FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________________
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended June 30, 1995
Commission File No. 0-13292
McGRATH RENTCORP
(Exact name of registrant as specified in its Charter)
California 94-2579843
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
2500 Grant Avenue
San Lorenzo, California 94580
(Address of principal executive offices)
Registrant's telephone number: (510) 276-2626
_________________________
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the Registrant was required to file such reports) and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No
______ ______
At August 9, 1995, 7,842,137 shares of Registrant's Common Stock were
outstanding.
______________________________
McGrath RentCorp
Second Quarter 1995 Form 10-Q
Page 1
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three months ended Six months ended
June 30, June 30,
------------------ -------------------
1995 1994 1995 1994
----- ----- ---- ------
REVENUES:
Rental operations-
Rental $11,521,962 $11,413,947 $22,596,061 $22,238,456
Rental related services 1,768,990 2,099,138 3,799,728 4,556,044
------------ ----------- ------------ -----------
13,290,952 13,513,085 26,395,789 26,794,500
Sales and related services 3,829,895 2,737,598 7,374,527 5,807,393
------------ ----------- ------------ -----------
Total revenues 17,120,847 16,250,683 33,770,316 32,601,893
------------ ----------- ------------ -----------
COSTS & EXPENSES:
Direct costs of rental operations-
Depreciation 2,847,952 2,756,567 5,602,332 5,420,130
Rental related services 1,224,937 1,379,486 2,400,588 2,995,255
Other 1,185,086 1,115,829 2,337,504 2,376,276
------------ ----------- ------------ -----------
5,257,975 5,251,882 10,340,424 10,791,661
Cost of sales and related services 2,576,378 1,802,191 4,905,277 3,831,439
------------ ----------- ------------ -----------
7,834,353 7,054,073 15,245,701 14,623,100
------------ ----------- ------------ -----------
Gross margin 9,286,494 9,196,610 18,524,615 17,978,793
Selling and administrative expenses 3,129,694 3,308,301 6,432,380 6,509,197
------------ ----------- ------------ -----------
Income from operations 6,156,800 5,888,309 12,092,235 11,469,596
Interest expense 687,207 495,232 1,362,661 953,377
------------ ----------- ------------ -----------
Income before provision
for income taxes 5,469,593 5,393,077 10,729,574 10,516,219
Provision for income taxes 2,205,204 2,089,817 4,288,216 4,075,034
------------ ----------- ------------ -----------
Net income $ 3,264,389 $ 3,303,260 $ 6,441,358 $ 6,441,185
------------ ----------- ------------ -----------
------------ ----------- ------------ -----------
Net income per share $0.39 $0.39 $0.78 $0.76
------------ ----------- ------------ -----------
------------ ----------- ------------ -----------
The accompanying notes are an integral part of these financial statements.
McGrath RentCorp
Second Quarter 1995 Form 10-Q
Page 2
CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, December 31,
1995 1994
------------ ------------
Assets
Cash $ 342,119 $ 1,151,648
Accounts receivable, less allowance for doubtful
accounts of $1,005,000 in 1995 and $1,400,000
in 1994 13,634,077 12,662,213
Rental equipment, at cost:
Relocatable modular offices 146,069,782 144,674,027
Electronic test instruments 32,331,674 29,541,687
Accessory equipment 3,677,130 3,627,776
------------ ------------
182,078,586 177,843,490
Less - Accumulated depreciation (54,177,730) (50,599,702)
------------ ------------
127,900,856 127,243,788
Land 19,484,550 19,484,550
Improvements, furniture and equipment, at cost,
less accumulated depreciation of $2,454,662
in 1995 and $2,348,664 in 1994 10,770,358 7,276,411
Prepaid expenses and other assets 2,408,512 2,103,913
------------ ------------
$174,540,472 $169,922,523
============ ============
Liabilities and Shareholders' Equity
Liabilities:
Notes payable $ 37,315,000 $ 35,950,000
Accounts payable and accrued liabilities 11,391,939 9,603,107
Deferred income 6,805,920 7,247,647
Deferred income taxes 33,757,354 33,282,281
------------ ------------
Total liabilities 89,270,213 86,083,035
------------ ------------
Shareholders' equity:
Common stock, no par value -
Authorized - 2O,OOO,OOO shares
Outstanding - 8,052,937 shares in 1995
and 8,158,687 in 1994 13,825,627 15,999,633
Retained earnings 71,444,631 67,839,855
------------ ------------
Total shareholders' equity 85,270,258 83,839,488
------------ ------------
$174,540,471 $169,922,523
============ ============
The accompanying notes are an integral part of these financial statements.
McGrath RentCorp
Second Quarter 1995 Form 10-Q
Page 3
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (decrease) in cash
(Unaudited)
Six months ended
June 30,
-------------------------
1995 1994
------------ ------------
Cash flows from operating activities:
Net income $ 6,441,358 $ 6,441,185
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 6,170,130 5,588,790
Gain on sale of rental equipment (1,588,298) (1,850,835)
Change in:
Accounts receivable (971,864) (646,634)
Prepaids and other assets (304,599) (194,615)
Accounts payable and accrued liabilities 945,895 828,399
Deferred income (441,727) (306,863)
Deferred income taxes 475,073 2,885,035
------------ ------------
Net cash provided by operating activities 10,725,968 12,744,462
------------ ------------
Cash flows from investing activities:
Purchase of rental equipment (8,693,762) (13,058,578)
Purchase of improvements, furniture and equipment (4,061,745) (86,788)
Proceeds from sale of rental equipment 4,022,660 5,212,791
------------ ------------
Net cash used in investing activities (8,732,847) (7,932,575)
------------ ------------
Cash flows from financing activities:
Net borrowings 1,365,000 (2,825,000)
Payment of dividends (1,878,282) (1,745,807)
Repurchase of Common Stock (2,316,235) ---
Proceeds from the exercise of stock options 26,867 11,753
------------ ------------
Net cash used in financing activities (2,802,650) (4,559,054)
------------ ------------
Net increase (decrease) in cash (809,529) 252,833
Cash balance, beginning of period 1,151,648 432,009
------------ ------------
Cash balance, end of period $ 342,119 $ 684,842
============ ============
Interest paid during period $ 1,341,546 $ 933,771
============ ============
Income taxes paid during period $ 3,372,576 $ 1,240,000
============ ============
Dividends declared but not yet paid $ 958,300 $ 914,545
============ ============
The accompanying notes are an integral part of these financial statements.
McGrath RentCorp
Second Quarter 1995 Form 10-Q
Page 4
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1995
__________________________________________
1. The consolidated financial information for the six months ended June 30,
1995 has not been audited, but in the opinion of management, all adjustments
(consisting only of normal recurring accruals, consolidation and eliminating
entries) necessary for the fair presentation of the consolidated results of
operations, financial position, and cash flows of McGrath RentCorp (the
"Company") have been made. The consolidated results of the six months ended
June 30, 1995 should not be considered as necessarily indicative of the results
for the entire year. It is suggested that these consolidated financial
statements be read in conjunction with the financial statements and notes
thereto included in the Company's latest Form 10-K.
2. The number of outstanding shares and equivalent shares used in the earnings
per common share calculations were as follows:
Primary Fully Diluted
--------- -------------
Three months ended: June 30, 1995 8,266,920 8,213,431
June 30, 1994 8,456,998 8,452,006
Six months ended: June 30, 1995 8,279,073 8,222,935
June 30, 1994 8,463,369 8,463,214
3. On January 1, 1995, McGrath RentCorp converted a $300,000 note receivable
to 73.171% ownership of Enviroplex, Inc. Enviroplex, Inc. manufactures portable
classrooms built to the requirements of the Division of State Architect ("DSA")
and sells primarily to school districts. In June 1995, Enviroplex established a
$1,000,000 revolving line of credit with a bank which is guaranteed by McGrath
RentCorp. The accompanying consolidated financial statements include the
accounts of the Company and its majority owned subsidiary. All intercompany
accounts and transactions have been eliminated in consolidation.
4. In April 1995, 6,786 shares of common stock were issued under the Long Term
Bonus Plan to certain key employees for achieving an average return on equity
during the three years ended December 31, 1994. The liability of $115,362 for
these shares was reflected in the 1994 Financial Statements and in April 1995
was reclassed to equity (common stock) upon issuance.
McGrath RentCorp
Second Quarter 1995 Form 10-Q
Page 5
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Three and Six Months Ended June 30, 1995 and 1994
Rental revenues for the three and six months ended June 30, 1995
increased $108,015 (1%) and $357,605 (2%), respectively, over the same periods
in 1994. For the six month period, the $947,626 increase in rental revenues
from electronics was offset by a $590,021 decline in rental revenues from
relocatable modular offices. The rental revenue decline for modulars was due to
the return of a significant amount of equipment (220 unit complex) from a single
customer which had generated rental billings of $322,464 per quarter. Average
utilization during the first six months declined for modular equipment, from
78.1% to 75.1%, and improved slightly for electronic equipment, from 53.7% to
54.4%, as compared to the same period in 1994.
Rental related services for the three and six months ended June 30,
1995 decreased $330,148 (16%) and $756,316 (17%), respectively, over the same
periods in 1994. The six month decrease was due to fewer site work
requirements experienced in 1995 offset by a one time adjustment of incentive
fees recognized by the Company for equipment management. For the six month
comparative period in 1994, $739,000 of rental related service revenues was for
site work for three projects, one of which was directly related to the
Northridge, California earthquake. Gross margins for rental related services
for the six month period increased from 34% in 1994 to 37% in 1995.
Sales and related services for the three and six months ended June 30,
1995 increased $1,092,297 (40%) and $1,567,134 (27%), respectively, over the
same periods in 1994. The increases in sales volume for each comparative period
is due to the sales volume of the Company's majority owned subsidiary,
Enviroplex, Inc. which had sales in the first six months of 1995 of $2,668,573.
Sales and related services from quarter to quarter have fluctuated depending on
customer requirements. Gross margins on sales and related services for the six
month period declined from 34.0% in 1994 to 33.5% in 1995.
Selling and administrative expenses for the three and six months ended
June 30, 1995 decreased $178,607 (5%) and $76,817 (1%), respectively, over the
same periods in 1994. The six month decrease is primarily due to net reductions
in bad debt, insurance and freight-in expenses amounting to $743,824 offset by
the addition of Enviroplex, Inc. expenses of $338,569 and the acceleration of
the recognition of a leasehold improvement expense of $330,000.
Interest expense for the three and six months ended June 30, 1995
increased $191,975 (39%) and $409,284 (43%), respectively, over the same periods
in 1994 as a result of higher borrowing levels combined with a higher average
interest rate.
McGrath RentCorp
Second Quarter 1995 Form 10-Q
Page 6
Income before provision for income taxes for the three and six months
ended June 30, 1995 increased $76,516 (1%) and $213,355 (2%), respectively, over
the same periods in 1994 with net income remaining the same for each reported
period as a result of a slightly higher effective tax rate for 1995.
Liquidity and Capital Resources.
The debt (notes payable) to equity ratio was 0.44 to 1 at June 30, 1995
compared to 0.43 to 1 at December 31, 1994. The debt (total liabilities) to
equity ratio at the end of the current period was 1.05 to 1 as compared to 1.03
to 1 as of December 31 1994.
The Company's primary use of funds is to purchase rental equipment, and
funds will continue to be used for this purpose in the future. Additionally, the
Company has used substantial funds to make improvements to its inventory
facilities located in Southern California, Northern California and the Houston
area, and funds will continue to be used for this purpose.
From time to time, the Company has repurchased shares of its issued and
outstanding common stock in the over-the-counter market (NASDQ) and/or through
privately negotiated, large block transactions. The Board of Directors believes
the Company's shares are currently undervalued by the market and that the
repurchase of its shares is a good investment for the Company under such
circumstances. During the year ended December 31, 1994, the Company repurchased
158,354 shares of its issued and outstanding common stock for an aggregate
purchase price of $2,532,591 (average price of $15.99 per share). During the
first quarter of 1995, the Company repurchased 45,700 shares of its common stock
for an aggregate purchase price of $714,038 (average price of $15.62 per share),
and during the second quarter 1995, it repurchased 96,566 shares for an
aggregate purchase price of $1,602,197 (average price of $16.59 per share).
During the period from July 1 through August 9, 1995, the Company has
repurchased an additional 211,800 shares at an aggregate purchase price of
$3,654,294 (average price of $17.25 per share). Shares repurchased by the
Company are cancelled and returned to the status of authorized but unissued
stock. As of August 9, 1995, the Company was still authorized to purchase an
additional 341,634 shares of its common stock under an authorization from its
Board of Directors given on March 30, 1995.
During the first six months of 1995, the Company paid $1,878,282 in cash
quarterly dividends to its shareholders. Subject to its continued profitability
and favorable cash flow, the Company intends to continue the payment of
quarterly dividends to its shareholders.
McGrath RentCorp
Second Quarter 1994 Form 10-Q
Page 7
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
In June 1995, the Company declared a quarterly dividend on its Common
Stock; the dividend was $0.12 per share. Subject to its continued profitability
and favorable cash flow, the Company intends to continue the payment of
quarterly dividends. The Company's loan agreement with the Bank prohibits
payment of dividends in excess of 50% of net income in any one year without the
bank's consent.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS. No exhibits included.
(b) REPORTS ON FORM 8-K. No reports on form 8-K have been filed during the
quarter for which this report is filed.
McGrath RentCorp
Second Quarter 1995 Form 10-Q
Page 8
SIGNATURES
Pursuant to the requirements 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: August 9, 1995 McGRATH RENTCORP
By: /s/ Delight Saxton
-------------------------------
Delight Saxton, Chief Financial
Officer and Vice President
of Administration
5
1,000
6-MOS
DEC-31-1995
JAN-01-1995
JUN-30-1995
342
0
14,639
1,005
0
0
182,079
54,177
174,540
0
0
13,826
0
0
71,444
174,540
33,770
33,770
15,246
15,246
6,432
0
1,363
10,730
4,288
0
0
0
0
6,441
.78
0
