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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): October 30, 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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1
Item 12. RESULTS OF OPERATIONS AND FINANCIAL CONDITION
(c) Exhibits.
Exhibit No. Description
----------- -----------
99.1 Press Release of McGrath RentCorp, dated October 30, 2003.
On October 30, 2003, McGrath RentCorp (the "Company") announced via press
release the Company's results for its third quarter ended October 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.
2
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: October 30, 2003 By: /s/ Thomas J. Sauer
----------------------------------------
Thomas J. Sauer
Vice President and Chief Financial Officer
3
Exhibit 99.1
McGrath RentCorp Announces Third Quarter Results;
Q3 2003 EPS of $0.50
LIVERMORE, Calif.--(BUSINESS WIRE)--xx--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 September 30, 2003 of $34.9 million, compared to $42.0 million
in third quarter 2002. The Company reported net income of $6.1
million, or $0.50 per share, compared to $8.5 million, or $0.68 per
share, in third quarter 2002.
Third quarter 2002 results included a nonrecurring expense
reimbursement of $1.25 million related to the terminated Tyco merger,
which increased net income by $0.8 million or $0.06 per share. For
comparability, excluding the expense reimbursement, third quarter net
income would have decreased 21% from $7.7 million, or $0.62 per share,
in 2002 to $6.1 million, or $0.50 per share in 2003.
The Company's Mobile Modular division had very high shipping
levels of classroom product during the quarter, which were offset by
unexpected project delays by customers, lower average rental rates and
equipment returns. Mobile Modular's rental revenues decreased 3% and
sales revenues decreased 11% contributing to a 5% overall decline in
total revenues. The reduction in revenues led to a 23% decline of
Mobile Modular's pre-tax income to $8.4 million, representing 82% of
the Company's total pre-tax income for the quarter. For Enviroplex,
the Company's classroom manufacturer, sales revenues declined 57% to
$3.0 million as quarter end projects in process of $3.7 million caused
a higher than expected backlog of $7.1 million compared to $2.8
million a year ago. The Company's RenTelco division increased
quarterly rental revenues by 14% on a sequential basis to $3.4 million
from $3.0 million in second quarter 2003 and contributed $1.2 million
pre-tax earnings primarily as a result of selling underutilized
equipment. The rental revenue increase may not be reflective of
improving fundamentals, given the continuing difficult conditions
throughout the telecommunications industry.
"This quarter marks a return to sequential rental revenue growth
for Mobile Modular from $15.2 million to $16.2 million, which had
previously experienced three consecutive quarterly declines," stated
Dennis Kakures, President and CEO. "Although we've had a very strong
year in modular classroom rental bookings, we have also experienced
unexpected project delays by customers, lower average rental rates
from tightening budgets, and an increased number of equipment returns
from completed projects. The impact of having had a very favorable
year in modular classroom bookings combined with these off-setting
factors has lowered the rental revenue growth rate in the third
quarter. Despite these off-setting factors, we still are expecting our
highest ever fourth quarter rental revenues for Mobile Modular, which
makes us confident in reconfirming our previously provided guidance
range of $1.75 to $1.85 per share. This higher run rate will also
benefit us heading into 2004."
Kakures continued, "Our communications test equipment business
experienced its second sequential quarterly increase in rental
revenues. This is the first time this has occurred since early 2001.
Although the trend is encouraging, we do not believe it yet reflects a
sustained recovery for the business."
Total revenues for the nine months ended September 30, 2003, were
$93.9 million compared to $110.2 million in the same nine-month period
in 2002. Net income for the nine months ended September 30, 2003, was
$15.7 million or $1.28 per share, compared to $4.9 million, or $0.39
per share, in the prior-year period. The nine-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 net
nonrecurring income related to the terminated Tyco merger, which
increased net income by $0.4 million, or $0.03 per share.
THIRD QUARTER 2003 HIGHLIGHTS (AS COMPARED TO THIRD QUARTER 2002)
-- Rental revenues decreased 3% to $19.6 million. Within rental
revenues, Mobile Modular decreased 3% to $16.2 million
primarily due to unexpected project delays by customers, lower
average rental rates and equipment returns; and RenTelco
decreased 2% to $3.4 million as a result of the severe and
prolonged broad-based weakness in the telecommunications
industry.
-- Sales revenues decreased 32% to $10.7 million resulting from
decreased equipment sales by Enviroplex, Mobile Modular and
RenTelco. Overall gross profit on sales decreased from $3.9
million in 2002 to $3.4 million in 2003. Sales can fluctuate
from quarter to quarter and year to year depending on customer
requirements and funding.
-- Depreciation of rental equipment remained at $3.2 million for
the quarter. Within depreciation expense, Mobile Modular's
depreciation expense increased 9% to $1.9 million and
RenTelco's depreciation expense decreased 10% to $1.3 million,
resulting primarily from the sale of underutilized electronics
equipment.
-- Operating cash flow decreased 24% to $13.8 million, primarily
due to lower earnings for the quarter. Debt decreased $2.2
million to $56.0 million, with the Company's total liabilities
to equity ratio increasing from 1.34 to 1 at June 30, 2003 to
1.43 to 1 as of September 30, 2003. At September 30, 2003, the
Company, under existing bank lines of credit, has capacity to
borrow up to an additional $85.0 million.
-- Dividend rate increased to $0.20 per share for the third
quarter 2003. On an annualized basis, this dividend
represented a 2.7% yield on the October 29, 2003 close price
of $29.76.
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 Forms 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 October 2, 2003, McGrath RentCorp will host a conference call at
5:00 p.m. Eastern Time (2:00 p.m. Pacific Time) on October 30, 2003 to
discuss the third quarter 2003 results. To participate in the
teleconference, dial 1-800-219-6110 (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 554966#.
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 from the 2002 nine
month results noncash impairment charges of $24.1 million, which were
taken by the Company's RenTelco segment and primarily affected the
carrying value of its communications rental equipment, and net
nonrecurring income items related to the terminated merger with Tyco
International of $0.4 million. McGrath RentCorp provides these
measurements because they provide a consistent basis for comparison
between quarters without the effect of one-time events. The net income
and earnings per share 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
impact of high shipping levels of rental classrooms during the third
quarter of 2003, the expectation of fourth quarter 2003 modular rental
revenues to be the highest fourth quarter rental revenue level ever,
the expected benefits of a higher run rate going into 2004, the
expectation of a trend in sequential quarterly rental revenue
increases for communications test 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 Nine Months Ended
September 30 September 30
----------------- -----------------
2003 2002 2003 2002
- --------------------------------- -------- --------- -------- --------
REVENUES
- --------
Rental $19,592 $20,202 $56,252 $62,152
Rental Related Services 4,350 4,483 11,554 12,773
--------- --------- -------- --------
Rental Operations 23,942 24,685 67,806 74,925
Sales 10,719 15,752 25,496 33,061
Other 194 1,513 598 2,204
--------- --------- -------- --------
Total Revenues 34,855 41,950 93,900 110,190
------- ----------- ------- --------
COSTS AND EXPENSES
- ------------------
Direct Costs of Rental
Operations
Depreciation of Rental
Equipment 3,226 3,222 9,468 12,327
Rental Related Services 2,501 2,362 6,874 6,913
Impairment of Rental
Equipment -- -- -- 24,083
Other 5,323 4,135 14,544 14,076
------- ----------- ------- --------
Total Direct Costs of
Rental Operations 11,050 9,719 30,866 57,399
Costs of Sales 7,284 11,825 17,830 24,035
------- ----------- ------- --------
Total Costs 18,334 21,544 48,716 81,434
------- ----------- ------- --------
Gross Margin 16,521 20,406 45,184 28,756
Selling and Administrative 5,623 5,084 16,873 17,103
------- ----------- ------- --------
Income from Operations 10,898 15,322 28,311 11,653
Interest 647 951 2,085 3,175
------- ----------- ------- --------
Income Before Provision for
Income Taxes 10,251 14,371 26,226 8,478
Provision for Income Taxes 4,090 5,719 10,464 3,374
--------- --------- -------- --------
Income Before Minority
Interest 6,161 8,652 15,762 5,104
Minority Interest in Income of
Subsidiary 95 159 89 182
--------- --------- -------- --------
Net Income $6,066 $8,493 $15,673 $4,922
========= ========= ======== ========
Earnings Per Share:
Basic $0.50 $0.68 $1.29 $0.39
Diluted $0.50 $0.68 $1.28 $0.39
Shares Used in Per Share
Calculation:
Basic 12,080 12,483 12,127 12,462
Diluted 12,242 12,556 12,254 12,628
September 30, December 31,
BALANCE SHEET DATA 2003 2002
- ------------------- ----------------- -----------------
Rental Equipment, net $232,443 $221,899
Total Assets 337,087 313,134
Notes Payable 55,961 55,523
Shareholders' Equity 138,684 139,019
SEGMENT DATA
(UNAUDITED) Modulars Elec- Enviro- Corporate Consoli-
tronics plex (1) dated
-------- -------- -------- -------- --------
Three Months
Ended
September 30,
- -------------
2003
Rental
Revenues $16,163 $3,429 $-- $-- $19,592
Rental
Related
Services
Revenues 4,199 151 -- -- 4,350
Sales and
Other
Revenues 5,917 2,009 2,987 -- 10,913
Total
Revenues 26,279 5,589 2,987 -- 34,855
Depreciation
of Rental
Equipment 1,883 1,343 -- -- 3,226
Interest
Expense
(Income)
Allocation 603 80 (36) -- 647
Income before
Provision
for Income
Taxes 8,395 1,212 644 -- 10,251
Rental
Equipment
Acquisitions 12,237 1,870 -- -- 14,107
Accounts
Receivable,
net (period
end) 32,656 3,943 5,791 -- 42,390
Rental
Equipment,
at cost
(period
end) 303,021 36,509 -- -- 339,530
Rental
Equipment,
net book
value
(period
end) 214,374 18,069 -- -- 232,443
Utilization
(period end)
(2) 85.8% 48.6%
Average
Utilization
(2) 85.1% 47.1%
2002
Rental
Revenues $16,717 $3,485 $-- $-- $20,202
Rental
Related
Services
Revenues 4,337 146 -- -- 4,483
Sales and
Other
Revenues 6,667 2,336 7,012 1,250 17,265
Total
Revenues 27,721 5,967 7,012 1,250 41,950
Depreciation
of Rental
Equipment 1,729 1,493 -- -- 3,222
Interest
Expense
(Income)
Allocation 866 141 (56) -- 951
Income before
Provision
for Income
Taxes 10,834 1,001 1,286 1,250 14,371
Rental
Equipment
Acquisitions 2,807 773 -- -- 3,580
Accounts
Receivable,
net (period
end) 30,889 3,647 5,828 -- 40,364
Rental
Equipment,
at cost
(period
end) 286,887 42,208 -- -- 329,095
Rental
Equipment,
net book
value
(period
end) 201,656 23,666 -- -- 225,322
Utilization
(period end)
(2) 86.4% 44.7%
Average
Utilization
(2) 86.1% 43.2%
- ----------------------------------------------------------------------
SEGMENT DATA
(UNAUDITED) Modulars Elec- Enviro- Corporate Consoli-
tronics plex (1) dated
-------- -------- -------- -------- --------
Nine Months Ended
September 30,
- -------------
2003
Rental
Revenues $47,073 $9,179 $-- $-- $56,252
Rental
Related
Services
Revenues 11,152 402 -- -- 11,554
Sales and
Other
Revenues 13,253 5,729 7,112 -- 26,094
Total
Revenues 71,478 15,310 7,112 -- 93,900
Depreciation
of Rental
Equipment 5,405 4,063 -- -- 9,468
Impairment of
Rental
Equipment -- -- -- -- --
Interest
Expense
(Income)
Allocation 1,948 272 (135) -- 2,085
Income before
Provision
for Income
Taxes 23,397 2,233 596 -- 26,226
Rental
Equipment
Acquisitions 23,017 4,053 -- -- 27,070
Accounts
Receivable,
net (period
end) 32,656 3,943 5,791 -- 42,390
Rental
Equipment,
at cost
(period
end) 303,021 36,509 -- -- 339,530
Rental
Equipment,
net book
value
(period
end) 214,374 18,069 -- -- 232,443
Utilization
(period end)
(2) 85.8% 48.6%
Average
Utilization
(2) 84.0% 45.2%
2002
Rental
Revenues $49,664 $12,488 $-- $-- $62,152
Rental
Related
Services
Revenues 12,342 431 -- -- 12,773
Sales and
Other
Revenues 14,997 7,703 11,315 1,250 35,265
Total
Revenues 77,003 20,622 11,315 1,250 110,190
Depreciation
of Rental
Equipment 5,165 7,162 -- -- 12,327
Impairment of
Rental
Equipment -- 24,083 -- -- 24,083
Interest
Expense
(Income)
Allocation 2,705 634 (164) -- 3,175
Income before
Provision
for Income
Taxes 29,239 (22,892) 1,474 657 8,478
Rental
Equipment
Acquisitions 14,051 2,099 -- -- 16,150
Accounts
Receivable,
net (period
end) 30,889 3,647 5,828 -- 40,364
Rental
Equipment,
at cost
(period
end) 286,887 42,208 -- -- 329,095
Rental
Equipment,
net book
value
(period
end) 201,656 23,666 -- -- 225,322
Utilization
(period end)
(2) 86.4% 44.7%
Average
Utilization
(2) 86.0% 37.2%
- ----------------------------------------------------------------------
(1) Corporate includes nonrecurring items related to the terminated
merger with Tyco International in 2002, which were 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