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UNITED STATES
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): May 4, 2006
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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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Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (see General Instruction A.2. below):
|_| Written communications pursuant to Rule 425 under the Securities Act
(17 CFR 230.425)
|_| Soliciting material pursuant to Rule 14a-12 under the Exchange Act
(17 CFR 240.14a-12)
|_| Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange
Act (17 CFR 240.14d-2(b))
|_| Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange
Act (17 CFR 240.13e-4(c))
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Item 2.02 Results of Operations and Financial Condition.
On May 4, 2006, McGrath RentCorp (the "Company") announced via press
release the Company's results for its first quarter ended March 31, 2006. 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 Items 2.02 and 9.01 of Form 8-K and
are furnished to, but not filed with, the Securities and Exchange Commission.
Item 9.01 Financial Statements and Exhibits.
(c) Exhibits.
Exhibit No. Description
----------- -----------
99.1 Press Release of McGrath RentCorp, dated May 4, 2006.
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: May 4, 2006 By: /s/ Keith E. Pratt
----------------------------------------
Keith E. Pratt
Vice President and Chief Financial Officer
Exhibit 99.1
McGrath RentCorp Announces Results for First Quarter 2006; EPS Increases 7% to
$0.31 for the Quarter Rental Revenues Increase 10%
LIVERMORE, Calif.--(BUSINESS WIRE)--May 4, 2006--McGrath RentCorp
(Nasdaq:MGRC) today announced revenues for the quarter ended March 31,
2006, of $57.9 million, an increase of 9%, compared to $52.9 million
in the first quarter 2005. The Company reported net income for the
first quarter 2006 of $7.8 million, or $0.31 per diluted share,
compared to $7.2 million, or $0.29 per diluted share, in the first
quarter 2005.
The Company adopted Statement of Financial Accounting Standards
No. 123 (revised 2004), "Share-Based Payment," ("SFAS No. 123R")
effective January 1, 2006, which requires the expensing of employee
stock options at estimated fair value. First quarter 2006 results
included $0.8 million of non-cash stock compensation expense required
under SFAS No. 123R.
The Company's Mobile Modular division reported an increase in
total revenues of 24% from $26.7 million in first quarter 2005 to
$33.1 million in first quarter 2006, with improvement in both rental
and sales revenues. Rental revenues increased 13%, or $2.4 million to
$21.4 million, offset by lower rental margins resulting in gross
profit on rents increasing 8% to $13.4 million. Lower rental margins
were due to $1.0 million higher repair and maintenance expense,
primarily due to the preparation of California classroom inventory for
the upcoming school year, and $0.4 million higher depreciation expense
due to the 14% increase in average rental equipment. Sales revenues
increased $2.2 million with gross profit increasing $0.4 million.
Total gross profit increased 13% from $15.1 million in first quarter
2005 to $17.1 million in first quarter 2006. Selling and
administrative expenses increased $1.7 million to $6.3 million in the
first quarter 2006, primarily due to higher personnel and benefit
costs to support increased business levels. Mobile Modular's selling
and administrative expenses include $0.6 million of non-cash stock
compensation expense related to the adoption of SFAS No. 123R.
Allocated interest expense increased $0.5 million due to higher
average interest rates experienced by the Company. As a result, Mobile
Modular's pre-tax income decreased 2% to $9.1 million from $9.3
million in the first quarter 2005.
For the Company's TRS-RenTelco division, first quarter 2006
pre-tax income increased to $4.0 million from $1.9 million in 2005
primarily due to 8% higher rental revenues of $18.3 million compared
to $16.9 million in the first quarter 2005 and $1.1 million lower
depreciation expense. The depreciation decrease was due to the
determination in April 2005 to extend the useful lives on two models
of test equipment (quarterly impact of $0.6 million), the selling of
underutilized equipment and rental equipment becoming fully
depreciated, offset by new equipment purchases.
"I was very pleased by our growth in revenues year over year,
particularly as the majority of growth came from rental revenues in
both our electronics and modular businesses. Our first quarter results
reflect a 10% increase in rental revenues from a year ago," stated
Dennis Kakures, President & CEO.
"TRS-RenTelco's first quarter increase in rental revenues from a
year ago is reflective of improving market conditions and a broader
range of product segments experiencing increased business activity.
This momentum has continued into April and we are hopeful that 2006 is
shaping up to be a much stronger year than in 2005. At the end of the
first quarter, utilization stood at just under 71% compared to 62% a
year ago. This is reflective of both our proactive selling of
underutilized equipment during 2005, as well as the increased business
activity year over year. We are actively purchasing test equipment to
support the increased demand we are seeing.
"Mobile Modular's increase in rental revenues over the first
quarter of last year is primarily related to classroom shipments in
the third and fourth quarters of 2005. We should experience a full 12
months of rental revenues in 2006 on the great majority of the orders
shipped in the second half of 2005. In Florida, student population
growth, class size reduction, our hybrid classroom product and the
phasing out of older model code portable classrooms are continuing to
support our strong growth. 2006 has started off very nicely as we
continue to experience strong order levels and an expanding base of
school district customers. It's important to note that for the 2006 -
2007 school year under the class size reduction statute in Florida,
school districts are required to meet class size limits based on the
average number of students per class at the school level as compared
to the district level which had been the standard since the program
was implemented in the 2003 - 2004 school year. In the 2008 - 2009
school year, school districts will be required to meet the average
class size at the individual classroom level. These requirements could
have a very favorable impact on market demand for modular classrooms.
"In California, our commercial activity has been strong to date in
2006. We are seeing increased activity in both residential and
commercial construction, and in the petrochemical market. For our
California educational business, although the opportunity flow has
been favorable, it is not to the level of the past few years. We feel
this is directly related to a number of school districts waiting for
the passage of a state-wide facilities bond measure for modernization
funding later this year and then moving their projects forward in
2007. However, we are continuing to book classroom orders for 2006 and
expect to capture a number of additional opportunities still pending.
At this time, we believe the outlook for a November 2006 California
facilities bond measure to support the ongoing need to modernize
schools is very promising for a number of reasons, including
bi-partisan support in the legislature. The passage of this bond
measure for modernization should support increased classroom ordering
activity in 2007 and 2008.
"While we've seen higher selling and administrative expenses as
compared to a year ago, including the non-cash expensing of stock
options, a significant portion relates to the increased business
levels and size of the Company today. We are more fully staffed
entering 2006 as we filled a number of key positions in operations,
corporate administration and IT during 2005 to support our growth
needs. Additionally, in the first quarter we experienced higher salary
and benefit costs, and higher commissions from increased booking
levels.
"Finally, as we look at our businesses today, we continue to
expect favorable rental revenue growth for both our electronic test
equipment and modular building business year over year, and reconfirm
our earnings guidance range for 2006 of $1.50 to $1.60 per diluted
share."
FIRST QUARTER 2006 HIGHLIGHTS (AS COMPARED TO FIRST QUARTER 2005)
-- Rental revenues increased 10% to $39.7 million. Within rental
revenues, Mobile Modular increased 13% from $19.0 million to
$21.4 million; TRS-RenTelco increased 8% from $16.9 million to
$18.3 million.
-- Sales revenues decreased 4% to $10.5 million, resulting from
lower sales volume at TRS-RenTelco and Enviroplex, offset by
higher sales volume by Mobile Modular. Lower sales volume
combined with a lower gross margin percentage, 30.2% in 2006
compared to 31.1% in 2005, resulted in a gross profit decrease
of $0.2 million. Sales revenues and related gross margins can
fluctuate from quarter to quarter depending on customer
requirements, equipment availability and funding.
-- Depreciation of rental equipment decreased 6% to $10.9
million, with Mobile Modular increasing 16% to $2.5 million
from $2.2 million in 2005, and TRS-RenTelco decreasing 11% to
$8.3 million from $9.4 million in 2005. The TRS-RenTelco
decrease was due to the determination in April 2005 to extend
the useful lives on two models of test equipment (quarterly
impact of $0.6 million), the selling of underutilized
equipment and rental equipment becoming fully depreciated,
offset by new equipment purchases.
-- Debt increased $13.3 million during the quarter to $176.5
million, with the Company's total liabilities to equity ratio
decreasing from 1.73 to 1 at December 31, 2005 to 1.68 to 1 as
of March 31, 2006. As of March 31, 2006, the Company, under
its lines of credit, had capacity to borrow an additional
$78.5 million.
-- Dividend rate increased 14% to $0.16 per share for the first
quarter 2006, as compared to $0.14 per share for the first
quarter of 2005. On an annualized basis, this dividend
represents a 2.4% yield on the May 3, 2006 close price of
$26.38.
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
The Company reconfirms its 2006 full-year earnings per share to be
in a range of $1.50 to $1.60 per diluted share. Such a forward-looking
statement reflects McGrath RentCorp's expectations as of May 4, 2006.
Actual 2006 full-year earnings per share results may be materially
different and affected by many factors, including those factors
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
customers' 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. 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 April 6, 2006, McGrath RentCorp will host a conference call at 5:00
p.m. Eastern Time (2:00 p.m. Pacific Time) on May 4, 2006 to discuss
the first quarter 2006 results. To participate in the teleconference,
dial 1-800-218-4007 (in the U.S.), or 1-303-262-2131 (outside the US),
or visit 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 11057700.
This press release contains statements, which constitute
"forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995 and are subject to a number
of risks and uncertainties. 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 belief
of improving market conditions for our TRS-RenTelco business,
including the increased demand for our test equipment, our expectation
that the great majority of the Mobile Modular orders we shipped in the
second half of 2005 will provide a full 12 months of rental revenues
in 2006, our hope that the business activity levels for our
electronics business in 2006 will be stronger than 2005, our
expectation that in Florida, strong student population growth, the
ongoing implementation of class size reduction, and our hybrid
classroom product will continue to support favorable growth for Mobile
Modular in that market, our expectation that school districts will be
required to meet class size limits at the school level for the
2006-2007 school year and at the individual classroom level in the
2008-2009 school year and that these class size reduction statutes
could have a very favorable impact on market demand for modular
classrooms, our expectation that there are a number of opportunities
pending in California in 2006 for our classroom business, our
expectation that if we close a high percentage of these opportunities,
our utilization and rental revenue levels for our classroom business
will be impacted favorably, our view that the outlook for a November
2006 California facilities bond measure to support the ongoing need to
modernize schools is very promising, and that if the bond measure is
passed, it would support increased classroom ordering activity in 2007
and 2008, our expectation regarding the 2006 annual dividend yield,
our expectation regarding favorable rental revenue growth for both our
electronic test equipment and modular building business year over
year, and our 2006 full-year earnings per share guidance. 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. 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 STATEMENTS OF INCOME
(UNAUDITED)
- ----------------------------------------------------------------------
Three Months
Ended March 31,
-----------------
(in thousands, except per share amounts) 2006 2005
- ---------------------------------------------------- -------- --------
REVENUES
- ----------------------------------------------------
Rental $39,671 $35,959
Rental Related Services 7,067 5,275
-------- --------
Rental Operations 46,738 41,234
Sales 10,498 10,972
Other 620 732
-------- --------
Total Revenues 57,856 52,938
-------- --------
COSTS AND EXPENSES
- ----------------------------------------------------
Direct Costs of Rental Operations:
Depreciation of Rental Equipment 10,858 11,565
Rental Related Services 4,960 3,571
Other 8,006 7,245
-------- --------
Total Direct Costs of Rental Operations 23,824 22,381
Costs of Sales 7,329 7,564
-------- --------
Total Costs 31,153 29,945
-------- --------
Gross Profit 26,703 22,993
Selling and Administrative 11,554 9,561
-------- --------
Income from Operations 15,149 13,432
Interest 2,353 1,719
-------- --------
Income Before Provision for Income Taxes 12,796 11,713
Provision for Income Taxes 4,991 4,451
-------- --------
Income Before Minority Interest 7,805 7,262
Minority Interest in Income (Loss) of Subsidiary (32) 85
-------- --------
Net Income $ 7,837 $ 7,177
======== ========
Earnings Per Share:
Basic $ 0.32 $ 0.29
Diluted $ 0.31 $ 0.29
Shares Used in Per Share Calculation:
Basic 24,866 24,572
Diluted 25,604 25,147
MCGRATH RENTCORP
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
- ----------------------------------------------------------------------
March 31, December 31,
---------- ------------
(in thousands) 2006 2005
- ---------------------------------------------- ---------- ------------
ASSETS
- ----------------------------------------------
Cash $ 723 $ 276
Accounts Receivable, net of allowance for
doubtful accounts of $1,000 in 2006 and 2005 51,084 63,702
Rental Equipment, at cost:
Relocatable Modular Buildings 428,197 408,227
Electronic Test Equipment 161,053 154,708
---------- ----------
589,250 562,935
Less Accumulated Depreciation (163,762) (156,502)
---------- ----------
Rental Equipment, net 425,488 406,433
---------- ----------
Property, Plant and Equipment, net 56,042 56,008
Prepaid Expenses and Other Assets 15,276 16,019
---------- ----------
Total Assets $ 548,613 $ 542,438
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ----------------------------------------------
Liabilities:
Notes Payable $ 176,500 $ 163,232
Accounts Payable and Accrued Liabilities 44,005 51,690
Deferred Income 20,460 27,410
Minority Interest in Subsidiary 3,168 3,199
Deferred Income Taxes, net 99,497 98,438
---------- ----------
Total Liabilities 343,630 343,969
---------- ----------
Shareholders' Equity:
Common Stock, no par value -
Authorized -- 40,000 shares
Issued and Outstanding -- 24,950 shares
in 2006 and 24,832 shares in 2005 28,892 26,224
Retained Earnings 176,091 172,245
---------- ----------
Total Shareholders' Equity 204,983 198,469
---------- ----------
Total Liabilities and Shareholders'
Equity $ 548,613 $ 542,438
========== ==========
MCGRATH RENTCORP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
- ----------------------------------------------------------------------
Three Months Ended
March 31,
-------------------
(in thousands) 2006 2005
- -------------------------------------------------- --------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
- --------------------------------------------------
Net Income $ 7,837 $ 7,177
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation 11,384 12,139
Provision for Doubtful Accounts 70 43
Noncash Stock Compensation 830 --
Gain on Sale of Rental Equipment (2,489) (1,760)
Change In:
Accounts Receivable 12,548 2,692
Prepaid Expenses and Other Assets 743 281
Accounts Payable and Accrued Liabilities (1,293) (400)
Deferred Income (6,950) (5,187)
Deferred Income Taxes 1,059 3,796
--------- ---------
Net Cash Provided by Operating
Activities 23,739 18,781
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
- --------------------------------------------------
Purchase of Rental Equipment (39,855) (27,877)
Purchase of Property, Plant and Equipment (560) (307)
Proceeds from Sale of Rental Equipment 5,497 6,807
--------- ---------
Net Cash Used in Investing Activities (34,918) (21,377)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
- --------------------------------------------------
Net Borrowings Under Bank Lines of Credit 13,268 4,788
Proceeds from the Exercise of Stock Options, net 1,256 771
Excess Tax Benefit from Exercise and
Disqualifying Disposition of Stock Options 582 187
Payment of Dividends (3,480) (2,700)
--------- ---------
Net Cash Provided by Financing
Activities 11,626 3,046
--------- ---------
Net Increase in Cash 447 450
Cash Balance, beginning of period 276 189
--------- ---------
Cash Balance, end of period $ 723 $ 639
========= =========
Interest Paid, during the period $ 1,502 $ 1,033
========= =========
Income Taxes Paid, during the period $ 3,349 $ 570
========= =========
Dividends Declared, not yet paid $ 3,992 $ 3,446
========= =========
Rental Equipment Acquisitions, not yet paid $ 7,758 $ 7,429
========= =========
Mobile Modular -- Q1 2006 compared to Q1 2005 (Unaudited)
- ----------------------------------------------------------------------
(dollar amounts in thousands) Three Months Ended Increase
March 31, (Decrease)
------------------- -----------
2006 2005 $ %
--------- --------- ------- ---
Revenues
- ------------------------------------
Rental Revenues $ 21,408 $ 19,026 $2,382 13%
Rental Related Services 6,766 4,968 1,798 36%
--------- --------- -------
Rental Operations 28,174 23,994 4,180 17%
Sales 4,763 2,596 2,167 83%
Other 183 139 44 32%
--------- --------- -------
Total Revenues $ 33,120 $ 26,729 $6,391 24%
--------- --------- -------
Gross Profit
- ------------------------------------
Rental Revenues $ 13,376 $ 12,372 $1,004 8%
Rental Related Services 2,238 1,641 597 36%
--------- --------- -------
Rental Operations 15,614 14,013 1,601 11%
Sales 1,342 957 385 40%
Other 183 139 44 32%
--------- --------- -------
Total Gross Profit $ 17,139 $ 15,109 $2,030 13%
--------- --------- -------
--------- --------- -------
Pre-tax Income $ 9,063 $ 9,293 $ (230) -2%
--------- --------- -------
Other Information
- ------------------------------------
Depreciation of Rental Equipment $ 2,520 $ 2,164 $ 356 16%
Interest Expense Allocation 1,746 1,212 534 44%
Average Rental Equipment (1) $368,563 $323,373 $45,190 14%
Average Rental Equipment on Rent (1) 305,225 276,977 28,248 10%
Average Monthly Total Yield (2) 1.94% 1.96% -1%
Average Utilization (3) 82.8% 85.7% -3%
Average Monthly Rental Rate (4) 2.34% 2.29% 2%
Period End Rental Equipment (1) $369,530 $325,050 $44,480 14%
Period End Utilization (3) 82.1% 85.3% -4%
Period End Floors (1) 23,269 20,979 2,290 11%
- ------------------------------------ --------- ---------- -------- ---
(1) Average and Period End Rental Equipment represents the cost of
rental equipment excluding new equipment inventory and accessory
equipment. Period End Floors excludes new equipment inventory.
(2) Average Monthly Total Yield is calculated by dividing the averages
of monthly rents by the cost of rental equipment, for the period.
(3) Period End Utilization is calculated by dividing the cost of
rental equipment on rent by the total cost of rental equipment
excluding new equipment inventory and accessory equipment. Average
utilization for the period is calculated using the average costs
of the rental equipment.
(4) Average Monthly Rental Rate is calculated by dividing the averages
of monthly rents by the cost of rental equipment on rent, for the
period.
TRS-RenTelco Segment -- Q1 2006 compared to Q1 2005 (Unaudited)
- ----------------------------------------------------------------------
(dollar amounts in thousands) Three Months Ended Increase
March 31, (Decrease)
------------------- --------------
2006 2005 $ %
--------- --------- -------- -----
Revenues
- -----------------------------------
Rental Revenues $ 18,263 $ 16,933 $ 1,330 8%
Rental Related Services 301 307 (6) -2%
--------- --------- --------
Rental Operations 18,564 17,240 1,324 8%
Sales 4,479 6,084 (1,605) -26%
Other 437 593 (156) -26%
--------- --------- --------
Total Revenues $ 23,480 $ 23,917 $ (437) -2%
--------- --------- --------
Gross Profit
- -----------------------------------
Rental Revenues $ 7,431 $ 4,777 $ 2,654 56%
Rental Related Services (131) 63 (194) -308%
--------- --------- --------
Rental Operations 7,300 4,840 2,460 51%
Sales 1,714 1,492 222 15%
Other 437 593 (156) -26%
--------- --------- --------
Total Gross Profit $ 9,451 $ 6,925 $ 2,526 36%
--------- --------- --------
--------- --------- --------
Pre-tax Income $ 3,992 $ 1,936 $ 2,056 106%
--------- --------- --------
Other Information
- -----------------------------------
Depreciation of Rental Equipment $ 8,338 $ 9,401 $(1,063) -11%
Interest Expense Allocation 718 572 146 26%
Average Rental Equipment (1) $156,687 $149,480 $ 7,207 5%
Average Rental Equipment on Rent(1) $108,833 $ 92,029 $16,804 18%
Average Monthly Total Yield (2) 3.89% 3.78% 3%
Average Utilization (3) 69.5% 61.6% 13%
Average Monthly Rental Rate (4) 5.59% 6.13% -9%
Period End Rental Equipment (1) $159,460 $148,960 $10,500 7%
Period End Utilization (3) 70.6% 61.6% 15%
- ----------------------------------- --------- --------- -------- -----
(1) Average and Period End Rental Equipment represents the cost of
rental equipment excluding accessory equipment.
(2) Average Monthly Total Yield is calculated by dividing the averages
of monthly rents by the cost of rental equipment, for the period.
(3) Period End Utilization is calculated by dividing the cost of
rental equipment on rent by the total cost of rental equipment
excluding accessory equipment. Average Utilization for the period
is calculated using the average costs of the rental equipment.
(4) Average Monthly Rental Rate is calculated by dividing the averages
of monthly rents by the cost of rental equipment on rent, for the
period.
CONTACT: McGrath RentCorp
Keith E. Pratt, 925-606-9200