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 September 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 November 8, 1995, 7,760,247 shares of Registrant's Common Stock
were outstanding.
_________________________
McGrath RentCorp
Third Quarter 1995 Form 10-Q
Page 1
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
STATEMENTS OF INCOME
(Unaudited)
Three months ended Nine months ended
September 30, September 30,
----------------------- -----------------------
1995 1994 1995 1994
----------- ----------- ----------- -----------
REVENUES:
Rental operations-
Rental $11,928,853 $11,893,560 $34,524,914 $34,132,016
Rental related services 3,032,306 2,987,235 6,832,034 7,543,279
----------- ----------- ----------- -----------
14,961,159 14,880,795 41,356,948 41,675,295
Sales and related services 4,106,228 5,209,924 11,480,755 11,017,317
----------- ----------- ----------- -----------
Total revenues 19,067,387 20,090,719 52,837,703 52,692,612
----------- ----------- ----------- -----------
COSTS & EXPENSES:
Direct costs of rental operations-
Depreciation 2,930,235 2,821,373 8,532,567 8,241,503
Rental related services 1,925,257 2,186,591 4,325,845 5,181,846
Other 1,256,333 1,160,627 3,593,837 3,536,903
----------- ----------- ----------- -----------
6,111,825 6,168,591 16,452,249 16,960,252
Cost of sales and related services 2,793,706 3,695,405 7,698,983 7,526,844
----------- ----------- ----------- -----------
8,905,531 9,863,996 24,151,232 24,487,096
----------- ----------- ----------- -----------
Gross margin 10,161,856 10,226,723 28,686,471 28,205,516
Selling and administrative expenses 3,534,800 3,440,105 9,967,180 9,949,302
----------- ----------- ----------- -----------
Income from operations 6,627,056 6,786,618 18,719,291 18,256,214
Interest expense 759,920 582,180 2,122,581 1,535,557
----------- ----------- ----------- -----------
Income before provision
for income taxes 5,867,136 6,204,438 16,596,710 16,720,657
Provision for income taxes 2,361,414 2,404,220 6,649,630 6,479,254
----------- ----------- ----------- -----------
Net income $ 3,505,722 $ 3,800,218 $ 9,947,080 $10,241,403
=========== =========== =========== ===========
Net income per share $ 0.44 $ 0.45 $ 1.22 $ 1.22
=========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements.
McGrath RentCorp
Third Quarter 1995 Form 10-Q
Page 2
BALANCE SHEETS
(Unaudited)
September 30, December 31,
1995 1994
------------ ------------
ASSETS
Cash $ 267,336 $ 1,151,648
Accounts receivable, less allowance for
doubtful accounts of $805,000 in 1995
and $1,400,000 in 1994 15,169,994 12,662,213
Rental equipment, at cost:
Relocatable modular offices 147,339,101 144,674,027
Electronic test instruments 33,124,432 29,541,687
Accessory equipment 3,683,888 3,627,776
------------ ------------
184,147,421 177,843,490
Less - Accumulated depreciation (55,839,105) (50,599,702)
------------- ------------
128,308,316 127,243,788
Land 19,489,300 19,484,550
Improvements, furniture and equipment, at cost,
less accumulated depreciation of $2,548,258
in 1995 and $2,348,664 in 1994 11,296,420 7,276,411
Prepaid expenses and other assets 2,533,267 2,103,913
------------ ------------
$177,064,633 $169,922,523
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Notes payable $ 39,925,000 $ 35,950,000
Accounts payable and accrued liabilities 12,532,115 9,603,107
Deferred income 7,108,195 7,247,647
Deferred income taxes 34,698,070 33,282,281
------------ ------------
Total liabilities 94,263,380 86,083,035
------------ ------------
Shareholders' equity:
Common stock, no par value -
Authorized - 2O,OOO,OOO shares
Outstanding - 7,760,247 shares in 1995
and 8,158,687 in 1994 8,782,132 15,999,633
Retained earnings 74,019,121 67,839,855
------------- -------------
Total shareholders' equity 82,801,253 83,839,488
------------- -------------
$177,064,633 $169,922,523
============= =============
The accompanying notes are an integral part of these financial statements.
McGrath RentCorp
Third Quarter 1995 Form 10-Q
Page 3
STATEMENTS OF CASH FLOWS
Increase (decrease) in cash
(Unaudited)
Nine months ended
September 30,
-------------------------
1995 1994
------------ ------------
Cash flows from operating activities:
Net income $ 9,947,080 $ 10,241,403
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 9,274,334 8,519,374
Gain on sale of rental equipment (2,325,868) (3,033,305)
Change in:
Accounts receivable (2,507,781) (2,974,500)
Prepaids and other assets (429,354) (1,109,466)
Accounts payable and accrued liabilities 2,113,140 2,268,574
Deferred income (139,452) 918,280
Deferred income taxes 1,415,789 1,897,251
------------ ------------
Net cash provided by operating activities 17,347,888 16,727,611
------------ ------------
Cash flows from investing activities:
Purchase of rental equipment (13,587,246) (17,621,990)
Purchase of land (4,750) ----
Purchase of improvements, furniture and equipment (4,761,776) (98,924)
Proceeds from sale of rental equipment 6,316,019 8,695,223
------------ ------------
Net cash used in investing activities (12,037,753) (9,025,691)
------------ ------------
Cash flows from financing activities:
Net borrowings 3,975,000 (3,075,000)
Payment of dividends (2,836,584) (2,660,352)
Repurchase of common stock (7,374,279) (1,464,243)
Proceeds from the exercise of stock options 41,416 11,753
------------ ------------
Net cash provided (used) by financing activities (6,194,447) (7,187,842)
------------ ------------
Net increase (decrease) in cash (884,312) 514,078
Cash balance, beginning of period 1,151,648 432,009
------------ ------------
Cash balance, end of period $ 267,336 $ 946,087
============ ============
Interest paid during period $ 2,110,541 $ 1,516,185
============ ============
Income taxes paid during period $ 4,750,000 $ 4,640,000
============ ============
Dividends declared but not yet paid $ 931,230 $ 904,007
============ ============
The accompanying notes are an integral part of these financial statements.
McGrath RentCorp
Third Quarter 1995 Form 10-Q
Page 4
NOTES TO FINANCIAL STATEMENTS
September 30, 1995
_____________________________
1. The consolidated financial information for the nine months ended
September 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 nine months ended September 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: September 30, 1995 7,958,848 7,960,787
September 30, 1994 8,379,533 8,385,926
Nine months ended: September 30, 1995 8,158,890 8,166,221
September 30, 1994 8,365,696 8,372,976
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
Third Quarter 1995 Form 10-Q
Page 5
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
Three and Nine Months Ended September 30, 1995 and 1994
Rental revenues for the three and nine months ended September 30, 1995
increased slightly over the same periods in 1994. For the nine month
period, the $1,508,566 increase in rental revenues from electronics was
offset by a $1,115,668 decline in rental revenues from relocatable modular
offices. The rental revenue decline for modulars was primarily 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 nine months declined for
modular equipment, from 79.1% to 74.6%, and remained the same for
electronic equipment (55.2%), as compared to the same period in 1994.
Rental related services for the three and nine months ended September
30, 1995 increased $45,071 (2%) and decreased $711,245 (9%), respectively,
over the same periods in 1994. The nine month decrease was due to fewer
site work requirements experienced in 1995 offset by an adjustment of
incentive fees recognized by the Company for equipment management. For the
nine 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.
Sales and related services for the three and nine months ended
September 30, 1995 decreased $1,103,696 (21%) and increased $463,438 (4%),
respectively, over the same periods in 1994. The sales volume in the first
nine months is higher than in 1994 due to the sales contribution of the
Company's majority owned subsidiary, Enviroplex, Inc. which had sales in
the first nine months of 1995 of $4,079,049. Sales and related services
from quarter to quarter have fluctuated depending on customer requirements.
Gross margins on sales and related services for the nine month period
increased from 31.7% in 1994 to 33.0% in 1995.
Interest expense for the three and nine months ended September 30, 1995
increased $177,740 (31%) and $587,024 (38%), respectively, over the same
periods in 1994 as a result of higher borrowing levels combined with a
higher average interest rate.
Net income for the three and nine months ended September 30, 1995
decreased $294,496 (5%) and $294,323 (3%), respectively, over the same
periods in 1994 with earnings per share remaining approximately the same
for the comparative periods as a result of fewer outstanding shares in
1995.
McGrath RentCorp
Third Quarter 1995 Form 10-Q
Page 6
Liquidity and Capital Resources.
The debt (notes payable) to equity ratio was 0.48 to 1 at September 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 1.14 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), 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) and during the third
quarter 1995, it repurchased an additional 293,800 shares at an aggregate
purchase price of $5,058,044 (average price of $17.22 per share). Shares
repurchased by the Company are cancelled and returned to the status of
authorized but unissued stock. As of November 8, 1995, the Company had
made no further repurchases of its shares and was still authorized to
purchase an additional 495,000 shares of its common stock under an
authorization from its Board of Directors given on August 28, 1995.
During the first nine months of 1995, the Company paid $2,836,584 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
Third Quarter 1995 Form 10-Q
Page 7
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
On August 28, 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
Third 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: November 8, 1995 McGRATH RENTCORP
By:/s/ Delight Saxton
____________________________
Delight Saxton, Chief Financial
Officer and Vice President of
Administration
5
1,000
9-MOS
DEC-31-1995
JAN-01-1995
SEP-30-1995
267
0
15,975
805
0
0
184,147
55,839
177,065
0
0
8,782
0
0
74,019
177,065
52,838
52,838
24,151
24,151
6,432
0
2,123
16,597
6,650
0
0
0
0
9,947
1.22
0
