What changed in this filing

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Item 1. Financial Statements

2022-07-28 compared with 2022-04-28 · 88 added, 47 removed, 326 unchanged (29% of the section changed)

4 unchanged sentences

Results of review of interim financial statements

We have reviewed the accompanying condensed consolidated balance sheet of McGrath RentCorp (a California Corporation), and subsidiaries (the “Company”) as of March 31, 2022, and the related condensed consolidated statements of income, comprehensive income, shareholders’ equity, and cash flows for the three-months ended March 31, 2022 and 2021, and the related notes (collectively referred to as the “interim financial statements”).

We have reviewed the accompanying condensed consolidated balance sheet of McGrath RentCorp (a California Corporation), and subsidiaries (the “Company”) as of June 30, 2022, and the related condensed consolidated statements of income, comprehensive income, and shareholders’ equity, for the three-month and six-month periods ended June 30, 2022 and 2021, cash flows for the six-month periods ended June 30, 2022 and 2021 and the related notes (collectively referred to as the “interim financial statements”).

Based on our reviews, we are not aware of any material modifications that should be made to the accompanying interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.

11 unchanged sentences

/s/ GRANT THORNTON LLP

San Jose, California

April 28, 2022

San Francisco, California

July 28, 2022

MCGRATH RENTCORP

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(in thousands, except per share amounts)

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Income from operations

Other income (expense):

Other expense:

Interest expense

Foreign currency exchange gain (loss)

Foreign currency exchange loss

Income before provision for income taxes

6 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(in thousands)

Other comprehensive income:

Other comprehensive income (loss):

Foreign currency translation adjustment, net of tax impact

4 unchanged sentences

(in thousands)

Accounts receivable, net of allowance for credit losses of $ 2,125 in 2022 and 2021

Accounts receivable, net of allowance for credit losses of $ 2,125 in 2022

Rental equipment, at cost:

15 unchanged sentences

Common stock, no par value - Authorized 40,000 shares

Issued and outstanding - 24,335 shares as of March 31, 2022 and 24,260 shares as

of December 31, 2021

Issued and outstanding - 24,378 shares as of June 30, 2022 and 24,260 shares as of December 31, 2021

Retained earnings

Accumulated other comprehensive loss

Accumulated other comprehensive income (loss)

Total shareholders’ equity

15 unchanged sentences

Balance at March 31, 2022

Share-based compensation

Common stock issued under stock plans, net of shares

withheld for employee taxes

Taxes paid related to net share settlement of stock awards

Dividends accrued of $ 0.455 per share

Other comprehensive income

Balance at June 30, 2022

The accompanying notes are an integral part of these condensed consolidated financial statements.

11 unchanged sentences

Balance at March 31, 2021

Share-based compensation

Common stock issued under stock plans, net of shares

withheld for employee taxes

Taxes paid related to net share settlement of stock awards

Dividends accrued of $ 0.435 per share

Other comprehensive loss

Balance at June 30, 2021

The accompanying notes are an integral part of these condensed consolidated financial statements.

1 unchanged sentence

CONDENSED Consolidated Statements of Cash Flows

Three Months Ended March 31,

Six Months Ended June 30,

(in thousands)

7 unchanged sentences

Gain on sale of used rental equipment

Foreign currency exchange (gain) loss

Foreign currency exchange loss

Amortization of debt issuance costs

7 unchanged sentences

Purchases of property, plant and equipment

Cash paid for acquisition of businesses

Proceeds from sales of used rental equipment

1 unchanged sentence

Cash Flows from Financing Activities:

Net repayment under bank lines of credit

Net borrowings under bank lines of credit

Borrowings under note purchase agreement

Taxes paid related to net share settlement of stock awards

Payment of dividends

Net cash used in financing activities

Net cash (used in) provided by financing activities

Effect of foreign currency exchange rate changes on cash

Net increase in cash

Net (decrease) increase in cash

Cash balance, beginning of period

8 unchanged sentences

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

March 31, 2022

June 30, 2022

CONDENSED CONSOLIDATED FINANCIAL INFORMATION

The condensed consolidated financial statements for the three months ended March 31, 2022 and 2021 have not been audited, but in the opinion of management, all adjustments (consisting of normal recurring accruals, consolidating and eliminating entries) necessary for the fair presentation of the consolidated financial position, results of operations and cash flows of McGrath RentCorp (the “Company”) have been made.

The condensed consolidated financial statements for the three and six months ended June 30, 2022 and 2021 have not been audited, but in the opinion of management, all adjustments (consisting of normal recurring accruals, consolidating and eliminating entries) necessary for the fair presentation of the consolidated financial position, results of operations and cash flows of McGrath RentCorp (the “Company”) have been made.

The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”).

Certain information and note disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted pursuant to those rules and regulations.

The consolidated results for the three months ended March 31, 2022 should not be considered as necessarily indicative of the consolidated results for the entire fiscal year.

The consolidated results for the three and six months ended June 30, 2022 should not be considered as necessarily indicative of the consolidated results for the entire fiscal year.

These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s latest Annual Report on Form 10-K, filed with the SEC on February 23, 2022 for the year ended December 31, 2021 (the “2021 Annual Report”).

NEW ACCOUNTING PRONOUNCEMENTS

In March 2022, the FASB issued Accounting Standards Update (“ASU”) 2022-02, Financial Instruments—Credit Losses (Topic 326):

Troubled Debt Restructurings and Vintage Disclosures, which eliminates the separate recognition and measurement guidance for troubled debt restructurings by creditors.

In addition, the ASU requires disclosure of current-period gross write-offs by year of origination for financing receivables and net investments in leases within the scope of FASB ASC 326-20, Financial Instruments—Credit Losses—Measured at Amortized Cost.

This ASU is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years.

The Company does not expect the adoption of this ASU to have a material impact on its consolidated financial statements.

REVENUE RECOGNITION

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The advance payments are not considered a significant financing component because the payments are used to meet working capital needs during the contract and to protect the Company from the customer failing to adequately complete their obligations under the contract.

These contract liabilities are included in Deferred income on the Company’s consolidated balance sheet and totaled $ 21.8 million and $ 16.8 million at March 31, 2022 and December 31, 2021, respectively.

Sales revenues totaling $ 2.2 million were recognized during the three months ended March 31, 2022, which were included in the contract liability balance at December 31, 2021.

These contract liabilities are included in Deferred income on the Company’s consolidated balance sheet and totaled $ 34.3 million and $ 16.8 million at June 30, 2022 and December 31, 2021, respectively.

Sales revenues totaling $ 4.2 million and $ 6.5 million were recognized during the three and six months ended June 30, 2022, which were included in the contract liability balance at December 31, 2021.

For certain modular building sales, the customer retains a small portion of the contract price until full completion of the contract, which results in revenue earned in excess of billings.

These unbilled contract assets are included in Accounts receivable on the Company’s consolidated balance sheet and totaled $ 0.9 million and $ 1.3 million at March 31, 2022 and December 31, 2021, respectively.

These unbilled contract assets are included in Accounts receivable on the Company’s consolidated balance sheet and totaled $ 1.8 million and $ 1.3 million at June 30, 2022 and December 31, 2021, respectively.

Lease Revenues

4 unchanged sentences

These revenues are recognized on a straight-line basis over the term of the lease.

Certain leases are accounted for as finance leases.

Certain leases are

accounted for as finance leases.

For these leases, sales revenue and the related accounts receivable are recognized upon delivery and installation of the equipment and the unearned interest is recognized over the lease term on a basis which results in a constant rate of return on the unrecovered lease investment.

Other revenues include interest income on finance leases and rental income on facility leases.

In the three months ended March 31, 2022, the Company’s lease revenues were $ 118.5 million, consisting of $ 117.8 million of operating lease revenues and $ 0.7 million of finance lease revenues.

In the three and six months ended June 30, 2022, the Company’s lease revenues were $ 126.8 million and $ 245.3 million, respectively, consisting of $ 125.8 million and $ 243.6 million of operating lease revenues, respectively, and $ 1.0 million and $ 1.7 million of finance lease revenues, respectively.

The Company has entered into finance leases to finance certain equipment sales to customers.

1 unchanged sentence

For these leases, sales revenue and the related accounts receivable are recognized upon delivery and installation of the equipment and the unearned interest is recognized over the lease term on a straight-line basis, which results in a constant rate of return on the unrecovered lease investment.

The Company’s finance lease revenues for the three months ended March 31, 2022 include $ 0.6 million of sales revenues and $ 0.1 million of interest income.

The Company’s finance lease revenues for the three and six months ended June 30, 2022 include $ 0.9 million and $ 1.5 million of sales revenues, respectively, and $ 0.1 million and $ 0.2 million of interest income, respectively.

Non-Lease Revenues

4 unchanged sentences

Sales taxes charged to customers are reported on a net basis and are excluded from revenues and expenses.

The following table disaggregates the Company’s revenues by lease (within the scope of ASC 842) and non-lease revenues (within the scope of ASC 606) and the underlying service provided for the three months ended March 31, 2022 and 2021:

(in thousands)

Three Months Ended March 31,

Three Months Ended June 30,

Rental related services

4 unchanged sentences

Total revenues

Six Months Ended June 30,

Rental related services

Total non-lease

Total revenues

Rental related services

Total non-lease

Total revenues

Customer returns of rental equipment prior to the end of the rental contract term are typically billed a cancellation fee, which is recorded as rental revenue in the period billed.

1 unchanged sentence

The Company typically provides limited 90 -day warranties for certain sales of used rental equipment and one-year warranties on equipment manufactured by Enviroplex.

Although the Company’s policy is to provide reserves for warranties when required for specific circumstances, warranty costs have not been significant.

Although the Company’s policy is to provide reserves for warranties when required for specific circumstances, warranty costs have not been significant to date.

The Company’s incremental cost of obtaining lease contracts, which consists of salesperson commissions, are deferred and amortized over the initial lease term for modular leases.

5 unchanged sentences

Three Months Ended

Six Months Ended

(in thousands)

4 unchanged sentences

calculating diluted earnings per share

There were no anti-dilutive securities excluded from the computation of diluted earnings per share in the three months ended March 31, 2022 and 2021.

There were 7,315 anti-dilutive securities excluded from the computation of diluted earnings per share for the three and six months ended June 30, 2022 and no anti-dilutive securities excluded for the same period in 2021.

The Company has in the past made purchases of shares of its common stock from time to time in over-the-counter market (NASDAQ) transactions, through privately negotiated, large block transactions and through a share repurchase plan, in accordance with Rule 10b5-1 of the Securities Exchange Act of 1934.

3 unchanged sentences

There can be no assurance that any authorized shares will be repurchased, and the Repurchase Plan may be modified, extended or terminated by the Company’s Board of Directors at any time.

There were no shares repurchased during the three months ended March 31, 2022 and 2021.

As of March 31, 2022, 1,309,805 shares remained authorized for repurchase under the Repurchase Plan.

There were no shares repurchased during the three and six months ended June 30, 2022 and 2021.

As of June 30, 2022, 1,309,805 shares remained authorized for repurchase under the Repurchase Plan.

INTANGIBLE ASSETS

4 unchanged sentences

Net book value

March 31, 2022

June 30, 2022

Customer relationships

15 unchanged sentences

The Company last conducted a qualitative analysis of its goodwill and intangible assets in the fourth quarter 2021, with no indicators of impairment.

In addition, no impairment triggering events occurred during the three months ended March 31, 2022.

In addition, no impairment triggering events occurred during the six months ended June 30, 2022.

Determining fair value of a reporting unit is judgmental and involves the use of significant estimates and assumptions.

1 unchanged sentence

Intangible assets with finite useful lives are amortized over their respective useful lives.

Amortization expense in the three months ended March 31, 2022 and 2021, was $ 1.5 million and $ 0.1 million, respectively.

Based on the carrying values at March 31, 2022 and assuming no subsequent impairment of the underlying assets, the amortization expense is expected to be $ 4.4 million for the remainder of fiscal year 2022, $ 5.9 million annually in 2023 through 2025, $ 5.4 million in 2026 and $ 5.2 million in 2027.

Amortization expense in the six months ended June 30, 2022 and 2021, was $ 3.0 million and $ 1.7 million, respectively.

Based on the carrying values at June 30, 2022 and assuming no subsequent impairment of the underlying assets, the amortization expense is expected to be $ 3.0 million for the remainder of fiscal year 2022, $ 5.9 million annually in 2023 through 2025, $ 5.4 million in 2026 and $ 5.2 million in 2027.

SEGMENT REPORTING

8 unchanged sentences

The Company does not report total assets by business segment.

Summarized financial information for the three months ended March 31, 2022 and 2021 for the Company’s reportable segments is shown in the following table:

Summarized financial information for the six months ended June 30, 2022 and 2021 for the Company’s reportable segments is shown in the following table:

(dollar amounts in thousands)

Three Months Ended March 31,

Six Months Ended June 30,

Rental revenues

20 unchanged sentences

Selling and administrative expenses

Income (loss) from operations

Income from operations

Interest (expense) income allocation

Income (loss) before provision for income taxes

Income before provision for income taxes

Adjusted EBITDA

5 unchanged sentences

Average utilization 2

Gross Enviroplex sales revenues were $ 917 and $ 2,090 for the three months ended March 31, 2022 and 2021, respectively.

There were $ 0 and $ 856 inter-segment sales to Mobile Modular in the three months ended March 31, 2022 and 2021, respectively, which required elimination in consolidation.

Gross Enviroplex sales revenues were $ 6,423 and $ 10,211 for the six months ended June 30, 2022 and 2021, respectively.

There were $ 856 and $ 855 inter-segment sales to Mobile Modular in the six months ended June 30, 2022 and 2021, respectively, which required elimination in consolidation.

Utilization is calculated each month by dividing the cost of rental equipment on rent by the total cost of rental equipment, excluding accessory equipment, and for Mobile Modular and Adler Tanks, excluding new equipment inventory.

The Average utilization for the period is calculated using the average costs of rental equipment.

No single customer accounted for more than 10% of total revenues for the three months ended March 31, 2022 and 2021.

No single customer accounted for more than 10% of total revenues for the six months ended June 30, 2022 and 2021.

Revenues from foreign country customers accounted for 4 % and 5 % of the Company’s total revenues for the same periods, respectively.

36 unchanged sentences

Total purchase price

The value assigned to identifiable intangible assets have been determined based on discounted estimated future cash flows associated with such assets to their present value.

The value assigned to identifiable intangible assets was determined based on discounted estimated future cash flows associated with such assets to their present value.

The combined acquired goodwill of $ 104,196 reflects the strategic fit of Design Space and Kitchens to Go with the Company’s modular business operations.

5 unchanged sentences

A pro forma adjustment has been made to reflect the income taxes that would have been recorded at the combined federal and state statutory rate of 28 % on the acquisitions’ combined net income.

The pro forma results for the three months ended March 31, 2021 have been adjusted to include transaction related costs.

The pro forma results for the six months ended June 30, 2021 have been adjusted to include transaction related costs.

This pro forma data is presented for informational purposes only and does not purport to be indicative of the results of the future operations or the results that would have occurred had the acquisitions taken place in the periods noted below:

Three months ended March 31,

Six months ended June 30,

(dollar amounts in thousands, except for per share amounts)

9 unchanged sentences

On December 31, 2021 the Company completed the purchase of the assets of Titan Storage Containers, LLC (“Titan”) for $ 6.6 million in cash consideration on the closing date and $ 0.3 million remaining liability to the seller.

The acquisition was accounted for as a purchase of “assets” in accordance with criteria in ASC 805 and the initial assessment of the fair value of the purchased assets was allocated primarily to rental equipment totaling $ 6.2 million and rolling stock assets totaling $ 0.8 million, partially offset by accrued liabilities of $ 0.2 million.

The acquisition was accounted for as a purchase of “assets” in accordance with criteria in ASC 805 and the assessment of the fair value of the purchased assets was allocated primarily to rental equipment totaling $ 6.2 million and rolling stock assets totaling $ 0.8 million, partially offset by accrued liabilities of $ 0.2 million.

The rolling stock assets include delivery trucks, delivery trailers, trucks and forklifts.

1 unchanged sentence

Incremental transaction costs associated with the asset purchase were not significant.

SUBSEQUENT EVENTS

On July 15 th , 2022, the Company entered into an amended and restated credit agreement with Bank of America, N.A., as Administrative Agent, Swing Line Lender, L/C Issuer and lender, and other lenders named therein (the “Credit Facility”).

The Credit Facility provides for a $ 650.0 million unsecured revolving credit facility (which may be further increased to $ 950.0 million by adding one or more tranches of term loans and/or increasing the aggregate revolving commitments), which includes a $ 40.0 million sublimit for the issuance of standby letters of credit and a $ 20.0 million sublimit for swingline loans.

The proceeds of the Credit Facility are available to be used for general corporate purposes, including permitted acquisitions.

The Credit Facility permits the Company’s existing indebtedness to remain, which includes the Company’s $ 12.0 million Treasury Sweep Note due March 31, 2025 , the Company’s existing senior notes issued pursuant to the Note Purchase and Private Shelf Agreement with Prudential Investment Management, Inc., dated as of April 21, 2011 (as amended):

(i) the $ 60.0 million aggregate outstanding principal of notes issued November 5, 2015 and due November 5, 2022 , (ii) the $ 40.0 million aggregate outstanding principal of notes issued March 17, 2021 and due March 17, 2028 , and (iii) the $ 60.0 million aggregate outstanding principal of notes issued June 16, 2021 and due June 16, 2026 .

In addition, the Company may incur additional senior note indebtedness in an aggregate amount not to exceed $ 250.0 million.

The Credit Facility matures on July 15, 2027 and replaced the Company’s prior $ 420.0 million credit facility dated March 31, 2020 with Bank of America, N.A., as agent, as amended.

All obligations outstanding under the prior credit facility as of the date of the Credit Facility were refinanced by the Credit Facility on July 15, 2022.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements