SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended June 30, 2004
Commission file number 0-13292
McGRATH RENTCORP
(Exact name of registrant as specified in its Charter)
| California | 94-2579843 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
5700 Las Positas Road, Livermore, CA 94551-7800
(Address of principal executive offices)
Registrant’s telephone number: (925) 606-9200
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 whether the registrant is an accelerated filer (as defined under Rule 12b-2 of the Exchange Act). Yes x No ¨
At August 5, 2004 12,169,524 shares of Registrant’s Common Stock were outstanding.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MCGRATH RENTCORP
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
| Three Months Ended June 30, |
Six Months Ended June 30, |
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| (in thousands, except per share amounts) |
2004 |
2003 |
2004 |
2003 |
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| REVENUES |
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| Rental |
$ | 25,560 | $ | 18,219 | $ | 45,583 | $ | 36,660 | |||||||
| Rental Related Services |
5,822 | 3,657 | 10,366 | 7,204 | |||||||||||
| Rental Operations |
31,382 | 21,876 | 55,949 | 43,864 | |||||||||||
| Sales |
9,198 | 9,500 | 14,281 | 14,777 | |||||||||||
| Other |
209 | 208 | 438 | 404 | |||||||||||
| Total Revenues |
40,789 | 31,584 | 70,668 | 59,045 | |||||||||||
| COSTS AND EXPENSES |
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| Direct Costs of Rental Operations |
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| Depreciation of Rental Equipment |
5,875 | 3,127 | 9,136 | 6,242 | |||||||||||
| Rental Related Services |
3,590 | 2,212 | 6,265 | 4,373 | |||||||||||
| Other |
5,105 | 4,808 | 9,749 | 9,221 | |||||||||||
| Total Direct Costs of Rental Operations |
14,570 | 10,147 | 25,150 | 19,836 | |||||||||||
| Costs of Sales |
7,082 | 6,862 | 10,233 | 10,546 | |||||||||||
| Total Costs |
21,652 | 17,009 | 35,383 | 30,382 | |||||||||||
| Gross Margin |
19,137 | 14,575 | 35,285 | 28,663 | |||||||||||
| Selling and Administrative |
7,596 | 5,910 | 13,653 | 11,250 | |||||||||||
| Income from Operations |
11,541 | 8,665 | 21,632 | 17,413 | |||||||||||
| Interest |
1,408 | 748 | 1,948 | 1,438 | |||||||||||
| Income Before Provision for Income Taxes |
10,133 | 7,917 | 19,684 | 15,975 | |||||||||||
| Provision for Income Taxes |
4,043 | 3,159 | 7,854 | 6,374 | |||||||||||
| Income Before Minority Interest |
6,090 | 4,758 | 11,830 | 9,601 | |||||||||||
| Minority Interest in Income (Loss) of Subsidiary |
(31 | ) | 40 | (29 | ) | (6 | ) | ||||||||
| Net Income |
$ | 6,121 | $ | 4,718 | $ | 11,859 | $ | 9,607 | |||||||
| Earnings Per Share: |
|||||||||||||||
| Basic |
$ | 0.50 | $ | 0.39 | $ | 0.98 | $ | 0.79 | |||||||
| Diluted |
$ | 0.49 | $ | 0.39 | $ | 0.96 | $ | 0.78 | |||||||
| Shares Used in Per Share Calculation: |
|||||||||||||||
| Basic |
12,153 | 12,039 | 12,139 | 12,150 | |||||||||||
| Diluted |
12,371 | 12,169 | 12,335 | 12,261 | |||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
1
MCGRATH RENTCORP
CONSOLIDATED BALANCE SHEETS
| (in thousands) | June 30, 2004 |
December 31, 2003 |
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| (unaudited) | ||||||||
| ASSETS |
||||||||
| Cash |
$ | 736 | $ | 4 | ||||
| Accounts Receivable, net of allowance for doubtful accounts of $950 in 2004 and $650 in 2003 |
49,994 | 32,199 | ||||||
| Rental Equipment, at cost: |
||||||||
| Relocatable Modular Buildings |
323,244 | 304,905 | ||||||
| Electronic Test Instruments |
141,279 | 34,448 | ||||||
| 464,523 | 339,353 | |||||||
| Less Accumulated Depreciation |
(112,186 | ) | (107,307 | ) | ||||
| Rental Equipment, net |
352,337 | 232,046 | ||||||
| Property, Plant and Equipment, net |
48,345 | 47,250 | ||||||
| Prepaid Expenses and Other Assets |
15,030 | 12,359 | ||||||
| Total Assets |
$ | 466,442 | $ | 323,858 | ||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY |
||||||||
| Liabilities: |
||||||||
| Notes Payable |
$ | 168,500 | $ | 47,266 | ||||
| Accounts Payable and Accrued Liabilities |
41,301 | 28,695 | ||||||
| Deferred Income |
21,169 | 21,970 | ||||||
| Minority Interest in Subsidiary |
2,860 | 2,890 | ||||||
| Deferred Income Taxes, net |
81,216 | 79,059 | ||||||
| Total Liabilities |
315,046 | 179,880 | ||||||
| Shareholders’ Equity: |
||||||||
| Common Stock, no par value - Authorized — 40,000 shares Outstanding — 12,170 shares in 2004 and 12,122 shares in 2003 |
18,807 | 17,900 | ||||||
| Retained Earnings |
132,589 | 126,078 | ||||||
| Total Shareholders’ Equity |
151,396 | 143,978 | ||||||
| Total Liabilities and Shareholders’ Equity |
$ | 466,442 | $ | 323,858 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
2
MCGRATH RENTCORP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
| Six Months Ended June 30, |
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| (in thousands) |
2004 |
2003 |
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| CASH FLOWS FROM OPERATING ACTIVITIES: |
||||||||
| Net Income |
$ | 11,859 | $ | 9,607 | ||||
| Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: |
||||||||
| Depreciation and Amortization |
10,112 | 7,227 | ||||||
| Provision for Doubtful Accounts |
202 | 289 | ||||||
| Gain on Sale of Rental Equipment |
(2,928 | ) | (2,373 | ) | ||||
| Change In, Net of TRS Assets Acquired and Liabilities Assumed: |
||||||||
| Accounts Receivable |
(4,416 | ) | 3,415 | |||||
| Prepaid Expenses and Other Assets |
(2,671 | ) | (935 | ) | ||||
| Accounts Payable and Accrued Liabilities |
8,079 | 2,346 | ||||||
| Deferred Income |
(2,446 | ) | (4,493 | ) | ||||
| Deferred Income Taxes |
2,157 | 3,339 | ||||||
| Net Cash Provided by Operating Activities |
19,948 | 18,422 | ||||||
| CASH FLOW FROM INVESTING ACTIVITIES: |
||||||||
| Purchase of TRS Assets, Net of Liabilities Assumed |
(118,413 | ) | — | |||||
| Purchase of Rental Equipment |
(26,237 | ) | (12,188 | ) | ||||
| Purchase of Property, Plant and Equipment |
(437 | ) | (711 | ) | ||||
| Proceeds from Sale of Rental Equipment |
8,825 | 6,323 | ||||||
| Net Cash Used in Investing Activities |
(136,262 | ) | (6,576 | ) | ||||
| CASH FLOW FROM FINANCING ACTIVITIES: |
||||||||
| Net Borrowings Under Bank Lines of Credit |
61,234 | 2,650 | ||||||
| Borrowings Under Private Placement |
60,000 | — | ||||||
| Proceeds from the Exercise of Stock Options |
907 | 367 | ||||||
| Repurchase of Common Stock |
— | (10,207 | ) | |||||
| Payment of Dividends |
(5,095 | ) | (4,656 | ) | ||||
| Net Cash Used in Financing Activities |
117,046 | (11,846 | ) | |||||
| Net Increase in Cash |
732 | — | ||||||
| Cash, beginning of period |
4 | 4 | ||||||
| Cash, end of period |
$ | 736 | $ | 4 | ||||
| Interest Paid, during the period |
$ | 2,294 | $ | 1,453 | ||||
| Income Taxes Paid, during the period |
$ | 5,696 | $ | 3,034 | ||||
| Dividends Declared, not yet paid |
$ | 2,677 | $ | 2,411 | ||||
| Rental Equipment Acquisitions, not yet paid |
$ | 6,533 | $ | 6,057 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
3
MCGRATH RENTCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2004
NOTE 1. CONSOLIDATED FINANCIAL INFORMATION
The consolidated financial information for the three and six months ended June 30, 2004 and 2003 have not been audited, but in the opinion of management, all adjustments (consisting of only normal recurring accruals, consolidation and eliminating entries) necessary for the fair presentation of the consolidated results of operations, financial position, and cash flows of McGrath RentCorp (the “Company”) have been made. The consolidated results of the three and six months ended June 30, 2004 should not be considered as necessarily indicative of the consolidated results for the entire year. It is suggested that these consolidated financial statements be read in conjunction with the financial statements and notes thereto included in the Company’s latest Form 10-K.
NOTE 2. ACQUISITION
In May 2004, the Company entered into an Asset Purchase Agreement to purchase substantially all of the assets of Technology Rentals & Services (“TRS”), a division of CIT Group Inc. (“CIT”) in order to facilitate the growth of the electronics business. Based in Dallas, Texas, TRS is similar to the Company’s existing electronics business, RenTelco, and is one of the leading providers of general purpose and communications test equipment for rent or sale in North America. The transaction was completed on June 2, 2004 for cash consideration of approximately $120.6 million, including expenses of $1.0 million, subject to final adjustments by the Company to the seller’s preliminary accounting report.
The acquisition was accounted for using the purchase method of accounting. Under the purchase method of accounting, the total purchase price is allocated to TRS’ net tangible assets based upon their fair value as of the date of the transaction. Based upon the preliminary allocation of the purchase price and management’s estimate of fair value based upon the preliminary independent valuation, the purchase price allocation, which is subject to change based on the Company’s final adustments, is as follows:
| (in thousands) |
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| Rental Equipment |
$ | 107,642 | ||
| Accounts Receivable, net |
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