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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): July 31, 2003
McGRATH RENTCORP
(Exact name of registrant as specified in its Charter)
California
(State or other jurisdiction of incorporation)
0-13292 94-2579843
(Commission File Number) (I.R.S. Employee Identification No.)
5700 Las Positas Road, Livermore, CA 94551-7800
(Address of principal executive offices)
(925) 606-9200
(Registrant's Telephone Number, Including Area Code)
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Item 12. RESULTS OF OPERATIONS AND FINANCIAL CONDITION
(c) Exhibits.
Exhibit No. Description
---------- ------------
99.1 Press Release of McGrath RentCorp, dated July 31, 2003.
On July 31, 2003, McGrath RentCorp (the "Company") announced via press
release the Company's results for its second quarter ended June 30, 2003. A copy
of the Company's press release is attached hereto as Exhibit 99.1. This Form 8-K
and the attached exhibit are provided under Item 12 of Form 8-K and are
furnished to, but not filed with, the Securities and Exchange Commission.
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 hereunto duly authorized.
McGRATH RENTCORP
Dated: July 31, 2003 By:/s/ Thomas J. Sauer
---------------------------------------
Thomas J. Sauer
Vice President and Chief Financial Officer
Exhibit 99.1
McGrath RentCorp Announces Second Quarter Results;
Q2 2003 EPS of $0.39
LIVERMORE, Calif.--(BUSINESS WIRE)--July 31, 2003--McGrath
RentCorp (Nasdaq:MGRC), a leading rental provider of modular buildings
for classroom and office space, and test equipment for communications,
fiber optic and general purpose needs, today announced revenues for
the quarter ended June 30, 2003 of $31.6 million, compared to $36.5
million in second quarter 2002. The Company reported net income of
$4.7 million, or $0.39 per share, compared to a net loss of $1.2
million, or $0.10 loss per share, in second quarter 2002.
Second quarter 2002 results included a noncash impairment charge
of $12.2 million by the Company's RenTelco segment which primarily
affected the carrying value of its communications rental equipment,
reducing net income by $7.3 million or $0.58 per share, and expenses
related to the terminated merger with Tyco International, reducing net
income by $0.1 million or $0.01 per share. For comparability,
excluding impairment and expenses related to the terminated merger,
second quarter net income would have decreased 24% from $6.2 million
in 2002 to $4.7 million in 2003 with earnings per share decreasing 20%
from $0.49 per share in 2002 to $0.39 per share in 2003.
The Company's Mobile Modular division rentals decreased 9%. Sales
revenues from Mobile Modular decreased 2%. These decreases contributed
to a 9% overall decline in total revenues and a 25% decline of pre-tax
income to $7.2 million, representing 91% of the Company's pre-tax
income for the quarter.
"Mobile Modular's quarter over quarter decline in rental revenues
was primarily due to a reduction in the average rental rate of
utilized equipment, and to a lesser degree lower overall utilization,"
stated Dennis Kakures, President and CEO. "The decline is directly
attributable to weakness in the commercial construction rental sector
and classroom returns from various completed school construction
projects. However, Mobile Modular's classroom rental orders for the
first half of 2003 have been especially strong. In fact, the majority
of returned classroom buildings during the first half of the year are
already scheduled to be back on rent for the start of the 2003-2004
school year. In addition, we have continued to invest in new rental
equipment to meet the increased demand for modular classrooms, which
we believe stems largely from the passage of the November 2002
California state and local school bond measures. As this equipment
comes online over the next few months, and the recurring rental
revenue stream begins, it will add nicely to our rental business
levels in future periods."
Quarter-end sales backlog at Enviroplex, the Company's classroom
manufacturer, was 42% higher than a year ago at $9.5 million; however,
during the quarter sales decreased 16% from the same quarter in the
prior year to $3.3 million.
The Company's RenTelco division increased quarterly rental
revenues 11% on a sequential basis to $3.0 million from $2.7 million
in first quarter 2003 and contributed nominal pre-tax earnings this
quarter primarily as a result of selling underutilized equipment. This
modest increase in rental revenues may not be reflective of improving
fundamentals, given the continued difficult conditions throughout the
telecommunications industry.
Total revenues for the six months ended June 30, 2003, were $59.0
million compared to $68.2 million in the same six-month period in
2002. Net income for the six months ended June 30, 2003, was $9.6
million or $0.78 per share, compared to net loss of $3.6 million, or
$0.29 loss per share, in the prior-year period. The six-month 2002
results include noncash RenTelco impairment charges of $24.1 million,
which reduced net income by $14.5 million or $1.15 per share and
expenses related to the terminated Tyco merger which reduced net
income by $0.4 million, or $0.03 per share.
On July 22, 2003, the Company announced that its 2003 full-year
earnings are expected to be in a range of $1.75 to $1.85 per diluted
share, a reduction from its earlier full-year guidance range of $2.12
to $2.17 per diluted share. This revision was primarily due to lower
than expected modular sales order activity.
SECOND QUARTER 2003 HIGHLIGHTS (AS COMPARED TO SECOND QUARTER
2002)
-- Rental revenues decreased 12% to $18.2 million. Within rental
revenues, Mobile Modular decreased 9% to $15.2 million
primarily due to lower rental rates and, to a lesser extent,
utilization; and RenTelco decreased 25% to $3.0 million as a
result of the severe and prolonged broad-based weakness in the
telecommunications industry.
-- Sales revenues decreased 15% to $9.5 million resulting from
decreased equipment sales by RenTelco, Enviroplex, and Mobile
Modular. Overall gross profit on sales decreased from $5.1
million in 2002 to $4.2 million in 2003. Sales can fluctuate
from quarter to quarter and year to year depending on customer
requirements and funding.
-- Depreciation of rental equipment decreased 16% to $3.1
million. Within depreciation expense, Mobile Modular's
depreciation expense increased 6% to $1.8 million and
RenTelco's depreciation expense decreased 35% to $1.3 million,
resulting primarily from the write-down of electronics
equipment occurring in the first and second quarters 2002.
-- Operating cash flow decreased 42% to $5.2 million, directly
attributable to lower revenues during the quarter. Debt
increased $2.7 million to $58.2 million, increasing the
Company's total liabilities to equity ratio to from 1.25 to 1
at December 31, 2002 to 1.34 to 1 as of June 30, 2003. At June
30, 2003, the Company, under existing bank lines of credit,
has capacity to borrow up to an additional $90.8 million.
-- Dividend rate increased to $0.20 per share for the second
quarter 2003. On an annualized basis, this dividend
represented a 2.9% yield on the July 30, 2003 close price of
$27.13.
It is suggested that the press release be read in conjunction with
the financial statements and notes thereto included in the Company's
latest Form 10-K and Forms 10-Q. You can visit the Company's web site
at www.mgrc.com to access information on McGrath RentCorp, including
the latest filings on Form 10-K and Form 10-Q.
About McGrath RentCorp
Founded in 1979, the Company, under the trade name Mobile Modular
Management Corporation, rents and sells modular buildings to fulfill
customer's temporary and permanent space needs in California and
Texas. Mobile Modular believes it is the largest provider of
relocatable classrooms for rental to school districts for grades K-12
in California. McGrath RentCorp's majority owned subsidiary,
Enviroplex, Inc., manufactures and sells classrooms directly to school
districts in California. The Company's RenTelco division rents and
sells electronic test equipment and is recognized as the leader in
communications and fiber-optic test equipment rentals throughout the
U.S.
CONFERENCE CALL NOTE: As previously announced in its press release
of July 1, 2003, McGrath RentCorp will host a conference call at 5:00
p.m. Eastern Time (2:00 p.m. Pacific Time) on July 31, 2003 to discuss
the second quarter 2003 results. To participate in the teleconference,
dial 1-800-240-2430 (international callers dial 1-303-262-2075). In
addition, a live Web cast and replay of the call may be found in the
investor relations section of the Company's website at www.mgrc.com.
Telephone replay of the call will be available for 48 hours following
the call by dialing 1-800-405-2236 (in the U.S.) or 1-303-590-3000
(outside the U.S.). The pass code for the call replay is 542168#.
NON-GAAP FINANCIAL MEASURES: This press release includes financial
measures for earnings per share and net income that have not been
calculated in accordance with generally accepted accounting principles
(GAAP). These differ from GAAP in that they exclude impairment and
merger expenses from the second quarter of 2002 a noncash impairment
charge of $12.2 million, which was taken by the Company's RenTelco
segment and primarily affected the carrying value of its
communications rental equipment, and expenses related to the
terminated merger with Tyco International. McGrath RentCorp provides
these measurements because they provide a consistent basis for
comparison between quarters without the effect of one-time events. The
losses per share and net losses contained in the attached unaudited
financial statement are presented and have been calculated in
accordance with GAAP.
This press release 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. These include our
statements regarding guidance on per share earnings for 2003, the
expectation of increased demand for modular classrooms, the
expectation of increased recurring rental revenue streams from
increased deployment of modular rental equipment, and the annualized
dividend yield. These forward-looking statements are not guarantees of
future performance and involve significant risks and uncertainties.
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, the condition of the
telecommunications industry, new or modified statutory or regulatory
requirements, continuing demand for modular products, timely delivery
and installation of modular products, delays of future sales projects
into 2004 and changing prices and market conditions. There may be
other factors not listed above that could cause actual results to vary
materially from the forward-looking statements described in this press
release.
MCGRATH RENTCORP
Consolidated earnings, balance sheet and segment data follow:
(in thousands, except per share amounts)
- ----------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30 June 30
------------------------------------------
2003 2002 2003 2002
- -------------------------------------- --------- ---------- ---------
REVENUES
- ----------------------------
Rental $ 18,219 $ 20,658 $ 36,660 $ 41,950
Rental Related Services 3,657 4,319 7,204 8,290
---------- --------- ---------- ---------
Rental Operations 21,876 24,977 43,864 50,240
Sales 9,500 11,164 14,777 17,309
Other 208 335 404 691
---------- --------- ---------- ---------
Total Revenues 31,584 36,476 59,045 68,240
---------- --------- ---------- ---------
COSTS AND EXPENSES
- ----------------------------
Direct Costs of Rental
Operations
Depreciation of Rental
Equipment 3,127 3,737 6,242 9,105
Rental Related Services 2,212 2,320 4,373 4,551
Impairment of Rental
Equipment -- 12,196 -- 24,083
Other 4,808 5,013 9,221 9,941
---------- --------- ---------- ---------
Total Direct Costs
of Rental
Operations 10,147 23,266 19,836 47,680
Costs of Sales 6,862 7,939 10,546 12,210
---------- --------- ---------- ---------
Total Costs 17,009 31,205 30,382 59,890
---------- --------- ---------- ---------
Gross Margin 14,575 5,271 28,663 8,350
Selling and Administrative 5,910 6,040 11,250 12,019
---------- --------- ---------- ---------
Income (Loss) from
Operations 8,665 (769) 17,413 (3,669)
Interest 748 1,077 1,438 2,224
---------- --------- ---------- ---------
Income (Loss) Before
Provision for Income
Taxes 7,917 (1,846) 15,975 (5,893)
Provision (Benefit) for
Income Taxes 3,159 (734) 6,374 (2,345)
---------- --------- ---------- ---------
Income (Loss) Before
Minority Interest 4,758 (1,112) 9,601 (3,548)
Minority Interest in
Income (Loss) of
Subsidiary 40 93 (6) 23
---------- --------- ---------- ---------
Net Income (Loss) $ 4,718 $ (1,205) $ 9,607 $ (3,571)
========== ========= ========== =========
Earnings (Loss) Per Share:
Basic $ 0.39 $ (0.10) $ 0.79 $ (0.29)
Diluted $ 0.39 $ (0.10) $ 0.78 $ (0.29)
Shares Used in Per Share
Calculation:
Basic 12,039 12,475 12,150 12,451
Diluted 12,169 12,475 12,261 12,451
June 30, Dec. 31,
BALANCE SHEET DATA 2003 2002
- --------------------------- ---------- ---------
Rental Equipment, net $224,667 $221,899
Total Assets 312,859 313,134
Notes Payable 58,173 55,523
Shareholders' Equity 133,967 139,019
SEGMENT DATA Modulars Elec- Enviro- Corporate Consoli-
(UNAUDITED) tronics plex (1) dated
- ---------------------- -------- -------- -------- ---------- ---------
Three Months Ended
June 30,
- ----------------------
2003
- ----
Rental Revenues $ 15,207 $ 3,012 $ -- $ -- $ 18,219
Rental Related
Services Revenues 3,526 131 -- -- 3,657
Sales and Other
Revenues 4,754 1,657 3,297 -- 9,708
Total Revenues 23,487 4,800 3,297 -- 31,584
Depreciation of
Rental Equipment 1,782 1,345 -- -- 3,127
Impairment of
Rental Equipment -- -- -- -- --
Interest Expense
(Income) Allocation 693 96 (41) -- 748
Income (Loss) before
Provision for
Income Taxes 7,162 421 334 -- 7,917
Rental Equipment
Acquisitions 7,880 1,426 -- -- 9,306
Accounts Receivable,
net (period end) 21,316 3,164 5,065 -- 29,545
Rental Equipment, at
cost (period end) 293,731 37,026 -- -- 330,757
Rental Equipment,
net book value
(period end) 206,093 18,574 -- -- 224,667
Utilization
(period end)(2) 83.6% 45.1%
Average
Utilization(2) 82.8% 45.4%
2002
- ----
Rental Revenues $ 16,620 $ 4,038 $ -- $ -- $ 20,658
Rental Related
Services Revenues 4,188 131 -- -- 4,319
Sales and Other
Revenues 4,888 2,668 3,943 -- 11,499
Total Revenues 25,696 6,837 3,943 -- 36,476
Depreciation of
Rental Equipment 1,681 2,056 -- -- 3,737
Impairment of
Rental Equipment -- 12,196 -- -- 12,196
Interest Expense
(Income) Allocation 927 200 (50) -- 1,077
Income (Loss) before
Provision for
Income Taxes 9,556 (11,981) 752 (173) (1,846)
Rental Equipment
Acquisitions 4,723 822 -- -- 5,545
Accounts Receivable,
net (period end) 23,873 4,960 4,304 -- 33,137
Rental Equipment, at
cost (period end) 287,032 44,504 -- -- 331,536
Rental Equipment,
net book value
(period end) 202,490 25,709 -- -- 228,199
Utilization
(period end)(2) 85.9% 41.9%
Average
Utilization(2) 85.8% 37.4%
- ----------------------------------------------------------------------
SEGMENT DATA Modulars Elec- Enviro- Corporate Consoli-
(UNAUDITED) tronics plex (1) dated
- ---------------------- -------- -------- -------- ---------- ---------
Six Months Ended
June 30,
- ----------------------
2003
- ----
Rental Revenues $ 30,910 $ 5,750 $ -- $ -- $ 36,660
Rental Related
Services Revenues 6,953 251 -- -- 7,204
Sales and Other
Revenues 7,336 3,720 4,125 -- 15,181
Total Revenues 45,199 9,721 4,125 -- 59,045
Depreciation of
Rental Equipment 3,522 2,720 -- -- 6,242
Impairment of
Rental Equipment -- -- -- -- --
Interest Expense
(Income) Allocation 1,345 192 (99) -- 1,438
Income (Loss) before
Provision for
Income Taxes 15,002 1,021 (48) -- 15,975
Rental Equipment
Acquisitions 10,777 2,183 -- -- 12,960
Accounts Receivable,
net (period end) 21,316 3,164 5,065 -- 29,545
Rental Equipment, at
cost (period end) 293,731 37,026 -- -- 330,757
Rental Equipment,
net book value
(period end) 206,093 18,574 -- -- 224,667
Utilization
(period end)(2) 83.6% 45.1%
Average
Utilization(2) 83.3% 44.1%
2002
- ----
Rental Revenues $ 32,947 $ 9,003 $ -- $ -- $ 41,950
Rental Related
Services Revenues 8,005 285 -- -- 8,290
Sales and Other
Revenues 8,330 5,367 4,303 -- 18,000
Total Revenues 49,282 14,655 4,303 -- 68,240
Depreciation of
Rental Equipment 3,436 5,669 -- -- 9,105
Impairment of
Rental Equipment -- 24,083 -- -- 24,083
Interest Expense
(Income) Allocation 1,839 493 (108) -- 2,224
Income (Loss) before
Provision for
Income Taxes 18,406 (23,894) 187 (592) (5,893)
Rental Equipment
Acquisitions 11,246 1,326 -- -- 12,572
Accounts Receivable,
net (period end) 23,873 4,960 4,304 -- 33,137
Rental Equipment, at
cost (period end) 287,032 44,504 -- -- 331,536
Rental Equipment,
net book value
(period end) 202,490 25,709 -- -- 228,199
Utilization
(period end)(2) 85.9% 41.9%
Average
Utilization(2) 85.9% 35.6%
- ----------------------------------------------------------------------
(1) Corporate includes the impact of nonrecurring items related to
the terminated merger with Tyco International of $173,000 and
$592,000 for the three and six months ended June 30, 2002,
which are not allocated to a specific segment.
(2) Utilization is calculated each month by dividing the cost of
rental equipment on rent by the total cost of rental equipment
excluding new equipment inventory and accessory equipment. The
average utilization for the period is calculated using the
average costs of rental equipment.
CONTACT: McGrath RentCorp
Thomas J. Sauer, 925-606-9200