SEC Filing | McGrath

1 ================================================================================ McGRATH RENTCORP 5700 LAS POSITAS ROAD, LIVERMORE, CA 94550 (Address of principal executive offices) FORM 10-Q/A (Amendment No. 1) ADDITIONAL INFORMATION THE FOLLOWING AMENDS McGRATH RENTCORP'S FORM 10-Q FOR THE THREE MONTHS ENDED MARCH 31, 2000 IN ITS ENTIRETY WHICH WAS FILED MAY 12, 2000 AT 1:05 PM EASTERN TIME. DUE TO AN ERROR BY THE FINANCIAL FILING AGENT, THE 10-Q PREVIOUSLY FILED PRESENTED INFORMATION NOT RELATED TO McGRATH RENTCORP. ================================================================================

2 ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 ------------------------------------------ FORM 10-Q/A (Amendment No. 1) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED MARCH 31, 2000 COMMISSION FILE NUMBER 0-13292 ------------------------------------------ MCGRATH RENTCORP (Exact name of registrant as specified in its Charter) CALIFORNIA 94-2579843 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 5700 LAS POSITAS ROAD, LIVERMORE, CA 94550 (Address of principal executive offices) Registrant's telephone number: (925) 606-9200 ------------------------------------------ Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] At May 10, 2000, 12,303,882 shares of Registrant's Common Stock were outstanding. ================================================================================

3 PART I FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS MCGRATH RENTCORP CONSOLIDATED STATEMENTS OF INCOME (unaudited) - -------------------------------------------------------------------------------------------------- THREE MONTHS ENDED MARCH 31, ----------------------- (in thousands, except per share amounts) 2000 1999 - -------------------------------------------------------------------------------------------------- REVENUES Rental $ 21,381 $ 19,059 Rental Related Services 3,322 2,434 -------- -------- Rental Operations 24,703 21,493 Sales 6,693 6,863 Other 247 218 -------- -------- Total Revenues 31,643 28,574 -------- -------- COSTS AND EXPENSES Direct Costs of Rental Operations Depreciation 5,356 4,666 Rental Related Services 1,732 1,338 Other 3,781 3,133 -------- -------- Total Direct Costs of Rental Operations 10,869 9,137 Costs of Sales 4,821 4,860 -------- -------- Total Costs 15,690 13,997 -------- -------- Gross Margin 15,953 14,577 Selling and Administrative 4,695 4,199 -------- -------- Income from Operations 11,258 10,378 Interest 1,944 1,516 -------- -------- Income Before Provision for Income Taxes 9,314 8,862 Provision for Income Taxes 3,632 3,478 -------- -------- Income Before Minority Interest 5,682 5,384 Minority Interest in Income (Loss) of Subsidiary (21) (36) -------- -------- Income before Effect of Accounting Change 5,703 5,420 Cumulative Effect of Accounting Change, Net of tax benefit of $833 -- (1,367) -------- -------- Net Income $ 5,703 $ 4,053 ======== ======== Earnings Per Share: Basic Income before Effect of Accounting Change $ 0.46 $ 0.39 Cumulative Effect of Accounting Change, net of tax -- (0.10) -------- -------- Net Income $ 0.46 $ 0.29 ======== ======== Diluted Income before Effect of Accounting Change $ 0.45 $ 0.39 Cumulative Effect of Accounting Change, net of tax -- (0.10) -------- -------- Net Income $ 0.45 $ 0.29 ======== ======== Shares Used in Per Share Calculation: Basic 12,500 13,820 Diluted 12,593 13,991 - -------------------------------------------------------------------------------------------------- The accompanying notes are an integral part of these consolidated financial statements. 1

4 MCGRATH RENTCORP CONSOLIDATED BALANCE SHEETS (unaudited) - --------------------------------------------------------------------------------------- MARCH 31, DECEMBER 31, --------- ------------ (in thousands) 2000 1999 - --------------------------------------------------------------------------------------- ASSETS Cash $ 757 $ 490 Accounts Receivable, less allowance for doubtful accounts of $650 in 2000 and 1999 22,946 25,095 Rental Equipment, at cost: Relocatable Modular Offices 241,950 238,449 Electronic Test Instruments 78,449 72,832 --------- --------- 320,399 311,281 Less Accumulated Depreciation (97,704) (94,103) --------- --------- Rental Equipment, net 222,695 217,178 --------- --------- Land, at cost 19,303 19,303 Buildings, Land Improvements, Equipment and Furniture, at cost, less accumulated depreciation of $5,562 in 2000 and $5,116 in 1999 31,627 31,668 Prepaid Expenses and Other Assets 4,495 3,988 --------- --------- Total Assets $ 301,823 $ 297,722 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Notes Payable $ 114,000 $ 110,300 Accounts Payable and Accrued Liabilities 25,920 24,811 Deferred Income 8,501 9,511 Minority Interest in Subsidiary 2,814 2,836 Deferred Income Taxes 55,564 54,861 --------- --------- Total Liabilities 206,799 202,319 --------- --------- Shareholders' Equity: Common Stock, no par value - Authorized -- 40,000 shares Outstanding -- 12,304 shares in 2000 and 12,546 shares in 1999 8,588 8,755 Retained Earnings 86,436 86,648 --------- --------- Total Shareholders' Equity 95,024 95,403 --------- --------- Total Liabilities and Shareholders' Equity $ 301,823 $ 297,722 ========= ========= - --------------------------------------------------------------------------------------- The accompanying notes are an integral part of these consolidated financial statements. 2

5 MCGRATH RENTCORP CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) - ----------------------------------------------------------------------------------------------------------------- THREE MONTHS ENDED MARCH 31, - ----------------------------------------------------------------------------------------------------------------- (in thousands) 2000 1999 - ----------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $ 5,703 $ 4,053 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation and Amortization 5,802 5,059 Cumulative Effect of Accounting Change, net of tax -- 1,367 Gain on Sale of Rental Equipment (1,426) (1,313) Change In: Accounts Receivable 2,150 6,094 Prepaid Expenses and Other Assets (507) 1,009 Accounts Payable and Accrued Liabilities 871 (3,056) Deferred Income (1,010) (2,901) Deferred Income Taxes 703 3,479 -------- -------- Net Cash Provided by Operating Activities 12,286 13,791 -------- -------- CASH FLOW FROM INVESTING ACTIVITIES: Purchase of Rental Equipment (13,315) (5,901) Purchase of Land, Buildings, Land Improvements, Equipment and Furniture (405) (724) Proceeds from Sale of Rental Equipment 3,866 3,567 -------- -------- Net Cash Used in Investing Activities (9,854) (3,058) -------- -------- CASH FLOW FROM FINANCING ACTIVITIES: Net Borrowings Under Notes Payable 3,700 4,450 Proceeds from the Exercise of Stock Options 19 -- Repurchase of Common Stock (4,379) (9,894) Payment of Dividends (1,505) (1,397) -------- -------- Net Cash Used in Financing Activities (2,165) (6,841) -------- -------- Net Increase in Cash 267 3,892 Cash Balance, Beginning of Period 490 857 -------- -------- Cash Balance, End of Period $ 757 $ 4,749 ======== ======== Interest Paid During the Period $ 2,400 $ 2,075 ======== ======== Income Taxes Paid During the Period $ 2,929 $ (2) ======== ======== Dividends Declared but not yet Paid $ 1,723 $ 1,616 ======== ======== - ----------------------------------------------------------------------------------------------------------------- The accompanying notes are an integral part of these consolidated financial statements. 3

6 MCGRATH RENTCORP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2000 NOTE 1. CONSOLIDATED FINANCIAL INFORMATION The consolidated financial information for the three months ended March 31, 2000 has not been audited, but in the opinion of management, all adjustments (consisting of only normal recurring accruals, consolidation and eliminating entries) necessary for the fair presentation of the consolidated results of operations, financial position, and cash flows of McGrath RentCorp (the "Company") have been made. The consolidated results of the three months ended March 31, 2000 should not be considered as necessarily indicative of the consolidated results for the entire year. It is suggested that these consolidated financial statements be read in conjunction with the financial statements and notes thereto included in the Company's latest Form 10-K. NOTE 2. BUSINESS SEGMENTS The Company defines its business segments based on the nature of operations for the purpose of reporting under Statement of Financial Accounting Standard No. 131, "Disclosures about Segments of an Enterprise and Related Information" (SFAS 131). The Company's three reportable segments are Mobile Modular Management Corporation (Modulars), McGrath-RenTelco (Electronics), and Enviroplex. The operations of these three segments are described in the notes to the consolidated financial statements included in the Company's latest Form 10-K. As a separate corporate entity, Enviroplex revenues and expenses are separately maintained from Modulars and Electronics. Excluding interest expense, allocations of revenues and expenses not directly associated with Modulars or Electronics are generally allocated to these segments based on their pro-rata share of direct revenues. Interest expense is allocated between Modulars and Electronics based on their pro-rata share of average rental equipment, accounts receivable and customer security deposits. The Company does not report total assets by business segment. Summarized financial information for the three months ended March 31, 2000 and 1999 for the Company's reportable segments is shown in the following table: 4

7 - -------------------------------------------------------------------------------------------------------------- (in thousands) MODULARS(1) ELECTRONICS(2) ENVIROPLEX CONSOLIDATED ----------- -------------- ---------- ------------ THREE MONTHS ENDED MARCH 31, 2000 Rental Operation Revenues $ 16,805 $ 7,898 $ -- $ 24,703 Sales and Other Revenues 3,089 2,405 1,446 6,940 Total Revenues 19,894 10,303 1,446 31,643 Depreciation on Rental Equipment 2,838 2,518 -- 5,356 Interest Expense 1,501 526 (83) 1,944 Income before Income Taxes 5,563 3,913 (162) 9,314 Rental Equipment Acquisitions 5,415 7,900 -- 13,315 Accounts Receivable, net (period end) 10,246 9,102 3,598 22,946 Rental Equipment, at cost (period end) 241,950 78,449 -- 320,399 1999 Rental Operation Revenues $ 14,925 $ 6,568 $ -- $ 21,493 Sales and Other Revenues 2,688 2,395 1,998 7,081 Total Revenues 17,613 8,963 1,998 28,574 Depreciation on Rental Equipment 2,498 2,168 -- 4,666 Interest Expense 1,161 399 (44) 1,516 Income before Income Taxes 5,868 3,210 (216) 8,862 Rental Equipment Acquisitions 3,465 2,436 -- 5,901 Accounts Receivable, net (period end) 6,554 7,379 1,784 15,717 Rental Equipment, at cost (period end) 218,335 66,686 -- 285,021 - -------------------------------------------------------------------------------------------------------------- 1 Operates under the trade name Mobile Modular Management Corporation 2 Operates under the trade name McGrath-RenTelco 5

8 ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This Quarterly Report on Form 10-Q contains statements, which constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These statements appear in a number of places. Such statements can be identified by the use of forward-looking terminology such as "believes", "expects", "may", "estimates", "will", "should", "plans" or "anticipates" or the negative thereof or other variations thereon or comparable terminology, or by discussions of strategy. Readers are cautioned that any such forward-looking statements are not guarantees of future performance and involve significant risks and uncertainties, and that actual results may vary materially from those in the forward-looking statements as a result of various factors. These factors include the effectiveness of management's strategies and decisions, general economic and business conditions, new or modified statutory or regulatory requirements and changing prices and market conditions. This report identifies other factors that could cause such differences. No assurance can be given that these are all of the factors that could cause actual results to vary materially from the forward-looking statements. THREE MONTHS ENDED MARCH 31, 2000 AND 1999 The Company's core rental businesses both continue to grow steadily. Rental revenues for the three months ended March 31, 2000 increased $2,322,000 (12%) over the comparative period in 1999. Mobile Modular Management Corporation ("MMMC") contributed $1,038,0000 and McGrath-RenTelco contributed $1,284,000 of the three-month increase. MMMC's rental revenues increased as a result of having an average of $18,424,000 more equipment on rent compared to a year earlier even though the average monthly yield for all modular equipment has declined from 1.94% in 1999 to 1.90% in 2000. Modular average utilization for the three months ended March 31, 2000, excluding new equipment inventory, was 80.4% compared to 82.2% for the same period in 1999. McGrath-RenTelco's rental revenue increase can be attributed to strong communication equipment rental activity, which resulted in an average of $7,958,000 more equipment on rent compared to a year earlier. Additionally, the average monthly yield for all electronics equipment increased from 3.22% in 1999 to 3.40% in 2000. Electronics average utilization for the three months ended March 31, 2000 was 56.3% compared to 51.3% for the same period in 1999. Rental related services revenues for the three months ended March 31, 2000 increased $888,000 (36%) over the comparative period in 1999. One large project with extensive modification and site related work accounted for 46% of the increase. Gross margin on rental related services for the three-month period increased from 45% in 1999 to 48% in 2000. Sales for the three months ended March 31, 2000 declined $170,000 (2%) as compared to the same period in 1999. Consolidated gross margin on sales declined slightly for the three-month period from 29% in 1999 to 28% in 2000. Sales continue to occur routinely as a normal part of the Company's rental business; however, these sales can fluctuate from quarter to quarter and year to year depending on customer demands and requirements. Enviroplex's backlog of orders as of March 31, 2000 and 1999 was $15,397,000 and $4,043,000, respectively. Backlog is not significant in MMMC's modular business or in McGrath-RenTelco's electronics business. Depreciation on rental equipment for the three months ended March 31, 2000 increased $690,000 (15%) over the comparative period in 1999 due to higher amounts of rental equipment. For the three months ended March 31, 2000, average modular rental equipment, at cost, increased $22,741,000 (10%) and average electronics rental equipment, at cost, increased $8,224,000 (12%) over the 1999 comparative period. Other direct costs of operations for the three months ended March 31, 2000 increased $648,000 (21%) over the same period in 1999 primarily due to increased maintenance and repair expenses related to the modular fleet. 6

9 Selling and administrative expenses for the three months ended March 31, 2000 increased $496,000 (12%) over the comparative period in 1999 primarily due to higher personnel and benefit costs, including performance and incentive bonuses. Interest expense for the three months ended March 31, 2000 increased $428,000 (28%) over the 1999 comparative period as a result of a higher average borrowing level and a higher average interest rate in 2000. The average debt increase resulted from rental equipment purchases, repurchases of the Company's common stock and dividend payments made during the last twelve months. Income before provision for taxes for the three months ended March 31, 2000 increased $452,000 (5%) to $9,314,000 while net income increased $1,650,000 (41%) to $5,703,000 or $0.45 per diluted share over the comparative period in 1999. The higher percentage increase in net income is due to the impact of a one-time charge of $1,367,000 recognized in the first quarter of 1999 representing the cumulative effect of an accounting change, net of tax. Excluding the impact of this one-time charge, net income for the three months ended March 31, 1999 was $5,420,000 or $0.39 per diluted share resulting in comparative earnings increasing 5% and comparative earnings per share increasing 15% in 2000. LIQUIDITY AND CAPITAL RESOURCES This section contains statements that constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. See the statement at the beginning of this Item for cautionary information with respect to such forward-looking statements. The Company's operations produced a positive cash flow for the three months ended March 31, 2000 of $12,286,000 as compared to $13,791,000 for the year earlier period. During 2000, the primary uses of cash have been to purchase additional rental inventory to satisfy customer requirements, to repurchase shares of the Company's common stock on the open market, and to pay dividends to the Company's shareholders. The Company had a total liabilities to equity ratio of 2.18 to 1 and 2.12 to 1 as of March 31, 2000 and December 31, 1999, respectively. The debt (notes payable) to equity ratios were 1.20 to 1 and 1.16 to 1 as of March 31, 2000 and December 31, 1999, respectively. Both ratios have increased since December 31, 1999 partially as a result of the Company's stock repurchase program. The Company has made purchases of shares of its common stock from time to time in the over-the-counter market (NASDAQ) and/or through privately negotiated, large block transactions under an authorization of the Board of Directors. Shares repurchased by the Company are cancelled and returned to the status of authorized but unissued stock. During the three months ended March 31, 2000, the Company repurchased 265,360 shares of its outstanding common stock for an aggregate purchase price of $4,379,000 (or an average price of $16.50 per share). As of May 4, 2000, 975,500 shares remain authorized for repurchase. The Company believes that its needs for working capital and capital expenditures through 2000 and beyond will be adequately met by cash flow and bank borrowings. MARKET RISK This section contains statements that constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. See the statement at the beginning of this Item for cautionary information with respect to such forward-looking statements. The Company currently has no material derivative financial instruments that expose the Company to significant market risk. The Company is exposed to cash flow and fair value risk due to changes in interest rates with respect to its notes payable. As of March 31, 2000, the Company believes that the carrying amounts of its financial instruments (cash and notes payable) approximate fair value. 7

10 YEAR 2000 This section contains statements that constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. See the statement at the beginning of this Item for cautionary information with respect to such forward-looking statements. The Company experienced no disruption in operations due to transition to the Year 2000. A number of major system projects were initiated in 1997, 1998 and 1999 to upgrade core computer hardware, networking and software systems. These projects replaced existing systems as opposed to simply fixing Year 2000 problems; they are now complete and operational. There are no known trends or deferred capital spending related to Year 2000 issues that are likely to affect the Company's results of operations. PART II OTHER INFORMATION ITEM 3. OTHER INFORMATION On March 17, 2000, the Company declared a quarterly dividend on its Common Stock; the dividend was $0.14 per share. Subject to its continued profitability and favorable cash flow, the Company intends to continue the payment of quarterly dividends. ITEM 4. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits. No exhibits included. (b) Reports on Form 8-K. No reports on Form 8-K have been filed during the quarter for which this report is filed. SIGNATURES PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED. Date: May 10, 2000 MCGRATH RENTCORP By: /s/ Thomas J. Sauer ------------------------------ Thomas J. Sauer Vice President and Chief Financial Officer (Chief Accounting Officer) 8

11 EXHIBIT INDEX EXHIBIT NUMBER DESCRIPTION - ------- ----------- 27.1 Financial Data Schedule.

5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM McGRATH RENTCORP FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS DEC-31-2000 JAN-01-2000 MAR-31-2000 757 0 23,596 (650) 0 0 376,891 (103,266)

273,625 0 0 0 0 8,588 86,436 301,823 31,643 31,643 15,690 15,690 4,695 0 1,944 9,314 3,632 0 0 0 0 5,703

0.46 0.45 Includes rental equipment, Land, Buildings, Land Improvements, Furniture and Equipment. Accumulated depreciation related to PP&E footnote above. Net income includes reduction of minority interest in income of subsidiary.