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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000 COMMISSION FILE NUMBER 0-13292
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MCGRATH RENTCORP
(Exact name of registrant as specified in its Charter)
CALIFORNIA 94-2579843
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
5700 LAS POSITAS ROAD, LIVERMORE, CA 94550
(Address of principal executive offices)
Registrant's telephone number: (925) 606-9200
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
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NONE NONE
Securities registered pursuant to Section 12(g) of the Act:
Title of Class
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COMMON STOCK
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
State the aggregate market value of voting stock, held by nonaffiliates
of the registrant: $174,507,255 as of March 16, 2001.
At March 16, 2001, 12,160,248 shares of Registrant's Common Stock were
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
McGrath RentCorp's definitive Proxy Statement with respect to its Annual
Shareholders' Meeting to be held May 30, 2001, which will be filed with the
Securities and Exchange commission within 120 days after the end of its fiscal
year, is incorporated by reference into Part III, Items 10, 11, 12 and 13.
Exhibit index appears on page 36.
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PART I
ITEM 1. BUSINESS.
GENERAL
McGrath RentCorp (the "Company") is a California corporation organized
in 1979. The Company is comprised of three business segments: "Mobile Modular
Management Corporation" ("MMMC"), its modular building rental group, "RenTelco,"
its electronic test equipment rental group, and "Enviroplex," its majority-owned
subsidiary classroom manufacturing business. The Company's corporate offices are
located in Livermore, California. In addition, branch operations for both rental
divisions are conducted from this facility.
MMMC rents and sells modular buildings and accessories to fulfill
customers' temporary and permanent space needs in California and Texas. These
units are used as temporary offices adjacent to existing facilities, and are
used as sales offices, construction field offices, classrooms, health care
clinics, child care facilities and for a variety of other purposes. MMMC
purchases the modulars from various manufacturers who build them to MMMC's
design specifications. MMMC operates from two branch offices in California and
one in Texas. Although MMMC's primary emphasis is on rentals, sales of modulars
routinely occur and can fluctuate quarter to quarter and year to year depending
on customer demands and requirements. Rentals and sales to school districts by
MMMC represent a significant portion of MMMC's total revenues.
RenTelco rents and sells electronic test equipment nationally from two
locations. The Plano, Texas location houses the Company's communications and
fiber optic test equipment inventory, calibration laboratory and eastern U.S.
sales engineer and operations staffs. The Livermore, California location houses
the Company's general-purpose test equipment inventory, calibration laboratory
and western U.S. sales engineer and operations staffs.
Communications and fiber optic test equipment is utilized by field
technicians, engineers and installer contractors in evaluating voice, data and
multimedia communications networks, installing optical fiber cabling and in the
development of switch, network and wireless products. This test equipment is
rented primarily to network systems companies, electrical contractors, local &
long distance carriers and manufacturers of communications transmission
equipment. RenTelco purchases communications test equipment from over 40
different manufacturers domestically and abroad.
Engineers, scientists and technicians utilize general-purpose test
equipment in evaluating the performance of their own electrical and electronic
equipment, developing products, controlling manufacturing processes and in field
service applications. These instruments are rented primarily to electronics,
industrial, research and aerospace companies. The majority of general-purpose
equipment is manufactured by Agilent (formerly Hewlett Packard), Tektronix and
Acterna.
McGrath RentCorp owns 73% of Enviroplex, a California corporation
organized in 1991. Enviroplex manufactures portable classrooms built to the
requirements of the California Division of the State Architect ("DSA") and sells
directly to school districts. Enviroplex conducts its sales and manufacturing
operations from its facility located in Stockton, California. Since inception,
McGrath RentCorp has assisted Enviroplex in a variety of corporate functions
such as accounting, human resources, facility improvements and insurance.
McGrath RentCorp has not purchased significant quantities of manufactured
product from Enviroplex. Enviroplex sales revenues were $17.0 million, $11.2
million and $20.7 million in 2000, 1999 and 1998, respectively.
The rental (by MMMC) and sale (by Enviroplex and MMMC) of modulars to
school districts for use as portable classrooms, restroom buildings and
administrative offices for kindergarten through grade twelve (K-12) are a
significant portion of the Company's revenues. School business comprised
approximately 35%, 34%, and 45% of the Company's consolidated rental and sales
revenues for 2000, 1999 and 1998, respectively.
Please see Note 8 to the Consolidated Financial Statements on page 31
for more information on the Company's business segments.
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The Company has 404 employees, of whom 51 are primarily administrative
and executive personnel, and the remaining 353 are engaged in manufacturing or
rental operations. Unions represent none of these employees. The operations of
the Company share common facilities, financing, senior management, and operating
and accounting systems, which results in the efficient use of overhead. Each
product line has its own sales and technical personnel.
No single customer has accounted for more than 10% of the Company's
total revenues generated in any given year. The Company's business is not
seasonal, except for the rental and sale of classrooms, which is heaviest in the
several months prior to the opening of school each fall.
The Company operates with a marketing sense throughout. The Company is
constantly searching for ways to streamline its service and to raise the quality
of each relocatable office, classroom or instrument it rents, sells or
manufactures. The Company not only rents, sells and manufactures products, it
sells an old-fashioned idea: Paying attention to our customers pays off.
The Company's common stock is traded on the NASDAQ National Market
System under the symbol "MGRC".
This Annual Report on Form 10-K 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. Readers are cautioned that any such
forward-looking statements are not guarantees of future performance and involve
significant risks and uncertainties, and that 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, new or modified statutory
or regulatory requirements and changing prices and market conditions. This
report identifies other factors that could cause such differences. No assurance
can be given that these are all of the factors that could cause actual results
to vary materially from the forward-looking statements.
RELOCATABLE MODULAR OFFICES
DESCRIPTION
Modulars are designed for use as temporary office space and may be moved
from one location to another. Modulars vary from simple single-unit construction
site offices to attractive multi-modular facilities, complete with wood
exteriors and mansard roofs. The rental fleet includes a full range of styles
and sizes. The Company considers its modulars to be among the most attractive
and well designed available. The units are constructed with wood siding,
sturdily built and physically capable of a useful life often exceeding 18 years.
Units are provided with installed heat, air conditioning, lighting, electricity
and floor covering, and may have customized interiors including partitioning,
carpeting, cabinetwork and plumbing facilities.
MMMC purchases new modulars from various manufacturers who build to
MMMC's design specifications. None of the principal suppliers are affiliated
with the Company. During 2000, the Company purchased 33% of its modular product
from one manufacturer with multiple operations in several states. The Company
believes that the loss of its primary manufacturer of modulars would not have a
material adverse effect on its operations, however the Company could experience
higher prices and longer lead times for modular product until other
manufacturers increased their capacity.
MARKETING
The Company's largest single demand is for temporary classroom and other
educational space needs of public and private schools, colleges and
universities. Management believes the demand for classrooms is caused by
shifting and fluctuating school populations, the lack of state funds for new
construction, the need for temporary classroom space during reconstruction of
older schools and, several years ago, class size reduction (see "Classroom
Rentals and Sales" below). Other customer use applications include sales
offices, construction field offices, health care facilities, sanctuaries and
child care services. Industrial, manufacturing, entertainment and utility
companies, as well as governmental agencies, commonly use large multi-modular
complexes to serve their interim administrative and
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operations space needs. The Company's branch and corporate offices, with the
exception of RenTelco's Plano facility and Enviroplex's facility, are housed in
various sizes of modulars.
Since most of MMMC's customer requirements are to fill temporary space
needs, the Company's marketing emphasis is on rentals rather than sales. MMMC
solicits customers through extensive yellow-page advertising, telemarketing and
direct mail. Customers are encouraged to visit an inventory center to view
different models on display and to see a branch office, which itself is a
working example of a modular application.
Because service is a major competitive factor in the rental of modulars,
MMMC offers quick response to requests for information, assistance in the choice
of a suitable size and floor plan, in-house customization services, rapid
delivery, timely installation and maintenance of its units.
RENTALS
Rental periods range from one month to ten years with a typical rental
period of eighteen months. Most rental agreements provide no purchase options;
and when a rental agreement does provide the customer with a purchase option, it
is generally on terms attractive to MMMC.
The customer is responsible for the costs of insuring the unit,
transporting the unit to the site, preparation of the site, installation of the
unit, dismantle and return delivery of the unit to one of MMMC's three inventory
centers, and certain costs for customization. MMMC maintains the units in good
working condition while on rent. Upon return, the units are inspected for damage
and customers are billed for items considered beyond normal wear and tear. The
units are then refurbished for subsequent use. Refurbishment work can include
floor tile repairs, roof maintenance, cleaning, painting and other cosmetic
repairs.
At December 31, 2000, MMMC had 17,555 new or previously rented modulars
in its rental fleet with an aggregate original cost including accessories of
$261.1 million or an average cost per unit of $14,900. 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. At
December 31, 2000, fleet utilization was 84.9% and average fleet utilization
during 2000 was 82.3%.
SALES
In addition to operating its rental fleet, MMMC sells modulars to
customers. These sales arise out of its marketing efforts for the rental fleet.
Such sales can be of either new units or used units from the rental fleet, which
permits an orderly turnover of older units. During 2000, MMMC's largest sale of
modulars was for new classrooms to a school district for approximately $4.4
million. This sale represented approximately 18% of MMMC's sales, 9% of the
Company's consolidated sales, and less than 3% of the Company's consolidated
revenues.
MMMC provides limited 90-day warranties on used modulars and passes
through manufacturers' one-year warranty on new units. Warranty costs have not
been significant to MMMC's operations to date, and MMMC attributes this to its
commitment to high quality standards and regular maintenance programs.
In addition to MMMC's sales, the Company's subsidiary, Enviroplex,
manufactures and sells portable classrooms to school districts in California
(see "Classroom Sales by Enviroplex" below).
COMPETITION
This section contains statements that constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. See "General" above for cautionary information with respect to such
forward-looking statements.
Competition in the rental and sale of relocatable modular offices is
intense. Many firms are engaged in the rental of modulars, and some have
substantially greater financial resources than MMMC. Significant competitive
factors in the rental business include availability, price, services,
reliability, appearance and functionality of the product. MMMC markets
high-quality, well constructed and attractive modulars. MMMC believes that part
of the strategy for modulars should be to create facilities and infrastructure
capabilities that its competitors cannot easily duplicate. The Company's
facilities and related infrastructure enable it to modify modulars efficiently
and cost effectively to meet its
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customers' needs. Management's goal is to be more responsive at less expense.
Management believes this strategy, together with its emphasis on prompt and
efficient customer service, gives MMMC a competitive advantage. The Company is
determined to offer quick response to requests for information, experienced
assistance for the first-time user, rapid delivery and timely maintenance of its
units. The efficiency and responsiveness continues to be enhanced by the
Company's computer based relational database programs that control its internal
operations. MMMC anticipates strong competition in the future and believes its
process of improvement is ongoing.
CLASSROOM SALES BY ENVIROPLEX
This section contains statements that constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. See "General" above for cautionary information with respect to such
forward-looking statements.
Enviroplex manufactures moment-resistant, rigid steel framed portable
classrooms built to the requirements of the DSA and sells directly to school
districts. The moment-resistant, rigid steel-framed classroom is engineered to
have the structural columns support the weight of the building. This offers the
customer greater design flexibility as to overall classroom size and the
placement of doors and windows. Enviroplex fabricates most of the structural
steel component parts using only mill certified sheet steel. Enviroplex's
standard designs have been engineered for strength and durability using lighter
weight steel. Customers are offered a wide variety of DSA pre-approved classroom
sizes and features with market established pricing, saving them valuable time on
their classroom project. Customization features include restrooms, computer lab
setups, interior offices, cabinetwork and kitchen facilities.
During 2000, Enviroplex's largest sale was for $2.5 million of new
classrooms to a school district. This sale represented 15% of Enviroplex's
sales, 5% of the Company's consolidated sales and less than 2% of the Company's
consolidated revenues.
Competition in the manufacture of DSA classrooms is broad, intense, and
highly competitive. Several manufacturers have greater capacity for production
and have been in business longer than Enviroplex. Larger manufacturers with
greater capacity have a larger appetite for the standard classroom while
Enviroplex caters to schools' requirements for more customized classrooms. The
remaining manufacturers are of a similar size or smaller and do not have the
production capacity nor the financial resources of Enviroplex.
Enviroplex manufactures solid, attractive classrooms. Through value
engineering, Enviroplex has simplified its manufacturing process by changing
materials, determining which components are made in-house versus purchased,
reducing the number of components and increasing the production efficiency at an
overall lower cost without sacrificing quality. Enviroplex's strategy is to
improve the quality and flexibility of its product. Enviroplex understands that
its customers want more than a quality classroom, competitively priced and
delivered on time, and believes its niche is providing customers with choices in
design flexibility and customization. Management believes this strategy gives
Enviroplex a competitive edge.
Enviroplex provides a one-year warranty on equipment manufactured.
Warranty costs have not been significant to Enviroplex's operations to date that
can be attributed to Enviroplex's dedication to manufacturing and delivering a
quality, problem-free product.
Enviroplex purchases raw materials from a variety of suppliers. Each
component part has multiple suppliers. Enviroplex believes the loss of any one
of these suppliers would not have a material adverse affect on its operations.
CLASSROOM RENTALS AND SALES
The rental and sales of modulars to public school districts for use as
portable classrooms, restroom buildings and administrative offices for
kindergarten through grade twelve (K-12) are a significant portion of the
Company's revenues. The following table shows the approximate percentages
schools are of the Company's modular rental and sales revenues, and of its
consolidated rental and sales revenues for the past five years:
SCHOOLS AS A PERCENTAGE OF RENTAL AND SALES REVENUES
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Percentage of: 2000 1999 1998 1997 1996
- -------------- ---- ---- ---- ---- ----
Modular Rental Revenues 47% 48% 44% 45% 40%
Modular Sales Revenues 61% 52% 78% 74% 54%
Consolidated Rental and Sales Revenues 35% 34% 45% 52% 37%
- ------------------------------------------------------------------------------
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The increased modular sales percentage shown for 1998 and 1997 can be
attributed to the Class Size Reduction Program instituted by the state of
California. School districts were given great incentive to reduce class size in
the lower grades from 30 students to no greater than 20 students. This highly
popular program created a great demand for both purchasing and renting classroom
buildings and was essentially implemented by the end of 1999. In 2000, the
increased modular sales percentages resulted from new requirements beyond Class
Size Reduction by school districts.
LEGISLATION
In California (where most of the Company's rentals to public school
districts have occurred), school districts are permitted to purchase only
portable classrooms built to the requirements of the DSA. However, school
districts may rent classrooms that meet either the Department of Housing ("DOH")
or DSA requirements. Prior to 1988 the majority of the classrooms in the
Company's rental fleet were built to the DOH requirements, and since 1988 almost
all new classrooms have been built to the DSA requirements. In 1988, California
adopted a law which limited the term for which school districts may rent
portable classrooms built to DOH standards to three years (under a waiver
process), and also required the school board to indemnify the State against any
claims arising out of the use of such classrooms. During the 1990's additional
legislation was passed extending the use of these DOH classroom buildings under
the waiver process through September 30, 2000.
In 2000, new California legislation was passed allowing for DOH
classroom buildings already in use for classroom purposes as of May 1, 2000 to
be utilized until September 30, 2007, provided various upgrades were made to
their foundation and ceiling systems. School districts have until August 31,
2002 to make the necessary modifications to extend their usage of these
buildings. To the extent that school districts elect not to proceed with
retrofitting these existing buildings on rent and return the equipment, rental
income levels could be impacted negatively. Currently, regulations are in place
that allow for the ongoing use of DOH classrooms from the Company's inventory to
meet shorter term space needs of school districts for periods up to 24 months,
provided they receive a "Temporary Certification" from the DSA. As a
consequence, the tendency is for school districts to rent the DOH classrooms for
shorter periods and to rent the DSA classrooms for longer periods. At December
31, 2000, the net book value of DOH classrooms represented less than 2% of the
total assets of the Company and utilization was at 90.3%.
ELECTRONIC TEST AND MEASUREMENT INSTRUMENTS
DESCRIPTION
The Company's communications and fiber optics rental inventory includes
fiber, telecom, SONET, ATM, broadcast, copper, line simulator, microwave,
network and transmission test equipment. The general-purpose inventory includes
oscilloscopes, amplifiers, spectrum, network and logic analyzers, and CATV,
component measurement, industrial, signal source, microprocessor development and
power source test equipment. The Company also rents electronic instruments from
other rental companies and re-rents the instruments to customers.
At December 31, 2000, the Company had an aggregate cost of electronics
rental inventory and accessories of $92.4 million. Utilization is calculated
each month by dividing the cost of the rental equipment on rent by the total
cost of the rental equipment, excluding accessory equipment. At December 31,
2000 utilization was 63.5%, and the average utilization during 2000 was 61.4%.
The Company rents electronic equipment for a typical rental period of one to six
months at monthly rental rates ranging from approximately 3.0% to 10.0% of the
current manufacturers' list price. The Company depreciates its equipment over 5
to 8 years.
The Company endeavors to keep its equipment fresh and attempts to sell
equipment so that the majority of the inventory is less than five years old. The
Company generally sells used equipment after approximately four years of service
to permit an orderly turnover and replenishment of the electronics inventory. In
2000, approximately 21% of the electronics revenues were derived from sales. The
largest electronics sale during 2000 represented 3% of electronics sales and
less than 1% of the Company's consolidated revenues.
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MARKET
The business of renting electronic test and measurement instruments is
an industry which today has equipment on rent or available for rent in the
United States with an aggregate original cost in excess of a half billion
dollars. While there is a broad customer base for the rental of such
instruments, most rentals are to electronics, communications, network systems,
industrial, research and aerospace companies. The Company markets its electronic
equipment throughout the United States.
The Company believes that customers rent electronic test and measurement
instruments for many reasons. Customers frequently need equipment for short-term
projects, for backup to avoid costly downtime and to evaluate new products.
Delivery times for the purchase of such equipment can be lengthy; thus, renting
allows the customer to obtain the equipment expeditiously. The Company also
believes that a substantial portion of electronic test and measurement
instruments is used for research and development projects where the relative
certainty of rental costs can facilitate cost control and be useful in bidding
for government contracts. Finally, as is true with the rental of any equipment,
renting rather than purchasing may better satisfy the customer's budgetary
constraints.
The industry consists primarily of three major companies. One of these
companies is much larger than the Company, has substantially greater financial
resources and is well established in the industry with a large inventory of
equipment, several branch offices and experienced personnel.
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PRODUCT HIGHLIGHTS
The following table shows the revenue components, percentage of rental
and total revenues, rental equipment (at cost), rental equipment (net book
value), number of relocatable modular offices, year-end and average utilization,
average rental equipment (at cost), annual yield on average rental equipment (at
cost) and gross margin on rental revenues and sales by product line for the past
five years.
PRODUCT HIGHLIGHTS
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(dollar amounts in thousands) YEAR ENDED DECEMBER 31,
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2000 1999 1998 1997 1996
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RELOCATABLE MODULAR OFFICES
(operates under MMMC and Enviroplex)
Revenues
Rental $ 56,779 $ 51,622 $ 47,957 $ 41,514 $ 31,931
Rental Related Services 16,462 12,542 11,007 9,898 8,399
-------- -------- -------- -------- --------
Total Modular Rental Operations 73,241 64,164 58,964 51,412 40,330
-------- -------- -------- -------- --------
Sales -- MMMC 23,831 16,100 23,171 33,522 14,359
Sales -- Enviroplex 16,992 11,150 20,672 21,287 10,206
-------- -------- -------- -------- --------
Total Modular Sales 40,823 27,250 43,843 54,809 24,565
-------- -------- -------- -------- --------
Other 423 500 448 656 885
-------- -------- -------- -------- --------
Total Modular Revenues $114,487 $ 91,914 $103,255 $106,877 $ 65,780
======== ======== ======== ======== ========
Percentage of Rental Revenues 59.8% 65.5% 66.6% 67.3% 65.2%
Percentage of Total Revenues 69.7% 70.7% 76.2% 79.2% 73.9%
Rental Equipment, at cost (year-end) $261,081 $238,449 $216,444 $196,133 $158,377
Rental Equipment, net book
value (year-end) $187,059 $171,166 $156,790 $142,816 $110,014
Number of Units (year-end) 17,555 16,230 15,139 14,240 11,582
Utilization (year-end)(1) 84.9% 80.2% 83.0% 83.0% 78.7%
Average Utilization(1) 82.3% 81.6% 83.1% 81.6% 72.5%
Average Rental Equipment, at cost(2) $238,408 $213,571 $186,865 $161,821 $145,760
Annual Yield on Average Rental Equipment,
at cost 23.8% 24.2% 25.7% 25.7% 21.9%
Gross Margin on Rental Revenues 50.2% 55.3% 56.2% 59.0% 55.4%
Gross Margin on Sales 28.0% 29.5% 30.8% 31.2% 30.7%
ELECTRONIC TEST AND MEASUREMENT INSTRUMENTS
(operates under RenTelco)
Revenues
Rental $ 38,152 $ 27,132 $ 24,010 $ 20,174 $ 17,055
Rental Related Services 723 501 521 380 319
-------- -------- -------- -------- --------
Total Electronics Rental Operations 38,875 27,633 24,531 20,554 17,374
Sales 10,201 9,789 7,201 7,212 5,610
Other 595 626 441 333 241
-------- -------- -------- -------- --------
Total Electronics Revenues $ 49,671 $ 38,048 $ 32,173 $ 28,099 $ 23,225
======== ======== ======== ======== ========
Percentage of Rental Revenues 40.2% 34.5% 33.4% 32.7% 34.8%
Percentage of Total Revenues 30.3% 29.3% 23.8% 20.8% 26.1%
Rental Equipment, at cost (year-end) $ 92,404 $ 72,832 $ 66,573 $ 50,351 $ 43,335
Rental Equipment, net book
value (year-end) $ 60,343 $ 46,012 $ 43,238 $ 31,270 $ 27,279
Utilization (year-end)(1) 63.5% 54.4% 51.5% 52.6% 51.8%
Average Utilization(1) 61.4% 53.8% 54.6% 54.9% 54.9%
Average Rental Equipment, at cost $ 82,401 $ 68,420 $ 56,859 $ 46,483 $ 39,335
Annual Yield on Average Rental Equipment,
at cost 46.3% 39.7% 42.2% 43.4% 43.4%
Gross Margin on Rental Revenues 63.8% 59.5% 61.5% 61.7% 59.4%
Gross Margin on Sales 32.6% 29.7% 32.9% 33.2% 37.3%
TOTAL REVENUES $164,158 $129,962 $135,428 $134,976 $ 89,005
- -----------------------------------------------------------------------------------------------------------
(1) Utilization is calculated each month by dividing the cost of the rental
equipment on rent by the total cost of rental equipment, excluding new
equipment inventory and accessory equipment. Average utilization is
calculated using the average costs for the year.
(2) Average rental equipment, at cost for modulars excludes new equipment
inventory and accessory equipment.
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ITEM 2. PROPERTIES.
The Company currently conducts its operations from five locations.
Inventory centers, at which relocatable modular offices are displayed,
refurbished and stored are located in Livermore, California (San Francisco Bay
Area), Mira Loma, California (Los Angeles Area) and Pasadena, Texas (Houston
Area). These three branches conduct rental and sales operations from
multi-modular offices, serving as working models of the Company's product.
Electronic test and measurement instrument rental and sales operations are
conducted from the Livermore facility and from a facility in Plano, Texas
(Dallas Area). The Company's majority owned subsidiary, Enviroplex, manufactures
portable classrooms from its facility in Stockton, California (San Francisco Bay
Area).
During 2000, the Company developed a 39,110 square foot office and
warehouse facility on 2.6 acres of land in Plano, Texas. RenTelco relocated its
operations from Richardson, Texas to the new Plano facility in September 2000
and currently occupies half of the constructed space. The Company has subleased
the remaining half of the facility on a five-year lease beginning in March 2001.
The following table sets forth for each property the total acres, square
footage of office space, square footage of warehouse space and total square
footage at December 31, 2000. The Company owns all properties.
FACILITIES
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Square Footage
----------- --------------------------------
Total Acres Office Warehouse Total
----------- ------ --------- -----
CORPORATE OFFICES
Livermore, California(1) -- 9,840 -- 9,840
RELOCATABLE MODULAR OFFICES
Livermore, California(1),(2) 139.7 7,680 53,440 61,120
Mira Loma, California 78.5 7,920 45,440 53,360
Pasadena, Texas 50.0 3,868 24,000 27,868
ELECTRONIC TEST AND MEASUREMENT INSTRUMENTS
Livermore, California(1) -- 8,400 7,920 16,320
Plano, Texas(3) 2.6 28,337(3) 10,773 39,110
ENVIROPLEX, INC
Stockton, California 13.9 3,365 102,050 105,415
OTHER
Corona, California(4) 10.4 -- -- --
Arlington, Texas(5) 1.8 1,680 2,387 4,067
----- ------- ------- -------
296.9 71,090 246,010 317,100
===== ======= ======= =======
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(1) The modular office complex in Livermore, California is 33,840 square feet
and includes the Corporate offices and both modulars and electronics branch
operations.
(2) Of the 139.7 acres owned, 2.2 acres with an 8,000 square foot warehouse
facility is rented out to a third party through March, 2008, 2.2 acres to a
third party through October, 2005 and 35.8 acres are undeveloped.
(3) The office and warehouse facility was completed and occupied October, 2000.
Of the 28,337 square feet of office space, 19,152 square feet was rented to
a third party through February, 2006.
(4) Facility is for sale or lease.
(5) Facility rented out to a third party on a month to month basis.
ITEM 3. LEGAL PROCEEDINGS.
McGrath RentCorp has been named along with a number of other companies
as a defendant in a lawsuit alleging a failure to warn about certain chemicals
associated with building materials used in portable classrooms in California.
The lawsuit was filed by As You Sow, a corporation that has served as a
plaintiff in numerous lawsuits alleging similar failures to warn. The Company
and its subsidiary Enviroplex, Inc. are two of nineteen named defendants, all of
whom are involved in the portable classroom industry in the State of California.
While the plaintiff alleges that materials used to construct portable classrooms
require certain warnings, there is no allegation that any individual has
suffered any injury or harm. The plaintiff does not allege that any particular
classroom leased, sold or manufactured by the Company or Enviroplex has exposed
anyone to any such chemicals; and the Company believes that in fact none of the
portable classrooms it leases or sells and none of the portable classrooms
manufactured by Enviroplex pose any health risk. The
9
10
Company believes the lawsuit is without merit, and it intends to defend against
the suit vigorously. The lawsuit was filed in the Superior Court of the State of
California for the County of San Francisco on July 7, 2000. The complaint seeks
a court injunction ordering the defendants to post warning signs in portable
classrooms, recovery of a fine of $2,500 for each failure to post a warning sign
where required, and recovery of monies the defendants may have made by selling
or leasing classrooms without appropriate warnings. Plaintiff also asks for
payment of attorneys' fees. The Company has entered into an agreement to settle
this lawsuit on terms that it believes will have no material adverse impact on
its operations or financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's common stock is traded in the NASDAQ National Market
System under the symbol "MGRC".
The market price (as quoted by NASDAQ) and cash dividends declared, per
share of the Company's common stock, by calendar quarter for the past two years
were as follows:
STOCK ACTIVITY
- ----------------------------------------------------------------------------------------------------
2000 1999
----------------------------------------- -----------------------------------------
4Q 3Q 2Q 1Q 4Q 3Q 2Q 1Q
--------- -------- --------- -------- --------- -------- --------- --------
High $19.88 $19.88 $18.13 $17.88 $19.00 $20.38 $20.50 $22.50
Low $15.00 $15.00 $14.00 $14.88 $15.88 $17.63 $17.13 $16.75
Close $19.38 $19.00 $17.00 $15.88 $17.50 $18.00 $20.00 $18.25
Dividends Declared $0.14 $0.14 $0.14 $0.14 $0.12 $0.12 $0.12 $0.12
- ----------------------------------------------------------------------------------------------------
As of March 16, 2001, the Company's common stock was held by
approximately 105 shareholders of record, which does not include shareholders
whose shares are held in street or nominee name. The Company believes that when
holders in street or nominee name are added, the number of holders of the
Company's common stock exceeds 500.
The Company has declared a quarterly dividend on its common stock every
quarter since 1990. Subject to its continued profitability and favorable cash
flow, the Company intends to continue the payment of quarterly dividends.
In March 2001, the Company issued an aggregate of 4,948 shares of its
common stock to Dennis C. Kakures and Thomas J. Sauer, both officers of the
Company, pursuant to the Company's Long-Term Stock Bonus Plan (as described in
the Company's Proxy Statement). Under the same Plan, the Company had issued to
the same two officers an aggregate of 20,920 shares of common stock in March
2000, 33,486 shares of common stock in March 1999, and 36,840 shares of common
stock in April 1998. These issuances were exempt from the registration
requirements of the Securities Act of 1933 by virtue of section 4(2) thereof and
Regulation 230.506.
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11
ITEM 6. SELECTED FINANCIAL DATA.
The following table summarizes the Company's selected financial data
for the five years ended December 31, 2000 and should be read in conjunction
with the more detailed Consolidated Financial Statements and related notes
reported in Item 8.
SELECTED CONSOLIDATED FINANCIAL DATA
- ---------------------------------------------------------------------------------------------------------------------------
(dollar and share amounts in thousands, except
per share data) Year Ended December 31,
----------------------------------------------------------------------
2000 1999 1998 1997 1996
--------- --------- --------- --------- ---------
Operations Data
Revenues
Rental $ 94,931 $ 78,754 $ 71,967 $ 61,688 $ 48,986
Rental Related Services 17,185 13,043 11,528 10,278 8,718
--------- --------- --------- --------- ---------
Rental Operations 112,116 91,797 83,495 71,966 57,704
Sales 51,024 37,039 51,044 62,021 30,175
Other 1,018 1,126 889 989 1,126
--------- --------- --------- --------- ---------
Total Revenues 164,158 129,962 135,428 134,976 89,005
--------- --------- --------- --------- ---------
Costs and Expenses
Direct Costs of Rental Operations
Depreciation 23,850 19,780 16,862 14,358 12,456
Rental Related Services 9,304 7,153 6,531 6,287 5,515
Other 18,250 14,284 13,390 10,375 8,703
--------- --------- --------- --------- ---------
Total Direct Costs of Rental Operations 51,404 41,217 36,783 31,020 26,674
Cost of Sales 36,256 26,078 35,189 42,550 20,532
--------- --------- --------- --------- ---------
Total Costs 87,660 67,295 71,972 73,570 47,206
--------- --------- --------- --------- ---------
Gross Margin 76,498 62,667 63,456 61,406 41,799
Selling and Administrative 19,982 17,103 16,220 15,957 13,147
--------- --------- --------- --------- ---------
Income from Operations 56,516 45,564 47,236 45,449 28,652
Interest 8,840 6,606 6,326 4,070 2,887
--------- --------- --------- --------- ---------
Income before Provision for Income Taxes 47,676 38,958 40,910 41,379 25,765
Provision for Income Taxes 19,762 14,874 16,010 16,323 9,885
--------- --------- --------- --------- ---------
Income before Minority Interest 27,914 24,084 24,900 25,056 15,880
Minority Interest in Income of Subsidiary 670 251 1,005 1,011 358
--------- --------- --------- --------- ---------
Income before Effect of Accounting Change 27,244 23,833 23,895 24,045 15,522
Cumulative Effect of Accounting Change,
net of tax(1) -- (1,367) -- -- --
--------- --------- --------- --------- ---------
Net Income $ 27,244 $ 22,466 $ 23,895 $ 24,045 $ 15,522
========= ========= ========= ========= =========
Earnings Per Share:
Basic
Income before Cumulative Effect of
Accounting Change $ 2.21 $ 1.80 $ 1.69 $ 1.60 $ 1.03
Cumulative Effect of Accounting Change, net
of tax(1) -- (0.10) -- -- -
--------- --------- --------- --------- ---------
Net Income $ 2.21 $ 1.70 $ 1.69 $ 1.60 $ 1.03
========= ========= ========= ========= =========
Diluted
Income before Cumulative Effect of $ 2.19 $ 1.78 $ 1.67 $ 1.58 $ 1.01
Accounting Change
Cumulative Effect of Accounting Change,
net of tax(1) -- (0.10) -- -- -
--------- --------- --------- --------- ---------
Net Income $ 2.19 $ 1.68 $ 1.67 1.58 $ 1.01
========= ========= ========= ========= =========
Shares Used in Per Share Calculation:
Basic 12,334 13,235 14,163 14,982 15,102
Diluted 12,428 13,383 14,349 15,181 15,306
Cash Dividends Declared Per Common Share $ 0.56 $ 0.48 $ 0.40 $ 0.32 $ 0.28
Pro Forma Amounts Assuming Change had been in
effect during 1998, 1997 and 1996
Net Income $ 27,244 $ 23,833 $ 23,697 $ 23,816 $ 15,400
Earnings Per Share - Basic $ 2.21 $ 1.80 $ 1.67 $ 1.59 $ 1.02
Earnings Per Share - Diluted $ 2.19 $ 1.78 $ 1.65 $ 1.57 $ 1.01
- ---------------------------------------------------------------------------------------------------------------------------
11
12
SELECTED CONSOLIDATED FINANCIAL DATA (continued)
- ------------------------------------------------------------------------------------------------------------
(dollar and share amounts in thousands,
except per share data) Year Ended December 31,
--------------------------------------------------------------------
2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
Balance Sheet Data (at period end)
Rental Equipment, at cost $353,485 $311,281 $282,987 $246,484 $201,712
Rental Equipment, net $247,402 $217,178 $200,028 $174,086 $137,292
Total Assets $357,246 $297,722 $278,676 $252,392 $200,035
Notes Payable $126,876 $110,300 $ 97,000 $ 82,000 $ 53,850
Shareholders' Equity $108,958 $ 95,403 $105,394 $ 98,646 $ 88,808
Shares Issued and Outstanding 12,125 12,546 13,970 14,522 14,820
Book Value Per Share $ 8.99 $ 7.60 $ 7.54 $ 6.79 $ 5.99
Debt (Total Liabilities) to Equity 2.28 2.12 1.64 1.56 1.25
Debt (Notes Payable) to Equity 1.16 1.16 0.92 0.83 0.61
Return on Average Equity 26.7% 22.7% 24.0% 24.5% 18.0%
- -------------------------------------------------------------------------------------------------------------
(1) See "Management's Discussion and Analysis of Financial Condition and Results
of Operations - Fiscal Years 1999 and 1998" below for a discussion of the
change in accounting method for rental revenue recognition in response to
SAB No. 101.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
RESULT OF OPERATIONS
GENERAL
Revenues are derived primarily from the rental of relocatable modular
offices and electronic test and measurement instruments. The Company has
expanded the rental inventory of relocatable modular offices and electronic
instruments. This expansion has been funded through internal cash flow, private
placement of long-term debt and conventional bank financing.
The major portion of the Company's revenue is derived from rental
operations comprising approximately 68% of consolidated revenues in 2000 and 67%
of consolidated revenues for the three years ended December 31, 2000. Over the
past three years modulars comprised 68% of the cumulative rental operations, and
electronics comprised 32% of the cumulative rental operations.
The Company sells both modular and electronic equipment that is new,
previously available for rent, or manufactured by its majority owned subsidiary,
Enviroplex. In the case of some modular equipment, the Company acts as a dealer
of relocatable modular offices and is licensed as a dealer by governmental
agencies in California and Texas. Revenues from sales of both modular and
electronic equipment have comprised approximately 31% of the Company's
consolidated revenues in 2000 and 32% of the Company's consolidated revenues
over the last three years. During these three years, modular sales represented
80% and electronic sales represented 20%.
The rental and sale of modulars to public school districts is a
significant part of the Company's business. School business comprised 35%, 34%
and 45% of the Company's consolidated rental and sales revenues for 2000, 1999
and 1998. Sales revenues declined significantly in 1999 and 1998 as school
districts' demand for classrooms declined as school districts finished
implementing the Class Size Reduction Program introduced by the state of
California in 1996. (See "Business - Relocatable Modular Offices - Classroom
Rentals and Sales" above.)
12
13
The following table sets forth for the periods indicated the results of
operations as a percentage of revenues and the percentage of changes in such
items as compared to the indicated prior period:
- -------------------------------------------------------------------------------------------------------------
Percent of Revenues Percent Change
------------------------------------ --------------------
Three Year Ended December 31,
Years 2000 over 1999 over
2000-1998 2000 1999 1998 1999 1998
------------------------------------ --------------------
Revenues
Rental 57% 58% 61% 53% 21% 9%
Rental Related Services 10 10 10 9 32 13
--- --- --- ---
Rental Operations 67 68 71 62 22 10
Sales 32 31 28 38 38 (27)
Other 1 1 1 nm nm nm
--- --- --- ---
Total Revenues 100% 100% 100% 100% 26% (4)%
--- --- --- ---
Costs and Expenses
Direct Costs of Rental Operations
Depreciation 14 15 15 12 21 17
Rental Related Services 5 6 6 5 30 10
Other 11 10 11 10 28 7
--- --- --- ---
Total Direct Costs of Rental Operations 30 31 32 27 25 12
Cost of Sales 23 22 20 26 39 (26)
--- --- --- ---
Total Costs 53 53 52 53 30 (6)
--- --- --- ---
Gross Margin 47 47 48 47 22 (1)
Selling and Administrative 12 13 13 12 17 5
--- --- --- ---
Income from Operations 35 34 35 35 24 (4)
Interest 5 5 5 5 34 4
--- --- --- ---
Income before Provision for Income Taxes 30 29 30 30 22 (5)
Provision for Income Taxes 12 12 11 12 33 (7)
--- --- --- ---
Income before Minority Interest 18 17 19 18 16 (3)
Minority Interest in Income of Subsidiary 1 nm 1 nm nm nm
--- --- --- ---
Income before Effect of Accounting Change 17 17 18 18 14 nm
Cumulative Effect of Accounting Change, net of nm nm 1 nm nm nm
tax
--- --- --- --- --- ---
Net Income 17% 17% 17% 18% 21% (6%)
- ------------------------------------------------------------------------------------------------------------
nm = not meaningful
FISCAL YEARS 2000 AND 1999
This section contains statements that constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. See "General" above for cautionary information with respect to such
forward-looking statements.
Rental revenues increased $16.2 million (21%) over 1999, with MMMC
contributing $5.2 million and RenTelco contributing $11.0 million of the
increase. As of December 31, 2000, rental equipment on rent increased for MMMC
by $30.7 million and for RenTelco by $19.0 million compared to a year earlier.
Average utilization for modulars, excluding new equipment not previously rented,
increased from 81.6% in 1999 to 82.3% in 2000 while the annual yield declined
slightly for modulars from 24.2% to 23.8% as a result of lower rental rates due
to mix of business activity. Average utilization for electronics increased
dramatically from 53.8% in 1999 to 61.4% in 2000 with electronics annual yield
increasing from 39.7% in 1999 to 46.3% in 2000 resulting from increased market
demand.
Depreciation on rental equipment in 2000 increased $4.1 million (21%)
over 1999 due to additional rental equipment purchased during 2000 and 1999. The
average modular rental equipment, at cost, increased $23.9 million (11%) and
average electronics rental equipment, at cost, increased $14.0 million (20%)
over 1999. Other direct costs of rental operations increased $4.0 million (28%)
over 1999 primarily due to the $1.9 million of impairment losses recorded on
rental equipment that was beyond economic repair and increased maintenance and
repair expenses of the modular fleet. Consolidated gross margin on rents
declined slightly from 56.8% in 1999 to 55.7% in 2000.
13
14
Rental related services revenues in 2000 increased $4.1 million (32%)
over 1999 as a result of a higher volume of modular equipment movements and site
requirements in 2000. Gross margins on these services increased slightly from
45.2% in 1999 to 45.9% in 2000.
Sales in 2000 increased $14.0 million (38%) over 1999 as a result of
three significant sales by MMMC accounting for 56% of the increase and a $5.8
million increase in sales by Enviroplex to school districts. During 2000, the
Company's largest sale was recorded during the third and fourth quarter for new
classrooms to a school district for approximately $4.4 million and represented
9% of its sales. Sales continue to occur routinely as a normal part of the
Company's rental business; however, these sales can fluctuate from quarter to
quarter and year to year depending on customer demands, requirements and
funding. Consolidated gross margin on sales declined slightly from 29.6% in 1999
to 28.9% in 2000.
Enviroplex's backlog of orders as of December 31, 2000 and 1999 was $6.8
million and $12.6 million, respectively. Typically, in the California classroom
market, booking activity for the first half of the year provides the most
meaningful information towards determining order levels to be produced for the
entire year. (Backlog is not significant in MMMC's modular business or in
RenTelco's electronic business.)
Selling and administrative expenses in 2000 increased $2.9 million (17%)
over 1999. The increase is due primarily to increases in salaries, incentive and
performance bonuses, benefits and hiring costs during 2000. As a percentage of
revenues, selling and administrative expenses for 2000 remained consistent with
1999.
Interest expense in 2000 increased $2.2 million (34%) over 1999 as a
result of 17% higher debt levels and 15% higher average interest rates over a
year earlier. During 2000, the higher debt levels resulted from capital
investments other than rental equipment, payment of dividends and repurchases of
common stock.
Income before provision for taxes in 2000 increased $8.7 million (22%)
from 1999 and net income before effect of the accounting change increased $3.4
million (14%). The lower percentage increase for net income before effect of the
accounting change is due to a higher effective tax rate of 41.5% in 2000 as
compared to 38.1% in 1999. The higher effective tax rate in 2000 resulted from
recording a true-up of the state income tax accrual rate.
Net income increased 21% from $22.5 million in 1999 to $27.2 million in
2000 with earnings per diluted share increasing 30% from $1.68 per diluted share
in 1999 to $2.19 per diluted share in 2000. Last year's comparative net income
included a one-time accounting charge of $1.4 million or $0.10 per diluted
share. Excluding the impact of the one-time accounting charge, net income for
1999 would have been $23.8 million or $1.78 per diluted share resulting in
comparative net income increasing 14% and diluted earnings per share increasing
23% in 2000.
FISCAL YEARS 1999 AND 1998
As anticipated, during 1999 increased revenues from rental operations
significantly offset the decline in sales revenues. However, net income for 1999
was reduced by the impact of both a noncash pre-tax compensation charge of
$885,000, as well as a one-time, noncash, after-tax charge of $1.4 million
reflecting the cumulative effect through December 31, 1998 of the Company's
change in accounting method for rental revenues as of January 1, 1999. After
considering the impact of these two charges, net income for 1999 was $22.5
million, or $1.68 per diluted share compared to the prior year's reported net
income of $23.9 million, or $1.67 per diluted share. Excluding the impact of
these two charges, net income in 1999 would have been $24.4 million, or $1.82
per diluted share. Assuming this accounting method had been in effect in 1998,
net income for 1998 would have been $23.7 million, or $1.65 per diluted share,
and comparative earnings per diluted share would have increased 10% in 1999 as a
result of higher earnings and fewer outstanding shares.
Rental revenue is recognized under the "operating method" of accounting for the
majority of leases. Effective January 1, 1999, rental revenue was recognized
ratably over the month on a daily basis. Rental billings for periods extending
beyond the month end are recorded as deferred income. In prior years, only
rental billings extending beyond a one-month period were recorded as deferred
income. The new method of recognizing revenue was adopted in response to the
Security and Exchange Commission's Staff Accounting Bulletin (SAB) No. 101,
"Revenue Recognition." The effect was reported as a change in accounting method
in accordance with Accounting Principles Board Opinion ("APB")
14
15
No. 20, "Accounting Changes." The cumulative effect of changing to a new method
of accounting effective January 1, 1999 was to decrease net income by $1.4
million (net of taxes of $883,000) or $0.10 per diluted share. The pro forma
amounts shown on the consolidated statements of income have been adjusted as if
the new method of revenue recognition had been in effect for all periods
presented.
Rental revenues increased $6.8 million (9%) over 1998, with MMMC
contributing $3.7 million and RenTelco contributing $3.1 million of the
increase. As of December 31, 1999, rental equipment on rent increased for MMMC
by $16.6 million and for RenTelco by $5.3 million compared to a year earlier.
Even though average utilization for modulars, excluding new equipment not
previously rented, decreased from 83.1% in 1998 to 81.6% in 1999, the annual
yield declined for modulars from 25.7% to 24.2% as a result of lower rental
rates due to competition. Average utilization for electronics declined slightly
from 54.6% in 1998 to 53.8% in 1999 with electronics annual yield declining from
42.2% in 1998 to 39.7% in 1999 resulting primarily from competitive pricing
pressures.
Rental related services revenues in 1999 increased $1.5 million (13%),
over 1998 as a result of a higher volume of modular equipment movements and site
requirements in 1999. Gross margins on these services increased from 43.4% in
1998 to 45.2% in 1999.
Sales in 1999 declined $14 million (27%) primarily due to a reduction in
sales of manufactured classrooms by Enviroplex to school districts from the high
levels in 1998 caused by California's Class Size Reduction Program. Further,
increased business levels for Enviroplex anticipated from the $9.2 billion
California bond measure, which passed in November 1998, did not materialize in
1999. The single largest sale in 1999 was by Enviroplex for $1.6 million of new
classrooms to a school district. Sales occur routinely as a normal part of the
Company's rental business; however, these sales fluctuate from quarter to
quarter and year to year depending on customer demands, requirements and
funding. Consolidated gross margin on sales declined slightly from 31.1% in 1998
to 29.6% in 1999 due to the lower margin classroom projects sold during 1999.
Enviroplex's backlog of orders as of December 31, 1999 and 1998 was
$12.6 million and $1.5 million, respectively. (Backlog is not significant in
MMMC's modular business or in RenTelco's electronic business.)
Depreciation on rental equipment in 1999 increased $2.9 million (17%)
over 1998 due to additional rental equipment purchased during 1999. The average
modular rental equipment, at cost, increased $22.3 million (11%) and average
electronics rental equipment, at cost, increased $11.6 million (20%) over 1998.
Other direct costs of rental operations increased $894,000 (7%) over 1998
primarily due to increased maintenance and repair expenses of the modular fleet.
Additionally, during 1998 as in the prior year, a significant number of school
customers opted to include upfront charges in the rental rate resulting in
higher amortization expense of these related upfront costs over the lease term
in subsequent periods.
Selling and administrative expenses in 1999 increased $883,000 (5%) over
1998. During 1999, the Company repurchased 80,000 shares of stock at $18.00 per
share from an employee who had acquired the stock at $6.94 per share through the
exercise of a stock option, resulting in the recognition of a noncash
compensation expense of $885,000.
Interest expense in 1999 increased $280,000 (4%) over 1998 as a result
of higher average borrowing levels in 1999 offset by a lower weighted average
interest rate. The debt increase funded part of the significant rental equipment
purchases made during 1999.
Income before provision for taxes in 1999 decreased $2.0 million (5%)
from 1998 while net income before effect of the accounting change only decreased
$62,000 (less than 1%) from 1998. The lower percentage decrease for net income
before effect of the accounting change is due to the decrease in the minority
interest in income of Enviroplex combined with a lower effective tax rate in
1999 of 38.1% compared to 39.1% in 1998 as more business is derived outside of
California.
15
16
LIQUIDITY AND CAPITAL RESOURCES
This section contains statements that constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. See "General" above for cautionary information with respect to such
forward-looking statements.
The Company's rental businesses are capital intensive, with significant
capital expenditures required to maintain and grow the rental assets. During the
last three years, the Company has financed its working capital and capital
expenditure requirements through cash flow from operations, proceeds from the
sale of rental equipment, the private placement of long-term debt and from bank
borrowings. As the following table indicates, cash flow provided by operating
activities and proceeds from sales of rental equipment have been sufficient to
fund the net rental asset growth of $107.0 million in the past three years.
FUNDING OF RENTAL ASSET GROWTH
- -------------------------------------------------------------------------------------------------
(amounts in thousands) Year Ended December 31, Three
------------------------------- Year
2000 1999 1998 Totals
------- ------- ------- --------
Cash Provided by Operating Activities $49,966 $53,235 $41,967 $145,168
Proceeds from the Sale of Rental Equipment $18,380 $16,352 $13,759 $ 48,491
Total Cash Available for Purchase of Rental $68,346 $69,587 $55,726 $193,659
Notes Payable Increase $16,576 $13,300 $15,000 $ 44,876
Purchase of Rental Equipment $67,389 $47,310 $51,159 $165,858
Rental Equipment, at cost, Increase $42,204 $28,294 $36,503 $107,001
- -------------------------------------------------------------------------------------------------
In addition to increasing its rental assets, the Company has invested in
other capital expenditures of $3.4 million in 2000, $2.3 million in 1999 and
$1.9 million in 1998, and has used significant cash to provide returns to its
shareholders, both in the form of cash dividends and by stock repurchases. The
Company has made purchases of shares of its common stock from time to time in
the over-the-counter market (NASDAQ) and/or through privately negotiated, large
block transactions under an authorization of the Board of Directors. Shares
repurchased by the Company are canceled and returned to the status of authorized
but unissued stock. As of March 16, 2001, 805,800 shares remain authorized for
repurchase. The following table summarizes the dividends paid and the
repurchases of the Company's common stock during the past three years.
DIVIDEND AND REPURCHASE SUMMARY
- ------------------------------------------------------------------------------
(amounts in thousands, except Year Ended December 31,
per share data) --------------------------------- Three Year
2000 1999 1998 Totals
------- ------- ------- -------
Cash Dividends Paid $ 6,675 $ 6,134 $ 5,386 $18,195
Shares Repurchased 451 1,550 620 2,621
Average Price Per Share $ 16.33 $ 18.21 $ 19.77 $ 18.25
Aggregate Purchase Price $ 7,364 $28,212 $12,247 $47,823
Total Cash Returned to
Shareholders $14,039 $34,346 $17,633 $66,018
- ------------------------------------------------------------------------------
As the Company's assets have grown, it has been able to negotiate
increases in the borrowing limit under its general bank line of credit, which
limit is currently $120.0 million. The Company increased its borrowings under
this line by $16.6 million during the year, and at December 31, 2000, the
outstanding borrowings under this line were $86.9 million. In addition to the
$120.0 million line of credit, the Company has a $5.0 million committed line of
credit facility related to its cash management services. The Company had a total
liabilities to equity ratio of 2.28 to 1 and 2.12 to 1 as of December 31, 2000
and 1999, respectively; and the debt (notes payable) to equity ratio was 1.16 to
1 at December 31, 2000 and 1999. Although no assurance can be given, the Company
believes it will continue to be able to negotiate higher limits on its general
bank lines of credit adequate to meet capital requirements not otherwise met by
operational cash flows and long term debt.
16
17
In July 1998, the Company completed a private placement of $40.0 million
of 6.44% Senior Notes due in 2005. Interest on the notes is due semi-annually in
arrears and the principal is due in five equal installments commencing on July
15, 2001 (and thus, the outstanding balance at December 31, 2000, was $40.0
million).
Please see the Company's Consolidated Statements of Cash Flows on page
22 for a more detailed presentation of the sources and uses of the Company's
cash.
The Company does not have any material commitments or obligations
requiring the expenditure of cash in the future inconsistent with its
expenditures in the periods reported herein. The Company believes that its needs
for working capital and capital expenditures through 2001 and beyond will be
adequately met by operational cash flow, proceeds from sale of rental equipment,
and bank borrowings. The Company believes that it has the ability to reduce
materially the amount of cash it uses to purchase rental equipment, pay
dividends and repurchase its common stock in the future if a need to conserve
cash should arise unexpectedly.
MARKET RISK
This section contains statements that constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. See "General" above for cautionary information with respect to such
forward-looking statements.
The Company currently has no material derivative financial instruments
which expose the Company to significant market risk. The Company is exposed to
cash flow and fair value risk due to changes in interest rates with respect to
its notes payable. The table below presents principal cash flows and related
weighted average interest rates of the Company's notes payable at December 31,
2000 by expected maturity dates. Weighted average variable rates are based on
implied forward rates in the yield curve at the reporting date.
- ---------------------------------------------------------------------------------------------
(dollar amounts in thousands)
2001 2002 2003 2004 2005 Total Fair Value
------ ------ ------- ------ ------ ------ ----------
Fixed Rate $ 8,000 $8,000 $ 8,000 $8,000 $8,000 $40,000 $40,000
Average Interest
Rate 6.44% 6.44% 6.44% 6.44% 6.44% 6.44%
Variable Rate $21,719 $43,438 $21,719 $ -- $ -- $86,876 $86,876
Average Interest
Rate 7.62% 7.62% 7.62% -- -- 7.62%
- ---------------------------------------------------------------------------------------------
IMPACT OF INFLATION
Although the Company cannot precisely determine the effect of inflation,
from time to time it has experienced increases in costs of rental equipment,
manufacturing costs, operating expenses and interest. Because most of its
rentals are relatively short term, the Company has generally been able to pass
on such increased costs through increases in rental rates and selling prices.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEX PAGE
- ----- ----
Report of Independent Public Accountants 18
Consolidated Financial Statements
Consolidated Statements of Income for the Years Ended December 31, 2000,
1999 and 1998 19
Consolidated Balance Sheets as of December 31, 2000
and 1999 20
Consolidated Statements of Shareholders' Equity for the Years Ended
December 31, 2000, 1999 and 1998 21
Consolidated Statements of Cash Flows
for the Years Ended December 31, 2000, 1999 and 1998 22
Notes to Consolidated Financial Statements 23
17
18
Report of Independent Public Accountants
- -------------------------------------------------------------------------------
To the Shareholders and Board of Directors of McGrath RentCorp:
We have audited the accompanying consolidated balance sheets of McGrath
RentCorp (a California corporation) and subsidiary as of December 31, 2000 and
1999, and the related consolidated statements of income, shareholders' equity
and cash flows for each of the three years in the period ended December 31,
2000. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatements. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of McGrath
RentCorp as of December 31, 2000 and 1999, and the results of its operations and
its cash flows for each of the three years in the period ended December 31,
2000, in conformity with accounting principles generally accepted in the United
States.
As explained in Note 2 to the consolidated financial statements, the
Company changed its method of accounting for rental revenue effective January 1,
1999 whereby all rental revenues are recognized ratably over the month on a
daily basis.
San Francisco, California
February 9, 2001 ARTHUR ANDERSEN LLP
18
19
MCGRATH RENTCORP
CONSOLIDATED STATEMENTS OF INCOME
- ------------------------------------------------------------------------------------------------------
Year Ended December 31,
----------------------------------------
(in thousands, except per share amounts) 2000 1999 1998
- ------------------------------------------------------------------------------------------------------
REVENUES
Rental $ 94,931 $ 78,754 $ 71,967
Rental Related Services 17,185 13,043 11,528
--------- --------- ---------
Rental Operations 112,116 91,797 83,495
Sales 51,024 37,039 51,044
Other 1,018 1,126 889
--------- --------- ---------
Total Revenues 164,158 129,962 135,428
--------- --------- ---------
COSTS AND EXPENSES
Direct Costs of Rental Operations
Depreciation 23,850 19,780 16,862
Rental Related Services 9,304 7,153 6,531
Other 18,250 14,284 13,390
--------- --------- ---------
Total Direct Costs of Rental Operations 51,404 41,217 36,783
Cost of Sales 36,256 26,078 35,189
--------- --------- ---------
Total Costs 87,660 67,295 71,972
--------- --------- ---------
Gross Margin 76,498 62,667 63,456
Selling and Administrative 19,982 17,103 16,220
--------- --------- ---------
Income from Operations 56,516 45,564 47,236
Interest 8,840 6,606 6,326
--------- --------- ---------
Income before Provision for Income Taxes 47,676 38,958 40,910
Provision for Income Taxes 19,762 14,874 16,010
--------- --------- ---------
Income before Minority Interest 27,914 24,084 24,900
Minority Interest in Income of Subsidiary 670 251 1,005
--------- --------- ---------
Income before Effect of Accounting Change 27,244 23,833 23,895
Cumulative Effect of Accounting Change, net of tax
benefit of $883 -- (1,367) --
--------- --------- ---------
Net Income $ 27,244 $ 22,466 $ 23,895
========= ========= =========
Earnings Per Share:
Basic
Income before cumulative effect of accounting change $ 2.21 $ 1.80 $ 1.69
Cumulative effect of accounting change, net of tax -- (0.10) --
--------- --------- ---------
Net Income $ 2.21 $ 1.70 $ 1.69
========= ========= =========
Diluted
Income before cumulative effect of accounting change $ 2.19 $ 1.78 $ 1.67
Cumulative effect of accounting change, net of tax -- (0.10) --
--------- --------- ---------
Net Income $ 2.19 $ 1.68 $ 1.67
========= ========= =========
Shares Used in Per Share Calculation:
Basic 12,334 13,235 14,163
Diluted 12,428 13,383 14,349
Pro Forma Amounts Assuming Accounting Change had been in
effect during 1998
Net Income $ 27,244 $ 23,833 $ 23,697
Earnings Per Share - Basic $ 2.21 $ 1.80 $ 1.67
Earnings Per Share - Diluted $ 2.19 $ 1.78 $ 1.65
- ------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial
statements.
19
20
MCGRATH RENTCORP
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------------
December 31,
----------------------------
(in thousands) 2000 1999
- --------------------------------------------------------------------------------------
ASSETS
Cash $ 643 $ 490
Accounts Receivable, less allowance for doubtful
accounts of $650 in 2000 and 1999 45,687 25,095
Rental Equipment, at cost:
Relocatable Modular Offices 261,081 238,449
Electronic Test Instruments 92,404 72,832
--------- ---------
353,485 311,281
Less Accumulated Depreciation (106,083) (94,103)
--------- ---------
Rental Equipment, net 247,402 217,178
--------- ---------
Land, at cost 19,303 19,303
Buildings, Land Improvements, Equipment and Furniture,
at cost, less accumulated depreciation of $6,815
in 2000 and $5,116 in 1999 33,233 31,668
Prepaid Expenses and Other Assets 10,978 3,988
--------- ---------
Total Assets $ 357,246 $ 297,722
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Notes Payable $ 126,876 $ 110,300
Accounts Payable and Accrued Liabilities 37,012 24,811
Deferred Income 19,241 9,511
Minority Interest in Subsidiary 3,506 2,836
Deferred Income Taxes 61,653 54,861
--------- ---------
Total Liabilities 248,288 202,319
--------- ---------
Shareholders' Equity:
Common Stock, no par value --
Authorized -- 40,000 shares
Issued and Outstanding -- 12,125 shares in
2000 and 12,546 shares in 1999 8,971 8,755
Retained Earnings 99,987 86,648
--------- ---------
Total Shareholders' Equity 108,958 95,403
--------- ---------
Total Liabilities and
Shareholders' Equity $ 357,246 $ 297,722
========= =========
- --------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial
statements.
20
21
MCGRATH RENTCORP
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
- ------------------------------------------------------------------------------------------------------
Common Stock Total
--------------------- Retained Shareholders'
(in thousands, except per share amounts) Shares Amount Earnings Equity
- ------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1997 14,522 $ 7,757 $ 90,889 $ 98,646
Net Income -- -- 23,895 23,895
Repurchase of Common Stock (620) (340) (11,907) (12,247)
Noncash Compensation 37 485 -- 485
Exercise of Stock Options 31 236 -- 236
Dividends Declared of $0.40 Per Share -- -- (5,621) (5,621)
- ------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1998 13,970 8,138 97,256 105,394
Net Income -- -- 22,466 22,466
Repurchase of Common Stock (1,550) (1,381) (26,831) (28,212)
Noncash Compensation 35 1,343 -- 1,343
Exercise of Stock Options 91 655 -- 655
Dividends Declared of $0.48 Per Share -- -- (6,243) (6,243)
- ------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1999 12,546 8,755 86,648 95,403
Net Income -- -- 27,244 27,244
Repurchase of Common Stock (451) (327) (7,037) (7,364)
Noncash Compensation 20 454 -- 454
Exercise of Stock Options 10 89 -- 89
Dividends Declared of $0.56 Per Share -- -- (6,868) (6,868)
- ------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 2000 12,125 $8,971 $99,987 $108,958
- ------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial
statements.
21
22
MCGRATH RENTCORP
CONSOLIDATED STATEMENTS OF CASH FLOWS
- ------------------------------------------------------------------------------------------------------
Year Ended December 31,
------------------------------------------
(in thousands) 2000 1999 1998
- ------------------------------------------------------------------------------------------------------
Cash Flow from Operating Activities:
Net Income $ 27,244 $ 22,466 $ 23,895
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation and Amortization 25,716 21,474 18,309
Impairment Loss Related to Rental Equipment 1,689 -- --
Cumulative Effect of Accounting Change, net of tax -- 1,367 --
Noncash Compensation 454 1,343 485
Gain on Sale of Rental Equipment (6,755) (5,971) (5,404)
Change In:
Accounts Receivable (20,592) (3,284) (17)
Prepaid Expenses and Other Assets (6,990) 1,579 991
Accounts Payable and Accrued Liabilities 12,678 1,990 (3,850)
Deferred Income 9,730 1,687 (1,354)
Deferred Income Taxes 6,792 10,584 8,912
-------- -------- --------
Net Cash Provided by Operating Activities 49,966 53,235 41,967
-------- -------- --------
Cash Flow from Investing Activities:
Purchase of Rental Equipment (67,389) (47,310) (51,159)
Purchase of Land, Buildings, Land Improvements,
Equipment and Furniture (3,430) (2,253) (4,041)
Proceeds from Sale of Land, Buildings and
Land Improvements -- -- 2,190
Proceeds from Sale of Rental Equipment 18,380 16,352 13,759
-------- -------- --------
Net Cash Used in Investing Activities (52,439) (33,211) (39,251)
-------- -------- --------
Cash Flow from Financing Activities:
Net Borrowings (Repayments) under Bank Lines of Credit 16,576 13,300 (25,000)
Borrowings under Private Placement -- -- 40,000
Net Proceeds from the Exercise of Stock Options 89 655 236
Repurchase of Common Stock (7,364) (28,212) (12,247)
Payment of Dividends (6,675) (6,134) (5,386)
-------- -------- --------
Net Cash Provided by (Used in)
Financing Activities 2,626 (20,391) (2,397)
-------- -------- --------
Net Increase (Decrease) in Cash 153 (367) 319
Cash Balance, Beginning of Period 490 857 538
-------- -------- --------
Cash Balance, End of Period $ 643 $ 490 $ 857
======== ======== ========
Interest Paid During the Period $ 8,504 $ 6,473 $ 5,407
======== ======== ========
Income Taxes Paid During the Period $ 12,970 $ 4,290 $ 7,098
======== ======== ========
Dividends Declared but not yet Paid $ 1,699 $ 1,506 $ 1,397
======== ======== ========
- ------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial
statements.
22
23
MCGRATH RENTCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION AND BUSINESS
McGrath RentCorp (the "Company") is a California corporation organized
in 1979. The Company is comprised of three business segments: "Mobile Modular
Management Corporation" ("MMMC"), its modular building rental group, "RenTelco,"
its electronic test equipment rental group, and "Enviroplex," its majority-owned
subsidiary classroom manufacturing business. The Company's corporate offices are
located in Livermore, California. In addition, branch operations for both rental
divisions are conducted from this facility.
MMMC rents and sells modular buildings and accessories to fulfill
customers' temporary and permanent space needs in California and Texas. These
units are used as temporary offices adjacent to existing facilities, and are
used as sales offices, construction field offices, classrooms, health care
clinics, child care facilities and for a variety of other purposes. MMMC
purchases the modulars from various manufacturers who build them to MMMC's
design specifications. MMMC operates from two branch offices in California and
one in Texas. Although MMMC's primary emphasis is on rentals, sales of modulars
routinely occur and can fluctuate quarter to quarter and year to year depending
on customer demands and requirements. Rentals and sales to school districts by
MMMC represent a significant portion of MMMC's total revenues.
RenTelco rents and sells electronic test equipment nationally from two
locations. The Plano, Texas location houses the Company's communications and
fiber optic test equipment inventory, calibration laboratory and eastern U.S.
sales engineer and operations staffs. The Livermore, California location houses
the Company's general-purpose test equipment inventory, calibration laboratory
and western U.S. sales engineer and operations staffs. Communications and fiber
optic test equipment is utilized by field technicians, engineers and installer
contractors in evaluating voice, data and multimedia communications networks,
installing optical fiber cabling and in the development of switch, network and
wireless products. This test equipment is rented primarily to network systems
companies, electrical contractors, local & long distance carriers and
manufacturers of communications transmission equipment. RenTelco purchases
communications test equipment from over 40 different manufacturers domestically
and abroad. Engineers, scientists and technicians utilize general-purpose test
equipment in evaluating the performance of their own electrical and electronic
equipment, developing products, controlling manufacturing processes and in field
service applications. These instruments are rented primarily to electronics,
industrial, research and aerospace companies. The majority of general-purpose
equipment is manufactured by Agilent (formerly Hewlett Packard), Tektronix and
Acterna.
McGrath RentCorp owns 73% of Enviroplex, a California corporation
organized in 1991. Enviroplex manufactures portable classrooms built to the
requirements of the California Division of the State Architect ("DSA") and sells
directly to school districts. Enviroplex conducts its sales and manufacturing
operations from its facility located in Stockton, California.
The rental and sale of modulars to public school districts for use as
portable classrooms, restroom buildings and administrative offices for
kindergarten through grade twelve (K-12) are a significant portion of the
Company's revenues. School business comprised approximately 35%, 34% and 45% of
the Company's consolidated rental and sales revenues for 2000, 1999 and 1998,
respectively.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of McGrath
RentCorp and Enviroplex. All significant intercompany accounts and transactions
are eliminated.
REVENUES
Rental revenue is recognized under the "operating method" of accounting
for the majority of leases. Effective January 1, 1999, rental revenue is
recognized ratably over the month on a daily basis. Rental billings for periods
23
24
MCGRATH RENTCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
extending beyond the month end are recorded as deferred income. In prior years,
only rental billings extending beyond a one-month period were recorded as
deferred income. The new method of recognizing revenue was adopted in response
to the Security and Exchange Commission's Staff Accounting Bulletin (SAB) No.
101, "Revenue Recognition." The effect is reported as a change in accounting
method in accordance with Accounting Principles Board Opinion ("APB") No. 20,
"Accounting Changes." The cumulative effect of changing to a new method of
accounting effective January 1, 1999 was to decrease net income by $1,367,000
(net of taxes of $883,000) or $0.10 per diluted share. The pro forma amounts
shown on the consolidated statements of income have been adjusted as if the new
method of revenue recognition had been in effect for all periods presented.
Rental related services revenue is primarily associated with relocatable
modular office leases and consists of billings to customers for delivery,
installation, modifications, skirting, additional site related work, and return
delivery and dismantle. Revenue related to these services is recognized over the
term of the lease.
Sales revenue is recognized upon delivery and installation of the
equipment to the customer. Certain leases meeting the requirements of Statement
of Financial Accounting Standards ("SFAS") No. 13, "Accounting for Leases," are
accounted for as sales type leases. For these leases, sales revenue and the
related accounts receivable are recognized upon execution of the lease and
unearned interest is recognized over the lease term on a basis which results in
a constant rate of return on the unrecovered lease investment (see Note 4).
DEPRECIATION AND MAINTENANCE
Rental equipment, buildings, land improvements, equipment and furniture
are depreciated on a straight-line basis for financial reporting purposes and on
an accelerated basis for income tax purposes. The costs of major refurbishment
of relocatable modular offices are capitalized to the extent the refurbishment
significantly improves the quality and adds value or life to the equipment. Land
improvements consist of development costs incurred to build storage and
maintenance facilities at each of the relocatable modular branch offices. The
following estimated useful lives and residual values are used for financial
reporting purposes:
Rental equipment:
Relocatable modular offices and accessories 3 to 18 years, 0% to 18% residual value
Electronic test instruments and accessories 5 to 8 years, no residual value
Buildings, land improvements, equipment and furniture 5 to 50 years, no residual value
Maintenance and repairs are expensed as incurred.
IMPAIRMENT LOSS
The Company continually evaluates the carrying value of rental equipment
in accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets". Under SFAS 121, rental equipment is reviewed for impairment whenever
events or circumstances have occurred that would indicate the carrying amount
may not be fully recoverable. An impairment loss is recognized if the fair value
is less than the carrying amount of the long-lived assets being evaluated. The
Company determines fair value based upon the condition of the equipment and the
projected net cash flows from its sale considering current market conditions.
OTHER DIRECT COSTS OF RENTAL OPERATION
Other direct costs of rental operations primarily relate to costs
associated with relocatable modular offices and include equipment supplies and
repairs, impairment losses, direct labor, amortization of lease costs included
in the rental rate, property and liability insurance, property taxes, and
business and license fees.
WARRANTY SERVICE COSTS
Sales of new relocatable modular offices, electronic test equipment and
related accessories not manufactured by the Company are typically covered by
warranties provided by the manufacturer of the products sold. The Company
provides limited 90-day warranties for certain sales of used rental equipment
and a one-year warranty on equipment manufactured by Enviroplex. Although the
Company's policy is to provide reserves for warranties when required for
specific circumstances, the Company has not found it necessary to establish such
reserves to date.
24
25
MCGRATH RENTCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
INCOME TAXES
Provision has been made for deferred income taxes based upon the amount
of taxes payable in future years, after considering changes in tax rates and
other statutory provisions that will be in effect in those years (see Note 6).
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company believes that the carrying amounts of its financial
instruments (cash and notes payable) approximate fair value.
USE OF ESTIMATES
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions in determining reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during each period
presented. Actual results could differ from those estimates.
EARNINGS PER SHARE
Basic earnings per share ("EPS") is computed as net income divided by
the weighted average number of shares of common stock outstanding for the
period, excluding the dilutive effects of stock options and other potentially
dilutive securities. Diluted EPS is computed as net income divided by the
weighted average number of shares outstanding of common stock and common stock
equivalents for the period. Common stock equivalents result from dilutive stock
options computed using the treasury stock method with the average share price
for the reported period. The weighted average number of dilutive options
outstanding at December 31, 2000, 1999 and 1998 were 94,247, 147,789 and
186,624, respectively.
ACCOUNTING FOR DERIVATIVES
SFAS 133, Accounting for Derivative Instruments and Hedging Activities,
as amended by SFAS 138, establishes accounting and reporting standards requiring
that every derivative instrument (including certain derivative instruments
embedded in other contracts) be recorded in the balance sheet as either an asset
or liability measured at its fair value. The implementation of this statement is
not expected to have a material impact on the Company's financial position or
result of operations. The Company is required to adopt SFAS 133 on January 1,
2001.
COMPREHENSIVE INCOME
SFAS No. 130, "Reporting Comprehensive Income," establishes standards to
measure all changes in equity that result from transactions and other economic
events other than transactions with shareholders. Comprehensive income is the
total of net income and all other non-shareholder changes in equity. Other than
net income, the Company has no comprehensive income.
RECLASSIFICATIONS
Certain prior period amounts have been reclassified to conform to
current year presentation.
NOTE 3. CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to
concentration of credit risk consist primarily of trade accounts receivable. The
Company sells primarily on 30-day terms, individually performs credit evaluation
procedures on its customers on each transaction and will require security
deposits or personal guarantees from its customers when a significant credit
risk is identified. Historically, the Company has not incurred significant
credit related losses. However, an allowance for potential credit losses is
maintained. Typically, most customers are established companies or are publicly
funded entities located in California or Texas. Although no one customer
accounts for more than 10% of the Company's consolidated revenues, credit risk
exists in trade accounts receivable primarily due to the significant amount of
business transacted with California public school districts (K-12) which
represents a significant portion of the Company's revenues (see Note 1). The
lack of fiscal funding or a significant reduction of funding from the State of
California to the public schools could have a material adverse effect on the
Company.
25
26
MCGRATH RENTCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 4. SALES TYPE LEASE RECEIVABLES
The Company has entered into several sales type leases. The minimum
lease payments receivable and the net investment included in accounts receivable
for such leases are as follows:
- --------------------------------------------------------------------------
(in thousands) December 31,
----------- -----------
2000 1999
----------- -----------
Gross minimum lease payments receivable $ 7,063 $ 6,992
Less - unearned interest (1,233) (1,253)
------- -------
Net investment in sales type lease receivables $ 5,830 $ 5,739
- --------------------------------------------------------------------------
As of December 31, 2000, the future minimum lease payments to be
received in 2001 and thereafter are as follows:
----------------------------------------------------
(in thousands)
Year Ended December 31,
2001 $4,229
2002 1,910
2003 618
2004 200
2005 98
2006 and thereafter 8
------
Total minimum future lease payments $7,063
----------------------------------------------------
NOTE 5. NOTES PAYABLE
On July 31, 1998, the Company completed a private placement of
$40,000,000 of 6.44% Senior Notes due in 2005. Interest on the notes is due
semi-annually in arrears and the principal is due in 5 equal installments
commencing on July 15, 2001. The outstanding balance at December 31, 2000 was
$40,000,000. Among other restrictions, the agreement requires (i) the Company to
maintain a minimum net worth of $80,000,000 plus 25% of all net income generated
subsequent to June 30, 1998, less an aggregate amount not to exceed $15,000,000
paid by the Company to repurchase its common stock after June 30, 1998,
(restricted equity at December 31, 2000 is $80,666,000), (ii) a fixed coverage
charge of not less than 2.0 to 1.0, (iii) a rolling fixed charges coverage ratio
of not less than 1.5 to 1.0, and (iv) senior debt not to exceed 275% of
consolidated net worth and consolidated total debt not to exceed 300% of
consolidated net worth.
The Company maintains an unsecured line of credit agreement, as amended,
(the "Agreement") with its banks which expires on June 30, 2001 and permits it
to borrow up to $120,000,000 of which $84,000,000 was outstanding as of December
31, 2000. The Agreement requires the Company to pay interest at prime or, at the
Company's election, at other rate options available under the Agreement. In
addition, the Company pays a commitment fee on the daily average unused portion
of the available line. Among other restrictions, the Agreement requires (i) the
Company to maintain shareholders' equity of not less than $75,000,000 plus 50%
of all net income generated subsequent to September 30, 1999 plus 90% of any new
stock issuance proceeds (restricted equity at December 31, 2000 is $91,611,000),
(ii) a debt-to-equity ratio (excluding deferred income taxes) of not more than 3
to 1, (iii) interest coverage (income from operations compared to interest
expense) of not less than 2 to 1 and (iv) debt service coverage (earnings before
interest, taxes, depreciation and amortization compared to the following year's
pro forma debt service) of not less than 1.15 to 1.0. If the Company does not
amend or renegotiate the present Agreement for an additional time period prior
to its expiration date, the principal amount outstanding at that time will be
converted to a two-year term loan with principal due and payable in eight (8)
consecutive quarterly installments.
26
27
MCGRATH RENTCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
In addition to the $120,000,000 unsecured line of credit, the Company
has a $5,000,000 committed line of credit facility (at prime rate) related to
its cash management services of which $2,876,000 was outstanding as of December
31, 2000. This committed line related to its cash management services will
expire on June 30, 2001.
The following information relates to the lines of credit for each of the
following periods:
- -------------------------------------------------------------------------
(dollar amounts in thousands) Year Ended December 31,
-------------------------
2000 1999
-------- --------
Maximum amount outstanding $ 88,090 $ 70,300
Average amount outstanding $ 79,861 $ 62,646
Weighted average interest rate 7.57% 6.08%
Effective interest rate at end of period 7.62% 7.11%
Prime interest rate at end of period 9.50% 8.50%
- -------------------------------------------------------------------------
NOTE 6. INCOME TAXES
The provision (benefit) for income taxes is comprised of the following:
- ------------------------------------------------------------------
(in thousands) Current Deferred Total
- ------------------------------------------------------------------
Year Ended December 31,
2000
Federal $10,644 $ 3,649 $14,293
State 2,326 3,143 5,469
------- ------- -------
$12,970 $ 6,792 $19,762
------- ------- -------
1999
Federal $ 3,067 $ 8,972 $12,039
State 1,223 729 1,952
------- ------- -------
$ 4,290 $ 9,701 $13,991
------- ------- -------
1998
Federal $ 5,526 $ 7,736 $13,262
State 1,572 1,176 2,748
------- ------- -------
$ 7,098 $ 8,912 $16,010
- ------------------------------------------------------------------
In 1999, the total provision for income taxes includes a provision on
income before taxes of $14,874,000 and a tax benefit of $883,000 included with
the cumulative effect of accounting change on the consolidated statements of
income.
The reconciliation of the federal statutory tax rate to the Company's
effective tax rate is as follows:
- ------------------------------------------------------------------------
Year Ended December 31,
---------------------------
2000 1999 1998
---- ---- ----
Federal statutory rate 35.00% 35.00% 35.00%
State taxes, net of federal
benefit 7.46 3.46 4.37
Other (1.01) (0.35) (0.24)
----- ----- -----
41.45% 38.11% 39.13%
- ------------------------------------------------------------------------
27
28
MCGRATH RENTCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The following table shows the tax effect of the Company's cumulative
temporary differences included in net deferred income taxes on the Company's
consolidated balance sheets:
- -----------------------------------------------------------------------
(in thousands) Year Ended December 31,
-----------------------
2000 1999
---- ----
Excess of tax over book depreciation $ 67,697 $ 58,112
State income taxes (4,699) (3,333)
Accrued liabilities not currently deductible (948) (73)
Revenue deferred for financial reporting
purposes (2,161) (2,753)
Other, net 1,764 2,908
-------- --------
$ 61,653 $ 54,861
- -----------------------------------------------------------------------
NOTE 7. COMMON STOCK AND STOCK OPTIONS
The Company adopted a 1998 Stock Option Plan (the "1998 Plan"),
effective March 9, 1998, under which 2,000,000 shares are reserved for the grant
of options to purchase common stock to directors, officers, key employees and
advisors of the Company. The plan provides for the award of options at a price
not less than the fair market value of the stock as determined by the Board of
Directors on the date the options are granted. Under the 1998 Plan, 532,500
options have been granted with exercise prices ranging from $15.63 to $21.69.
The options vest over 5 years and expire 10 years after grant. To date, no
options have been issued to any of the Company's advisors. As of December 31,
2000, 1,467,500 options remain available to issue under the 1998 plan.
The Company adopted a 1987 Incentive Stock Option Plan (the "1987
Plan"), effective December 14, 1987, under which options to purchase common
stock may be granted to officers and key employees of the Company. The plan
provides for the award of options at a price not less than the fair market value
of the stock as determined by the Board of Directors on the date the options are
granted. Under the 1987 Plan, options have been granted with an exercise price
of $3.06, $6.94 and $10.75 per share. The options vest over 9.3 years and expire
10 years after grant. The 1987 Plan expired in December 1997 and no further
options can be issued under this plan.
Option activity and options exercisable including weighted average
exercise price for the three years ended December 31, 2000 are as follows:
- ------------------------------------------------------------------------------------------------------
Year Ended December 31,
---------------------------------------------------------------------
2000 1999 1998
--------------------- --------------------- ---------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
---------- ---------- ---------- ---------- ---------- ----------
Options outstanding at
January 1, 516,522 15.53 541,122 13.83 364,672 8.57
Options granted during the year 187,000 16.94 103,500 18.25 242,000 20.81
Options exercised during the
year (9,948) 8.93 (91,250) 7.18 (31,282) 7.55
Options terminated during the
year (33,964) 18.76 (36,850) 18.74 (34,268) 12.93
------- ------- -------
Options outstanding at
December 31, 659,610 15.87 516,522 15.53 541,122 13.85
------- ------- -------
Options exercisable at
December 31, 246,530 14.11 172,407 13.22 171,877 8.55
- ------------------------------------------------------------------------------------------------------
28
29
MCGRATH RENTCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The following table indicates the options outstanding and options
exercisable by exercise price with the weighted average remaining contractual
life for the options outstanding and the weighted average exercise price at
December 31, 2000:
--------------------------------------------------------------------------------------------
Options Outstanding Options Exercisable
---------------------------------------- ------------------------------
Weighted
Average Weighted
Number Remaining Average Number Weighted
Outstanding Contractual Exercise Exercisable Average
Exercise Price at 12/31/00 Life (Years) Price at 12/31/00 Exercise Price
----------------- -------------- ------------- ----------- ------------- ----------------
6.94 77,422 0.75 6.94 77,422 6.94
10.75 120,188 5.50 10.75 52,208 10.75
15.63 20,000 9.33 15.63 -- 15.63
15.94 12,000 9.92 15.94 -- 15.94
17.00 142,500 9.83 17.00 -- 17.00
18.25 101,000 8.92 18.25 20,200 18.25
19.38 12,500 9.75 19.38 -- 19.38
20.25 10,000 7.50 20.25 7,500 20.25
20.81 154,000 7.25 20.81 84,700 20.81
21.69 10,000 7.67 21.69 4,500 21.69
------------ -------------
6.94-21.69 659,610 7.15 15.53 246,530 14.11
--------------------------------------------------------------------------------------------
SFAS 123 "Accounting for Stock-Based Compensation" became effective for
the Company in 1996. As allowed by SFAS 123, the Company has elected to continue
to follow APB 25 "Accounting for Stock Issued to Employees" in accounting for
its stock option plans. Under APB 25, the Company does not recognize
compensation expense on the issuance of stock options because the option terms
are fixed and the exercise price equals the market price of the underlying stock
on the grant date. However, APB 25 requires recognition of noncash compensation
when the Company repurchases stock acquired by an employee through the exercise
of an incentive stock option. During 1999, the Company repurchased 80,000 shares
of stock at $18.00 per share from an employee who had acquired the stock at
$6.94 per share through the exercise of a stock option, resulting in the
recognition of noncash compensation expense of $885,000. The noncash
compensation of $885,000 is included in the Company's consolidated statements of
income in selling and administrative expense.
In accordance with SFAS 123, the fair value of each option grant is
estimated at the date of grant using the Black-Scholes option-pricing model. The
assumptions used in the 2000, 1999 and 1998 grants are as follows:
- ------------------------------------------------------------------------------------
Year Ended December 31,
2000 1999 1998
----------- ------------- -------------
Risk-free interest rates 5.9% 6.3% 6.5%
Expected dividend yields 2.9% 2.7% 2.0%
Expected volatility 26.5% 27.8% 27.1%
Expected option life (in years) 7.5 7.5 7.5
- ------------------------------------------------------------------------------------
The fair value of the options granted are $2,115,000, $2,422,000 and $2,249,000
during the year ended December 31, 2000, 1999 and 1998, respectively. The
weighted average fair value of grants are $5.03, $5.93 and $7.03 during the year
ended 2000, 1999 and 1998, respectively.
29
30
MCGRATH RENTCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The following pro forma net income and earnings per share data are
computed for the years ended December 31, 2000, 1999 and 1998 as if compensation
cost for the stock options granted subsequent to 1995 had been determined
consistent with SFAS 123:
- ---------------------------------------------------------------------------------
(in thousands, except per
share amounts) Year Ended December 31,
-----------------------------------------
2000 1999 1998
------- ------- -------
Net Income $27,244 $22,466 $23,895
Pro Forma net income 26,826 22,043 23,583
Earnings Per Share
Basic 2.21 1.70 1.69
Diluted 2.19 1.68 1.67
Pro Forma Earnings Per
Share
Basic 2.17 1.67 1.67
Diluted 2.16 1.65 1.64
- ---------------------------------------------------------------------------------
In 1985, the Company established an Employee Stock Ownership Plan. Under
the terms of the plan, as amended, the Company makes annual contributions in the
form of cash or common stock of the Company to a trust for the benefit of
eligible employees. The amount of the contribution is determined annually by the
Board of Directors. A cash contribution of $800,000 was approved for 2000 and
$750,000 for 1999 and 1998.
In 1991, the Board of Directors adopted a Long-Term Stock Bonus Plan
(the "1990 LTB Plan") under which shares of common stock may be granted to
officers and key employees. The stock bonuses granted under the 1990 LTB Plan
are evidenced by written Stock Bonus Agreements covering specified performance
periods. The LTB Plan provides for the grant of stock bonuses upon achievement
of certain financial goals during a specified period. Stock bonuses earned under
the 1990 LTB Plan vest over 5 years from the grant date contingent on the
employee's continued employment with the Company. As of December 31, 2000,
203,507 shares of common stock have been granted, of which 163,096 shares are
vested. Future grants of 19,338 shares of common stock are authorized by the
Board of Directors to be issued under the 1990 LTB Plan in the event the Company
reaches the highest level of achievement. The 1990 LTB Plan expired in December
1999 and no further grants of common stock can occur under the 1990 LTB Plan.
Compensation expense for 2000, 1999 and 1998 under this plan was $454,000,
$458,000 and $485,000, respectively, and is based on a combination of the
anticipated shares to be granted, the amount of vested shares previously issued
and fluctuations in market price of the Company's common stock. As of December
31, 2000, 1999 and 1998, the unvested shares were 40,411, 61,348 and 64,457,
respectively, with the related weighted average grant-date fair value of these
unvested shares of $20.45, $20.23 and $20.42 per share, respectively.
In 2000, the Board of Directors adopted a Long-Term Stock Bonus Plan
(the "2000 LTB Plan") under which 400,000 shares of common stock are reserved
for grant to officers and key employees. The terms of the 2000 LTB Plan are the
same as the 1990 Plan described above. Future grants of 26,571 shares of common
stock are authorized by the Board of Directors to be issued under the 2000 LTB
Plan in the event the Company reaches its highest level of achievement. As of
December 31, 2000, no shares of common stock have been granted or vested under
this plan.
The Board of Directors has authorized the repurchase of shares of the
Company's outstanding common stock. These purchases are to be made in the
over-the-counter market and/or through large block transactions at such
repurchase price as the officers shall deem appropriate and desirable on behalf
of the Company. All shares repurchased by the Company are to be canceled and
returned to the status of authorized but unissued shares of common stock. In
1998, the Company repurchased 619,550 shares of common stock for an aggregate
repurchase price of $12,247,000 or an average price of $19.77 per share. In
1999, the Company repurchased 1,549,526 shares of common stock for an aggregate
repurchase price of $28,212,000 or an average price of $18.21 per share. In
2000, the Company repurchased 450,942 shares of common stock for an aggregate
repurchase price of $7,364,000 or an average price of $16.33 per share. As of
December 31, 2000, 805,800 shares remain authorized for repurchase.
30
31
MCGRATH RENTCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 8. BUSINESS SEGMENTS
As of January 1, 1998, the Company adopted SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information." The Company defined
its business segments based on the nature of operations for the purpose of
reporting under SFAS 131. The Company's three reportable segments are Mobile
Modular Management Corporation (Modulars), RenTelco (Electronics), and
Enviroplex. The operations of each of these segments is described in Note 1,
Organization and Business, and the accounting policies of the segments are
described in Note 2, Significant Accounting Policies. As a separate corporate
entity, Enviroplex revenues and expenses are separately maintained from Modulars
and Electronics. Excluding interest expense, allocations of revenues and
expenses not directly associated with Modulars or Electronics are generally
allocated to these segments based on their pro-rata share of direct revenues.
Interest expense is allocated between Modulars and Electronics based on their
pro-rata share of average rental equipment, accounts receivable, deferred income
and customer security deposits. The Company does not report total assets by
business segment. Summarized financial information for the years ended December
31, 2000, 1999 and 1998 for the Company's reportable segments is shown in the
following table:
- -----------------------------------------------------------------------------------------------
(in thousands) Modulars Electronics Enviroplex Consolidated
------------------------------------------------
YEAR ENDED DECEMBER 31,
2000
Rental Operations Revenues $ 73,241 $ 38,875 $ -- $112,116
Sales and Other Revenues 24,254 10,796 16,992 52,042
Total Revenues 97,495 49,671 16,992 164,158
Depreciation on Rental Equipment 12,546 11,304 -- 23,850
Interest Expense (Income) 6,725 2,459 (344) 8,840
Income before Provision for Income Taxes 23,565 20,454 3,657 47,676
Rental Equipment Acquisitions 36,017 31,372 -- 67,389
Accounts Receivable, net (year-end) 28,816 12,902 3,969 45,687
Rental Equipment, at cost (year-end) 261,081 92,404 -- 353,485
1999
Rental Operations Revenues $ 64,164 $ 27,633 $ -- $ 91,797
Sales and Other Revenues 16,600 10,415 11,150 38,165
Total Revenues 80,764 38,048 11,150 129,962
Depreciation on Rental Equipment 10,811 8,969 -- 19,780
Interest Expense (Income) 5,097 1,724 (215) 6,606
Income before Provision for Income Taxes 23,838 13,641 1,479 38,958
Rental Equipment Acquisitions 30,443 16,867 -- 47,310
Accounts Receivable, net (year-end) 11,334 9,691 4,070 25,095
Rental Equipment, at cost (year-end) 238,449 72,832 -- 311,281
1998
Rental Operations Revenues $ 58,964 $ 24,531 $ -- $ 83,495
Sales and Other Revenues 23,619 7,642 20,672 51,933
Total Revenues 82,583 32,173 20,672 135,428
Depreciation on Rental Equipment 9,398 7,464 -- 16,862
Interest Expense 4,802 1,505 19 6,326
Income before Provision for Income Taxes 23,133 11,875 5,902 40,910
Rental Equipment Acquisitions 28,970 22,189 -- 51,159
Accounts Receivable, net (year-end) 10,765 6,900 4,146 21,811
Rental Equipment, at cost (year-end) 216,414 66,573 -- 282,987
- -----------------------------------------------------------------------------------------------
31
32
MCGRATH RENTCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 9. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Quarterly financial information for each of the two years ended December
31, 2000 is summarized below:
- --------------------------------------------------------------------------------------------------
(in thousands, except per share amounts) 2000
--------------------------------------------------------
First Second Third Fourth Year
--------------------------------------------------------
OPERATIONS DATA
Rental revenues $ 21,381 $ 22,847 $ 24,876 $ 25,827 $ 94,931
Total revenues 31,643 37,369 54,643 40,503 164,158
Gross margin 15,953 17,679 23,678 19,188 76,498
Income from operations 11,258 12,892 18,138 14,228 56,516
Income before income taxes 9,314 10,732 15,777 11,853 47,676
Net income 5,703 6,389 9,044 6,108 27,244
Earnings per share:
Basic $ 0.46 $ 0.52 $ 0.73 $ 0.50 $ 2.21
Diluted $ 0.45 $ 0.52 $ 0.73 $ 0.50 $ 2.19
Dividends declared per share $ 0.14 $ 0.14 $ 0.14 $ 0.14 $ 0.56
Shares used in per share calculation:
Basic 12,500 12,305 12,308 12,223 12,334
Diluted 12,593 12,393 12,402 12,335 12,428
BALANCE SHEET DATA
Rental equipment net $222,695 $234,832 $243,270 $247,402 $247,402
Total assets 301,823 321,955 345,371 357,246 357,246
Notes payable 114,000 125,800 127,400 126,876 126,876
Shareholders' equity 95,024 99,733 107,067 108,958 108,958
- --------------------------------------------------------------------------------------------------
32
33
MCGRATH RENTCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 9. QUARTERLY FINANCIAL INFORMATION (UNAUDITED) (continued)
- -------------------------------------------------------------------------------------------------------------------
1999
---------------------------------------------------------------
(in thousands, except per share amounts) First Second Third Fourth Year
---------------------------------------------------------------
OPERATIONS DATA
Rental revenues $ 19,059 $ 19,019 $ 20,117 $ 20,559 $ 78,754
Total revenues 28,574 31,559 36,657 33,172 129,962
Gross margin 14,577 15,263 16,694 16,133 62,667
Income from operations 10,378 11,274 12,670 11,242 45,564
Income before income taxes 8,862 9,693 10,949 9,454 38,958
Income before effect of accounting change 5,420 5,798 6,636 5,979 23,833
Cumulative effect of accounting change,
net of tax (1,367) -- -- -- (1,367)
Net income 4,053 5,798 6,636 5,979 22,466
Earnings per share:
Basic
Income before cumulative effect of accounting
change $ 0.39 $ 0.43 $ 0.51 $ 0.47 $ 1.80
Cumulative effect of accounting change,
net of tax (0.10) -- -- -- (0.10)
--------- --------- --------- --------- ---------
Net Income $ 0.29 $ 0.43 $ 0.51 $ 0.47 $ 1.70
========= ========= ========= ========= =========
Diluted
Income before cumulative effect of accounting
change $ 0.39 $ 0.43 $ 0.50 $ 0.47 $ 1.78
Cumulative effect of accounting change,
net of tax (0.10) -- -- -- (0.10)
--------- --------- --------- --------- ---------
Net Income $ 0.29 $ 0.43 $ 0.50 0.47 $ 1.68
========= ========= ========= ========= =========
Dividends declared per share $ 0.12 $ 0.12 $ 0.12 $ 0.12 $ 0.48
========= ========= ========= ========= =========
Shares used in per share calculation:
Basic 13,820 13,403 13,067 12,649 13,235
Diluted 13,991 13,568 13,220 12,751 13,383
BALANCE SHEET DATA
Rental equipment net $ 199,008 $ 205,797 $ 213,089 $ 217,178 $ 217,178
Total assets 274,776 286,700 292,889 297,722 297,722
Notes payable 101,450 102,900 108,700 110,300 110,300
Shareholders' equity 97,937 99,476 92,274 95,403 95,403
- -------------------------------------------------------------------------------------------------------------------
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item is incorporated by reference to
McGrath RentCorp's definitive Proxy Statement with respect to its Annual
Shareholders' Meeting to be held May 30, 2001, which will be filed with the
Securities and Exchange Commission by not later than April 30, 2001.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference to
McGrath RentCorp's definitive Proxy Statement with respect to its Annual
Shareholders' Meeting to be held May 30, 2001, which will be filed with the
Securities and Exchange Commission by not later than April 30, 2001.
33
34
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated by reference to
McGrath RentCorp's definitive Proxy Statement with respect to its Annual
Shareholders' Meeting to be held May 30, 2001, which will be filed with the
Securities and Exchange Commission by not later than April 30, 2001.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated by reference to
McGrath RentCorp's definitive Proxy Statement with respect to its Annual
Shareholders' Meeting to be held May 30, 2001, which will be filed with the
Securities and Exchange Commission by not later than April 30, 2001.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Index of documents filed as part of this report:
1. The following Consolidated Financial Statements of McGrath RentCorp
are included in Item 8.
PAGE OF
THIS REPORT
-----------
Report of Independent Public Accountants 18
Consolidated Financial Statements
Consolidated Statements of Income for the Years Ended December 31, 2000, 1999 and 1998 19
Consolidated Balance Sheets as of December 31, 2000 and 1999 20
Consolidated Statements of Shareholders' Equity for the Years Ended December 31, 2000,
1999 and 1998 21
Consolidated Statements of Cash Flows for the Years Ended December 31, 2000,
1999 and 1998 22
Notes to Consolidated Financial Statements 23
2. Financial Statement Schedules. None
3. Exhibits. See Index of Exhibits on page 36 of this report.
(b) Reports on Form 8-K. None.
Schedules and exhibits required by Article 5 of Regulation S-X other than
those listed are omitted because they are not required, are not applicable, or
equivalent information has been included in the consolidated financial
statements, and notes thereto, or elsewhere herein.
34
35
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
Date: March 16, 2001 MCGRATH RENTCORP
by: /s/ Robert P. McGrath
---------------------------
Robert P. McGrath
Chairman of the Board
and Chief Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934,
THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE CAPACITIES AND
ON THE DATES AS INDICATED.
NAME TITLE DATE
---- ----- ----
/s/ William J. Dawson Director March 16, 2001
----------------------------------
William J. Dawson
/s/ Robert C. Hood Director March 16, 2001
----------------------------------
Robert C. Hood
/s/ Joan M. McGrath Director March 16, 2001
----------------------------------
Joan M. McGrath
/s/ Robert P. McGrath Chairman of the Board and Chief March 16, 2001
----------------------------------- Executive Officer
Robert P. McGrath
/s/ Thomas J. Sauer Vice President
----------------------------------- and Chief Financial Officer
Thomas J. Sauer (Chief Accounting Officer) March 16, 2001
/s/ Delight Saxton Senior Vice President and Director March 16, 2001
----------------------------------
Delight Saxton
/s/ Ronald H. Zech Director March 16, 2001
----------------------------------
Ronald H. Zech
35
36
MCGRATH RENTCORP
INDEX TO EXHIBITS
NUMBER DESCRIPTION METHOD OF FILING
- ------ ----------- ----------------
3.1 Articles of Incorporation of McGrath RentCorp Filed as exhibit 19.1 to the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1988 (filed August
14, 1988), and incorporated herein by reference.
3.1.1 Amendment to Articles of Incorporation of Filed as exhibit 3.1 to the Company's Registration Statement
McGrath RentCorp on Form S-1 (filed March 28, 1991 Registration No. 33-39633),
and incorporated herein by reference.
3.1.2 Amendment to Articles of Incorporation of Filed as exhibit 3.1.2 to the Company's Annual Report on
McGrath RentCorp Form 10-K for the year ended December 31, 1997 (filed
March 31, 1998), incorporated herein by reference.
3.2 Amended and Restated By-Laws of McGrath Filed as exhibit 3.1 to the Company's Annual Report on
RentCorp Form 10-K for the year ended December 31, 1990 (filed
March 28, 1991), incorporated herein by reference.
3.2.1 Amendment of By-Laws of McGrath RentCorp Filed as exhibit 3.2.1 to the Company's Annual Report on Form
10-K for the year ended December 31, 1997 (filed March 31,
1998), incorporated herein by reference.
3.2.2 Amendment of By-Laws of McGrath RentCorp Filed as exhibit 3.2.2 to the Company's Annual Report on Form
10-K for the year ended December 31, 1998 (filed March 31,
1999, amended June 25, 1999), incorporated herein by
reference.
3.2.3 Amendment of By-Laws of McGrath RentCorp Filed as exhibit 3.1 to the Company's Quarterly Report on Form
10-Q for the quarter ended March 31, 1999 (filed May 14, 1999,
amended June 25, 1999) and incorporated herein by reference.
3.2.4 Amendment of By-Laws of McGrath RentCorp Filed as exhibit 3.2.4 to the Company's Annual Report on Form
10-K for the year ended December 31, 1999 (filed March 27,
2000), incorporated herein by reference.
4.1 Amended and Restated Credit Agreement Filed as exhibit 4.1 to the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1997 (filed August 1,
1997), and incorporated herein by reference.
4.1.1 First Amendment to the Restated Credit Filed as exhibit 4.1.1 to the Company's Annual Report on Form
Agreement 10-K for the year ended December 31, 1997 (filed March 31,
1998), incorporated herein by reference.
4.1.2 Second Amendment to the Restated Credit Filed as exhibit 4.1.2 to the Company's Annual Report on Form
Agreement 10-K for the year ended December 31, 1997 (filed March 31,
1998), incorporated herein by reference.
4.1.3 Third Amendment to the Restated Credit Filed as exhibit 4.1 to the Company's Quarterly Report on Form
Agreement 10-Q for the quarter ended March 31, 1998 (filed May
13, 1998), incorporated herein by reference.
4.1.4 Facility Reduction Letter for Restated Credit Filed as exhibit 4.1 to the Company's Quarterly Report on Form
Agreement 10-Q for the quarter ended September 30, 1998 (filed
November 12, 1998), incorporated herein by reference.
4.1.5 Fourth Amendment to the Restated Filed as exhibit 4.1 to the Company's Quarterly Report on Form
Agreement 10-Q for the quarter ended March 31, 1999 (filed May 14, 1999,
amended June 25, 1999) and incorporated herein by reference.
4.1.6 Amended and Restated Credit Agreement June, 1999 Filed as exhibit 4.1 to the company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1999 (filed August 11,
1999) and incorporated herein by reference.
4.1.7 First Amendment to the Restated Filed as exhibit 4.1.7 to the Company's Annual Report on Form
Credit Agreement June, 1999 10-K for the year ended December 31, 1999 (filed March 17,
2000), incorporated herein by reference.
4.1.8 Second Amendment to the Restated Credit Agreement Filed as exhibit 4.1 to the Company's Quarterly Report on Form
June, 1999 10-Q for the quarter ended September 30, 2000
(filed November 9, 2000), incorporated herein by reference.
4.2 Note Purchase Agreement Filed as exhibit 4.3 to the Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 1998 (filed November
12, 1998), and incorporated herein by reference.
4.2.1 Schedule of Notes with Sample Note Filed as exhibit 4.3 to the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1998 (filed August 11,
1998), and incorporated herein by reference.
10.1 The McGrath RentCorp 1987 Incentive Stock Filed as exhibit 19.3 to the Company's Quarterly Report on
Option Plan Form 10-Q for the quarter ended June 30, 1988 (filed
August 14, 1988), and incorporated herein by reference.
10.1.1 Exemplar Form of the Incentive Stock Filed as exhibit 19.3 to the Company's Quarterly Report on
Option Agreement Form 10-Q for the quarter ended June 30, 1988 (filed
August 14, 1988), and incorporated herein by reference.
10.2 The 1998 Stock Option Plan Filed as exhibit 10.1 to the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1998 (filed
November 12, 1998), and incorporated herein by reference.
36
37
NUMBER DESCRIPTION METHOD OF FILING
- ------ ----------- ----------------
10.2.1 Exemplar Incentive Stock Option for Filed as exhibit 10.2 to the Company's Quarterly Report on
Employees Under the 1998 Stock Option Plan Form 10-Q for the quarter ended September 30, 1998 (filed
November 12, 1998), and incorporated herein by reference.
10.2.2 Exemplar Non-Qualified Stock Option for Filed as exhibit 10.3 to the Company's Quarterly Report on
Directors under the 1998 Stock Option Plan Form 10-Q for the quarter ended September 30, 1998
(filed November 12, 1998), and incorporated herein by
reference.
10.2.3 Schedule of Options Granted to Members of the Filed as exhibit 10.4 to the Company's Quarterly Report on
Board of Directors Form 10-Q for the quarter ended September 30, 1998 (filed
November 12, 1998), and incorporated herein by reference.
10.2.4 Schedule of Options Granted to Members of the Filed as exhibit 10.2.4 to the Company's Annual Report on
Board of Directors Form 10-K for the year ended December 31, 1999 (filed March
17, 2000), and incorporated herein by reference.
10.2.5 Schedule of Options Granted to Members of the Filed herewith.
Board Of Directors
10.3 Exemplar Form of the Directors, Officers Filed as exhibit 19.5 to the Company's Quarterly Report on
and Other Agents Indemnification Agreements Form 10-Q for the quarter ended June 30, 1988 (filed
August 14, 1988), and incorporated herein by reference.
10.3.1 Exemplar Form of Indemnification Agreement Filed as exhibit 10.5 to the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1998 (filed
November 12, 1998), and incorporated herein by reference.
10.4 Long-Term Stock Bonus Plan together with Filed as exhibit 10.3 to the Company's Annual Report on
Exemplar Long-Term Stock Bonus Agreement Form 10-K for the year ended December 31, 1990 (filed March
28, 1991), and incorporated herein by reference.
10.4.1 2000 Long-Term Stock Bonus Plan together with Filed herewith.
Exemplar Long-Term Stock Bonus Agreement
23 Written Consent of Arthur Andersen, LLP Filed herewith.
The exhibits listed above may be obtained from McGrath RentCorp, 5700
Las Positas Road, Livermore, California 94550-7800 upon written request. Each
request should specify the name and address of the requesting person and the
title of the exhibit or exhibits desired. A reasonable fee for copying any
exhibit requested plus postage will be charged by McGrath RentCorp prior to
furnishing such exhibit(s).
See http://www.sec.gov/edaux/formlynx.htm for the Company's most recent
filings.
37