SEC Filing | McGrath

1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 --------------------------------------------------- FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED SEPTEMBER 30, 2000 COMMISSION FILE NUMBER 0-13292 --------------------------------------------------- MCGRATH RENTCORP (Exact name of registrant as specified in its Charter) CALIFORNIA 94-2579843 (State or other jurisdiction of (I.R.S. Employer 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 November 3, 2000, 12,311,080 shares of Registrant's Common Stock were outstanding. ================================================================================

2 PART I FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS MCGRATH RENTCORP CONSOLIDATED STATEMENTS OF INCOME (unaudited) - ------------------------------------------------------------------------------------------------------------------ THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30 SEPTEMBER 30 ---------------------- ---------------------- (in thousands, except per share amounts) 2000 1999 2000 1999 - ------------------------------------------------------------------------------------------------------------------ REVENUES Rental ................................................... $ 24,876 $ 20,117 $ 69,104 $ 58,195 Rental Related Services .................................. 6,694 4,511 13,990 10,045 -------- -------- -------- -------- Rental Operations ..................................... 31,570 24,628 83,094 68,240 Sales .................................................... 22,830 11,584 39,838 27,655 Other .................................................... 243 445 723 895 -------- -------- -------- -------- Total Revenues ............................ 54,643 36,657 123,655 96,790 -------- -------- -------- -------- COSTS AND EXPENSES Direct Costs of Rental Operations Depreciation .......................................... 6,111 5,072 17,212 14,491 Rental Related Services ............................... 3,712 2,237 7,768 5,400 Other ................................................. 4,882 4,180 13,369 10,844 -------- -------- -------- -------- Total Direct Costs of Rental Operations ... 14,705 11,489 38,349 30,735 Costs of Sales ........................................... 16,260 8,474 27,996 19,521 -------- -------- -------- -------- Total Costs ............................... 30,965 19,963 66,345 50,256 -------- -------- -------- -------- Gross Margin .......................... 23,678 16,694 57,310 46,534 Selling and Administrative ............................... 5,540 4,024 15,022 12,212 -------- -------- -------- -------- Income from Operations ................................ 18,138 12,670 42,288 34,322 Interest ................................................. 2,361 1,721 6,465 4,818 -------- -------- -------- -------- Income Before Provision for Income Taxes .............. 15,777 10,949 35,823 29,504 Provision for Income Taxes ............................... 6,153 4,225 13,971 11,508 -------- -------- -------- -------- Income Before Minority Interest ....................... 9,624 6,724 21,852 17,996 Minority Interest in Income of Subsidiary ................ 580 88 716 142 -------- -------- -------- -------- Income before Effect of Accounting Change ............. 9,044 6,636 21,136 17,854 Cumulative Effect of Accounting Change, net of tax benefit of $833 ........................... -- -- -- (1,367) -------- -------- -------- -------- Net Income ............................................... $ 9,044 $ 6,636 $ 21,136 $ 16,487 ======== ======== ======== ======== Earnings Per Share: Basic Income before Cumulative Effect of Accounting Change... $ 0.73 $ 0.51 $ 1.71 $ 1.33 Cumulative Effect of Accounting Change, net of tax..... -- -- -- (0.10) -------- -------- -------- -------- Net Income ............................................ $ 0.73 $ 0.51 $ 1.71 $ 1.23 ======== ======== ======== ======== Diluted Income before Cumulative Effect of Accounting Change $ 0.73 $ 0.50 $ 1.70 $ 1.31 Cumulative Effect of Accounting Change, net of tax .... -- -- -- (0.10) -------- -------- -------- -------- $ 0.73 $ 0.50 $ 1.70 $ 1.21 ======== ======== ======== ======== Shares Used in Per Share Calculation: Basic .................................................... 12,308 13,067 12,371 13,430 Diluted .................................................. 12,402 13,220 12,463 13,593 - ------------------------------------------------------------------------------------------------------------------ The accompanying notes are an integral part of these consolidated financial statements. 1

3 MCGRATH RENTCORP CONSOLIDATED BALANCE SHEETS (unaudited) - ---------------------------------------------------------------------------------------- SEPTEMBER 30, DECEMBER 31, ---------------------------- (in thousands) 2000 1999 - ---------------------------------------------------------------------------------------- ASSETS Cash ..................................................... $ 1,941 $ 490 Accounts Receivable, less allowance for doubtful accounts of $650 in 2000 and 1999 ..................... 42,648 25,095 Rental Equipment, at cost: Relocatable Modular Offices ........................... 259,437 238,449 Electronic Test Instruments ........................... 86,813 72,832 --------- --------- 346,250 311,281 Less Accumulated Depreciation ......................... (102,980) (94,103) --------- --------- Rental Equipment, net ................................. 243,270 217,178 --------- --------- Land, at cost ............................................ 19,303 19,303 Buildings, Land Improvements, Equipment and Furniture, at cost, less accumulated depreciation of $6,476 in 2000 and $5,116 in 1999 ............................ 32,964 31,668 Prepaid Expenses and Other Assets ........................ 5,245 3,988 --------- --------- Total Assets ................................ $ 345,371 $ 297,722 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Notes Payable ......................................... $ 127,400 $ 110,300 Accounts Payable and Accrued Liabilities .............. 34,705 24,811 Deferred Income ....................................... 13,507 9,511 Minority Interest in Subsidiary ....................... 3,552 2,836 Deferred Income Taxes ................................. 59,140 54,861 --------- --------- Total Liabilities ........................... 238,304 202,319 --------- --------- Shareholders' Equity: Common Stock, no par value - Authorized -- 40,000 shares Outstanding -- 12,309 shares in 2000 and 12,546 shares in 1999 ....................... 8,644 8,755 Retained Earnings ..................................... 98,423 86,648 --------- --------- Total Shareholders' Equity .................. 107,067 95,403 --------- --------- Total Liabilities and Shareholders' Equity... $ 345,371 $ 297,722 ========= ========= - ---------------------------------------------------------------------------------------- The accompanying notes are an integral part of these consolidated financial statements. 2

4 MCGRATH RENTCORP CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) - --------------------------------------------------------------------------------------------------------- NINE MONTHS ENDED SEPTEMBER 30, ------------------------------- (In thousands) 2000 1999 - --------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Income ............................................................. $ 21,136 $ 16,487 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation and Amortization ....................................... 18,574 15,749 Write Off of Rental Equipment ....................................... 980 -- Cumulative Effect of Accounting Change, net of tax .................. -- 1,367 Gain on Sale of Rental Equipment .................................... (4,779) (4,424) Change In: Accounts Receivable .............................................. (17,552) (1,518) Prepaid Expenses and Other Assets ................................ (1,258) 537 Accounts Payable and Accrued Liabilities ......................... 10,392 2,588 Deferred Income .................................................. 3,996 4,018 Deferred Income Taxes ............................................ 4,279 7,535 -------- -------- Net Cash Provided by Operating Activities ..................... 35,768 42,339 -------- -------- CASH FLOW FROM INVESTING ACTIVITIES: Purchase of Rental Equipment ........................................... (52,377) (35,327) Purchase of Land, Buildings, Land Improvements, Equipment & Furniture... (2,656) (1,848) Proceeds from Sale of Rental Equipment ................................. 12,871 12,198 -------- -------- Net Cash Used in Investing Activities ......................... (42,162) (24,977) -------- -------- CASH FLOW FROM FINANCING ACTIVITIES: Net Borrowings Under Notes Payable ..................................... 17,100 11,700 Net Proceeds from the Exercise of Stock Options ........................ 75 616 Repurchase of Common Stock ............................................. (4,379) (25,486) Payment of Dividends ................................................... (4,951) (4,610) -------- -------- Net Cash Provided by (Used in) Financing Activities ........... 7,845 (17,780) -------- -------- Net Increase (Decrease) in Cash ............................... 1,451 (418) Cash Balance, Beginning of Period .......................................... 490 857 -------- -------- Cash Balance, End of Period ................................................ $ 1,941 $ 439 ======== ======== Interest Paid During the Period ............................................ $ 6,777 $ 5,345 ======== ======== Income Taxes Paid During the Period ........................................ $ 9,692 $ 3,973 ======== ======== Dividends Declared but not yet Paid ........................................ $ 1,723 $ 1,523 ======== ======== - --------------------------------------------------------------------------------------------------------- The accompanying notes are an integral part of these consolidated financial statements. 3

5 MCGRATH RENTCORP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2000 NOTE 1. CONSOLIDATED FINANCIAL INFORMATION The consolidated financial information for the nine months ended September 30, 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 nine months ended September 30, 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. SUBSEQUENT EVENT - NOTES PAYABLE Notes payable consists of an unsecured line of credit and $40,000,000 of Senior Notes. In October 2000, the Company amended its unsecured line of credit agreement with its banks to increase the bank facility from $100,000,000 to $120,000,000. All other terms and conditions remained the same. NOTE 3. 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), 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 nine months ended September 30, 2000 and 1999 for the Company's reportable segments is shown in the following table: 4

6 - ---------------------------------------------------------------------------------------------------------------- (in thousands) MODULARS(1) ELECTRONICS(2) ENVIROPLEX CONSOLIDATED ----------- -------------- ---------- ------------ NINE MONTHS ENDED SEPTEMBER 30, 2000 - ---- Rents .................................................. $ 41,843 $ 27,261 $ -- $ 69,104 Rental Related Services ................................ 13,474 516 -- 13,990 Sales and Other Revenues ............................... 17,287 7,449 15,825 40,561 Total Revenues ......................................... 72,604 35,226 15,825 123,655 Depreciation on Rental Equipment ....................... 9,090 8,122 -- 17,212 Interest Expense (Income) .............................. 4,941 1,761 (237) 6,465 Income before Income Taxes ............................. 17,648 14,295 3,880 35,823 Rental Equipment Acquisitions .......................... 30,226 22,151 -- 52,377 Accounts Receivable, net (period end) .................. 23,942 11,624 7,082 42,648 Rental Equipment, at cost (period end) ................. 259,437 86,813 -- 346,250 Average Rental Equipment, at cost ...................... 248,097 79,853 -- 327,950 Utilization (period end)(3)............................. 82.0% 65.1% Average Utilization(3).................................. 79.1% 60.7% Average Monthly Yield on Average Rental Equipment, at cost.............................................. 1.87% 3.79% 1999 - ---- Rents .................................................. $ 38,284 $ 19,911 $ -- $ 58,195 Rental Related Services ................................ 9,673 372 -- 10,045 Sales and Other Revenues ............................... 12,897 7,908 7,745 28,550 Total Revenues ......................................... 60,854 28,191 7,745 96,790 Depreciation on Rental Equipment ....................... 7,886 6,605 -- 14,491 Interest Expense (Income) .............................. 3,720 1,247 (149) 4,818 Income before Income Taxes ............................. 18,381 10,286 837 29,504 Rental Equipment Acquisitions .......................... 25,186 10,141 -- 35,327 Accounts Receivable, net (period end) .................. 13,037 9,010 1,281 23,328 Rental Equipment, at cost (period end) ................. 235,603 69,094 -- 304,697 Average Rental Equipment, at cost ...................... 224,069 67,428 -- 291,497 Utilization (period end)(3)............................. 80.0% 59.9% Average Utilization(3).................................. 78.3% 53.0% Average Monthly Yield on Average Rental Equipment, at cost............................................. 1.90% 3.28% - ---------------------------------------------------------------------------------------------------------------- (1) Operates under the trade name Mobile Modular Management Corporation (2) Operates under the trade name RenTelco (3) 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 period is calculated using the average costs of rental equipment. 5

7 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 AND NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 The Company's core rental businesses grew significantly. Rental revenues for the three and nine months ended September 30, 2000 increased $4,759,000 (24%) and $10,909,000 (19%) over the comparative periods in 1999. Mobile Modular Management Corporation ("MMMC") contributed $3,559,0000 and RenTelco contributed $7,350,000 of the nine-month increase. MMMC's rental revenues increased as a result of having an average of $19,994,000 more equipment on rent compared to a year earlier even though the average monthly yield for all modular equipment has declined from 1.90% in 1999 to 1.87% in 2000. At September 30, 2000, modular utilization, excluding new equipment inventory, was 83.7% and average utilization for the nine months ended September 30, 2000 and 1999 was 81.7% and 81.9%, respectively. RenTelco's rental revenue increase can be attributed to strong communication equipment rental activity, which resulted in an average of $12,536,000 more equipment on rent compared to a year earlier. Additionally, the average monthly yield for all electronics equipment increased from 3.28% in 1999 to 3.79% in 2000. At September 30, 2000, electronics utilization was 65.1% and average utilization for the nine months ended September 30, 2000 and 1999 was 60.7% and 53.0%, respectively. Rental related services revenues for the three and nine months ended September 30, 2000 increased $2,183,000 (48%) and $3,945,000 (39%) over the comparative periods in 1999. One large project in the third quarter with extensive modification and site related work accounted for 37% of the three-month increase and 21% of the nine-month increase. Gross margin on rental related services for the nine-month period decreased from 46.2% in 1999 to 44.5% in 2000. Sales for the three and nine months ended September 30, 2000 increased $11,246,000 (97%) and $12,183,000 (44%) as compared to the same periods in 1999 with most of the sales growth attributed to Enviroplex. Consolidated gross margin on sales for the nine months ended September 30, 2000 was 29.7% compared to 29.4% for the same period in 1999. Sales continue to occur routinely as a normal part of the Company's rental business; however, these sales can fluctuate from quarter to quarter and year to year depending on customer demands, requirements and funding. Enviroplex's backlog of orders as of September 30, 2000 and 1999 was $1,944,000 and $4,595,000, respectively. Backlog is not significant in MMMC's modular business or in RenTelco's electronics business. Depreciation on rental equipment for the three and nine months ended September 30, 2000 increased $1,039,000 (20%) and $2,721,000 (19%) over the comparative periods in 1999 due to higher amounts of rental equipment. For the nine months ended September 30, 2000, average modular rental equipment, at cost, increased $24,028,000 (11%) and average electronics rental equipment, at cost, increased $12,425,000 (18%) over the 1999 comparative period. Other direct costs of rental operations for the three and nine months ended September 30, 2000 increased $702,000 (17%) and $2,525,000 (23%) over the same periods in 1999 primarily due to an $1,170,000 write-off of rental equipment including disposal costs in the second and third quarters identified as equipment which was beyond economic repair. Additionally, higher maintenance and repair expenses of the modular fleet contributed to these increases. Selling and administrative expenses for the three and nine months ended September 30, 2000 increased $1,516,000 (38%) and $2,810,000 (23%) over the comparative periods in 1999 primarily due to higher personnel and benefit costs, including performance and incentive bonuses. Interest expense for the three and nine months ended September 30, 2000 increased $640,000 (37%) and $1,647,000 (34%) over the 1999 comparative periods as a result of a higher average borrowing level and a higher average 6

8 interest rate in 2000. The average debt increase during the last twelve months primarily resulted from rental equipment purchases. Income before provision for taxes for the three months ended September 30, 2000 increased $4,828,000 (44%) from $10,949,000 to $15,777,000 while net income increased $2,408,000 (36%) from $6,636,000 to $9,044,000 or $0.23 per diluted share over the comparative period in 1999. Income before provision for taxes for the nine months ended September 30, 2000 increased $6,319,000 (21%) from $29,504,000 to $35,823,000 while net income increased $4,649,000 (28%) from $16,487,000 to $21,136,000 or $0.49 per diluted share over the comparative period in 1999. The higher percentage increase in year-to-date net income is partially 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 nine months ended September 30, 1999 was $17,854,000 or $1.31 per diluted share resulting in comparative earnings increasing 18% and comparative earnings per share increasing 30% 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 nine months ended September 30, 2000 of $35,768,000 as compared to $42,339,000 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 total liabilities to equity ratios of 2.23 to 1 and 2.12 to 1 as of September 30, 2000 and December 31, 1999, respectively. The debt (notes payable) to equity ratios were 1.19 to 1 and 1.16 to 1 as of September 30, 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 nine months ended September 30, 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 November 3, 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 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 September 30, 2000, the Company believes that the carrying amounts of its financial instruments (cash and notes payable) approximate fair value. 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. 7

9 PART II OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS McGrath RentCorp has been named along with a number of other companies as a defendant in a lawsuit alleging a failure to warn about certain chemicals associated with building materials used in portable classrooms in California. The lawsuit was filed by As You Sow, a corporation that has served as a plaintiff in numerous lawsuits alleging similar failures to warn. The Company and its subsidiary Enviroplex, Inc. are two of nineteen named defendants, all of whom are involved in the portable classroom industry in the State of California. While the plaintiff alleges that materials used to construct portable classrooms require certain warnings, there is no allegation that any individual has suffered any injury or harm. The plaintiff does not allege that any particular classroom leased, sold or manufactured by the Company or Enviroplex has exposed anyone to any such chemicals; and the Company believes that in fact none of the portable classrooms it leases or sells and none of the portable classrooms manufactured by Enviroplex pose any health risk. The Company believes the lawsuit is without merit, and it intends to defend against the suit vigorously. The lawsuit was filed in the Superior Court of the State of California for the County of San Francisco on July 7, 2000. The complaint seeks a court injunction ordering the defendants to post warning signs in portable classrooms, recovery of a fine of $2,500 for each failure to post a warning sign where required, and recovery of monies the defendants may have made by selling or leasing classrooms without appropriate warnings. Plaintiff also asks for payment of attorneys' fees. ITEM 3. OTHER INFORMATION On August 24, 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. NUMBER DESCRIPTION METHOD OF FILING ------ ----------- ---------------- 4.1 Amendment No. 2 to the Credit Agreement Filed herewith. 27.1 Financial Data Schedule Filed herewith. (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 November 3, 2000 MCGRATH RENTCORP By: /s/ Thomas J. Sauer ------------------------------------- Thomas J. Sauer Vice President and Chief Financial Officer (Chief Accounting Officer) 8

10 EXHIBIT INDEX NUMBER DESCRIPTION ------ ----------- 4.1 Amendment No. 2 to the Credit Agreement 27.1 Financial Data Schedule

1 EXHIBIT 4.1 AMENDMENT NO. 2 TO AMENDED AND RESTATED CREDIT AGREEMENT This Amendment No. 2 to Amended and Restated Credit Agreement (this "Amendment") is dated as of October 5, 2000, by and among McGRATH RENTCORP, a California corporation (the "Borrower"), the banks listed on the signature pages hereof (individually a "Bank" and collectively "Banks"), and UNION BANK OF CALIFORNIA, N.A., in its capacities as a Bank ("UBOC") and as agent (the "Agent") for Banks. Recitals A. Agent, UBOC, Fleet National Bank, formerly known as Fleet Bank, N.A. ("Fleet"), Bank of America, N.A., formerly known as Bank of America, National Trust and Savings Association ("BofA") and Borrower are parties to that certain Amended and Restated Credit Agreement dated as of June 30, 1999, as amended by that certain Amendment No. 1 to Amended and Restated Credit Agreement dated as of December 15, 1999 (the "Credit Agreement"). B. Borrower wishes to increase the Commitment from $100 million to $120 million through the addition of Comerica Bank-California ("Comerica") as a Bank party to the Credit Agreement. Comerica desires to join in the Credit Agreement as a Bank and to provide $20 million as its Pro Rata Share of the Commitment. UBOC, Fleet, BofA, and Agent desire that Comerica join in the Credit Agreement in such manner, and the parties are willing to amend the Credit Agreement subject to the terms and conditions set forth in this Amendment. NOW, THEREFORE, the parties hereto hereby agree as follows: ARTICLE I AMENDMENTS TO CREDIT AGREEMENT This Amendment shall be deemed to be an amendment to the Credit Agreement and shall not be construed in any way as a replacement or substitution therefor. All of the terms and conditions of, and terms defined in, this Amendment are hereby incorporated by reference into the Credit Agreement as if such terms and provisions were set forth in full therein. Any capitalized term used but not otherwise defined in this Amendment shall have the meaning ascribed to it in the Credit Agreement. 1.1 Comerica is hereby added to the Credit Agreement as a Bank. Comerica hereby extends to Borrower as its Pro Rata Share of the Commitment the sum of Twenty Million Dollars ($20,000,000.00). 1.2 Section 1.1 of the Credit Agreement, entitled "Definitions," is hereby amended as follows: 1

2 (a) The definition of "Bank" is amended and restated in its entirety as follows: "Bank" means, individually, Union Bank of California, N.A., Fleet National Bank, Bank of America, N.A., and Comerica Bank-California, and their respective successors, and such other banks as may become party to this Agreement, collectively referred to herein as "Banks." (b) The definition of "Commitment" is amended and restated in its entirety as follows: "Commitment" means, subject to the terms and conditions of this Agreement, and adjusted from time to time in accordance therewith, the obligation of Banks to make Loans to Borrower in the aggregate principal amount outstanding at any time not to exceed the lesser of (a) One Hundred Twenty Million Dollars ($120,000,000), and (b) the Adjusted Borrowing Base. (c) The definition of "Pro Rata Share" is amended and restated in its entirety as follows: "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 ---- -------------- Union Bank of California, N.A. 28.3333% Bank of America, N.A. 27.5000% Fleet National Bank 27.5000% Comerica Bank-California 16.6667% (d) The definition of "Revolving Loan Commitment Period" is amended and restated in its entirety as follows: "Revolving Loan Commitment Period" means, for each Bank, the period from and including such Bank's Commitment Effective Date to, but not including, the Revolving Loan Termination Date. (e) A new defined term, "Commitment Effective Date," is added as follows: "Commitment Effective Date" means: (i) with respect to UBOC, Fleet and BofA, June 30, 1999; and (ii) with respect to Comerica, October 5, 2000. (f) A new defined term, "Prior Banks," is added as follows: 2

3 "Prior Banks" means UBOC, Fleet and BofA. 1.3 Each Bank's Pro Rata Share of the Commitment shall be the dollar amount set forth opposite such Bank's name on the signature pages to this Amendment. 1.4 As of the Commitment Effective Date applicable to Comerica, Comerica shall purchase from each of the Prior Banks Comerica's Pro Rata Share of each Prior Bank's outstanding Loans by payment of same day funds in the amount of such Pro Rata Share. To facilitate such purchase, as of such Commitment Effective Date, Borrower shall prepay all outstanding Eurodollar Loans that do not otherwise mature on such Commitment Effective Date, and shall request a new Revolving Loan pursuant to the Procedure for Loans in Section 2.4 of the Credit Agreement for an amount equal to such prepaid amount and with a Funding Date that is the same as such Commitment Effective Date. 1.5 From and after the Commitment Effective Date applicable to Comerica, Comerica's Pro Rata Share of outstanding Loans shall be deemed outstanding under and evidenced by its Revolving Note, and no longer outstanding under or evidenced by the Revolving Notes of the Prior Banks. 1.6 Section 2.4.4 of the Credit Agreement is amended and restated in its entirety as follows: 2.4.4 Minimum Amount of Revolving Loans. Loan Requests for Revolving Loans shall be in one or the other of the following minimum amounts, as the case may be, with integral multiples of Twenty-Five Thousand Dollars ($25,000) in excess of such minimum amounts: (a) for a Reference Rate Loan, a minimum amount of Four Hundred Thousand Dollars ($400,000); and (b) for a Eurodollar Loan, a minimum amount of One Million Dollars ($1,000,000.00). 1.7 Section 3.5 of the Credit Agreement is amended by replacing the phrase "All payments hereunder shall be in Dollars" in the first sentence of the Section with the following: "All payments hereunder shall be made, irrespective of and without condition or deduction for any counterclaim, defense, recoupment, or setoff, in Dollars" 1.8 All Commitment Fees under Section 3.6 of the Credit Agreement and all interest on outstanding Loans accruing prior to Comerica's Commitment Effective Date shall be for the ratable accounts of the Prior Banks; and all Commitment Fees and interest accruing on outstanding Loans on and after Comerica's Commitment Effective Date shall be for the ratable accounts of all of the Banks. 1.9 Section 7.3 of the Credit Agreement is amended by replacing the introductory phrase, "Borrower will furnish to Agent:" with the following phrase: 3

4 "Borrower will furnish to Agent and each Bank:" 1.10 Section 11.1 of the Credit Agreement is amended by adding the following subsection (e): (e) Modify the definition of either "Borrowing Base" or "Adjusted Borrowing Base" in Section 1.1 or modify or delete the reference to the "Adjusted Borrowing Base" in the definition of "Commitment" in Section 1.1. 1.11 Section 11.19 of the Credit Agreement is amended by adding the following phrase to the end of the last sentence of the section: ", which consent shall not be unreasonably withheld." 1.12 For purposes of Section 11.20 of the Credit Agreement, the addresses of the parties set forth on the signature pages to this Amendment shall supercede, and be used for notices and other communications after the date hereof instead of the addresses set forth on the signature pages to the Credit Agreement. ARTICLE II CONDITIONS TO EFFECTIVENESS OF AMENDMENT 2.1 The effectiveness of this Amendment is subject to the fulfillment to the satisfaction of Agent, in its sole discretion, of the following conditions precedent: (a) Each Bank shall have executed and delivered to Agent a counterpart of this Amendment; (b) Borrower shall have executed and delivered to Agent a counterpart of this Amendment, and a Revolving Note, payable to Comerica, in the form attached hereto as Exhibit "A"; (c) Agent shall have received appropriate authorization documents, including borrowing resolutions and certificates of incumbency, confirming to Agent's satisfaction that all necessary corporate and organizational actions have been taken to authorize Borrower to enter into this Amendment; and (d) Agent shall have received such other documents, instruments or agreements as Agent may require to effectuate the intents and purposes of this Amendment. ARTICLE III REPRESENTATIONS AND WARRANTIES Borrower hereby represents and warrants to Agent and each Bank that: 4

5 3.1 After giving effect to the amendment of the Credit Agreement pursuant to this Amendment and the consummation of the transactions contemplated hereby (i) each of the representations and warranties set forth in Article 6 of the Credit Agreement is true and correct in all respects as if made on the date hereof (with references to the Credit Agreement being deemed to include this Amendment), and (ii) there exists no Default or Event of Default under the Credit Agreement after giving effect to this Amendment. 3.2 Borrower has full corporate power and authority to execute and deliver this Amendment, to make and deliver the Revolving Note to Comerica, and to perform the obligations of its part to be performed thereunder and under the Credit Agreement as amended hereby. Borrower has taken all necessary action, corporate or otherwise, to authorize the execution and delivery of this Amendment and each of the documents described herein. No consent or approval of any person, no consent or approval of any landlord or mortgagee, no waiver of any lien or similar right and no consent, license, approval or authorization of any governmental authority or agency is or will be required in connection with the execution or delivery by Borrower of this Amendment or the performance by Borrower of the Credit Agreement as amended hereby. 3.3 This Amendment, the Revolving Note payable to Comerica, and the Credit Agreement as amended hereby are, or upon delivery thereof to Agent or Comerica, as applicable, will be, the legal, valid and binding obligations of Borrower, enforceable against Borrower in accordance with their respective terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally. ARTICLE IV MISCELLANEOUS 4.1 The Credit Agreement, the other Loan Documents and all agreements, instruments and documents executed and delivered in connection with any of the foregoing shall each be deemed to be amended hereby to the extent necessary, if any, to give effect to the provisions of this Amendment. Except as so amended hereby, the Credit Agreement and the other Loan Documents shall remain in full force and effect in accordance with their respective terms. 4.2 Borrower shall pay Agent on demand reasonable fees and costs of attorneys incurred by Agent in connection with the preparation, negotiation and execution of this Amendment and any document required to be furnished hereunder. 4.3 Borrower affirms its obligation pursuant to Section 4.1.4 of the Credit Agreement to pay applicable breakage fees (if any) incurred by any Prior Bank in connection with Comerica's purchase of its Pro Rata Share of such Prior Bank's outstanding Loans. 5

6 IN WITNESS WHEREOF, Borrower, Banks and Agent have executed this Amendment as of the date set forth in the preamble hereto. MCGRATH RENTCORP - ------------------------------------------------- By: Thomas J. Sauer Title: Vice President and Chief Financial Officer Notice Address: - -------------- 5700 Las Positas Road Livermore, California 94550 Attention: Mr. Thomas Sauer, Chief Financial Officer Fax: (925) 453-3200 UNION BANK OF CALIFORNIA, N.A., individually and as Agent - ------------------------------------------------- By: Robert John Vernagallo Title: Vice President Pro Rata Share of Notice Address: Commitment: $34,000,000 - -------------- Pro Rata Share: 28.3333% 350 California Street, 6th Floor San Francisco, CA 94104 Attention: Mr. Robert John Vernagallo Fax No.: (415) 705-7566 6

7 FLEET NATIONAL BANK - ------------------------------------------------- By: Clifford A. Gaysunas, Jr. Title:Vice President Pro Rata Share of Notice Address: Commitment: $33,000,000 - -------------- Pro Rata Share: 27.5000% 100 Federal Street Mail Stop: MA DE 10008B Boston, MA 02110 Attention: Mr. Chip Gaysunas Fax No.: (617) 434-0816 BANK OF AMERICA, N.A., - ------------------------------------------------- By: Lisa M. Thomas Title:Senior Vice President Pro Rata Share of Notice Address: Commitment: $33,000,000 - -------------- Pro Rata Share: 27.5000% 345 Montgomery Street Concourse Level San Francisco, CA 94104 Attention: Ms. Lisa M. Thomas Fax No.: (415) 622-1878 COMERICA BANK-CALIFORNIA - ------------------------------------------------- By: R. Michael Law Title:Vice President Pro Rata Share of Notice Address: Commitment: $20,000,000 - -------------- Pro Rata Share: 16.6667% 155 Grand Avenue, Suite 402 Oakland, CA 94612 Attention: Mr. R. Michael Law Fax No.: (510) 645-2220 7

5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM McGRATH RENTCORP FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS DEC-31-2000 JAN-01-2000 SEP-30-2000 1,941 0 43,298 (650) 0 0 404,993 (109,456)

345,371 0 0 0 0 8,644 98,423 345,371 123,655 123,655 66,345 66,345 15,022 0 6,465 35,823 13,971 0 0 0 0 21,136

1.71 1.70 Includes rental equipment, Land, Buildings, Land Improvements, Furniture and Equipment. Accumulated depreciation related to PP&E footnote above. Net income includes minority interest in income of subsidiary.