
FACILITIES
- --------------------------------------------------------------------------------
SQUARE FOOTAGE
------------------------------
TOTAL ACRES OFFICE WAREHOUSE TOTAL
----------- ------ --------- -------
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
Corona, California(3) 20.0 4,320 3,600 7,920
Pasadena, Texas(4) 56.0 3,868 24,000 27,868
Arlington, Texas(5) 1.8 1,680 2,387 4,067
ELECTRONIC TEST AND MEASUREMENT INSTRUMENTS
Livermore, California(1) -- 8,400 7,920 16,320
Richardson, Texas(6) -- 2,640 3,971 6,611
ENVIROPLEX, INC.
Stockton, California 13.9 3,365 102,050 105,415
----- ------ ------- -------
309.9 49,713 242,808 292,521
===== ====== ======= =======
- --------------------------------------------------------------------------------
(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) Facility is for sale or lease.
(4) Of 56 acres, 6 acres are rented by the Company on a month to month basis and
16 acres are undeveloped.
(5) Facility rented out to a third party through August 1998; lessor has two
year option to extend.
(6) Leased office and warehouse space through April 1999.
ITEM 3. LEGAL PROCEEDINGS
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
8
10
PART II
ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is traded in the NASDAQ National Market System
under the symbol "MGRC".
The Company's common stock was split 2-for-1 on April 15, 1997. All share
and per share information in the 1997 Form 10-K reflects this stock split.
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:
STOCK ACTIVITY
- --------------------------------------------------------------------------------
1997 1996
--------------------------------- ---------------------------------
4Q 3Q 2Q 1Q 4Q 3Q 2Q 1Q
------ ------ ------ ------ ------ ------ ------ ------
High $28.50 $24.75 $21.25 $15.63 $13.50 $13.63 $11.25 $10.00
Low $20.00 $18.75 $14.13 $12.25 $11.75 $ 8.38 $ 9.63 $ 8.88
Close $24.50 $22.88 $20.50 $14.94 $12.88 $13.00 $11.25 $ 9.63
Dividends Declared $ 0.08 $ 0.08 $ 0.08 $ 0.08 $ 0.07 $ 0.07 $ 0.07 $ 0.07
- --------------------------------------------------------------------------------
As of March 26, 1998, the Company's common stock was held by approximately
131 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 April 1997, the Company issued an aggregate of 28,000 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 21,820 shares of common stock in March,
1996, and 13,572 shares in April 1995. 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.
During 1995 and 1996, the Company issued an aggregate of 247,932 shares of
its common stock to key employees of the Company upon exercises of incentive
stock options held by the employees under the Company's 1987 Incentive Stock
Option Plan. 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. The Plan was registered under the Securities Act of 1933 at the end of
1996, and all stock issuances upon exercise of options thereafter were
registered.
9
11
ITEM 6. SELECTED FINANCIAL DATA
The following table summarizes the Company's selected financial data for
the five years ended December 31, 1997 and should be read in conjunction with
the more detailed Consolidated Financial Statements and related notes reported
in Item 8.
SELECTED CONSOLIDATED FINANCIAL DATA
- --------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
(DOLLAR AND SHARE AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
Operations Data
Revenues
Rental $ 61,688 $ 48,986 $ 46,063 $ 46,149 $ 40,693
Rental Related Services 10,278 8,718 7,795 8,158 6,565
-------- -------- -------- -------- --------
Rental Operations 71,966 57,704 53,858 54,307 47,258
Sales 62,021 30,175 15,839 12,700 8,768
Other 989 1,126 1,576 1,288 1,109
-------- -------- -------- -------- --------
Total Revenues 134,976 89,005 71,273 68,295 57,135
-------- -------- -------- -------- --------
Costs and Expenses
Direct Costs of Rental Operations
Depreciation 14,358 12,456 11,539 11,018 10,441
Rental Related Services 6,287 5,515 5,024 5,707 4,792
Other 10,375 8,703 7,370 7,544 7,237
-------- -------- -------- -------- --------
Total Direct Costs of Rental
Operations 31,020 26,674 23,933 24,269 22,470
Cost of Sales 42,550 20,532 10,735 8,634 6,285
-------- -------- -------- -------- --------
Total Costs 73,570 47,206 34,668 32,903 28,755
-------- -------- -------- -------- --------
Gross Margin 61,406 41,799 36,605 35,392 28,380
Selling and Administrative 15,957 13,147 10,459 10,747 9,218
-------- -------- -------- -------- --------
Income from Operations 45,449 28,652 26,146 24,645 19,162
Interest 4,070 2,887 2,831 2,166 1,761
-------- -------- -------- -------- --------
Income before Provision for Income
Taxes 41,379 25,765 23,315 22,479 17,401
Provision for Income Taxes 16,323 9,885 9,375 9,475 6,764
-------- -------- -------- -------- --------
Income before Minority Interest 25,056 15,880 13,940 13,004 10,637
Minority Interest in Income of
Subsidiary 1,011 358 97 -- --
-------- -------- -------- -------- --------
Net Income $ 24,045 $ 15,522 $ 13,843 $ 13,004 $ 10,637
-------- -------- -------- -------- --------
Cash Flow From Operating Activities $ 59,153 $ 34,688 $ 32,611 $ 34,566 $ 25,889
-------- -------- -------- -------- --------
Net Income Per Common Share:
Basic $ 1.60 $ 1.03 $ 0.87 $ 0.79 $ 0.64
Diluted $ 1.58 $ 1.01 $ 0.86 $ 0.77 $ 0.63
Cash Flow Per Common Share
Basic $ 3.95 $ 2.30 $ 2.04 $ 2.09 $ 1.56
Diluted $ 3.90 $ 2.27 $ 2.02 $ 2.05 $ 1.54
Shares Used in Per Share Calculation:
Basic 14,982 15,102 15,949 16,559 16,613
Diluted 15,181 15,306 16,168 16,831 16,816
Cash Dividends Declared Per Common Share(1) $ 0.32 $ 0.28 $ 0.24 $ 0.22 $ 0.20
- --------------------------------------------------------------------------------
10
12
SELECTED CONSOLIDATED FINANCIAL DATA (CONTINUED)
- --------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
(DOLLAR AND SHARE AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
BALANCE SHEET DATA (AT PERIOD END)
Rental Equipment, net $174,085 $137,292 $127,608 $127,244 $123,431
Total Assets $252,392 $200,035 $175,130 $169,923 $161,427
Notes Payable $ 82,000 $ 53,850 $ 37,080 $ 35,950 $ 40,100
Shareholders' Equity $ 98,646 $ 88,808 $ 85,893 $ 83,839 $ 76,071
Shares Outstanding 14,522 14,820 15,540 16,317 16,625
Book Value Per Share $ 6.79 $ 5.99 $ 5.53 $ 5.14 $ 4.58
Debt (Notes Payable) to Equity 0.83 0.61 0.43 0.43 0.53
Return on Average Equity 24.5% 18.0% 16.4% 16.1% 14.7%
- --------------------------------------------------------------------------------
(1) Dividends for 1994 includes $0.055 per share declared in January 1995.
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 and
conventional bank financing.
The major portion of the Company's revenue is derived from rental
operations comprising approximately 54% of consolidated revenues in 1997 and 62%
of consolidated revenues for the three years ended December 31, 1997. 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, which is new,
previously rented, 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 46% of the Company's consolidated
revenues in 1997 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 school districts is a significant part
of the Company's business. School business comprised 52%, 37% and 27% of the
Company's consolidated rental and sales revenues for 1997, 1996 and 1995. The
increases in the Company's sales and rental revenues in both 1997 and 1996 can
be attributed to the Class Size Reduction Program implemented by the state of
California in 1996 (see "Business -- Relocatable Modular Offices -- Classroom
Rentals and Sales" above).
11
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:
- --------------------------------------------------------------------------------
PERCENTAGE OF REVENUES PERCENTAGE CHANGE
-------------------------------------- --------------------------------
YEAR ENDED DECEMBER 31,
THREE YEARS ----------------------- 1997 OVER 1996 OVER
1997-1995 1997 1996 1995 1996 1995
----------- ----- ----- ----- -------------- --------------
Revenues
Rental 53% 46% 55% 65% 26% 6%
Rental Related Services 9 8 10 11 18 12
--- --- --- ---
Rental Operations 62 54 65 76 25 7
Sales 37 46 34 22 106 91
Other 1 nm 1 2 nm nm
--- --- --- ---
Total Revenues 100 100 100 100 52 25
--- --- --- ---
Costs and Expenses
Direct Costs of Rental
Operations
Depreciation 13 11 14 16 15 8
Rental Related Services 6 5 6 7 14 10
Other 9 7 10 11 19 18
--- --- --- ---
Total Direct Costs of
Rental Operations 28 23 30 34 16 11
--- --- --- ---
Cost of Sales 25 32 23 15 107 91
--- --- --- ---
Total Costs 53 55 53 49 56 36
--- --- --- ---
Gross Margin 47 45 47 51 47 14
Selling and Administrative 13 12 15 15 21 26
--- --- --- ---
Income from Operations 34 33 32 36 59 10
Interest 3 2 3 3 41 2
--- --- --- ---
Income before Provision
for Income Taxes 31 31 29 33 61 11
Provision for Income Taxes 12 12 12 14 65 5
--- --- --- ---
Income before Minority
Interest 19 19 17 19 58 14
Minority Interest in Income
of Subsidiary 1 1 nm nm nm nm
--- --- --- ---
Net Income 18% 18% 17% 19% 55% 12%
- --------------------------------------------------------------------------------
nm = not meaningful
FISCAL YEARS 1997 AND 1996
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.
California's Class Size Reduction Program (a law enacted in July 1996)
provided for facility and operational funding for the reduction of classroom
size for kindergarten through third grade to 20 pupils. The Company's
consolidated revenues increased $45,971,000 (52%) in 1997 over 1996 with
approximately $35,591,000 (77%) of the revenue increase related to California's
Class Size Reduction Program. Of the $35,591,000 revenue increase, $5,909,000
came from MMMC's increase in rental revenue, $18,601,000 came from MMMC's
increase in sales revenue, and $11,081,000 came from Enviroplex's increase in
sales revenue. MMMC sold $6,204,000 of classrooms in 1996, of which $3,896,000
were new. In 1997, MMMC sales of classrooms rose to $24,805,000, of
12
14
which $18,795,000 were new. But in late 1997, 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. All of Enviroplex's sales of
$10,206,000 in 1996 and $21,287,000 in 1997 were of new classrooms manufactured
by Enviroplex.
Future rental and sales of classrooms by the Company under the Class Size
Reduction Program are subject to the state's funding of the program, the
requirements of the various school districts and available supplies. In 1997,
the Company's rental revenues related to schools increased and reflect only a
partial year of rental revenues associated with classrooms shipped in the latter
part of 1997. Management believes rental revenues related to schools in 1998
will continue to increase because of the full year's rental revenue impact of
classrooms shipped in the latter part of 1997 and new classroom requirements.
However, management expects sales of new classrooms by MMMC in 1998 will decline
from the 1997 levels and will not be sustainable at the 1997 sales levels in the
future as school districts are able to fill their requirements directly with
manufacturers. The decline in new classroom sales could be offset to some degree
by an increase in sales to schools purchasing classrooms which are currently on
rent depending on the schools' funding and long term requirements. Since
Enviroplex's core business is to manufacture and sell classrooms directly to
school districts, we believe Enviroplex will have increased opportunities in
1998. Enviroplex's backlog of orders was $11,435,000 as of December 31, 1997, as
compared to $11,309,000 on the same date a year earlier. (Backlog is not
significant in MMMC's modular business nor in the Company's electronic
business.)
Rental revenues increased $12,702,000 (26%) over 1996, with MMMC
contributing $9,583,000 and electronics contributing $3,119,000. Average
utilization for modulars increased from 72.1% in 1996 to 79.7% in 1997 resulting
in an increase in modulars annual yield from 21.0% to 24.0% of average equipment
cost. Average utilization for electronics (54.9%) and annual yield (43.4%)
remained the same for 1997 as it was in 1996.
Rental related services in 1997 increased $1,560,000 (18%) over 1996. A
majority of the increase is due to one commercial project with significant site
work requirements. The gross margin on rental related services increased
slightly from 36.7% in 1996 to 38.8% in 1997.
Sales in 1997 increased $31,846,000 (106%) over 1996 as a result of the
Class Size Reduction Program in California. During 1997, the Company's largest
sale was for new classrooms to a school district for approximately $3,759,000
and represented 6% of its sales. Gross margin on sales declined slightly from
32.0% in 1996 to 31.4% in 1997. Sales continue to occur routinely as a normal
part of the Company's rental business; however, these sales can fluctuate from
quarter to quarter and year to year depending on customer demands and
requirements.
Depreciation on rental equipment increased $1,902,000 (15%) in 1997 over
1996 due to the additional rental equipment purchased during 1997. Rental
equipment, at cost, increased 22% during 1997. Other direct costs of rental
operations increased $1,672,000 (19%) due to increased material, repair and
direct labor expenses ($1,075,000) related to the school business activity.
Additionally, more customers requested that certain lease costs be charged to
them in the rental rate rather than as a one time charge. This resulted in
higher amortization expense of lease costs ($483,000) for items recovered in the
customer's rental rate.
Selling and administrative expenses increased $2,810,000 (21%) in 1997 over
1996. The increased school business has translated into higher personnel costs.
Personnel costs increased $1,753,000 over 1996 resulting from additional staff
for sales and support, increased temporary contract labor, and increased sales
and performance bonuses.
Interest expense increased $1,183,000 (41%) in 1997 over 1996 as a result
of 45% higher average borrowing levels offset slightly by lower interest rates
in 1997. The debt increase funded in part the significant rental equipment
purchases made during 1997.
Income before provision for income taxes increased $15,614,000 (61%) in
1997 over 1996 while net income increased $8,523,000 (55%). The lower percentage
increase for net income in 1997 is due to the increase in minority interest in
income of Enviroplex combined with a higher effective tax rate in 1997 of 39.4%
compared to 38.4% in 1996. Basic earnings per share increased 55% from $1.03 in
1996 to $1.60 in 1997.
13
15
FISCAL YEARS 1996 AND 1995
The Company experienced a significant increase of orders during the last
six months of 1996 primarily related to the Class Size Reduction Program in
California.
Rental revenues increased $2,923,000 (6%) over 1995, with electronics
contributing $2,569,000 and relocatable modular offices contributing $354,000 of
the increase. Average utilization in 1996 for modular equipment declined, from
73.9% to 72.1%, and slightly declined for electronic equipment, from 55.2% to
54.9%, as compared to 1995. However, as a result of the significant volume of
shipments to school districts during the last five months of 1996, modular
utilization increased to 78.6% as of December 31, 1996, compared to 71.0% as of
December 31, 1995. Rental revenues for 1996 reflect only a partial year of
rental revenues associated with the classrooms shipped in the last five months
of 1996.
Rental related services revenues in 1996 increased $923,000 (12%) over 1995
due to additional site requirements and the significant increase in the movement
of classrooms to school districts. Gross margins remained approximately the
same, 37% in 1996 and 36% in 1995. Other revenues declined $450,000 (29%) as a
result of additional incentive fees earned by the Company in 1995 for equipment
management which were not repeated in 1996.
Sales revenues in 1996 increased $14,336,000 (91%) over 1995. Of the
increase in sales revenues, $7,787,000 came from MMMC's operations, $5,431,000
came from Enviroplex's operations and $1,118,000 came from the electronics
operations. The significant increase in MMMC's sales in 1996 was primarily due
to the higher demand by school districts as a result of the implementation of
the Class Size Reduction Program in California. Of the sales of modular
equipment in 1996, 67% were new and 33% were used equipment. The single largest
sale was for $1,517,000 by Enviroplex to a school district consisting of
manufactured portable classrooms of various sizes. Consolidated gross margin on
sales remained consistent at 32% in both 1996 and 1995. Sales from quarter to
quarter and year to year have fluctuated depending on customer requirements.
Depreciation on rental equipment in 1996 increased $917,000, an 8% increase
over 1995 due to the increase in rental equipment. Other direct costs of rental
operations increased $1,333,000 (18%) from 1995 due to material, repair and
labor costs directly related to the modular equipment movement during the last
five months of 1996. Of the $1,333,000 increase, direct labor costs accounted
for $608,000 due to the additional use of outside contract labor, increased
staffing and overtime premiums to assist in the preparation of modular equipment
for potential lease and sale opportunities.
Selling and administrative expenses increased $2,688,000 (26%) over 1995.
However, during the first quarter of 1995, the Company recognized an
acceleration of $330,000 in additional leasehold improvement expense related to
a rented facility in Southern California in which the lease was terminated.
Excluding this 1995 nonrecurring expense, selling and administrative expenses
increased $3,018,000 (30%) for 1996, net of the reduction in facilities rental
expense due to the relocation of modular office operations in Southern
California and Texas to owned facilities. Personnel costs accounted for
$2,134,000 of the increase, which included higher staffing levels and increases
in sales and performance bonuses. Additionally, selling and administrative
expense increases of $239,000 by Enviroplex also contributed to the overall
increase.
Income before provision for taxes increased $2,450,000 (11%) in 1996 over
1995 while net income increased $1,679,000 (12%). The higher percentage increase
for net income is due to a lower effective tax rate in 1996 of 38.4% compared to
40.2% in 1995. Basic earnings per share increased 18%, from $0.87 per share in
1995 to $1.03 per share in 1996, as a result of higher earnings coupled with
fewer outstanding shares.
LIQUIDITY AND CAPITAL RESOURCES
This section contains statements that constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. See "General" above for cautionary information with respect to such
forward-looking statements.
The Company requires substantial capital in order to maintain an available
inventory of relocatable modular offices and electronic test and measurement
instruments necessary to satisfy customer requirements
14
16
in a timely manner. In 1997, as in prior years, the primary use of cash was for
the purchase of rental equipment. During the last three years, the growth of the
rental inventory has been financed primarily by cash flow from operations and
bank borrowings. During 1997, the Company demonstrated its strong cash flow by
increasing rental assets by $44,771,000, increasing land improvements, furniture
and operating equipment by $9,150,000, repurchasing $10,545,000 of common stock
and paying dividends of $4,641,000, while increasing its debt by only
$28,150,000 during the year.
The Company believes that bank borrowings will continue to be a source of
funds for the purchase of rental equipment. As the Company's assets have grown,
it has been able to negotiate increases in the borrowing limit under its general
bank line of credit to its current $90,000,000 limit consistent with its
increased asset base. In addition to the $90,000,000 line of credit, the Company
has a $3,000,000 committed line of credit facility related to its cash
management services and has $10,000,000 of uncommitted optional advance
facilities. Although no assurance can be given, the Company believes it will
continue to be able to negotiate higher limits on its general bank line of
credit adequate to meet capital requirements not otherwise met by operational
cash flows.
The Company had a total liabilities to equity ratio of 1.56 to 1 and 1.25
to 1 as of December 31, 1997 and 1996, respectively. The debt (notes payable) to
equity ratio was 0.83 to 1 and 0.61 to 1 at December 31, 1997 and 1996,
respectively.
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. The following table summarizes the
repurchases of the Company's common stock during 1997, 1996, 1995 and the three
year totals as to the number of shares, the aggregate purchase price and the
average price per share.
REPURCHASE SUMMARY
YEAR ENDED DECEMBER 31,
--------------------------------------- THREE YEAR
1997 1996 1995 TOTALS
----------- ---------- ---------- -----------
Shares Repurchased...................... 502,408 841,100 872,132 2,215,640
Aggregate Purchase Price................ $10,544,580 $8,778,775 $7,374,279 $26,697,634
Average Price Per Share................. $ 20.99 $ 10.44 $ 8.46 $ 12.05
In March 1998, the Company repurchased 439,450 shares of its outstanding
common stock for an aggregate purchase price of $8,795,263 (or an average price
of $20.01 per share). On March 26, 1998, the Company's Board of Directors
authorized the repurchase of up to 1,000,000 shares of its common stock.
The Company believes that its needs for working capital and capital
expenditures through 1998 and beyond will be adequately met by cash flow and
bank borrowings.
YEAR 2000
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 is modifying its computer system programming to
process transactions in the year 2000. Anticipated expenditures for these
modifications will be expensed as incurred and are not expected to have a
significant impact on the Company's ongoing 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.
15
17
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
INDEX PAGE
----- ----
Report of Independent Accountants 17
Consolidated Financial Statements
Consolidated Statements of Income for the Years Ended
December 31, 1997, 1996
and 1995 18
Consolidated Balance Sheets as of December 31, 1997 and
1996 19
Consolidated Statements of Shareholders' Equity for the
Years Ended December 31, 1997, 1996 and 1995 20
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1997, 1996, and 1995 21
Notes to Consolidated Financial Statements 22
16
18
REPORT OF INDEPENDENT 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, 1997 and
1996, and the related consolidated statements of income, shareholders' equity
and cash flows for each of the three years in the period ended December 31,
1997. 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, 1997 and 1996, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1997, in conformity
with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
San Francisco, California
February 20, 1998
17
19
MCGRATH RENTCORP
CONSOLIDATED STATEMENTS OF INCOME
- --------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-----------------------------------------
1997 1996 1995
----------- ----------- -----------
REVENUES
Rental $61,687,917 $48,986,436 $46,062,913
Rental Related Services 10,277,674 8,717,727 7,795,514
----------- ----------- -----------
Rental Operations 71,965,591 57,704,163 53,858,427
Sales 62,021,240 30,174,858 15,838,800
Other 989,410 1,126,017 1,575,584
----------- ----------- -----------
Total Revenues 134,976,241 89,005,038 71,272,811
----------- ----------- -----------
COSTS AND EXPENSES
Direct Costs of Rental Operations
Depreciation 14,358,251 12,456,193 11,538,628
Rental Related Services 6,287,058 5,514,811 5,023,552
Other 10,374,908 8,703,179 7,370,474
----------- ----------- -----------
Total Direct Costs of Rental Operations 31,020,217 26,674,183 23,932,654
Cost of Sales 42,549,770 20,531,687 10,734,775
----------- ----------- -----------
Total Costs 73,569,987 47,205,870 34,667,429
Gross Margin 61,406,254 41,799,168 36,605,382
Selling and Administrative 15,956,523 13,147,394 10,459,258
----------- ----------- -----------
Income from Operations 45,449,731 28,651,774 26,146,124
Interest 4,070,284 2,886,609 2,830,863
----------- ----------- -----------
Income before Provision for Income Taxes 41,379,447 25,765,165 23,315,261
Provision for Income Taxes 16,323,292 9,885,275 9,375,212
----------- ----------- -----------
Income before Minority Interest 25,056,155 15,879,890 13,940,049
Minority Interest in Income of Subsidiary 1,011,185 358,278 96,904
----------- ----------- -----------
Net Income $24,044,970 $15,521,612 $13,843,145
=========== =========== ===========
Earnings Per Share:
Basic $ 1.60 $ 1.03 $ 0.87
----------- ----------- -----------
Diluted $ 1.58 $ 1.01 $ 0.86
----------- ----------- -----------
Shares Used in Per Share Calculation:
Basic 14,982,090 15,102,388 15,948,724
Diluted 15,181,305 15,305,802 16,168,494
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial
statements.
18
20
MCGRATH RENTCORP
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
DECEMBER 31,
----------------------------
1997 1996
------------ ------------
ASSETS
Cash $ 537,875 $ 686,333
Accounts Receivable, less allowance for doubtful accounts of
$650,000 in 1997 and $605,000 in 1996 21,794,028 19,919,954
Rental Equipment, at cost:
Relocatable Modular Offices 196,132,895 158,376,950
Electronic Test Instruments 50,350,777 43,335,413
------------ ------------
246,483,672 201,712,363
Less Accumulated Depreciation (72,398,374) (64,419,888)
------------ ------------
Rental Equipment, net 174,085,298 137,292,475
------------ ------------
Land, at cost 20,495,975 20,167,647
Buildings, Land Improvements, Equipment and Furniture,
at cost, less accumulated depreciation of $3,177,213 in
1997
and $3,376,803 in 1996 28,921,513 19,572,015
Prepaid Expenses and Other Assets 6,557,534 2,396,935
------------ ------------
Total Assets $252,392,223 $200,035,359
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Notes Payable $ 82,000,000 $ 53,850,000
Accounts Payable and Accrued Liabilities 27,047,173 14,768,670
Deferred Income 6,928,532 5,226,803
Minority Interest in Subsidiary 1,523,058 511,873
Deferred Income Taxes 36,247,956 36,869,734
------------ ------------
Total Liabilities 153,746,719 111,227,080
------------ ------------
Shareholders' Equity:
Common Stock, no par value --
Authorized -- 40,000,000 shares
Outstanding -- 14,521,790 shares in 1997 and 14,820,418
shares in 1996 7,756,054 7,161,168
Retained Earnings 90,889,450 81,647,111
------------ ------------
Total Shareholders' Equity 98,645,504 88,808,279
------------ ------------
Total Liabilities and Shareholders' Equity $252,392,223 $200,035,359
============ ============
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial
statements.
19
21
MCGRATH RENTCORP
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
- --------------------------------------------------------------------------------
COMMON STOCK TOTAL
------------------------ RETAINED SHAREHOLDERS'
SHARES AMOUNT EARNINGS EQUITY
- -------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1994 16,317,374 $15,999,633 $ 67,839,855 $ 83,839,488
Net Income -- -- 13,843,145 13,843,145
Repurchase of Common Stock (872,132) (7,374,279) -- (7,374,279)
Common Stock Issued or Reserved Under
Long-Term Stock Bonus Plan 13,572 221,609 -- 221,609
Repurchase of Common Stock in
Connection with the Exercise of
Stock Options (38,626) (336,941) -- (336,941)
Exercise of Stock Options 119,438 403,289 -- 403,289
Dividends Declared of $0.295 Per Share
(Note 7) -- -- (4,703,165) (4,703,165)
---------- ----------- ------------ ------------
BALANCE AT DECEMBER 31, 1995 15,539,626 8,913,311 76,979,835 85,893,146
Net Income -- -- 15,521,612 15,521,612
Repurchase of Common Stock (841,100) (2,110,889) (6,667,886) (8,778,775)
Common Stock Issued or Reserved Under
Long-Term Stock Bonus Plan 21,820 197,739 -- 197,739
Repurchase of Common Stock in
Connection with the Exercise of
Stock Options (28,422) (298,489) -- (298,489)
Exercise of Stock Options 128,494 459,496 -- 459,496
Dividends Declared of $0.28 Per Share -- -- (4,186,450) (4,186,450)
---------- ----------- ------------ ------------
BALANCE AT DECEMBER 31, 1996 14,820,418 7,161,168 81,647,111 88,808,279
Net Income -- -- 24,044,970 24,044,970
Repurchase of Common Stock (502,408) (507,080) (10,037,500) (10,544,580)
Common Stock Issued or Reserved Under
Long-Term Stock Bonus Plan 28,000 496,462 -- 496,462
Exercise of Stock Options 175,780 605,504 -- 605,504
Dividends Declared of $0.32 Per Share -- -- (4,765,131) (4,765,131)
---------- ----------- ------------ ------------
BALANCE AT DECEMBER 31, 1997 14,521,790 $ 7,756,054 $ 90,889,450 $ 98,645,504
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial
statements.
20
22
MCGRATH RENTCORP
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
------------------------------------------
1997 1996 1995
- ---------------------------------------------------
Cash Flows from Operating Activities:
Net Income $ 24,044,970 $ 15,521,612 $ 13,843,145
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation and Amortization 15,771,155 13,482,869 12,518,104
Gain on Sale of Rental Equipment (6,621,511) (4,815,533) (3,281,144)
Proceeds from Sale of Rental Equipment 17,747,520 12,599,250 8,630,079
Change In:
Accounts Receivable (1,874,074) (6,718,758) (538,983)
Prepaid Expenses and Other Assets (4,160,599) (499,235) 206,213
Accounts Payable and Accrued Liabilities 13,165,759 3,476,665 1,308,248
Deferred Income 1,701,729 (740,260) (1,280,584)
Deferred Income Taxes (621,778) 2,381,039 1,206,414
------------ ------------ ------------
Net Cash Provided by Operating Activities 59,153,171 34,687,649 32,611,492
------------ ------------ ------------
Cash Flow from Investing Activities:
Purchase of Rental Equipment (62,277,083) (29,924,430) (17,251,729)
Purchase of Land (328,328) (678,347) (4,750)
Purchase of Buildings, Land Improvements,
Equipment and Furniture (10,265,940) (7,687,857) (6,339,843)
------------ ------------ ------------
Net Cash Used in Investing Activities (72,871,351) (38,290,634) (23,596,322)
------------ ------------ ------------
Cash Flow from Financing Activities:
Net Borrowings Under Lines of Credit 28,150,000 16,770,000 1,130,000
Net Proceeds from the Exercise of Stock Options 605,504 161,007 66,348
Repurchase of Common Stock (10,544,580) (8,778,775) (7,374,279)
Payment of Dividends (4,641,202) (4,083,989) (3,767,812)
------------ ------------ ------------
Net Cash Provided (Used) by Financing
Activities 13,569,722 4,068,243 (9,945,743)
------------ ------------ ------------
Net Increase (Decrease) in Cash (148,458) 465,258 (930,573)
Cash Balance, Beginning of Period 686,333 221,075 1,151,648
------------ ------------ ------------
Cash Balance, End of Period $ 537,875 $ 686,333 $ 221,075
============ ============ ============
Interest Paid During the Period $ 4,010,407 $ 2,832,537 $ 2,835,280
============ ============ ============
Income Taxes Paid During the Period $ 16,945,070 $ 7,539,570 $ 7,668,956
============ ============ ============
Dividends Declared but not yet Paid $ 1,161,743 $ 1,037,814 $ 935,353
============ ============ ============
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial
statements.
21
23
MCGRATH RENTCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION AND BUSINESS
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 electronic test
and measurement instruments with related accessories primarily in California and
Texas.
McGrath RentCorp is a California corporation organized in 1979. 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.
The Company conducts electronics operations under the corporate name
("McGrath RentCorp") from its northern California modular branch office, which
includes the corporate offices. Engineers, scientists and technicians use these
instruments in evaluating the performance of their own electrical and electronic
equipment, developing products, controlling manufacturing processes and in field
service applications. These instruments are rented primarily to electronics,
industrial, research and aerospace companies. The majority of MGRC's rental
inventory consists of instruments manufactured by Hewlett-Packard and Tektronix.
The Company also conducts electronics operations specializing in
telecommunication test equipment under the trade name "RenTelco" from its branch
office in Richardson, Texas.
Enviroplex is a California corporation organized in 1991. Since its
inception, McGrath RentCorp has financed Enviroplex's operations and assisted in
a variety of corporate functions. In 1995, McGrath RentCorp converted a $300,000
note receivable into a 73.2% ownership of Enviroplex. 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 one facility located in
Stockton, California. Enviroplex sales revenues were $21,286,929, $10,205,870
and $4,774,676 for 1997, 1996 and 1995, 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 52%, 37% and 27% of the Company's
consolidated rental and sales revenues for 1997, 1996 and 1995, respectively.
The increases in the Company's sales revenues in both 1997 and 1996 can be
attributed to the Class Size Reduction Program implemented by the state of
California in 1996.
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. Revenue is recognized on a straight-line basis in those
cases where equipment is leased with uneven payment terms. Rental billings for
more than one month are recorded as deferred income and recognized as rental
revenue when earned.
Rental related services revenue is primarily associated with relocatable
modular office leases and consists of billings to customers for delivery,
installation, modifications, skirting, additional site related work, and
22
24
MCGRATH RENTCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
return delivery and dismantle. Revenue related to these services is recognized
in the period the services are performed and accepted.
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 leases and unearned interest is recognized
over the lease term on a basis which results in a constant rate of return on the
unrecovered lease investment (see Note 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 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:
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
Maintenance and repairs are expensed as
incurred.
OTHER DIRECT COSTS OF RENTAL OPERATIONS
Other direct costs of rental operations primarily relate to costs
associated with relocatable modular offices and include equipment supplies and
repairs, direct labor, 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.
23
25
MCGRATH RENTCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
EARNINGS PER SHARE
In March 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings Per Share", the effects of which were applied retroactively to
January 1, 1993. SFAS No. 128 replaces primary and fully diluted EPS with basic
and diluted EPS and modifies existing guidance for computing diluted EPS. Under
the new standard, basic 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.
RECENT ACCOUNTING PRONOUNCEMENT -- SEGMENT REPORTING
In 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures About Segments of an Enterprise and Related Information" which
introduces a new model for segment reporting, called the "management approach".
The management approach is based on the manner in which management organizes
segments within a company for making operating decisions and assessing
performance. The management approach replaces the notion of industry and
geographic segments. The Company will adopt SFAS 131 in 1998. The Company
believes adoption of SFAS 131 will not significantly affect the Company's
financial position or results of operations, however, additional financial
statement disclosures may be required.
RECLASSIFICATIONS
Certain 1996 and 1995 balances have been reclassified to conform to
classifications used during the current year.
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 any 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 business transacted with the
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
significant reduction of funding from the State of California to the public
schools could have a material adverse effect on the Company.
24
26
MCGRATH RENTCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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:
- --------------------------------------------------------------------------------
DECEMBER 31,
-------------------------
1997 1996
----------- ----------
Gross minimum lease payments receivable $ 5,339,301 $4,457,079
Less -- unearned interest (1,012,045) (899,531)
----------- ----------
Net investment in sales type lease receivables $ 4,327,256 $3,557,548
=========== ==========
- --------------------------------------------------------------------------------
As of December 31, 1997, the future minimum lease payments to be received
in 1998 and thereafter are as follows:
- --------------------------------------------------------------------------------
Year Ended December 31, 1998 $3,202,641
1999 1,240,221
2000 523,747
2001 254,597
2002 116,742
2003 and thereafter 1,353
----------
Total minimum future lease payments $5,339,301
==========
- --------------------------------------------------------------------------------
NOTE 5. NOTES PAYABLE
The Company maintains an unsecured line of credit agreement (the
"Agreement") with its banks which expires on June 30, 1999 and permits it to
borrow up to $90,000,000 of which $72,000,000 was outstanding as of December 31,
1997. The Agreement requires the Company to pay interest at prime or, at the
Company's election, 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 $77,800,000 plus 50%
of all net income generated subsequent to June 30, 1997 plus 90% of any new
stock issuance proceeds (restricted equity at December 31, 1997 is $84,322,000),
(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. 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 $90,000,000 unsecured line of credit, the Company has a
$3,000,000 committed line of credit facility (at prime rate) related to its cash
management services and has $10,000,000 of uncommitted optional advance
facilities (quoted bank rate at time of borrowing) of which $10,000,000 was
outstanding as of December 31, 1997. These additional facilities will expire on
June 30, 1998.
25
27
MCGRATH RENTCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following information relates to the lines of credit for each of the
following periods:
- --------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------
1997 1996
----------- -----------
Maximum amount outstanding $82,000,000 $53,850,000
Average amount outstanding $60,601,000 $41,881,000
Weighted average interest rate 6.50% 6.58%
Effective interest rate at end of period 6.70% 6.57%
Prime interest rate at end of period 8.50% 8.25%
- --------------------------------------------------------------------------------
NOTE 6. INCOME TAXES
The provision (benefit) for income taxes is comprised of the following:
- --------------------------------------------------------------------------------
CURRENT DEFERRED TOTAL
----------- ---------- -----------
Year Ended December 31,
1997:
Federal $14,075,531 $ (809,003) $13,266,528
State 2,869,539 187,225 3,056,764
----------- ---------- -----------
$16,945,070 $ (621,778) $16,323,292
=========== ========== ===========
1996:
Federal $ 6,031,974 $2,218,606 $ 8,250,580
State 1,472,262 162,433 1,634,695
----------- ---------- -----------
$ 7,504,236 $2,381,039 $ 9,885,275
=========== ========== ===========
1995:
Federal $ 6,785,118 $1,177,522 $ 7,962,640
State 1,383,680 28,892 1,412,572
----------- ---------- -----------
$ 8,168,798 $1,206,414 $ 9,375,212
=========== ========== ===========
- --------------------------------------------------------------------------------
The reconciliation of the federal statutory tax rate to the Company's
effective tax rate is as follows:
- --------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-----------------------
1997 1996 1995
----- ----- -----
Federal statutory rate 35.00% 35.00% 35.00%
State taxes, net of federal benefit 4.80 4.12 3.94
Other (0.35) (0.75) 1.27
----- ----- -----
39.45% 38.37% 40.21%
===== ===== =====
- --------------------------------------------------------------------------------
26
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
Balance Sheets:
- --------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------
1997 1996
----------- -----------
Excess of tax over book depreciation $44,858,854 $41,338,486
State income taxes (3,094,870) (2,617,118)
Accrued liabilities not currently deductible (1,188,909) (976,089)
Revenue deferred for financial reporting purposes (1,733,285) (1,813,099)
Other, net (2,593,834) 937,554
----------- -----------
$36,247,956 $36,869,734
=========== ===========
- --------------------------------------------------------------------------------
NOTE 7. COMMON STOCK AND STOCK OPTIONS
In March 1997, the Company's Board of Directors approved a 2-for-1 stock
split. The financial statements and notes have been adjusted retroactively to
reflect the stock split.
In 1985, the Company established an Employee Stock Ownership Plan, as
amended. Under the terms of the plan, the Company makes annual contributions in
the form of cash or common stock of the Company to a trust for the benefit of
eligible employees. The amount of the contribution is determined annually by the
Board of Directors. A contribution of $750,000 was approved for 1997, $650,000
in 1996 and $550,000 in 1995.
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 become exercisable over the term of the
related option agreements. Option activity and options exercisable including
weighted average exercise price for the three years ended December 31, 1997 were
as follows:
- --------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
1997 1996 1995
------------------- ------------------- -------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
-------- -------- -------- -------- -------- --------
Options outstanding at January 1, 540,452 6.90 512,846 4.87 644,584 4.61
Options granted during the year -- -- 160,000 10.75 -- --
Options exercised during the year (175,780) 3.44 (128,494) 3.58 (119,438) 3.38
Options terminated during the year -- -- (3,900) 6.94 (12,300) 5.94
-------- ---- -------- ----- -------- ----
Options outstanding at December 31, 364,672 8.57 540,452 6.90 512,846 4.87
-------- ---- -------- ----- -------- ----
Options exercisable at December 31, 153,362 7.45 278,422 4.79 326,656 4.33
-------- ---- -------- ----- -------- ----
- --------------------------------------------------------------------------------
The weighted average remaining contractual life of the 364,672 options
outstanding at December 31, 1997 is 5.8 years. The 1987 Plan expired in December
1997 and no further options can be issued under this plan.
The Company adopted SFAS No. 123, "Accounting for Stock-Based Compensation"
in 1996. The effect of SFAS No. 123 for the years presented in the financial
statements is not significant.
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 perform-
27
29
MCGRATH RENTCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
ance periods. The LTB Plan provides for the grant of stock bonuses upon
achievement of certain levels of return on equity during a specified period.
Stock bonuses earned under the LTB Plan vest over 5 years from the grant date
contingent on the employee's continued employment with the Company. As of
December 31, 1997, 138,922 shares of common stock have been granted, of which
42,522 shares of common stock are vested. Future grants of 59,637 shares of
common stock are authorized by the Board of Directors to be issued under the LTB
Plan in the event the Company reaches the highest level of achievement.
Compensation expense for 1997, 1996 and 1995 under these plans was $496,462,
$197,739 and $76,318, respectively, and is based on a combination of the
anticipated shares to be granted, the amount of vested shares previously issued
and fluctuations in market price of the Company's common stock.
The 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
1995, the Company repurchased 872,132 shares of common stock for an aggregate
repurchase price of $7,374,279 or an average price of $8.46 per share. In 1996,
the Company repurchased 841,100 shares of common stock for an aggregate
repurchase price of $8,778,775 or an average price of $10.44 per share. In 1997,
the Company repurchased 502,408 shares of common stock for an aggregate
repurchase price of $10,544,580 or an average price of $20.99 per share. As of
December 31, 1997, 497,592 shares remain authorized for repurchase (see Note 8
below).
In January 1995, the Board of Directors declared a quarterly dividend on
its common stock of $0.055 per share related to fourth quarter 1994. If the
fourth quarter dividend for 1994 had been declared in December 1994, the
cumulative dividends for 1995 would have been $0.24 per share.
NOTE 8. EVENTS SUBSEQUENT TO DATE OF AUDITORS' REPORT (UNAUDITED)
In March 1998, the Company repurchased 439,450 shares of its outstanding
common stock for an aggregate purchase price of $8,795,263 (or an average price
of $20.01 per share). On March 26, 1998, the Company's Board of Directors
authorized the repurchase of up to 1,000,000 shares of its common stock.
28
30
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, 1997 is summarized below:
- --------------------------------------------------------------------------------
1997
------------------------------------------------------------------------
FIRST SECOND THIRD FOURTH YEAR
------------ ------------ ------------ ------------ ------------
OPERATIONS DATA
Total revenues $ 26,841,510 $ 33,459,008 $ 45,352,129 $ 29,323,594 $134,976,241
Gross margin 12,590,974 15,084,570 19,536,128 14,194,582 61,406,254
Income from operations 9,233,410 11,395,769 14,573,837 10,246,715 45,449,731
Income before income taxes 8,360,525 10,406,323 13,531,121 9,081,478 41,379,447
Net income 4,919,488 6,081,647 7,702,354 5,341,481 24,044,970
Earnings per share:
Basic $ 0.33 $ 0.41 $ 0.51 $ 0.36 $ 1.60
Diluted $ 0.33 $ 0.40 $ 0.51 $ 0.35 $ 1.58
Dividends declared per share $ 0.08 $ 0.08 $ 0.08 $ 0.08 $ 0.32
BALANCE SHEET DATA
Rental equipment, net $141,820,991 $146,343,453 $158,693,201 $174,085,298 $174,085,298
Total assets 206,220,853 222,939,943 237,963,403 252,392,223 252,392,223
Notes payable 52,000,000 65,000,000 65,800,000 82,000,000 82,000,000
Shareholders' equity 93,005,143 97,921,674 104,465,276 98,645,504 98,645,504
- --------------------------------------------------------------------------------
1996
------------------------------------------------------------------------
FIRST SECOND THIRD FOURTH YEAR
------------ ------------ ------------ ------------ ------------
OPERATIONS DATA
Total revenues $ 17,705,351 $ 19,641,379 $ 25,497,205 $ 26,161,103 $ 89,005,038
Gross margin 8,610,927 9,722,720 11,604,801 11,860,720 41,799,168
Income from operations 5,776,218 6,818,578 8,085,784 7,971,194 28,651,774
Income before income taxes 5,140,944 6,136,426 7,341,509 7,146,286 25,765,165
Net income 3,073,577 3,652,090 4,463,865 4,332,080 15,521,612
Earnings per share:
Basic $ 0.20 $ 0.24 $ 0.30 $ 0.29 $ 1.03
Diluted $ 0.20 $ 0.24 $ 0.29 $ 0.29 $ 1.01
Dividends declared per share $ 0.07 $ 0.07 $ 0.07 $ 0.07 $ 0.28
BALANCE SHEET DATA
Rental equipment, net $128,213,564 $127,801,355 $130,112,339 $137,292,475 $137,292,475
Total assets 175,557,127 179,320,909 188,646,762 200,035,359 200,035,359
Notes payable 35,855,000 42,375,000 45,725,000 53,850,000 53,850,000
Shareholders' equity 85,934,152 84,498,597 85,247,366 88,808,279 88,808,279
- --------------------------------------------------------------------------------
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
29
31
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item is incorporated by reference to
McGrath RentCorp's definitive Proxy Statement with respect to its Annual
Shareholders' Meeting to be held June 5, 1998, which will be filed with the
Securities and Exchange Commission by not later than April 30, 1998.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference to
McGrath RentCorp's definitive Proxy Statement with respect to its Annual
Shareholders' Meeting to be held June 5, 1998, which will be filed with the
Securities and Exchange Commission by not later than April 30, 1998.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated by reference to
McGrath RentCorp's definitive Proxy Statement with respect to its Annual
Shareholders' Meeting to be held June 5, 1998, which will be filed with the
Securities and Exchange Commission by not later than April 30, 1998.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated by reference to
McGrath RentCorp's definitive Proxy Statement with respect to its Annual
Shareholders' Meeting to be held June 5, 1998, which will be filed with the
Securities and Exchange Commission by not later than April 30, 1998.
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.
PAGE OF
THIS REPORT
-----------
Report of Independent Accountants 17
Consolidated Financial Statements
Consolidated Statements of Income for the Years Ended
December 31, 1997, 1996 and 1995 18
Consolidated Balance Sheets as of December 31, 1997 and
1996 19
Consolidated Statements of Shareholders' Equity for the
Years Ended December 31, 1997, 1996 and 1995 20
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1997, 1996, and 1995 21
Notes to Consolidated Financial Statements.................. 22
2. Financial Statement Schedules. None.
3. Exhibits. See Index of Exhibits on page 32 of this report.
(b) Reports on Form 8-K. None.
Schedules and exhibits required by Article 7 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.
30
32
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 27, 1998
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.
NAME TITLE DATE
---- ----- ----
/s/ ROBERT P. MCGRATH Chairman of the Board and Chief March 27, 1998
- ------------------------------------------------ Executive Officer
Robert P. McGrath
/s/ DELIGHT SAXTON Senior Vice President, Chief March 27, 1998
- ------------------------------------------------ Financial Officer (Chief
Delight Saxton Accounting Officer), Secretary and
Director
/s/ JOAN MCGRATH Director March 27, 1998
- ------------------------------------------------
Joan McGrath
31
33
MCGRATH RENTCORP
INDEX TO EXHIBITS
NUMBER DESCRIPTION METHOD OF FILING
- ------ ----------- ----------------
3.1 Articles of Incorporation of McGrath Filed as exhibit 19.1 to the Company's
RentCorp Quarterly Report on Form 10Q for the quarter
ending June 30, 1988 (filed August 14, 1988),
and incorporated herein by reference.
3.1.1 Amendment to Articles of Filed as exhibit 3.1 to the Company's
Incorporation of McGrath RentCorp Registration Statement on Form S-1 (filed
March 28, 1991 Registration No. 33-39633), and
incorporated herein by reference.
3.1.2 Amendment to Articles of Filed herewith.
Incorporation of McGrath RentCorp
3.2 Amended and Restated By-Laws of Filed as exhibit 3.1 to the Company's Annual
McGrath RentCorp Report on Form 10-K for the year ended
December 31, 1990 (filed March 28, 1991),
incorporated herein by reference.
3.2.1 Amendment of By-Laws of McGrath Filed herewith.
RentCorp
4.1 Amended and Restated Credit Filed as exhibit 4.1 to the Company's
Agreement Quarterly Report on Form 10Q for the quarter
ending June 30, 1997 (filed August 1, 1997),
and incorporated herein by reference.
4.1.1 First Amendment to the Restated Filed herewith.
Credit Agreement
4.1.2 Second Amendment to the Restated Filed herewith.
Credit Agreement
4.2 $3,000,000 Committed Credit Facility Filed as exhibit 4.1 to the Company's
Quarterly Report on Form 10Q for the quarter
ending September 30, 1997 (filed November 11,
1997), and incorporated herein by reference.
4.3 $5,000,000 Optional Credit Facility Filed as exhibit 4.2 to the Company's Annual
with Union Bank of California, N.A. Report on Form 10-K for the year ended
December 31, 1996 (filed March 31, 1997), and
incorporated herein by reference.
4.3.1 First Extension to the $5,000,000 Filed herewith.
Optional Credit Facility with Union
Bank of California, N.A.
4.3.2 Second Extension to the $5,000,000 Filed as exhibit 4.2 to the Company's Annual
Optional Credit Facility with Union Report on Form 10Q for the quarter ending June
Bank of California, N.A. 30, 1997 (filed August 1, 1997), and
incorporated herein by reference.
4.3.3 Third Extension to the $5,000,000 Filed as exhibit 4.2 to the Company's
Optional Credit Facility with Union Quarterly Report on Form 10Q for the quarter
Bank of California, N.A. ending September 30, 1997 (filed November 11,
1997), and incorporated herein by reference.
32
34
NUMBER DESCRIPTION METHOD OF FILING
- ------ ----------- ----------------
4.4 $5,000,000 Optional Credit Facility Filed as exhibit 4.3 to the Company's
with Fleet Bank, N.A. Quarterly Report on Form 10Q for the quarter
ending September 30, 1997 (filed November
11,1997), and incorporated herein by
reference.
10.1 The McGrath RentCorp 1987 Incentive Filed as exhibit 19.3 to the Company's
Stock Option Plan Quarterly Report on Form 10Q for the quarter
ending June 30, 1988 (filed August 14, 1988),
and incorporated herein by reference.
10.1.1 Exemplar of the Form of the Filed as exhibit 19.3 to the Company's
Incentive Stock Option Agreement Quarterly Report on Form 10Q for the quarter
ending June 30, 1988 (filed August 14, 1988),
and incorporated herein by reference.
10.2 Exemplar of the Form of the Filed as exhibit 19.5 to the Company's
Directors, Officers and Other Agents Quarterly Report on Form 10Q for the quarter
Indemnification Agreements ending June 30, 1988 (filed August 14, 1988),
and incorporated herein by reference.
10.3 Long-Term Stock Bonus Plan together Filed as exhibit 10.3 to the Company's Annual
with Exemplar Long-Term Stock Bonus Report on Form 10-K for the year ended
Agreement December 31, 1990 (filed March 28, 1991), and
incorporated herein by reference.
27 Financial Data Schedule Filed electronically.
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.
33
1
Exhibit 3.1.2
MCGRATH RENTCORP
CERTIFICATE OF AMENDMENT
OF
ARTICLES OF INCORPORATION
Dennis C. Kakures and Delight Saxton certify that:
1. They are the President and the Secretary, respectively, of McGrath
RentCorp, a California corporation.
2. Article Four of the Articles of Incorporation of this corporation is
amended to read in its entirety as follows:
"The corporation is authorized to issue only one class of
shares, which shall be designated "Common Stock," and the
total number of shares which this corporation is authorized
to issue is forty million (40,000,000). Upon amendment of
this Article to read as herein set forth, each outstanding
share of Common Stock is split up and converted into two (2)
shares of Common Stock."
3. The foregoing Amendment of Articles of Incorporation has been duly
approved by the Board of Directors.
4. The corporation has only class of shares outstanding, and in accordance
with Corporations Code Section 902(c), the approval of the shareholders is not
required for the foregoing Amendment of Articles of Incorporation.
We declare under penalty of perjury under the laws of the State of
California that the matters set forth in this Certificate are true and correct
of our own knowledge.
Dated: April 1, 1997
----------------------------------
Dennis C. Kakures, President
----------------------------------
Delight Saxton, Secretary
1
EXHIBIT 3.2.1
AMENDMENT OF BYLAWS
"3.2 The number of directors of the corporation shall be not less than
four (4) nor more than seven (7). The exact number of directors shall be five
(5) 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
duly adopted by the vote or written consent of a majority of the outstanding
shares entitled to vote."
1
EXHIBIT 4.1.1
FIRST AMENDMENT TO CREDIT AGREEMENT
This First Amendment to Credit Agreement ("Amendment") dates as of the 31st
day of December, 1997, is entered into by and among McGRATH RENTCORP, a
California corporation, as "Borrower," the banks listed on the signature pages
hereof (individually a "Bank" and collectively "Banks"), and UNION BANK OF
CALIFORNIA, NATIONAL ASSOCIATION, as agent for Banks (in such capacity,
"Agent").
RECITALS
A. Pursuant to that Credit Agreement dated as of July 10, 1997, as
amended from time to time ("Agreement"), among Borrower, the Banks and
Agent, credit facilities have been made available to Borrower in a
maximum aggregate principal amount of $70,000,000, consisting of a
Basic Commitment Amount of $40,000,000 and a Reserve Commitment Amount
of $30,000,000.
B. Borrower has requested that the Agent and the Banks amend the
Agreement to increase the Basic Commitment Amount to $50,000,000, and
the Reserve Commitment Amount to $40,000,000, and to make such other
amendments as are set forth below. The Agent and the Bank's are
willing to effect such amendments upon the terms and subject to the
conditions set forth below.
NOW, THEREFORE, the parties hereto agree as follows:
1. Unless otherwise defined herein, capitalized terms used in this
Amendment shall have the respective meanings given to those terms in
the Agreement.
2. The definitions of "Basic Commitment Amount" and "Reserve Commitment
Amount", in Article One of the Agreement are hereby deleted and
replaced with the respective definitions thereof set forth below:
"Basic Commitment Amount" means the amount of Fifty Million Dollars
($50,000,000)."
"Reserve Commitment Amount" means the amount of Forty Million Dollars
($40,000,000)."
3. The definition of "Pro Rata Share", in Article One of the Agreement
is hereby deleted and replaced with the definition thereof set forth below:
"Pro Rata Share" means, with respect to each Bank, the percentage set
forth next to that Bank's name as follows:
Bank Pro Rata Share Commitment
---- -------------- ----------
Union Bank of 34% $30,600,000
California, N.A.
Bank of 33% $29,700,000
America, NT&SA
Fleet Bank, N.A. 33% $29,700,000"
1
2
4. The Commitment amounts, the Pro Rata Share percentages, and the addresses
for notices and other communications, of each of the Banks, as set forth on the
signature pages of the Agreement are hereby deleted and replaced with the
respective Commitment amounts, Pro Rata Share percentages, and addresses for
notices and other communications, of each of the Banks set forth on the
signature pages hereof.
5. Borrower hereby represents and warrants to the Agent and the Banks as
follows:
a. Each of the representations and warranties set forth in Article 6 of the
Agreement is true and correct on the date hereof and, after giving
effect to the amendments effected hereby on the Effective Date, will be
true and correct on the Effective Date; and
b. No Default or Event of Default has occurred and is continuing or exists
under the Agreement on the date hereof and, after giving effect to the
amendments effected hereby on the Effective Date, No Default or Event of
Default will have occurred and be continuing or will exist under the
Agreement on the Effective Date.
6. The amendments set forth in Sections 2, 3 and 4 above shall become
effective on December 31, 1997 (the "Effective Date"), subject to receipt by
the Agent of each of the following on or prior to the Effective Date:
a. Counterparts of this Amendment, duly executed by Borrower, the Agent and
each of the Banks;
b. New Revolving Notes, appropriately completed and duly executed by
Borrower, to the extent require by amendments to the Basic Commitment
Amount; and
c. A certificate of the secretary of Borrower certifying: (i) the corporate
action taken by Borrower to authorize the execution, delivery and
performance of this Amendment, and (ii) the incumbency of the officer(s)
of Borrower authorized to execute this Amendment on behalf of Borrower.
7. On and after the Effective Date, all references in the Agreement or other
Loan Documents to the Agreement shall mean the Agreement as amended hereby, and
the term "Loan Documents" shall include this Amendment. On and after the
Effective Date, all references in the Agreement or other Loan Documents to the
Revolving Note(s) shall mean the Revolving Note(s) executed in connection with
this Amendment. Except as specifically provided herein, all terms and
conditions of the Agreement remain in full force and effect, without waiver or
modification, and this Amendment and the Agreement shall be read together as
one document.
8. This Amendment may be executed in any number of counterparts and by
different parties hereto in separate counterparts, each of which when so
executed shall be deemed to be an original and all of which when taken together
shall constitute on and the same agreement. This Agreement shall be governed
by, and construed in accordance with, the laws of the state of California.
IN WITNESS WHEREOF, the parties have caused this Amendment to be executed by as
of the date and year first written above.
2
3
BORROWER:
McGRATH RENTCORP
By: __________________________
Its: _________________________
Notice Address:
5720 Las Positas
Livermore, California 94550
Attention: Ms. Delight Saxton
BANKS:
UNION BANK OF CALIFORNIA,
NATIONAL ASSOCIATION,
individually and as Agent
By: __________________________
Its: _________________________
Notice Address:
350 California Street
San Francisco, CA 94104
Attention: Mr. Robert Vernagallo
Vice President
Fax No: (415) 705 7566
Commitment: $30,000,000
Pro Rata Shre: 34%
FLEET BANK, N.A.
By: __________________________
Its: _________________________
4
Notice Address:
1185 Avenue of the Americas, 16th Floor
New York, NY 10036
Attention: Mr. Anthony C. Nocera
Vice President
Fax No: (212) 819 6211
Commitment: $20,700,000
Pro Rata Share: 33%
BANK OF AMERICA NATIONAL
TRUST AND SAVINGS ASSOCIATION
By: __________________________
Its: _________________________
Notice Address:
300 Lakeside Drive, Suite 250
Oakland, CA 94612
Attention: Mr. Kenneth J. Beck
Vice President
Fax No: (510) 273 5355
Commitment: $29,700,000
Pro Rata Share: 33%
1
EXHIBIT 4.1.2
SECOND AMENDMENT TO CREDIT AGREEMENT
THIS SECOND AMENDMENT TO CREDIT AGREEMENT ("Amendment") dated as of 3rd day
of March, 1998, is entered into by and among McGRATH RENTCORP, a California
corporation, as "Borrower," the banks listed on the signature pages hereof
(individually a "Bank" and collectively "Banks"), and UNION BANK OF CALIFORNIA,
NATIONAL ASSOCIATION, as agent for Banks (in such capacity, "Agent").
RECITALS
A. Pursuant to that certain Credit Agreement dated as of July 10, 1997, as
amended from time to time ("Agreement"), among Borrower, the Banks and
Agent, credit facilities have been made available to Borrower in a maximum
aggregate principal amount of $50,000,000, consisting of a Basic Commitment
Amount of $40,000,000 and a Reserve Commitment Amount of $40,000,000.
B. Borrower has requested that the Agent and the Banks amend the Agreement as
set forth below. The Agent and the Bank's are willing to effect such an
amendment upon the terms and subject to the conditions set forth below.
NOW, THEREFORE, the parties hereto agree as follows:
1. Unless otherwise defined herein, capitalized terms used in this Amendment
shall have the respective meanings given to those terms in the Agreement.
2. Section 7.12(b) of the Agreement is hereby deleted and replaced with the
following:
"(b) at all times a ratio of Liabilities to Tangible Net Worth for
Borrower (on a consolidated basis with Affiliates) at all times of not more
than three to one (3 to 1);"
3. Borrower hereby represents and warrants to the Agent and the Banks as
follows:
a. Each of the representations and warranties set forth in Article 6 of
the Agreement is true and correct on the date hereof and, after giving
effect to the amendments effected hereby on the Effective Date, will
be true and correct on the Effective Date; and
b. No Default or Event of Default has occurred and is continuing or
exists under the Agreement on the date hereof and, after giving effect
to the amendments effected hereby on the Effective Date, No Default or
Event of Default will have occurred and be continuing or will exist
under the Agreement on the Effective Date.
4. The amendment set forth in Section 2 above shall become effective on March
4, 1998 (the "Effective Date"), subject to receipt by the Agent on or prior to
the Effective Date of counterparts of this Amendment, duly executed by
Borrower, the Agent and each of the Banks.
5. On and after the Effective Date, all references in the Agreement or other
Loan Documents to the Agreement shall mean the Agreement as amended hereby, and
the term "Loan Documents" shall include this Amendment. Except as specifically
provided herein, all terms and conditions of the Agreement remain in full force
and effect, without waiver or modification, and this Amendment and the
Agreement shall be read together as one document.
1
2
6. This Amendment may be executed in any number of counterparts and by
different parties hereto in separate counterparts, each of which when so
executed shall be deemed to be an original and all of which when taken together
shall constitute on and the same agreement. This Agreement shall be governed
by, and be construed in accordance with, the laws of the state of California.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by as of the date and year first written above.
BORROWER:
McGRATH RENTCORP
By: __________________
Its: _______________
BANKS:
UNION BANK OF CALIFORNIA,
NATIONAL ASSOCIATION,
individually and as Agent
By: __________________
Its: _______________
FLEET BANK, N.A.
By: __________________
Its: _______________
BANK OF AMERICA NATIONAL
TRUST AND SAVINGS ASSOCIATION
By: __________________
Its: _______________
2
1
EXHIBIT 4.3.1
UNION BANK OF CALIFORNIA Corporate Banking
Date: June 27, 1997
Ms. Delight Saxton
Chief Financial Officer and
Vice President of Administration
McGrath RentCorp
2500 Grant Avenue
San Lorenzo, CA 94580
Re: Extension of Maturity Date of Facility Letter and Optional
Advance Note
Dear Delight:
This letter is to confirm that Union Bank of California, N.A. ("Bank") has
agreed to extend the maturity date of that certain optional advance extension of
Credit ("Facility") granted by Bank to McGrath RentCorp, a California
corporation ("Borrower") in the maximum principal amount of FIVE MILLION AND
NO/100 DOLLARS ($5,000,000) originally made pursuant to the terms and
conditions of that certain Facility letter dated October 16, 1996 as amended
from time to time, and optional advance promissory note dated October 16, 1996
as amended from time to time (the "Note") (collectively, the "Agreements").
The maturity date of the Facility is hereby extended to July 31, 1997, ("New
Maturity Date"). The Agreements shall be deemed modified as of the date of this
letter to reflect the New Maturity Date. All other terms and conditions of the
Agreements remain in full force and effect, without waiver or modification.
BORROWER ACKNOWLEDGES THAT, AS PROVIDED IN THE AGREEMENTS, THE FACILITY IS NOT
A COMMITTEE FACILITY. IN ITS SOLE DISCRETION, FOR ANY REASON OR FOR NO REASON
AND WITH OR WITHOUT NOTICE, BANK MAY DECLINE TO MAKE ANY OR ALL REQUESTED
ADVANCES UNDER THE FACILITY, MAY DECLINE TO CONTINUE OR FURTHER RENEW THE
FACILITY, AND MAY TERMINATE THE FACILITY AT ANY TIME.
Very truly yours,
UNION BANK OF CALIFORNIA, N.A.
By: __________________________
Robert John Vernagallo
Vice President
400 California Street, San Francisco, California 94104
5
1,000
12-MOS
DEC-31-1997
JAN-01-1997
DEC-31-1997
538
0
22,444
(650)
0
0
299,078
(75,576)
252,392
0
0
0
0
7,756
90,889
252,392
134,976
134,976
73,570
73,570
15,956
0
4,070
41,379
16,323
0
0
0
0
24,045
1.60
1.58
INCLUDES RENTAL EQUIPMENT, LAND, BUILDINGS, LAND IMPROVEMENT FURNITURE
AND EQUIPMENT
ACCUMULATED DEPRECIATION RELATED TO FOOTNOTE 16 ABOVE
