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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
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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): August 5, 2004
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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 August 5,
2004.
On August 5, 2004, McGrath RentCorp (the "Company") announced via press
release the Company's results for its second quarter ended June 30, 2004. 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: August 5, 2004 By: /s/ Thomas J. Sauer
----------------------------------------
Thomas J. Sauer
Vice President and Chief Financial Officer
3
Exhibit 99.1
McGrath RentCorp Announces Second Quarter Results;
Q2 2004 EPS Increases 26% to $0.49;
Company Increases Guidance
LIVERMORE, Calif.--(BUSINESS WIRE)--Aug. 5, 2004--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, 2004 of
$40.8 million, compared to $31.6 million in the second quarter of 2003. The
Company reported net income of $6.1 million, or $0.49 per share, compared to
$4.7 million, or $0.39 per share in second quarter 2003. The Company's improved
quarter over quarter revenues and net income resulted from record rental
revenues at the Company's Mobile Modular division and from contributing revenues
and income related to the Technology Rentals & Services ("TRS") assets acquired.
The Company completed the purchase of substantially all the assets of TRS,
a division of CIT Group Inc. (NYSE:CIT) on June 2, 2004. Based in Dallas, Texas,
TRS is similar to the Company's existing electronics rental business, RenTelco,
and is one of the leading providers of general purpose and communications test
equipment in North America. Since June 2nd, the electronics business has
operated as TRS-RenTelco and the results for second quarter and first six months
of 2004 include TRS' results since that date. The second quarter 2004 results
also included nonrecurring expenses of $0.6 million, related to the prepayment
of debt, and $0.9 million in severance costs, related to the consolidation of
the Company's RenTelco and TRS operations. These nonrecurring expenses decreased
net income by $0.9 million or $0.07 per share.
In the second quarter 2004, rental operations revenues for the Mobile
Modular division increased 21% to $22.7 million compared to the same period in
2003 as a result of the continued strength in the California education market,
resulting in a 27% increase of pre-tax income to $9.1 million. For Enviroplex,
the Company's classroom manufacturer, net sales during the quarter declined to
$0.4 million after the elimination of $3.5 million of intercompany sales, with
quarter-end backlog slightly higher than a year ago at $9.6 million. Looking
forward, in third quarter 2004 Mobile Modular is expected to complete a $9.0
million sale project to provide classroom product, manufactured by Enviroplex,
and site related improvements to a California school district scheduled for
completion by September 30, 2004. This sale project is not included in
Enviroplex's quarter-end backlog. At TRS-RenTelco, the Company's electronic test
equipment rental division, rental revenues increased to $8.5 million from $3.0
million in the second quarter of 2003, primarily due to TRS' contribution,
resulting in pre-tax income of $1.2 million after recognition of nonrecurring
severance costs of $0.9 million, as compared to pre-tax income of $0.4 million
in 2003.
"Mobile Modular had record rental revenues in the second quarter," stated
Dennis Kakures, President & CEO. "Our educational rental business in the
California market continues to see very favorable demand for interim classroom
space to serve local and state bond-funded modernization and reconstruction
projects. We are also progressing well with our entrance in the Florida market,
having launched operations there in the first quarter. Although no rental
revenues were recognized for Florida in the second quarter, we were pleased with
our order activity and will begin to see the rental revenue impact from these
bookings in the third quarter. Given time, we are confident that we can create a
meaningful educational rental business in Florida.
"To date our electronic test equipment division has made good progress with
its integration efforts in merging TRS and RenTelco. We recently completed the
consolidation of RenTelco inventory and transitioning of employees into the
Dallas-Fort Worth facility. Most importantly, we expect to continue our success
to date in customer and revenue retention throughout the integration period.
Rental revenues for the combined TRS-RenTelco business for the month of June
were $6.2 million. These results are also reflective of continuing improving
test equipment market conditions.
"As we continue to hone our TRS-RenTelco business platform over the next
few months, we will further refine our operations and overhead cost structures.
By the beginning of the fourth quarter, we should have a much better view of the
earnings horsepower of the new enterprise. With continuing favorable integration
efforts, we expect to realize both the market positioning and financial
objectives in making the acquisition. TRS-RenTelco is being set-up for success
over the long run and I couldn't be more excited about the opportunity."
Total revenues for the six months ended June 30, 2004, were $70.7 million,
compared to $59.0 million in the same six-month period in 2003. Net income for
the six months ended June 30, 2004, was $11.9 million or $0.96 per share,
compared to net income of $9.6 million, or $0.78 per share, in the prior-year
period.
SECOND QUARTER 2004 HIGHLIGHTS (AS COMPARED TO SECOND QUARTER 2003)
-- Rental revenues increased 40% to $25.6 million. Within rental
revenues, Mobile Modular increased 12% to $17.1 million, driven by
educational rentals, and RenTelco increased 181% to $8.5 million
primarily due to TRS's contribution since to June 2, 2004.
-- Sales revenues decreased 3% to $9.2 million from decreased sales by
Enviroplex, partially offset by increased equipment sales by Mobile
Modular and TRS-RenTelco. Lower sales volume, combined with a lower
overall margin of 23.0% compared to 27.8% in 2003, resulted in a gross
margin decline of $0.5 million compared to 2003. Sales revenues can
fluctuate from quarter to quarter depending on customer requirements
and funding.
-- Depreciation of rental equipment increased 88% to $5.9 million,
primarily due to the purchase of TRS rental assets valued at $107.6
million on June 2, 2004.
-- Operating cash flow increased 235% to $12.1 million, primarily due to
the collection of certain accounts receivable of MMMC and Enviroplex,
and TRS' contribution since June 2, 2004.
-- Debt increased $124.6 million during the quarter to $168.5 million
primarily due to the financing of the purchase of TRS' assets. During
the quarter, the Company opted to prepay the remaining $16.0 million
of 6.44% senior notes, incurring a $0.6 million prepayment fee. In
addition, the Company renewed and extended its lines of credit through
June 2007 to borrow up to $135.0 million, and completed a private
placement of $60.0 million of 5.08% senior notes to facilitate the TRS
purchase. Total liabilities to equity ratio increased from 1.19 to 1
as of March 31, 2004 to 2.08 to 1 as of June 30, 2004, which was
directly attributable to the TRS purchase. At June 30, 2004, the
Company, under existing bank lines of credit, had capacity to borrow
up to an additional $26.5 million.
-- Dividend rate increased to $0.22 per share for the second quarter
2004. On an annualized basis, this dividend represents a 2.8% yield on
the August 4, 2004 close price of $31.33.
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.
FINANCIAL GUIDANCE
As a result of the purchase of TRS on June 2, 2004 and recent operating
trends of the business, the Company has increased and broadened its 2004
full-year earnings per share guidance and expects it to be in a range of $2.30
to $2.40 per diluted share. Such a forward-looking statement reflects McGrath
RentCorp's expectations as of August 5, 2004. Results may be materially affected
by many factors, as outlined in the "forward-looking statements" paragraph at
the end of this press release.
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, Texas and Florida. 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 TRS-RenTelco division rents and sells electronic test
equipment and is one of the leading providers of general purpose and
communications test equipment in North America.
CONFERENCE CALL NOTE: As previously announced in its press release of July
8, 2004, McGrath RentCorp will host a conference call at 5:00 p.m. Eastern Time
(2:00 p.m. Pacific Time) on August 5, 2004 to discuss the second quarter 2004
results. To participate in the teleconference, dial 1-800-218-0530
(international callers dial 1-303-262-2211). In addition, a live webcast 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 1-303-590-3300 (outside the U.S.). The pass code for the call replay is
11002616.
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 expectation regarding a $9.0 million
sale by Enviroplex by September 30, 2004, our expectation regarding rental
revenues generated in the third quarter of 2004 from our Florida rental
operations, our expectation regarding meaningful rental business in Florida, our
expectation regarding customer and revenue retention during the integration of
RenTelco and TRS, our expectation regarding having visibility to the earnings
capacity of the TRS-RenTelco business in the fourth quarter of 2004, our
expectation about the TRS-RenTelco realizing market positions and financial
objectives, our annualized dividend yield, and our guidance on per share range
for 2004 full-year earnings. 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, changing
prices and market conditions, that the acquired TRS assets may not be integrated
successfully and that the TRS transaction may have a negative impact on our
future business or operations, that there may be unanticipated costs of
integrating the acquired assets, that our Florida initiatives may not be
successful or provide meaningful revenue or earnings, and that and that we may
have difficulties in managing a larger, more geographically dispersed
organization. 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,
--------------------------------------
2004 2003 2004 2003
--------- -------- --------- --------
REVENUES
- --------
Rental $25,560 $18,219 $45,583 $36,660
Rental Related Services 5,822 3,657 10,366 7,204
--------- -------- --------- --------
Rental Operations 31,382 21,876 55,949 43,864
Sales 9,198 9,500 14,281 14,777
Other 209 208 438 404
--------- -------- --------- --------
Total Revenues 40,789 31,584 70,668 59,045
--------- -------- --------- --------
COSTS AND EXPENSES
- ------------------
Direct Costs of Rental Operations
Depreciation of Rental
Equipment 5,875 3,127 9,136 6,242
Rental Related Services 3,590 2,212 6,265 4,373
Other 5,105 4,808 9,749 9,221
--------- -------- --------- --------
Total Direct Costs of
Rental Operations 14,570 10,147 25,150 19,836
Costs of Sales 7,082 6,862 10,233 10,546
--------- -------- --------- --------
Total Costs 21,652 17,009 35,383 30,382
--------- -------- --------- --------
Gross Margin 19,137 14,575 35,285 28,663
Selling and Administrative 7,596 5,910 13,653 11,250
--------- -------- --------- --------
Income from Operations 11,541 8,665 21,632 17,413
Interest 1,408 748 1,948 1,438
--------- -------- --------- --------
Income Before Provision for
Income Taxes 10,133 7,917 19,684 15,975
Provision for Income Taxes 4,043 3,159 7,854 6,374
--------- -------- --------- --------
Income Before Minority
Interest 6,090 4,758 11,830 9,601
Minority Interest in Income
(Loss) of Subsidiary (31) 40 (29) (6)
--------- -------- --------- --------
Net Income $ 6,121 $ 4,718 $11,859 $ 9,607
========= ======== ========= ========
Earnings Per Share:
Basic $ 0.50 $ 0.39 $ 0.98 $ 0.79
Diluted $ 0.49 $ 0.39 $ 0.96 $ 0.78
Shares Used in Per Share
Calculation:
Basic 12,153 12,039 12,139 12,150
Diluted 12,371 12,169 12,335 12,261
June 30, December 31,
BALANCE SHEET DATA 2004 2003
- ------------------ ---------- ------------
Rental Equipment, net $352,337 $232,046
Total Assets 466,442 323,858
Notes Payable 168,500 47,266
Shareholders' Equity 151,396 143,978
SEGMENT DATA Modulars Elec- Enviro- Corporate Consolidated
(UNAUDITED) tronics plex
- -------------- --------- ---------- --------- ---------- ------------
Three Months
Ended June 30,
- --------------
2004
Rental Revenues $17,101 $8,459 $ -- $ -- $ 25,560
Rental Related
Services
Revenues 5,555 267 -- -- 5,822
Sales and Other
Revenues 5,584 3,437 386 -- 9,407
Total Revenues 28,240 12,163 386 -- 40,789
Depreciation
of Rental
Equipment 2,043 3,832 -- -- 5,875
Interest Expense
(Income)
Allocation 1,189 253 (34) -- 1,408
Income (Loss)
before
Provision
for Income
Taxes 9,130 1,217 (214) -- 10,133
Rental Equipment
Acquisitions 18,229 111,453 -- -- 129,682
Accounts
Receivable, net
(period end) 29,733 14,513 5,748 -- 49,994
Rental
Equipment, at
cost (period
end) 323,244 141,279 -- -- 464,523
Rental
Equipment, net
book value
(period end) 231,743 120,594 -- -- 352,337
Utilization
(period end) (1) 86.4% 66.1%
Average
Utilization (1) 85.4% 59.5%
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
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) (1) 83.6% 45.1%
Average
Utilization (1) 82.8% 45.4%
SEGMENT DATA Modulars Elec- Enviro- Corporate Consolidated
(UNAUDITED) tronics plex
- -------------- --------- ---------- --------- ---------- ------------
Six Months
Ended June 30,
- --------------
2004
Rental Revenues $33,898 $11,685 $-- $-- $45,583
Rental Related
Services
Revenues 9,975 391 -- -- 10,366
Sales and Other
Revenues 7,488 5,551 1,680 -- 14,719
Total Revenues 51,361 17,627 1,680 -- 70,668
Depreciation of
Rental Equipment 4,049 5,087 -- -- 9,136
Interest Expense
(Income)
Allocation 1,708 316 (76) -- 1,948
Income (Loss)
before Provision
for Income Taxes 17,561 2,322 (199) -- 19,684
Rental Equipment
Acquisitions 22,579 112,745 -- -- 135,324
Accounts
Receivable, net
(period end) 29,733 14,513 5,748 -- 49,994
Rental Equipment,
at cost (period
end) 323,244 141,279 -- -- 464,523
Rental Equipment,
net book value
(period end) 231,743 120,594 -- -- 352,337
Utilization
(period end) (1) 86.4% 66.1%
Average
Utilization (1) 85.0% 55.5%
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
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) (1) 83.6% 45.1%
Average
Utilization (1) 83.3% 44.1%
(1) 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