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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): February 19, 2004
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 February 19, 2004.
On February 19, 2004, McGrath RentCorp (the "Company") announced via press
release the Company's results for its fourth quarter ended December 31, 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.
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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: February 19, 2004 By: /s/ Thomas J. Sauer
------------------------------------------
Thomas J. Sauer
Vice President and Chief Financial Officer
3
Exhibit 99.1
McGrath RentCorp Announces Fourth Quarter and Year-End Results;
Q4 2003 EPS of $0.57 and FYE 2003 EPS of $1.85
LIVERMORE, Calif.--(BUSINESS WIRE)--Feb. 19, 2004--
Quarter over Quarter Rental Revenues Increase for
Both Modulars and Electronics
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 December 31, 2003 of $37.1
million, compared to $34.9 million in the fourth quarter of 2002. The
Company reported net income of $7.0 million or $0.57 per share,
compared to $7.7 million or $0.61 per share in the fourth quarter of
2002.
Fourth quarter 2002 results included a nonrecurring gain on land
sales of $0.9 million, which increased net income by $0.5 million or
$0.04 per share. For comparability, excluding the gain on land sales,
fourth quarter net income would have decreased 3% from $7.2 million,
or $0.57 per share, in 2002 to $7.0 million, or $0.57 per share, in
2003, with fewer outstanding shares in 2003.
For the quarter, rental revenues for the Company's Mobile Modular
division increased 2% from the same period in 2002 to $16.9 million as
a result of high shipping levels of classroom product in the third
quarter. The rental revenue increase for Mobile Modular was offset by
higher operating expenses coupled with lower margin contribution of
rental related services and sales. This resulted in a pre-tax income
decline for Mobile Modular of 11% to $10.0 million. For Enviroplex,
the Company's classroom manufacturing subsidiary, sales revenues for
the quarter increased to $3.9 million from $1.2 million in the same
period in 2002, as projects in process at the end of the third quarter
were completed, resulting in pre-tax income of $0.8 million compared
to a pre-tax loss of $0.2 million in the year ago period. Enviroplex's
backlog at December 31, 2003 was $4.2 million compared to $3.3 million
at the end of 2002. At RenTelco, the Company's communications test
equipment rental division, rental revenues increased 4% sequentially
to $3.6 million from $3.4 million in the third quarter of 2003, and
were 8% higher than in the fourth quarter of 2002. RenTelco
contributed $1.1 million in pre-tax earnings, about half of which were
derived from selling underutilized equipment.
"Both of our rental businesses ended the year with strong
quarters," stated Dennis Kakures, President and CEO. "Our Modular
business experienced its highest-ever rental revenue quarter while
rental revenues for our communications test equipment business
increased for a third sequential quarter and grew 8% over fourth
quarter 2002 results. More importantly, gross margin on rents for
RenTelco has increased for three consecutive quarters, and grew 24%
over fourth quarter 2002.
"In addition, we continued to bolster our healthy balance sheet by
generating strong cash flow during the year, further reducing our debt
by $8.3 million and lowering our already low debt-to-equity ratio. We
accomplished this while continuing to increase the dividend in 2003,
repurchasing $10.3 million of the Company's common stock and
increasing our rental equipment assets by $13.7 million for the year.
"We look forward into 2004 with enthusiasm and anticipation that
feels different from our recent past.
"We believe that the increased momentum in order activity for
RenTelco, especially in product areas that have been relatively
dormant over the past few years, is very encouraging. As the
communications industry continues to recover, we anticipate increasing
business levels. Our communications test equipment leadership
position, rightsizing of our inventory levels and infrastructure cost
reductions over the past couple of years, has well positioned us to
take full advantage of improving market conditions. Looking forward,
this business has the potential for favorable income growth.
"We expect our modular rental business to continue its strong
performance in 2004. Mobile Modular, in good and bad economic times,
has endured and produced consistently favorable results. Our
educational rental business is the core of this economic engine. We
are focused on growing our leadership position in providing low cost,
interim facility solutions to the educational community.
"Over the past 12 to 18 months, the Company's management has made
a significant investment of time and money in developing a strategic
planning structure and protocols to cultivate and assess growth
opportunities going forward. We believe that these capabilities will
enhance our ability to develop the Company's future income growth."
Total revenues for the twelve months ended December 31, 2003, were
$131.0 million, compared to $145.1 million in the same twelve-month
period in 2002. Net income for the twelve months ended December 31,
2003, was $22.7 million or $1.85 per share, compared to $12.6 million
or $1.00 per share in the prior-year period. The twelve-month 2002
results include noncash RenTelco impairment charges, net of the lower
depreciation expense from the equipment write-downs, of $20.6 million,
which reduced net income by $12.4 million or $0.98 per share; a
nonrecurring gain on land sales, which increased net income by $0.5
million or $0.04 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.
FOURTH QUARTER 2003 HIGHLIGHTS (AS COMPARED TO FOURTH QUARTER
2002)
-- Rental revenues increased 3% to $20.4 million. Within rental
revenues, Mobile Modular increased 2% to $16.9 million,
resulting from high shipping levels of classroom product
during the prior quarter. RenTelco rental revenues increased
8% to $3.6 million.
-- Sales revenues increased 22% to $11.2 million resulting from
$2.7 million higher equipment sales by Enviroplex offset by
lower sales at Mobile Modular and RenTelco. Overall gross
profit on sales for the quarter increased from $2.7 million in
2002 to $3.2 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 5% to $3.3 million
for the quarter resulting primarily from RenTelco's sale of
underutilized communications test equipment throughout the
year.
-- Operating cash flow increased 36% to $15.7 million, primarily
due to collection of accounts receivable and lower income tax
payments during the quarter. Debt decreased $8.7 million
during the quarter to $47.3 million, with the Company's total
liabilities to equity ratio decreasing from 1.43 to 1 at
September 30, 2003 to 1.25 to 1 as of December 31, 2003. At
December 31, 2003, the Company, under existing bank lines of
credit, has capacity to borrow up to an additional $93.7
million.
-- Dividend rate increased to $0.20 per share for the fourth
quarter 2003. On an annualized basis, this dividend
represented a 2.6% yield on the February 18, 2004 close price
of $30.41.
FINANCIAL GUIDANCE
The Company currently expects its 2004 full-year earnings per
share to be in a range of $2.00 to $2.10 per diluted share. Such a
forward-looking statement reflects McGrath RentCorp's expectations as
of February 19, 2004. Results may be materially affected by many
factors, as outlined in the "forward-looking statements" paragraph at
the end of this press release.
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.
CORPORATE GOVERNANCE
Management and the Company's board of directors have recently
updated its corporate governance practices, which can be accessed in
the Investor Relations section of the Company's web site at
www.mgrc.com.
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 February 4, 2004, McGrath RentCorp will host a conference call at
5:00 p.m. Eastern Time (2:00 p.m. Pacific Time) on February 19, 2004
to discuss the fourth quarter 2003 results. To participate in the
teleconference, dial 1-800-218-4007 (international callers dial
1-303-262-2130). 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 567142#.
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
three-month results the net nonrecurring gain on land sales of $0.5
million. McGrath RentCorp provides these measurements to 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 our general expectations regarding our business
in 2004, our expectation regarding RenTelco's increased business
activity and potential for favorable income growth, our expectation of
continued strong performance by Mobile Modular's rental business in
2004, our expectations regarding the impact of the Company's strategic
planning on the Company's future income growth, and guidance on per
share earnings for 2004. 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 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 Twelve Months Ended
December 31 December 31
------------------- -------------------
2003 2002 2003 2002
- ---------------------------------------- --------- ---------- --------
REVENUES
- -------------------------------
Rental $20,426 $19,839 $76,678 $81,991
Rental Related Services 5,192 4,724 16,746 17,497
--------- --------- ---------- --------
Rental Operations 25,618 24,563 93,424 99,488
Sales 11,249 9,196 36,745 42,257
Other 204 1,137 802 3,341
--------- --------- ---------- --------
Total Revenues 37,071 34,896 130,971 145,086
--------- --------- ---------- --------
COSTS AND EXPENSES
- -------------------------------
Direct Costs of Rental
Operations
Depreciation of Rental
Equipment 3,277 3,465 12,745 15,792
Rental Related Services 3,482 2,584 10,356 9,497
Impairment of Rental
Equipment -- -- -- 24,083
Other 4,079 3,763 18,623 17,839
--------- --------- ---------- --------
Total Direct Costs of
Rental Operations 10,838 9,812 41,724 67,211
Costs of Sales 8,083 6,506 25,913 30,541
--------- --------- ---------- --------
Total Costs 18,921 16,318 67,637 97,752
--------- --------- ---------- --------
Gross Margin 18,150 18,578 63,334 47,334
Selling and Administrative 5,753 4,996 22,626 22,099
--------- --------- ---------- --------
Income from Operations 12,397 13,582 40,708 25,235
Interest 583 807 2,668 3,982
--------- --------- ---------- --------
Income Before Provision for
Income Taxes 11,814 12,775 38,040 21,253
Provision for Income Taxes 4,714 5,085 15,178 8,459
--------- --------- ---------- --------
Income Before Minority
Interest 7,100 7,690 22,862 12,794
Minority Interest in Income
of Subsidiary 81 (21) 170 161
--------- --------- ---------- --------
Net Income $7,019 $7,711 $22,692 $12,633
========= ========= ========== ========
Earnings Per Share:
Basic $0.58 $0.62 $1.87 $1.01
Diluted $0.57 $0.61 $1.85 $1.00
Shares Used in Per Share
Calculations:
Basic 12,119 12,488 12,125 12,468
Diluted 12,274 12,572 12,259 12,619
December 31, December 31,
BALANCE SHEET DATA 2003 2002
- ---------------------------------------- ---------
Rental Equipment, net $232,046 $221,899
Total Assets 323,858 313,134
Notes Payable 47,266 55,523
Shareholders' Equity 143,978 139,019
SEGMENT DATA Modulars Electro- Enviro- Corporate(1) Consol-
nics plex idated
- ------------------------------- -------- ------- ------------ --------
Three Months Ended
December 31,
- -----------------------
2003
Rental Revenues $16,875 $3,551 $-- $-- $20,426
Rental Related
Services Revenues 5,051 141 -- -- 5,192
Sales and Other
Revenues 5,720 1,838 3,895 -- 11,453
Total Revenues 27,646 5,530 3,895 -- 37,071
Depreciation of Rental
Equipment 1,972 1,305 -- -- 3,277
Interest Expense
(Income) Allocation 557 71 (45) -- 583
Income before Provision
for Income Taxes 9,960 1,057 797 -- 11,814
Rental Equipment
Acquisitions 4,623 737 -- -- 5,360
Accounts Receivable,
net (period end) 26,616 3,664 1,919 -- 32,199
Rental Equipment, at
cost (period end) 304,905 34,448 -- -- 339,353
Rental Equipment, net
book value (period
end) 215,589 16,457 -- -- 232,046
Utilization (period
end) (2) 84.6% 45.2%
Average Utilization(2) 85.1% 46.6%
2002
Rental Revenues $16,550 $3,289 $-- $-- $19,839
Rental Related
Services Revenues 4,594 130 -- -- 4,724
Sales and Other
Revenues 5,804 2,451 1,173 905 10,333
Total Revenues 26,948 5,870 1,173 905 34,896
Depreciation of Rental
Equipment 2,004 1,461 -- -- 3,465
Interest Expense
(Income) Allocation 746 115 (54) -- 807
Income before
Provision for Income
Taxes 11,173 869 (172) 905 12,775
Rental Equipment
Acquisitions 1,844 924 -- -- 2,768
Accounts Receivable,
net (period end) 27,368 3,896 1,985 -- 33,249
Rental Equipment, at
cost (period end) 285,901 39,786 -- -- 325,687
Rental Equipment, net
book value (period
end) 200,593 21,306 -- -- 221,899
Utilization (period
end) (2) 85.2% 41.6%
Average Utilization(2) 85.8% 43.8%
- ----------------------------------------------------------------------
SEGMENT DATA Modulars Electro- Enviro- Corporate(1) Consol-
nics plex idated
- ------------------------------- -------- ------- ------------ --------
Twelve Months Ended
December 31,
- -----------------------
2003
Rental Revenues $63,948 $12,730 $-- $-- $76,678
Rental Related
Services Revenues 16,203 543 -- -- 16,746
Sales and Other
Revenues 18,973 7,567 11,007 -- 37,547
Total Revenues 99,124 20,840 11,007 -- 130,971
Depreciation of Rental
Equipment 7,377 5,368 -- -- 12,745
Impairment of Rental
Equipment -- -- -- -- --
Interest Expense
(Income) Allocation 2,505 343 (180) -- 2,668
Income before Provision
for Income Taxes 33,357 3,290 1,393 -- 38,040
Rental Equipment
Acquisitions 27,637 4,790 -- -- 32,427
Accounts Receivable,
net (period end) 26,616 3,664 1,919 -- 32,199
Rental Equipment, at
cost (period end) 304,905 34,448 -- -- 339,353
Rental Equipment, net
book value (period
end) 215,589 16,457 -- -- 232,046
Utilization (period
end) (2) 84.6% 45.2%
Average Utilization(2) 84.2% 45.3%
2002
Rental Revenues $66,214 $15,777 $-- $-- $81,991
Rental Related
Services Revenues 16,936 561 -- -- 17,497
Sales and Other
Revenues 20,802 10,153 12,488 2,155 45,598
Total Revenues 103,952 26,491 12,488 2,155 145,086
Depreciation of Rental
Equipment 7,169 8,623 -- -- 15,792
Impairment of Rental
Equipment -- 24,083 -- -- 24,083
Interest Expense
(Income) Allocation 3,451 749 (218) -- 3,982
Income before
Provision for Income
Taxes 40,412 (22,023) 1,302 1,562 21,253
Rental Equipment
Acquisitions 15,895 3,023 -- -- 18,918
Accounts Receivable,
net (period end) 27,368 3,896 1,985 -- 33,249
Rental Equipment, at
cost (period end) 285,901 39,786 -- -- 325,687
Rental Equipment, net
book value (period
end) 200,593 21,306 -- -- 221,899
Utilization (period
end) (2) 85.2% 41.6%
Average Utilization(2) 85.9% 38.2%
- ----------------------------------------------------------------------
(1) Corporate includes nonrecurring items related to the terminated
merger with Tyco International in 2002 and gain on land sales, 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
Chief Financial Officer