UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2020
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 000-13292
McGRATH RENTCORP
(Exact name of registrant as specified in its Charter)
California
(State or other jurisdiction
of incorporation or organization)
94-2579843
(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
Securities registered pursuant to Section 12(b) of the Act:
Trading Symbol(s)
MGRC
Name of each exchange on which registered
NASDAQ Global Select Market
Title of each class
Common Stock
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☒ Yes ☐ No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ☐ Yes ☒ No
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 ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit
such files). ☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company,
or an emerging growth company. See the definition of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth
company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer
Non-accelerated filer
Emerging growth company
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☐
☐
Accelerated filer
Smaller reporting company
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☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on attestation to its management’s assessment of the effectiveness of its internal
control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that
prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No
Aggregate market value of the registrant’s common stock held by non-affiliates of the registrant as of June 30, 2020 (based upon the closing
sale price of the registrant’s common stock as reported on the NASDAQ Global Select Market on June 30, 2020): $1,287,170,749.
As of February 22, 2021, 24,128,208 shares of Registrant’s Common Stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
McGrath RentCorp’s definitive proxy statement with respect to its 2021 Annual Meeting of Shareholders to be held on June 9, 2021 which will
be filed with the Securities and Exchange Commission within 120 days after the end of its fiscal year ended December 31, 2020, is incorporated by
reference into Part III (Items 10, 11, 12, and 13).
Exhibit index appears on page 90
FORWARD LOOKING STATEMENTS
Statements contained in this Annual Report on Form 10-K (“this Form 10-K”) which are not historical facts are forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical
facts, regarding McGrath RentCorp’s (the “Company’s”) expectations, strategies, prospects or targets are forward looking statements.
These forward-looking statements also can be identified by the use of forward-looking terminology such as “anticipates,”
“believes,” ”continues,” ”could,” ”estimates,” “expects,” “intends,” ”may,” ”plan,” ”predict,” ”project,” or “will,” or the negative
of these terms or other comparable terminology.
Management cautions that forward-looking statements are not guarantees of future performance and are subject to risks and
uncertainties that could cause our actual results to differ materially from those projected in such forward-looking statements. Further,
our future business, financial condition and results of operations could differ materially from those anticipated by such forward-looking
statements and are subject to risks and uncertainties as set forth under “Risk Factors” in this Form 10-K. Moreover, neither we nor
any other person assumes responsibility for the accuracy and completeness of the forward-looking statements.
Forward-looking statements are made only as of the date of this Form 10-K and are based on management’s reasonable
assumptions, however these assumptions can be wrong or affected by known or unknown risks and uncertainties. No forward-looking
statement can be guaranteed and subsequent facts or circumstances may contradict, obviate, undermine or otherwise fail to support or
substantiate such statements. Readers should not place undue reliance on these forward-looking statements and are cautioned that any
such forward-looking statements are not guarantees of future performance. Except as otherwise required by law, we are under no duty
to update any of the forward-looking statements after the date of this Form 10-K to conform such statements to actual results or to
changes in our expectations.
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ITEM 1.
BUSINESS.
General Overview
PART I
McGrath RentCorp (the “Company”) is a California corporation organized in 1979 with corporate offices located in Livermore,
California. The Company’s common stock is traded on the NASDAQ Global Select Market under the symbol “MGRC”. References in
this report to the “Company”, “we”, “us”, and “ours” refer to McGrath RentCorp and its subsidiaries, unless the context requires
otherwise.
The Company is a diversified business-to-business rental company with four rental divisions: relocatable modular buildings,
portable storage containers, electronic test equipment, and liquid and solid containment tanks and boxes. Although the Company’s
primary emphasis is on equipment rentals, sales of equipment occur in the normal course of business. The Company is comprised of
four reportable business segments: (1) its modular building and portable storage segment (“Mobile Modular”); (2) its electronic test
equipment segment (“TRS-RenTelco”); (3) its containment solutions for the storage of hazardous and non-hazardous liquids and solids
segment (“Adler Tanks”); and (4) its classroom manufacturing business selling modular buildings used primarily as classrooms in
California (“Enviroplex”).
No single customer accounted for more than 10% of total revenues during 2020, 2019 and 2018. Revenue from foreign country
customers accounted for 4%, 5% and 4% of the Company’s revenues in 2020, 2019 and 2018, respectively.
Business Model
The Company invests capital in rental products and generally has recovered its original investment through rents less cash
operating expenses in a relatively short period of time compared to the product’s rental life. When the Company’s rental products are
sold, the proceeds generally have covered a high percentage of the original investment. With these characteristics, a significant base of
rental assets on rent generates a considerable amount of operating cash flows to support continued rental asset growth. The Company’s
rental products have the following characteristics:
(cid:129)
(cid:129)
The product required by the customer tends to be expensive compared to the Company’s monthly rental charge, with the
interim rental solution typically evaluated as a less costly alternative.
Generally, we believe the Company’s customers have a short-term need for our rental products. The customer’s rental
requirement may be driven by a number of factors including time, budget or capital constraints, future uncertainty impacting
their ongoing requirements, equipment availability, specific project requirements, peak periods of demand or the customer
may want to eliminate the burdens and risks of ownership.
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(cid:129)
(cid:129)
(cid:129)
All of the Company’s rental products have long useful lives relative to the typical rental term. Modular buildings
(“modulars”) have an estimated life of eighteen years compared to the typical rental term of twelve to twenty-four months,
electronic test equipment has an estimated life range of one to eight years (depending on the type of product) compared to
a typical rental term of one to six months, and liquid and solid containment tanks and boxes have an estimated life of twenty
years compared to typical rental terms of one to six months.
We believe short-term rental rates typically recover the Company’s original investment quickly based on the respective
product’s annual yield, or annual rental revenues divided by the average cost of rental equipment. For modulars the original
investment is recovered in approximately five years, in approximately three years for electronic test equipment and in
approximately four years for liquid and solid containment tanks and boxes.
When a product is sold from our rental inventory, a significant portion of the original investment is usually recovered.
Effective asset management is a critical element to each of the rental businesses and the residuals realized when product is
sold from inventory. Modular asset management requires designing and building the product for a long life, coupled with
ongoing repair and maintenance investments, to ensure its long useful rental life and generally higher residuals upon sale.
Electronic test equipment asset management requires understanding, selecting and investing in equipment technologies that
support market demand and, once invested, proactively managing the equipment at the model level for optimum utilization
through its technology life cycle to maximize the rental revenues and residuals realized. Liquid and solid containment tanks
and boxes asset management requires selecting and purchasing quality product and making ongoing repair and maintenance
investments to ensure its long rental life.
The Company believes that rental revenue growth from an increasing base of rental assets and improved gross profits on rents are
the best measures of the health of each of our rental businesses. Additionally, we believe our business model and results are enhanced
by operational leverage that is created from large regional sales and inventory centers for modulars, a single U.S. based sales, inventory
and operations facility for electronic test equipment, as well as shared senior management and back office functions for financing, human
resources, insurance, marketing, information technology and operating and accounting systems.
Human Capital Management
As of December 31, 2020, the Company had 1,061 employees, of whom 94 were primarily administrative and executive personnel,
with 575, 174, 133 and 85 in the operations of Mobile Modular, Adler Tanks, TRS-RenTelco and Enviroplex, respectively. None of
our employees are covered by a collective bargaining agreement, and management believes its relationship with our employees is good.
The Company believes its employees are key to its success and it is committed to all of its employees’ engagement, training and
career development, and personal and professional growth. The Board of Directors also receives regular updates from senior
management on matters relating to the Company’s strategy for the recruitment, retention and development of the Company’s employees.
The Company provides training in technical, operational and managerial skills, and places special emphasis on safety, effective
communications, customer service, and employee development. Additionally, the Company offers employees a tuition reimbursement
program whereby the employee may receive reimbursement for tuition and fees for undergraduate or graduate level academic courses
at an accredited two or four year college or university that may help employees improve performance in their current job or prepare
them for advancement.
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Government Regulations
We are subject to certain environmental, transportation, anti-corruption, import controls, health and safety and other laws and
regulations in locations in which we operate. Our activity in jurisdictions in which we operate is additionally subject to anti-bribery laws
and regulations, such as the US Foreign Corrupt Practices Act of 1977, which prevent companies and their officers, employees and
agents from making payments to officials and public entities of foreign countries to facilitate obtaining new contracts. We are also
subject to laws and regulations that govern and impose liability for activities that may have adverse environmental effects, including
discharges into air and water, and handling and disposal of hazardous substances and waste. Our motor vehicles and related units are
subject to regulation in certain states under motor vehicle and similar registrations. While we incur costs in our business to comply with
these laws and regulations, management does not believe that the costs of compliance with these various governmental regulations is
material to our business and financial condition.
Available Information
We make the Company’s Securities and Exchange Commission (“SEC”) filings available at our website www.mgrc.com. These
filings include our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those
reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Act of 1934, which are available as soon as reasonably
practicable after the Company electronically files such material with, or furnishes such material to, the SEC. Information included on
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our website is not incorporated by reference to this Form 10-K. Furthermore, all reports the Company files with the SEC are available
through the SEC’s website at www.sec.gov.
We have a Code of Business Conduct and Ethics which applies to all directors, officers and employees. Copies of this code can
be obtained at our website www.mgrc.com. Any waivers to the Code of Business Conduct and Ethics and any amendments to such
code applicable to our Chief Executive Officer, Chief Financial Officer, Principal Accounting Officer or persons performing similar
functions, will be posted on our web site.
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RELOCATABLE MODULAR BUILDINGS
Description
Modulars are designed for use as classrooms, temporary offices adjacent to existing facilities, sales offices, construction field
offices, restroom buildings, health care clinics, child care facilities, office space, and for a variety of other purposes and may be moved
from one location to another. Modulars vary from simple single-unit construction site offices to multi-floor modular complexes. The
Company’s modular 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 or metal siding, sturdily built and physically capable of a
long useful life. Modulars are generally provided with installed heat, air conditioning, lighting, electrical outlets and floor covering, and
may have customized interiors including partitioning, cabinetry and plumbing facilities.
Mobile Modular purchases new modulars from various manufacturers who build to Mobile Modular’s design specifications.
During 2020, Mobile Modular purchased 45% of its modular units from one manufacturer. The Company believes that the loss of any
of its primary modular manufacturers could have an adverse effect on its operations since Mobile Modular could experience higher
prices and longer lead times for delivery of modular units until other manufacturers were able to increase their production capacity.
The Company’s modulars are manufactured to comply with state building codes, have a low risk of obsolescence, and can be
modified or reconfigured to accommodate a wide variety of customer needs. Historically, as state building codes have changed over
the years, Mobile Modular has been able to continue to use existing modulars, with minimal, if any, required upgrades. The Company
has no assurance that it will continue to be able to use existing modular equipment with minimal upgrades as building codes change in
the future.
Mobile Modular currently operates from regional sales and inventory centers in California, Texas, Florida, Georgia and Virginia,
serving large geographic areas in these and surrounding states, and sales offices serving Louisiana, North Carolina and South Carolina.
The regional sales and inventory centers have in-house infrastructure and operational capabilities to support quick and efficient repair,
modification, and refurbishment of equipment for the next rental opportunity. The Company believes operating from large regional
sales and inventory centers results in better operating margins as operating costs can be spread over a large installed customer base.
Mobile Modular actively maintains and repairs its rental equipment, and management believes this ensures the continued use of the
modular product over its long life and, when sold, has resulted in higher sale proceeds relative to its capitalized cost. When rental
equipment returns from a customer, the necessary repairs and preventative maintenance are performed prior to its next rental. By making
these expenditures for repair and maintenance throughout the equipment’s life we believe that older equipment can generally rent for
rates similar to those of newer equipment. Management believes the condition of the equipment is a more significant factor in
determining the rental rate and sale price than its age. Over the last three years, used equipment sold each year represented approximately
2% of rental equipment, and has been, on average, 15 years old with sale proceeds above its net book value.
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Competitive Strengths
Market Leadership – The Company believes Mobile Modular is the largest supplier in California and Florida, and a significant
supplier in Texas, of modular educational facilities for rental to both public and private schools. Management is knowledgeable about
the needs of its educational customers and the related regulatory requirements in the states where Mobile Modular operates, which
enables Mobile Modular to meet its customers’ specific project requirements.
Expertise – The Company believes that over the 40 plus years during which Mobile Modular has competed in the modular rental
industry, it has developed expertise that differentiates it from its competitors. Mobile Modular has dedicated its attention to continuously
developing and improving the quality of its modular units. Mobile Modular has expertise in the licensing and regulatory requirements
that govern modulars in the states where it operates, and its management, sales and operational staffs are knowledgeable and committed
to providing exemplary customer service. Mobile Modular has expertise in project management and complex applications.
Operating Structure – Part of the Company’s strategy for Mobile Modular is to create facilities and infrastructure capabilities that
its competitors cannot easily duplicate. Mobile Modular achieves this by building regional sales and inventory centers designed to serve
a broad geographic area and a large installed customer base under a single overhead structure, thereby reducing its cost per transaction.
The Company’s regional facilities and related infrastructure enable Mobile Modular to maximize its modular inventory utilization
through efficient and cost effective in-house repair, maintenance and refurbishment for quick redeployment of equipment to meet its
customers’ needs.
Asset Management – The Company believes Mobile Modular markets high quality, well-constructed and attractive modulars.
Mobile Modular requires manufacturers to build to its specifications, which enables Mobile Modular to maintain a standardized quality
fleet. In addition, through its ongoing repair, refurbishment and maintenance programs, the Company believes Mobile Modular’s
buildings are the best maintained in the industry. The Company depreciates its modular buildings over an 18 year estimated useful life
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to a 50% residual value. Older buildings continue to be productive primarily because of Mobile Modular’s focus on ongoing fleet
maintenance. Also, as a result of Mobile Modular’s maintenance programs, when a modular unit is sold, a high percentage of the
equipment’s capitalized cost is recovered. In addition, the fleet’s utilization is regionally optimized by managing inventory through
estimates of market demand, fulfillment of current rental and sale order activity, modular returns and capital purchases.
Customer Service - The Company believes the modular rental industry to be service intensive and locally based. The Company
strives to provide excellent service by meeting its commitments to its customers, being proactive in resolving project issues and seeking
to continuously improve the customers’ experience. Mobile Modular is committed to offering quick response to requests for information,
providing experienced assistance, on time delivery and preventative maintenance of its units. Mobile Modular’s goal is to continuously
improve its procedures, processes and computer systems to enhance internal operational efficiency. The Company believes this
dedication to customer service results in high levels of customer loyalty and repeat business.
Market
Management estimates relocatable modular building rental is an industry that today has equipment on rent or available for rent in
the U.S. with an aggregate original cost of over $5.0 billion. Mobile Modular’s largest market segment is for temporary classroom and
other educational space needs of public and private schools, colleges and universities in California and Florida, and to a lesser extent in
Texas, Louisiana, North Carolina, South Carolina, Georgia, Maryland, Virginia and Washington, D.C. Management believes the
demand for rental classrooms is caused by shifting and fluctuating school populations, the limited state funds for new construction, the
need for temporary classroom space during reconstruction of older schools, class size reduction and the phasing out of portable
classrooms compliant with older building codes (see “Classroom Rentals and Sales to Public Schools (K-12)” below). Other customer
applications include sales offices, construction field offices, health care facilities, church sanctuaries and child care facilities. Industrial,
manufacturing, entertainment and utility companies, as well as governmental agencies commonly use large multi-modular complexes
to serve their interim administrative and operational space needs. Modulars offer customers quick, cost-effective space solutions while
conserving their capital. The Company’s corporate offices and regional sales and inventory center offices are housed in various sizes
of modular units.
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Since most of Mobile Modular’s customer requirements are to fill temporary space needs, Mobile Modular’s marketing emphasis
is on rentals rather than sales. Mobile Modular attracts customers through its website at www.mobilemodular.com, internet advertising
and direct marketing. Customers are encouraged to visit a regional sales and inventory center to view different models on display and
to see a regional office, which is a working example of a modular application.
Because service is a major competitive factor in the rental of modulars, Mobile Modular 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 field service of its units. On Mobile Modular’s website, customers are able to view and select inventory for quotation and request
in-field service.
Rentals
Rental periods range from one month to several years with a typical initial contract term between twelve and twenty-four months.
In general, monthly rental rates are determined by a number of factors including length of term, market demand, product availability
and product type. Upon expiration of the initial term, or any extensions, rental rates are reviewed, and when appropriate, are adjusted
based on current market conditions. Most rental agreements are operating leases that provide no purchase options, and when a rental
agreement does provide the customer with a purchase option, it is generally on terms management believes to be attractive to Mobile
Modular.
The customer is responsible for obtaining the necessary use permits and for the costs of insuring the unit, and is financially
responsible for transporting the unit to the site, preparation of the site, installation of the unit, dismantle and return delivery of the unit
to Mobile Modular, and certain costs for customization. Mobile Modular 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. Generally,
the units are then repaired for subsequent use. Repair and maintenance costs are expensed as incurred and can include floor repairs,
roof maintenance, cleaning, painting and other cosmetic repairs. The costs of major refurbishment of equipment are capitalized to the
extent the refurbishment significantly improves the quality and adds value or life to the equipment.
At December 31, 2020, Mobile Modular owned 56,880 new or previously rented modulars and portable storage containers with
an aggregate cost of $882.1 million including accessories, or an average cost per unit of $15,508. Utilization is calculated at the end of
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, 2020, fleet utilization was 76.0% and average fleet utilization during 2020 was 77.2%. The
Mobile Modular segment includes the results of operations of Mobile Modular Portable Storage, which represented approximately 8%
of the Company’s 2020 total revenues.
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Sales
In addition to operating its rental fleet, Mobile Modular sells modulars to customers. These sales typically arise out of its
marketing efforts for the rental fleet and from existing equipment already on rent. Such sales can be of either new or used units from
the rental fleet, which permits some turnover of older units. During 2020 Mobile Modular’s largest sale represented approximately 13%
of Mobile Modular’s sales, 7% of the Company’s consolidated sales and 1% of the Company’s consolidated revenues.
Mobile Modular typically provides limited 90-day warranties on used modulars and passes through the manufacturers’ one-year
warranty on new units to its customers. Warranty costs have not been significant to Mobile Modular’s operations to date, and the
Company attributes this to its commitment to high quality standards and regular maintenance programs. However, there can be no
assurance that warranty costs will continue to be insignificant to Mobile Modular’s operations in the future.
Enviroplex manufactures portable classrooms built to the requirements of the California Division of the State Architect (“DSA”)
and sells directly to California public school districts and other educational institutions.
Seasonality
Typically, during each calendar year, our highest numbers of classrooms are shipped for rental and sale orders during the second
and third quarters for delivery and installation prior to the start of the upcoming school year. The majority of classrooms shipped in the
second and third quarters have rental start dates during the third quarter, thereby making the fourth quarter the first full quarter of rental
revenues recognized for these transactions.
Competition
Competition in the rental and sale of relocatable modular buildings is intense. Some of our competitors in the modular building
leasing industry, notably WillScot Corporation (which merged with Mobile Mini in July 2020), have a greater range of products and
services, greater financial and marketing resources, larger customer bases, and greater name recognition than we have. In addition, a
number of other smaller companies operate regionally throughout the country. Mobile Modular operates primarily in California, Texas,
Florida, Louisiana, North Carolina, South Carolina, Georgia, Virginia, Maryland and Washington, D.C. Significant competitive factors
in the rental business include availability, price, service, reliability, appearance and functionality of the product. Mobile Modular markets
high quality, well-constructed and attractive modulars. Part of the Company’s strategy for modulars is 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 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 Mobile Modular
a competitive advantage. Mobile Modular is determined to respond quickly to requests for information, and provide experienced
assistance for the first-time user, rapid delivery and timely repair of its modular units. Mobile Modular’s already high level of efficiency
and responsiveness continues to improve as the Company upgrades procedures, processes and computer systems that control its internal
operations. The Company anticipates intense competition to continue and believes it must continue to improve its products and services
to remain competitive in the market for modulars.
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Classroom Rentals and Sales to Public Schools (K-12)
Mobile Modular and Enviroplex provide classroom and specialty space needs serving public and private schools, colleges and
universities. Within the educational market, the rental (by Mobile Modular) and sale (by Enviroplex and Mobile Modular) 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. Mobile Modular rents and sells classrooms in California, Florida,
Texas, Louisiana, North Carolina, South Carolina, Georgia, Maryland, Virginia and Washington, D.C. Enviroplex sells classrooms in
the California market. California is Mobile Modular’s largest educational market. Historically, demand in this market has been fueled
by shifting and fluctuating student populations, insufficient funding for new school construction, class size reduction programs,
modernization of aging school facilities and the phasing out of portable classrooms no longer compliant with current building codes.
The following table shows the approximate percentages of the Company’s modular rental and sales revenues, and of its consolidated
rental and sales revenues for the past five years, that rentals and sales to these schools constitute:
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Rentals and Sales to Public Schools (K-12) as a Percentage of Total Rental and Sales Revenues
Percentage of:
Modular Rental Revenues (Mobile Modular) ..........................................
Modular Sales Revenues (Mobile Modular & Enviroplex)......................
Modular Rental and Sales Revenues (Mobile Modular & Enviroplex)....
Consolidated Rental and Sales Revenues 1...............................................
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2020
33%
48%
38%
23%
2019
32%
64%
42%
25%
2018
33%
70%
44%
24%
2017
33%
76%
47%
26%
2016
34%
67%
43%
23%
Consolidated Rental and Sales Revenue percentage is calculated by dividing Modular rental and sales revenues to public schools (K-12) by the Company’s
consolidated rental and sales revenues.
School Facility Funding
Funding for public school facilities is derived from a variety of sources including the passage of both statewide and local facility
bond measures, operating budgets, developer fees, various taxes including parcel and sales taxes levied to support school operating
budgets, and lottery funds. There is no certainty on the timing of the bond sales and it could take additional years before projects funded
by these bonds generate meaningful demand for relocatable classrooms.
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ELECTRONIC TEST EQUIPMENT
Description
TRS-RenTelco rents and sells electronic test equipment nationally and internationally from two facilities located on the grounds
of the Dallas Fort Worth International Airport in Grapevine, Texas (the “Dallas facility”) and Dollard-des-Ormeaux, Canada (the
“Montreal facility”). TRS-RenTelco’s revenues are derived from the rental and sale of general purpose and communications test
equipment to a broad range of companies, from Fortune 500 to middle and smaller market companies, in the aerospace, defense,
communications, manufacturing and semiconductor industries. Electronic test equipment revenues are primarily affected by the
business activity within these industries related to research and development, manufacturing, and communication infrastructure
installation and maintenance. The Dallas facility, TRS-RenTelco’s primary operating location, houses the electronic test equipment
inventory, sales engineers, calibration laboratories, and operations staff for U.S. and international business. The Montreal facility houses
sales engineers and operations staff to serve the Canadian market. As of December 31, 2020, the original cost of electronic test
equipment inventory was comprised of 78% general purpose electronic test equipment and 22% communications electronic test
equipment.
Engineers, technicians and scientists utilize general purpose electronic test equipment in developing products, controlling
manufacturing processes, completing field service applications and evaluating the performance of their own electrical and electronic
equipment. These instruments are rented primarily to aerospace, defense, electronics, industrial, research and semiconductor industries.
To date, Keysight Technologies, Rhode & Schwarz and Tektronix, a division of Fortive Corporation, have manufactured the majority
of TRS-RenTelco’s general purpose electronic test equipment with the remainder acquired from over 60 other manufacturers.
Communications test equipment, including fiber optic test equipment, is utilized by technicians, engineers and installation
contractors to evaluate voice, data and multimedia communications networks, to install fiber optic cabling, and in the development and
manufacturing of transmission, network and wireless products. These instruments are rented primarily to manufacturers of
communications equipment and products, electrical and communications installation contractors, field technicians, and service providers.
To date, Anritsu, Viavi Solutions and Fluke Networks, a division of Fortive Corporation, have manufactured a significant portion of
TRS-RenTelco’s communications test equipment, with the remainder acquired from over 40 other manufacturers.
TRS-RenTelco’s general purpose test equipment rental inventory includes oscilloscopes, amplifiers, analyzers (spectrum, network
and logic), signal source and power source test equipment. The communications test equipment rental inventory includes network and
transmission test equipment for various fiber, copper and wireless networks. TRS-RenTelco occasionally rents electronic test equipment
from other rental companies and re-rents the equipment to customers.
Competitive Strengths
Market Leadership - The Company believes that TRS-RenTelco is one of the largest electronic test equipment rental and leasing
companies offering a broad and deep selection of general purpose and communications test equipment for rent in North America.
Expertise - The Company believes that its knowledge of products, technology and applications expertise provides it with a
competitive advantage over others in the industry. Customer requirements are supported by application engineers and technicians that
are knowledgeable about the equipment’s uses to ensure the right equipment is selected to meet the customer’s needs. This knowledge
can be attributed to the experience of TRS-RenTelco’s management, sales and operational teams.
Operating Structure - TRS-RenTelco is supported by a centralized distribution and inventory center on the grounds of the Dallas-
Fort Worth Airport in Texas. The Company believes that the centralization of servicing all customers in North America and
internationally by TRS-RenTelco’s experienced logistics teams provides a competitive advantage by minimizing transaction costs and
enabling TRS-RenTelco to ensure customer requirements are met.
Asset Management - TRS-RenTelco’s rental equipment inventory is serviced by an ISO 9001-2015 registered and compliant
calibration laboratory that repairs and calibrates equipment ensuring that off rent equipment is ready to ship immediately to meet
customers’ needs. TRS-RenTelco’s team of technicians, product managers and sales personnel are continuously monitoring and
analyzing the utilization of existing products, new technologies, general economic conditions and estimates of customer demand to
ensure the right equipment is purchased and sold, at the right point in the equipment’s technology life cycle. The Company believes
this enables it to maximize utilization of equipment and the cash flow generated by the rental and sales revenue of each model of
equipment. TRS-RenTelco strives to maintain strong relationships with equipment manufacturers, which enables it to leverage those
relationships to gain rental opportunities.
Customer Service - The Company believes that its focus on providing excellent service to its customers provides a competitive
advantage. TRS-RenTelco strives to provide exemplary service to fulfill its commitments to its customers. TRS-RenTelco prides itself
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in providing solutions to meet customers’ needs by having equipment available and responding quickly and thoroughly to their requests.
TRS-RenTelco’s sophisticated in-house laboratory ensures the equipment is fully functional and meets its customers’ delivery
requirements. Service needs of TRS-RenTelco’s customers are supported 24 hours a day, 7 days a week by its customer care specialists.
TRS-RenTelco’s goal is to provide service beyond its customers’ expectations, which, the Company believes, results in customer loyalty
and repeat business.
Market
Electronic test equipment rental is a market which we estimate has equipment on rent worldwide or available for rent with an
aggregate original cost in excess of $1 billion. There is a broad customer base for the rental of such instruments, including aerospace,
communications, defense, electrical contractor, electronics, industrial, installer contractor, network systems and research companies.
TRS-RenTelco markets its electronic test equipment throughout the United States, Canada, and, to a limited extent, other countries.
TRS-RenTelco attracts customers through its outside sales force, website at www.TRSRenTelco.com, telemarketing program, trade
show participation, paid internet search and electronic mail campaigns. A key part of the sales process is TRS-RenTelco’s
knowledgeable inside sales engineering team that effectively matches test equipment solutions to meet specific customer’s requirements.
The Company believes that customers rent electronic test equipment for many reasons. Customers frequently need equipment for
short-term projects, to evaluate new products, and for backup to avoid costly downtime. 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 the
relative certainty of rental costs can facilitate cost control and be useful in the bidding of and pass-through of contract costs. Finally,
renting rather than purchasing may better satisfy the customer’s budgetary constraints.
Rentals
TRS-RenTelco rents electronic test equipment typically for rental periods of one to six months, although in some instances, rental
terms can be up to a year or longer. Monthly rental rates typically are between 2% and 10% of the current manufacturers’ list price.
TRS-RenTelco depreciates its equipment over 1 to 8 years with no residual value.
At December 31, 2020, TRS-RenTelco had an electronic test equipment rental inventory including accessories with an aggregate
cost of $333.0 million. Utilization is calculated each month by dividing the cost of the rental equipment on rent by the total cost of
rental equipment, excluding accessory equipment. Utilization was 67.4% as of December 31, 2020 and averaged 66.2% during the year.
Sales
Profit from equipment sales is a material component of TRS-RenTelco’s overall annual earnings. Gross profit from sales of both
used and new equipment over the last five years generally has ranged from approximately 20% to 24% of total annual gross profit for
our electronics division. For 2020, gross profit on equipment sales was approximately 21% of total division gross profit. Equipment
sales are driven by the turnover of older technology rental equipment, to maintain target utilization at a model number level, and new
equipment sales opportunities. In 2020, approximately 19% of the electronic test equipment revenues were derived from sales. The
largest electronic test equipment sale during 2020 represented 9% of electronic test equipment sales, 2% of the Company’s consolidated
sales and less than 1% of consolidated revenues. There is intense competition in the sales of electronic test equipment from a world-
wide network of test equipment brokers and resellers, legacy rental companies, and equipment manufacturers. We believe the annual
world-wide sale of electronic test equipment is in excess of $8.0 billion per year.
Seasonality
Rental activity may decline in the fourth quarter month of December and the first quarter months of January and February. These
months may have lower rental activity due to holiday closures, particularly by larger companies, inclement weather and its impact on
various field related communications equipment rentals, and companies’ operational recovery from holiday closures which may impact
the start-up of new projects coming online in the first quarter. These factors may impact the quarterly results of each year’s first and
fourth quarter.
Competition
The electronic test equipment rental business is characterized by intense competition from several competitors, including Electro
Rent Corporation, Continental Resources, and TestEquity, some of which may have access to greater financial and other resources than
we do. TRS-RenTelco competes with these and other test equipment rental companies on the basis of product availability, price, service
and reliability. Although no single competitor holds a dominant market share, we face intense competition from these established
entities and new entrants in the market. Some of our competitors may offer similar equipment for lease, rental or sales at lower prices
and may offer more extensive servicing, or financing options.
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LIQUID AND SOLID CONTAINMENT TANKS AND BOXES
Description
Adler Tanks’ rental inventory is comprised of tanks and boxes used for various containment solutions to store hazardous and non-
hazardous liquids and solids in applications such as: oil and gas exploration and field services, refinery, chemical and industrial plant
maintenance, environmental remediation and field services, infrastructure building construction, marine services, pipeline construction
and maintenance, tank terminals services, wastewater treatment, and waste management and landfill services. The tanks and boxes are
comprised of the following products:
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fixed axle steel tanks (“tanks”) for the storage of groundwater, wastewater, volatile organic liquids, sewage, slurry and bio
sludge, oil and water mixtures and chemicals, which are available in a variety of sizes including 21,000 gallon, 16,000
gallon and 8,000 gallon sizes;
vacuum containers (“boxes”), which provide secure containment of sludge and solid materials and may be used for
additional on-site storage or for transporting materials off-site enabling vacuum trucks to remain in operation;
dewatering boxes for the separation of water contained in sludge and slurry; and
roll-off and trash boxes for the temporary storage and transport of solid waste.
Adler Tanks purchases tanks and boxes from various manufacturers located throughout the country.
Competitive Strengths
Market Leadership - The Company believes that Adler Tanks is one of the largest participants in the liquid and solid containment
tanks and boxes rental business in North America. Adler Tanks has national reach from branches serving the Northeast, Mid-Atlantic,
Midwest, Southeast, Southwest and West.
Expertise and Customer Service – The Company believes that Adler Tanks has highly experienced operating management and
branch employees. Adler Tanks employees are knowledgeable about the operation of its rental equipment and customer applications.
The Company believes that Adler Tanks provides a superior level of customer service due to its strong relationship building skills and
the quality of its responsiveness.
Asset Management – The Company believes that Adler Tanks markets a high quality, well-constructed and well-maintained rental
product. The Company depreciates its tanks and boxes over a 20 year estimated useful life to 0% residual value. We believe that if
maintained, older tanks and boxes will continue to produce similar rental rates as newer equipment. The fleet’s utilization is regionally
optimized by understanding key vertical market customer demand, seasonality factors, competitor’s product availability and expected
equipment returns.
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Market
Liquid and solid containment equipment rental is a market in the U.S with a large and diverse number of market segments
including oil and gas exploration and field services, refinery, chemical and industrial plant maintenance, environmental remediation and
field services, infrastructure building construction, marine services, pipeline construction and maintenance, electrical grid transformer
maintenance, tank terminals services, wastewater treatment, and waste management and landfill services.
The tank and box rental products may be utilized throughout the U.S. and are not subject to any local or regional construction
code or approval standards.
Rentals
Adler Tanks rents tanks and boxes typically for rental periods of one to six months, although in some instances, rental terms can
be up to a year or longer. Monthly rental rates typically are between 2% and 10% of the equipment’s original acquisition cost. At
December 31, 2020, Adler Tanks had rental equipment inventory including accessories with an aggregate cost of $315.7 million.
Utilization is calculated each month by dividing the cost of the rental equipment on rent by the total cost of rental equipment, excluding
accessory equipment. Utilization was 39.8% at December 31, 2020 and averaged 44.6% during the year.
Seasonality
Rental activity may decline in the fourth quarter month of December and the first quarter months of January and February. These
months may have lower rental activity due to inclement weather in certain regions of the country impacting the industries that we serve.
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Competition
The liquid and solid containment rental industry is highly competitive including national, regional and local companies. Some of
our national competitors, notably United Rentals (acquired BakerCorp in July 2018), Rain For Rent and Mobile Mini (merged with
WillScot in July 2020), may be larger than we are and may have greater financial and other resources than we have. Some of our
competitors also have longer operating histories and lower cost basis of rental equipment than we have. In addition, certain of our
competitors are more geographically diverse than we are and have greater name recognition among customers than we do. As a result,
our competitors that have these advantages may be better able to attract and retain customers and provide their products and services at
lower rental rates. Adler Tanks competes with these companies based upon product availability, product quality, price, service and
reliability. We may encounter increased competition in the markets that we serve from existing competitors or from new market entrants
in the future.
REPORTABLE SEGMENTS
For segment information regarding the Company’s four reportable business segments: Mobile Modular, TRS-RenTelco, Adler
Tanks and Enviroplex, see “Note 13. Segment Reporting” to the audited consolidated financial statements of the Company included in
“Item 8. Financial Statements and Supplementary Data.”
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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 units, 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
Product Highlights
(dollar amounts in thousands)
Relocatable Modular Buildings (operating under Mobile
Modular and Enviroplex)
Revenues
2020
Year Ended December 31,
2018
2017
2019
2016
Rental ............................................................................... $ 188,719
67,527
Rental related services .....................................................
256,246
Total Modular rental operations .................................
63,863
Sales — Mobile Modular.................................................
32,737
Sales — Enviroplex .........................................................
96,600
Total Modular sales ....................................................
1,415
Other.................................................................................
Total Modular revenues.............................................. $ 354,261
$ 182,316
69,395
251,711
47,043
39,814
86,857
2,256
$ 340,824
$ 159,136
54,696
213,832
39,467
29,046
68,513
1,275
$ 283,620
$ 142,584
50,448
193,032
37,435
31,369
68,804
799
$ 262,635
$ 130,496
49,206
179,702
29,393
22,121
51,514
417
$ 231,633
53.6%
61.9%
Percentage of rental revenues ................................................
Percentage of total revenues..................................................
Rental equipment, at cost (year-end)..................................... $ 882,115
Rental equipment, net book value (year-end)........................ $ 611,590
Number of units (year-end) ...................................................
56,880
Utilization (year-end) 1 ..........................................................
Average utilization 1 ..............................................................
Average rental equipment, at cost 2 ....................................... $ 825,614
Annual yield on average rental equipment, at cost 4 .............
Gross margin on rental revenues ...........................................
Gross margin on sales............................................................
76.0%
77.2%
22.9%
62.5%
31.9%
51.5%
59.8%
49.9%
56.9%
49.3%
56.8%
48.1%
54.6%
$ 868,807
$ 610,048
56,207
$ 817,375
$ 572,032
53,035
$ 775,400
$ 543,857
52,188
$ 769,190
$ 544,421
50,577
79.1%
79.2%
79.3%
78.2%
77.8%
76.8%
77.3%
76.6%
$ 795,250
$ 756,513
$ 747,478
$ 724,333
22.9%
59.8%
33.9%
21.0%
59.8%
30.7%
19.1%
56.1%
28.0%
18.0%
56.6%
29.0%
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Electronic Test Equipment (operating under
TRS-RenTelco)
Revenues
Rental ............................................................................... $ 109,083
3,080
Rental related services .....................................................
112,163
Total Electronics rental operations .............................
26,618
Sales .................................................................................
2,030
Other.................................................................................
Total Electronics revenues.......................................... $ 140,811
$ 103,704
3,260
106,964
22,106
2,413
$ 131,483
$
89,937
3,300
93,237
23,061
2,359
$ 118,657
$
82,812
2,858
85,670
20,334
2,040
$ 108,044
$
82,307
2,846
85,153
21,582
1,882
$ 108,617
31.0%
24.6%
Percentage of rental revenues ................................................
Percentage of total revenues..................................................
Rental equipment, at cost (year-end)..................................... $ 333,020
Rental equipment, net book value (year-end)........................ $ 156,536
Utilization (year-end) 1 .........................................................
Average utilization 1 ..............................................................
Average rental equipment, at cost 3 ....................................... $ 336,399
Annual yield on average rental equipment, at cost 4 .............
Gross margin on rental revenues ...........................................
Gross margin on sales............................................................
32.4%
41.7%
47.7%
67.4%
66.2%
29.3%
23.1%
28.2%
23.8%
28.6%
23.4%
30.3%
25.6%
$ 335,343
$ 172,413
$ 285,052
$ 131,450
$ 262,325
$ 109,482
64.5%
66.2%
62.1%
62.7%
$ 246,325
90,172
$
61.7%
62.9%
61.0%
60.6%
$ 306,426
$ 275,891
$ 252,332
$ 254,019
33.8%
43.8%
56.2%
32.6%
43.6%
54.6%
32.8%
44.0%
56.9%
32.4%
39.8%
50.9%
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(dollar amounts in thousands)
Liquid and Solid Containment Tanks and Boxes
(operating under Adler Tanks)
Revenues
2020
Year Ended December 31,
2018
2017
2019
2016
$
53,988
21,786
75,774
1,386
322
77,482
Rental ............................................................................... $
Rental related services .....................................................
Total Tanks and Boxes rental operations ...................
Sales .................................................................................
Other.................................................................................
Total Tanks and Boxes revenues ................................ $
Percentage of rental revenues ................................................
Percentage of total revenues..................................................
Rental equipment, at cost (year-end)..................................... $ 315,706
Rental equipment, net book value (year-end)........................ $ 169,990
Utilization (year-end) 1 ..........................................................
Average utilization 1 ..............................................................
Average rental equipment, at cost 2 ....................................... $ 314,797
Annual yield on average rental equipment, at cost 4 .............
Gross margin on rental revenues ...........................................
Gross margin on sales............................................................
39.8%
44.6%
17.2%
53.0%
7.9%
$
15.3%
13.5%
$
$
$
67,869
28,383
96,252
1,266
405
97,923
69,701
24,911
94,612
1,044
397
96,053
64,021
24,762
88,783
2,362
210
91,355
$
19.2%
17.2%
$
21.9%
19.3%
$
22.1%
19.8%
58,585
23,807
82,392
1,314
124
83,830
21.6%
19.8%
$ 316,261
$ 185,039
$ 313,573
$ 197,533
$ 309,808
$ 208,981
$ 308,542
$ 221,778
48.4%
54.7%
56.4%
59.9%
57.5%
56.0%
50.7%
50.1%
$ 313,810
$ 310,401
$ 307,558
$ 307,416
21.6%
58.3%
25.1%
22.4%
61.1%
3.7%
20.8%
58.7%
15.2%
19.1%
55.5%
(2.1)%
Total revenues...................................................................... $ 572,554
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Utilization is calculated each month by dividing the cost of rental equipment on rent by the total cost of rental equipment. Average utilization is calculated using
the average cost of equipment for the year.
Average rental equipment, at cost for modulars and tanks and boxes excludes new equipment inventory and accessory equipment.
Average rental equipment, at cost, for electronics excludes accessory equipment.
Annual yield on average rental equipment, at cost is calculated by dividing the total annual rental revenues by the average rental equipment, at cost.
$ 570,230
$ 498,330
$ 462,034
$ 424,080
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ITEM 1A. RISK FACTORS
You should carefully consider the following discussion of various risks and uncertainties. We believe these risk factors are the
most relevant to our business and could cause our results to differ materially from the forward-looking statements made by us. Our
business, financial condition, and results of operations could be seriously harmed if any of these risks or uncertainties actually occur or
materialize. In that event, the market price for our common stock could decline, and you may lose all or part of your investment.
RISKS RELATED TO OUR STRATEGY AND OPERATION:
Our future operating results may fluctuate, fail to match past performance or fail to meet expectations, which may result in a
decrease in our stock price.
Our operating results may fluctuate in the future, may fail to match our past performance or fail to meet the expectations of analysts
and investors. Our results and related ratios, such as gross margin, operating income percentage and effective tax rate may fluctuate as
a result of a number of factors, some of which are beyond our control including but not limited to:
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general economic conditions in the geographies and industries where we rent and sell our products;
legislative and educational policies where we rent and sell our products;
the budgetary constraints of our customers;
seasonality of our rental businesses and our end-markets;
success of our strategic growth initiatives;
costs associated with the launching or integration of new or acquired businesses;
the timing and type of equipment purchases, rentals and sales;
the nature and duration of the equipment needs of our customers;
the timing of new product introductions by us, our suppliers and our competitors;
the volume, timing and mix of maintenance and repair work on our rental equipment;
our equipment mix, availability, utilization and pricing;
the mix, by state and country, of our revenues, personnel and assets;
rental equipment impairment from excess, obsolete or damaged equipment;
movements in interest rates or tax rates;
changes in, and application of, accounting rules;
changes in the regulations applicable to us; and
litigation matters.
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As a result of these factors, our historical financial results are not necessarily indicative of our future results or stock price.
Our stock price has fluctuated and may continue to fluctuate in the future, which may result in a decline in the value of your
investment in our common stock.
The market price of our common stock fluctuates on the NASDAQ Global Select Market and is likely to be affected by a number
of factors including but not limited to:
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our operating performance and the performance of our competitors, and in particular any variations in our operating results
or dividend rate from our stated guidance or from investors’ expectations;
any changes in general conditions in the global economy, the industries in which we operate or the global financial markets;
investors’ reaction to our press releases, public announcements or filings with the SEC;
the stock price performance of our competitors or other comparable companies;
any changes in research analysts’ coverage, recommendations or earnings estimates for us or for the stocks of other
companies in our industry;
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any sales of common stock by our directors, executive officers and our other large shareholders, particularly in light of the
limited trading volume of our stock;
any merger and acquisition activity that involves us or our competitors; and
other announcements or developments affecting us, our industry, customers, suppliers or competitors.
In addition, in recent years the U.S. stock market has experienced significant price and volume fluctuations. These fluctuations
are often unrelated to the operating performance of particular companies. Additionally, the most recent global credit crisis adversely
affected the prices of most publicly traded stocks as many stockholders became more willing to divest their stock holdings at lower
values to increase their cash flow and reduce exposure to such fluctuations. These broad market fluctuations and any other negative
economic trends may cause declines in the market price of our common stock and may be based upon factors that have little or nothing
to do with our Company or its performance, and these fluctuations and trends could materially reduce our stock price.
The impact of COVID-19 on our operations, and the operations of our customers, suppliers and logistics providers, may harm
our business.
We continue to monitor the potential impact of COVID-19 outbreak around the globe. This includes evaluating the impact on our
customers, suppliers, and logistics providers as well as evaluating governmental actions being taken to curtail the spread of the virus.
Significant uncertainty continues to exist concerning the magnitude of the impact and duration of the COVID-19 pandemic. While the
Company's operating segments and branch locations currently continue to operate, the Company’s results of operations may be
negatively impacted by project delays; early returns of equipment currently on rent with customers; overall decreased customer demand
for new rental orders, rental related services and sales of new and used rental equipment; and payment delay, or non-payment, by
customers who are significantly impacted by COVID-19.
Our ability to retain our executive management and to recruit, retain and motivate key qualified employees is critical to the
success of our business.
If we cannot successfully recruit and retain qualified personnel, our operating results and stock price may suffer. We believe that
our success is directly linked to the competent people in our organization, including our executive officers, senior managers and other
key personnel, and in particular, Joe Hanna, our Chief Executive Officer. Personnel turnover can be costly and could materially and
adversely impact our operating results and can potentially jeopardize the success of our current strategic initiatives. We need to attract
and retain highly qualified personnel to replace personnel when turnover occurs, as well as add to our staff levels as growth occurs. Our
business and stock price likely will suffer if we are unable to fill, or experience delays in filling open positions, or fail to retain key
personnel.
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Failure by third parties to manufacture and deliver our products to our specifications or on a timely basis may harm our
reputation and financial condition.
We depend on third parties to manufacture our products even though we are able to purchase products from a variety of third-
party suppliers. In the future, we may be limited as to the number of third-party suppliers for some of our products. Although in general
we make advance purchases of some products to help ensure an adequate supply, currently we do not have any long-term purchase
contracts with any third-party supplier. We may experience supply problems as a result of financial or operating difficulties or failure
of our suppliers, or shortages and discontinuations resulting from product obsolescence or other shortages or allocations by our suppliers.
Unfavorable economic conditions may also adversely affect our suppliers or the terms on which we purchase products. In the future,
we may not be able to negotiate arrangements with third parties to secure products that we require in sufficient quantities or on reasonable
terms. If we cannot negotiate arrangements with third parties to produce our products or if the third parties fail to produce our products
to our specifications or in a timely manner, our reputation and financial condition could be harmed.
A breach of our information technology systems could subject us to liability, reputational damage or interrupt the operation of
our business.
We rely upon our information technology systems and infrastructure for our business. We could experience theft of confidential
information or reputational damage from industrial espionage attacks, malware or other cyber-attacks, which may compromise our
system infrastructure or lead to data leakage, either internally or at our third-party providers. Similarly, data privacy breaches by those
who access our systems may pose a risk that sensitive data, including intellectual property, trade secrets or personal information
belonging to us, our employees, customers or other business partners, may be exposed to unauthorized persons or to the public. Cyber-
attacks are increasing in their frequency, sophistication and intensity, and have become increasingly difficult to detect. There can be no
assurance that our efforts to protect our data and information technology systems will prevent breaches in our systems (or that of our
third-party providers) that could adversely affect our business and result in financial and reputational harm to us, theft of trade secrets
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and other proprietary information, legal claims or proceedings, liability under laws that protect the privacy of personal information, and
regulatory penalties.
Disruptions in our information technology systems or failure to protect these systems against security breaches could adversely
affect our business and results of operations. Additionally, if these systems fail, become unavailable for any period of time or
are not upgraded, this could limit our ability to effectively monitor and control our operations and adversely affect our
operations.
Our information technology systems facilitate our ability to transact business, monitor and control our operations and adjust to
changing market conditions. Any disruption in our information technology systems or the failure of these systems to operate as expected
could, depending on the magnitude of the problem, adversely affect our operating results by limiting our capacity to effectively transact
business, monitor and control our operations and adjust to changing market conditions in a timely manner.
In addition, because of recent advances in technology and well-known efforts on the part of computer hackers and cyber-terrorists
to breach data security of companies, we face risks associated with potential failure to adequately protect critical corporate, customer
and employee data, which, if released, could adversely impact our customer relationships, our reputation, and even violate privacy laws.
As part of our business, we develop, receive and retain confidential data about our company and our customers.
Further, the delay or failure to implement information system upgrades and new systems effectively could disrupt our business,
distract management’s focus and attention from our business operations and growth initiatives, and increase our implementation and
operating costs, any of which could negatively impact our operations and operating results.
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We have engaged in acquisitions and may engage in future acquisitions that could negatively impact our results of operations,
financial condition and business.
Previously, we acquired Technology Rentals & Services (“TRS”), an electronic test equipment rental business and Adler Tanks,
a liquid and solid containment rental business, as well as several smaller acquisitions that were integrated into our current operating
segments. We anticipate that we will continue to consider acquisitions in the future that meet our strategic growth plans. We are unable
to predict whether or when any prospective acquisition will be completed. Acquisitions involve numerous risks, including the following:
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difficulties in integrating the operations, technologies, products and personnel of the acquired companies;
diversion of management’s attention from normal daily operations of our business;
difficulties in entering markets in which we have no or limited direct prior experience and where competitors in such markets
may have stronger market positions;
difficulties in complying with regulations applicable to any acquired business, such as environmental regulations, and
managing risks related to an acquired business;
timely completion of necessary financing and required amendments, if any, to existing agreements;
an inability to implement uniform standards, controls, procedures and policies;
undiscovered and unknown problems, defects, damaged assets liabilities, or other issues related to any acquisition that
become known to us only after the acquisition;
negative reactions from our customers to an acquisition;
disruptions among employees related to any acquisition which may erode employee morale;
loss of key employees, including costly litigation resulting from the termination of those employees;
an inability to realize cost efficiencies or synergies that we may anticipate when selecting acquisition candidates;
recording of goodwill and non-amortizable intangible assets that will be subject to future impairment testing and potential
periodic impairment charges;
incurring amortization expenses related to certain intangible assets; and
becoming subject to litigation.
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Acquisitions are inherently risky, and no assurance can be given that our future acquisitions will be successful or will not adversely
affect our business, operating results, or financial condition. The success of our acquisition strategy depends upon our ability to
successfully complete acquisitions and integrate any businesses that we acquire into our existing business. The difficulties of integration
could be increased by the necessity of coordinating geographically dispersed organizations; maintaining acceptable standards, controls,
procedures and policies; integrating personnel with disparate business backgrounds; combining different corporate cultures; and the
impairment of relationships with employees and customers as a result of any integration of new management and other personnel. In
addition, if we consummate one or more significant future acquisitions in which the consideration consists of stock or other securities,
our existing shareholders’ ownership could be diluted significantly. If we were to proceed with one or more significant future
acquisitions in which the consideration included cash, we could be required to use, to the extent available, a substantial portion of our
Credit Facility. If we increase the amount borrowed against our available credit line, we would increase the risk of breaching the
covenants under our credit facilities with our lenders. In addition, it would limit our ability to make other investments, or we may be
required to seek additional debt or equity financing. Any of these items could adversely affect our results of operations.
If we determine that our goodwill and intangible assets have become impaired, we may incur impairment charges, which would
negatively impact our operating results.
At December 31, 2020, we had $35.3 million of goodwill and intangible assets, net, on our consolidated balance sheets. Goodwill
represents the excess of cost over the fair value of net assets acquired in business combinations. Under accounting principles generally
accepted in the United States of America, we assess potential impairment of our goodwill and intangible assets at least annually, as well
as on an interim basis to the extent that factors or indicators become apparent that could reduce the fair value of any of our businesses
below book value. Impairment may result from significant changes in the manner of use of the acquired asset, negative industry or
economic trends and significant underperformance relative to historic or projected operating results.
Our rental equipment is subject to residual value risk upon disposition, and may not sell at the prices or in the quantities we
expect.
The market value of any given piece of rental equipment could be less than its depreciated value at the time it is sold. The market
value of used rental equipment depends on several factors, including:
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the market price for new equipment of a like kind;
the age of the equipment at the time it is sold, as well as wear and tear on the equipment relative to its age;
the supply of used equipment on the market;
technological advances relating to the equipment;
worldwide and domestic demand for used equipment; and
general economic conditions.
We include in income from operations the difference between the sales price and the depreciated value of an item of equipment
sold. Changes in our assumptions regarding depreciation could change our depreciation expense, as well as the gain or loss realized
upon disposal of equipment. Sales of our used rental equipment at prices that fall significantly below our projections or in lesser
quantities than we anticipate will have a negative impact on our results of operations and cash flows.
If we do not effectively manage our credit risk, collect on our accounts receivable or recover our rental equipment from our
customers’ sites, it could have a material adverse effect on our operating results.
We generally rent and sell to customers on 30 day payment terms, individually perform credit evaluation procedures on our
customers for each transaction and require security deposits or other forms of security from our customers when a significant credit risk
is identified. Historically, accounts receivable write-offs and write-offs related to equipment not returned by customers have not been
significant and have averaged less than 1% of total revenues over the last five years. If economic conditions deteriorate, we may see an
increase in bad debt relative to historical levels, which may materially and adversely affect our operations. Business segments that
experience significant market disruptions or declines may experience increased customer credit risk and higher bad debt expense. Failure
to manage our credit risk and receive timely payments on our customer accounts receivable may result in write-offs and/or loss of
equipment, particularly electronic test equipment. If we are not able to effectively manage credit risk issues, or if a large number of our
customers should have financial difficulties at the same time, our receivables and equipment losses could increase above historical
levels. If this should occur, our results of operations may be materially and adversely affected.
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Effective management of our rental assets is vital to our business. If we are not successful in these efforts, it could have a material
adverse impact on our results of operations.
Our modular, electronics and liquid and solid containment rental products have long useful lives and managing those assets is a
critical element to each of our rental businesses. Generally, we design units and find manufacturers to build them to our specifications
for our modular and liquid and solid containment tanks and boxes. Modular asset management requires designing and building the
product for a long life that anticipates the needs of our customers, including anticipating potential changes in legislation, regulations,
building codes and local permitting in the various markets in which the Company operates. Electronic test equipment asset management
requires understanding, selecting and investing in equipment technologies that support market demand, including anticipating
technological advances and changes in manufacturers’ selling prices. Liquid and solid containment asset management requires
designing and building the product for a long life, using quality components and repairing and maintaining the products to prevent leaks.
For each of our modular, electronic test equipment and liquid and solid containment assets, we must successfully maintain and repair
this equipment cost-effectively to maximize the useful life of the products and the level of proceeds from the sale of such products. To
the extent that we are unable to do so, our result of operations could be materially adversely affected.
The nature of our businesses, including the ownership of industrial property, exposes us to the risk of litigation and liability
under environmental, health and safety and products liability laws. Violations of environmental or health and safety related
laws or associated liability could have a material adverse effect on our business, financial condition and results of operations.
We are subject to national, state, provincial and local environmental laws and regulations concerning, among other things, solid
and liquid waste and hazardous substances handling, storage and disposal and employee health and safety. These laws and regulations
are complex and frequently change. We could incur unexpected costs, penalties and other civil and criminal liability if we fail to comply
with applicable environmental or health and safety laws. We also could incur costs or liabilities related to waste disposal or remediating
soil or groundwater contamination at our properties, at our customers’ properties or at third party landfill and disposal sites. These
liabilities can be imposed on the parties generating, transporting or disposing of such substances or on the owner or operator of any
affected property, often without regard to whether the owner or operator knew of, or was responsible for, the presence of hazardous
substances.
Several aspects of our businesses involve risks of environmental and health and safety liability. For example, our operations
involve the use of petroleum products, solvents and other hazardous substances in the construction and maintaining of modular buildings
and for fueling and maintaining our delivery trucks and vehicles. We also own, transport and rent tanks and boxes in which waste
materials are placed by our customers. The historical operations at some of our previously or currently owned or leased and newly
acquired or leased properties may have resulted in undiscovered soil or groundwater contamination or historical non-compliance by
third parties for which we could be held liable. Future events, such as changes in existing laws or policies or their enforcement, or the
discovery of currently unknown contamination or non-compliance, may also give rise to liabilities or other claims based on these
operations that may be material. In addition, compliance with future environmental or health and safety laws and regulations may
require significant capital or operational expenditures or changes to our operations.
Accordingly, in addition to potential penalties for non-compliance, we may become liable, either contractually or by operation of
law, for investigation, remediation and monitoring costs even if the contaminated property is not presently owned or operated by us, or
if the contamination was caused by third parties during or prior to our ownership or operation of the property. In addition, certain parties
may be held liable for more than their “fair” share of environmental investigation and cleanup costs. Contamination and exposure to
hazardous substances or other contaminants such as mold can also result in claims for remediation or damages, including personal injury,
property damage, and natural resources damage claims. Although expenses related to environmental compliance, health and safety
issues, and related matters have not been material to date, we cannot assure that we will not have to make significant expenditures in
the future in order to comply with applicable laws and regulations. Violations of environmental or health and safety related laws or
associated liability could have a material adverse effect on our business, financial condition and results of operations.
In general, litigation in the industries in which we operate, including class actions that seek substantial damages, arises with
increasing frequency. Enforcement of environmental and health and safety requirements is also frequent. Such proceedings are
invariably expensive, regardless of the merit of the plaintiffs’ or prosecutors’ claims. We may be named as a defendant in the future,
and there can be no assurance, irrespective of the merit of such future actions, that we will not be required to make substantial settlement
payments in the future. Further, a significant portion of our business is conducted in California which is one of the most highly regulated
and litigious states in the country. Therefore, our potential exposure to losses and expenses due to new laws, regulations or litigation
may be greater than companies with a less significant California presence.
The nature of our business also subjects us to property damage and product liability claims, especially in connection with our
modular buildings and tank and box rental businesses. Although we maintain liability coverage that we believe is commercially
reasonable, an unusually large property damage or product liability claim or a series of claims could exceed our insurance coverage or
result in damage to our reputation.
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Our routine business activities expose us to risk of litigation from employees, vendors and other third parties, which could have
a material adverse effect on our results of operations.
We may be subject to claims arising from disputes with employees, vendors and other third parties in the normal course of our
business; these risks may be difficult to assess or quantify and their existence and magnitude may remain unknown for substantial
periods of time. If the plaintiffs in any suits against us were to successfully prosecute their claims, or if we were to settle any such suits
by making significant payments to the plaintiffs, our operating results and financial condition would be harmed. Even if the outcome
of a claim proves favorable to us, litigation can be time consuming and costly and may divert management resources. In addition, our
organizational documents require us to indemnify our senior executives to the maximum extent permitted by California law. We
maintain directors’ and officers’ liability insurance that we believe is commercially reasonable in connection with such obligations, but
if our senior executives were named in any lawsuit, our indemnification obligations could magnify the costs of these suits and/or exceed
the coverage of such policies.
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If we suffer loss to our facilities, equipment or distribution system due to catastrophe, our insurance policies could be inadequate
or depleted, our operations could be seriously harmed, which could negatively affect our operating results.
Our facilities, rental equipment and distribution systems may be subject to catastrophic loss due to fire, flood, hurricane,
earthquake, terrorism or other natural or man-made disasters. In particular, our headquarters, three operating facilities, and certain of
our rental equipment are located in areas of California, with above average seismic activity and could be subject to catastrophic loss
caused by an earthquake. Our rental equipment and facilities in Texas, Louisiana, Florida, North Carolina and Georgia are located in
areas subject to hurricanes and other tropical storms. In addition to customers’ insurance on rented equipment, we carry property
insurance on our rental equipment in inventory and operating facilities as well as business interruption insurance. We believe our
insurance policies have adequate limits and deductibles to mitigate the potential loss exposure of our business. We do not maintain
financial reserves for policy deductibles and our insurance policies contain exclusions that are customary for our industry, including
exclusions for earthquakes, flood and terrorism. If any of our facilities or a significant amount of our rental equipment were to experience
a catastrophic loss, it could disrupt our operations, delay orders, shipments and revenue recognition and result in expenses to repair or
replace the damaged rental equipment and facility not covered by insurance, which could have a material adverse effect on our results
of operations.
INTEREST RATE AND INDEBTEDNESS RISKS:
Our debt instruments contain covenants that restrict or prohibit our ability to enter into a variety of transactions and may limit
our ability to finance future operations or capital needs. If we have an event of default under these instruments, our indebtedness
could be accelerated and we may not be able to refinance such indebtedness or make the required accelerated payments.
The agreements governing our Series B and Series C Senior Notes (as defined and more fully described under the heading “Item
7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources”) and
our Credit Facility contain various covenants that limit our discretion in operating our business. In particular, we are limited in our
ability to merge, consolidate, reorganize or transfer substantially all of our assets, make investments, pay dividends or distributions,
redeem or repurchase stock, change the nature of our business, enter into transactions with affiliates, incur indebtedness and create liens
on our assets to secure debt. In addition, we are required to meet certain financial covenants under these instruments. These restrictions
could limit our ability to obtain future financing, make strategic acquisitions or needed capital expenditures, withstand economic
downturns in our business or the economy in general, conduct operations or otherwise take advantage of business opportunities that may
arise.
A failure to comply with the restrictions contained in these agreements could lead to an event of default, which could result in an
acceleration of our indebtedness. In the event of an acceleration, we may not have or be able to obtain sufficient funds to refinance our
indebtedness or make any required accelerated payments. If we default on our indebtedness, our business financial condition and results
of operations could be materially and adversely affected.
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The majority of our indebtedness is subject to variable interest rates, which makes us vulnerable to increases in interest rates,
which could negatively affect our net income.
Our indebtedness exposes us to interest rate increases because the majority of our indebtedness is subject to variable rates. At
present, we do not have any derivative financial instruments such as interest rate swaps or hedges to mitigate interest rate variability.
The interest rates under our credit facilities are reset at varying periods. These interest rate adjustments could cause periodic fluctuations
in our operating results and cash flows. Our annual debt service obligations increase by approximately $1.2 million per year for each
1% increase in the average interest rate we pay based on the $122.8 million balance of variable rate debt outstanding at December 31,
2020. If interest rates rise in the future, and, particularly if they rise significantly, interest expense will increase and our net income will
be negatively affected.
GENERAL RISKS:
Our effective tax rate may change and become less predictable as our business expands, or as a result of federal and state tax
law changes, making our future earnings less predictable.
We continue to consider expansion opportunities domestically and internationally for our rental businesses. Since the Company’s
effective tax rate depends on business levels, personnel and assets located in various jurisdictions, further expansion into new markets
or acquisitions may change the effective tax rate in the future and may make it, and consequently our earnings, less predictable going
forward. In addition, the enactment of future tax law changes by federal and state taxing authorities may impact the Company’s current
period tax provision and its deferred tax liabilities.
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Changes in financial accounting standards may cause lower than expected operating results and affect our reported results of
operations.
Changes in accounting standards and their application may have a significant effect on our reported results on a going-forward
basis and may also affect the recording and disclosure of previously reported transactions. New accounting pronouncements and varying
interpretations of accounting pronouncements have occurred in the past and may occur in the future. Changes to existing rules or the
questioning of current practices may adversely affect our reported financial results or the way we conduct our business.
SPECIFIC RISKS RELATED TO OUR RELOCATABLE MODULAR BUILDINGS BUSINESS SEGMENT:
Significant reductions of, or delays in, funding to public schools have caused the demand and pricing for our modular classroom
units to decline, which has in the past caused, and may cause in the future, a reduction in our revenues and profitability.
Rentals and sales of modular buildings to public school districts for use as classrooms, restroom buildings, and administrative
offices for K-12 represent a significant portion of Mobile Modular’s rental and sales revenues. Funding for public school facilities is
derived from a variety of sources including the passage of both statewide and local facility bond measures, developer fees and various
taxes levied to support school operating budgets. Many of these funding sources are subject to financial and political considerations,
which vary from district to district and are not tied to demand. Historically, we have benefited from the passage of statewide and local
facility bond measures and believe these are essential to our business.
The state of California is our largest market for classroom rentals. The strength of this market depends heavily on public
funding from voter passage of both state and local facility bond measures, and the ability of the state to sell such bonds in the public
market. A lack of passage of state and local facility bond measures, or the inability to sell bonds in the public markets in the future
could reduce our revenues and operating income, and consequently have a material adverse effect on the Company’s financial
condition. Furthermore, even if voters have approved facility bond measures and the state has raised bond funds, there is no guarantee
that individual school projects will be funded in a timely manner.
As a consequence of the most recent economic recession, many states and local governments experienced large budget deficits
resulting in severe budgetary constraints among public school districts. To the extent public school districts’ funding is reduced for the
rental and purchase of modular buildings, our business could be harmed and our results of operations negatively impacted. We believe
that interruptions or delays in the passage of facility bond measures or completion of state budgets, an insufficient amount of state
funding, a significant reduction of funding to public schools, or changes negatively impacting enrollment may reduce the rental and sale
demand for our educational products. Any reductions in funding available to the school districts from the states in which we do business
may cause school districts to experience budget shortfalls and to reduce their demand for our products despite growing student
populations, class size reduction initiatives and modernization and reconstruction project needs, which could reduce our revenues and
operating income and consequently have a material adverse effect on the Company’s financial condition.
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Public policies that create demand for our products and services may change, resulting in decreased demand for or the pricing
of our products and services, which could negatively affect our revenues and operating income.
Various states that we operate enacted laws and constitutional amendments to provide funding for school districts to limit the
number of students that may be grouped in a single classroom. School districts with class sizes in excess of state limits have been and
continue to be a significant source of our demand for modular classrooms. In California, efforts to address aging infrastructure and
deferred maintenance have resulted in modernization and reconstruction projects by public school districts including seismic retrofitting,
asbestos abatement and various building repairs and upgrades, which has been another source of demand for our modular classrooms.
The most recent economic recession caused state and local budget shortfalls, which reduced school districts’ funding and their ability
to comply with state class size reduction requirements. If educational priorities and policies shift away from class-size reduction or
modernization and reconstruction projects, demand and pricing for our products and services may decline, not grow as quickly as, or
not reach the levels that we anticipate. Significant equipment returns may result in lower utilization until equipment can be redeployed
or sold, which may cause rental rates to decline and negatively affect our revenues and operating income.
Failure to comply with applicable regulations could harm our business and financial condition, resulting in lower operating
results and cash flows.
Similar to conventionally constructed buildings, the modular building industry, including the manufacturers and lessors of portable
classrooms, are subject to regulations by multiple governmental agencies at the federal, state and local level relating to environmental,
zoning, health, safety, energy efficiency, labor and transportation matters, among other matters. Failure to comply with these laws or
regulations could impact our business or harm our reputation and result in higher capital or operating expenditures or the imposition of
penalties or restrictions on our operations.
As with conventional construction, typically new codes and regulations are not retroactively applied. Nonetheless, new
governmental regulations in these or other areas may increase our acquisition cost of new rental equipment, limit the use of or make
obsolete some of our existing equipment, or increase our costs of rental operations.
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Building codes are generally reviewed every three years. All aspects of a given code are subject to change including, but not
limited to, such items as structural specifications for earthquake safety, energy efficiency and environmental standards, fire and life
safety, transportation, lighting and noise limits.
Compliance with building codes and regulations entails a certain amount of risk as state and local government authorities do not
necessarily interpret building codes and regulations in a consistent manner, particularly where applicable regulations may be unclear
and subject to interpretation. These regulations often provide broad discretion to governmental authorities that oversee these matters,
which can result in unanticipated delays or increases in the cost of compliance in particular markets. The construction and modular
industries have developed many “best practices” which are constantly evolving. Some of our peers and competitors may adopt practices
that are more or less stringent than the Company’s. When, and if, regulatory standards are clarified, the effect of the clarification may
be to impose rules on our business and practices retroactively, at which time, we may not be in compliance with such regulations and
we may be required to incur costly remediation. If we are unable to pass these increased costs on to our customers, our profitability,
operating cash flows and financial condition could be negatively impacted.
Expansions of our modular operations into new markets may negatively affect our operating results.
In the past we have expanded our modular operations into new geographies and states. There are risks inherent in the undertaking
of such expansion, including the risk of revenue from the business in any new markets not meeting our expectations, higher than expected
costs in entering these new markets, risk associated with compliance with applicable state and local laws and regulations, response by
competitors and unanticipated consequences of expansion. In addition, expansion into new markets may be affected by local economic
and market conditions. Expansion of our operations into new markets will require a significant amount of attention from our
management, a commitment of financial resources and will require us to add qualified management in these markets, which may
negatively impact our operating results.
We are subject to laws and regulations governing government contracts. These laws and regulations make these government
contracts more favorable to government entities than other third parties and any changes in these laws and regulations, or our
failure to comply with these laws and regulations could harm our business.
We have agreements relating to the sale of our products to government entities and, as a result, we are subject to various statutes
and regulations that apply to companies doing business with the government. The laws governing government contracts differ from the
laws governing private contracts. For example, many government contracts contain pricing terms and conditions that are not applicable
to private contracts such as clauses that allow government entities not to perform on contractual obligations in the case of a lack of fiscal
funding. Also, in the educational markets we serve, we are able to utilize “piggyback” contracts in marketing our products and services
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and ultimately to book business. The term “piggyback” contract refers to contracts for portable classrooms or other products entered
into by public school districts following a formal bid process that allows for the use of the same contract terms and conditions with the
successful vendor by other public school districts. As a result, “piggyback” contracts allow us to more readily book orders from our
government customers, primarily public school districts, and to reduce the administrative expense associated with booking these orders.
The governmental statutes and regulations that allow for use of “piggyback” contracts are subject to change or elimination in their
entirety. A change in the manner of use or the elimination of “piggyback” contracts would likely negatively impact our ability to book
new business from these government customers and could cause our administrative expenses related to processing these orders to
increase significantly. In addition, any failure to comply with these laws and regulations might result in administrative penalties or even
in the suspension of these contracts and as a result, the loss of the related revenues which would harm our business and results from
operations.
Seasonality of our educational business may have adverse consequences for our business.
A significant portion of the modular sale and rental revenues is derived from the educational market. Typically, during each
calendar year, our highest numbers of classrooms are shipped for rental and sale orders during the second and third quarters for delivery
and installation prior to the start of the upcoming school year. The majority of classrooms shipped in the second and third quarters have
rental start dates during the third quarter, thereby making the fourth quarter the first full quarter of rental revenues recognized for these
transactions. Although this is the historical seasonality of our business, it is subject to change or may not meet our expectations, which
may have adverse consequences for our business.
We face strong competition in our modular building markets and we may not be able to effectively compete.
The modular building leasing industry is highly competitive in our states of operation and we expect it to remain so. The
competitive market in which we operate may prevent us from raising rental fees or sales prices to pass any increased costs on to our
customers. We compete on the basis of a number of factors, including equipment availability, quality, price, service, reliability,
appearance, functionality and delivery terms. We may experience pricing pressures in our areas of operation in the future as some of
our competitors seek to obtain market share by reducing prices.
Some of our competitors in the modular building leasing industry, notably WillScot Corporation, have a greater range of products
and services, greater financial and marketing resources, larger customer bases, and greater name recognition than we have. In August
2018, WillScot Corporation completed the acquisition of Modspace in August, 2018 and Mobile Mini in July, 2020. These combined
competitors may be better able to respond to changes in the relocatable modular building market, to finance acquisitions, to fund internal
growth and to compete for market share, any of which could harm our business.
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We may not be able to quickly redeploy modular units returning from leases, which could negatively affect our financial
performance and our ability to expand, or utilize, our rental fleet.
As of December 31, 2020, 65% of our modular portfolio had equipment on rent for periods exceeding the original committed
term. Generally, when a customer continues to rent the modular units beyond the contractual term, the equipment rents on a month-to-
month basis. If a significant number of our rented modular units were returned during a short period of time, particularly those units
that are rented on a month-to-month basis, a large supply of units would need to be remarketed. Our failure to effectively remarket a
large influx of units returning from leases could negatively affect our financial performance and our ability to continue expanding our
rental fleet. In addition, if returned units stay off rent for an extended period of time, we may incur additional costs to securely store
and maintain them.
Significant increases in raw material and labor costs could increase our acquisition cost of new modular rental units and repair
and maintenance costs of our fleet, which would increase our operating costs and harm our profitability.
We incur labor costs and purchase raw materials, including lumber, siding and roofing and other products to perform periodic
repairs, modifications and refurbishments to maintain physical conditions of our modular units. The volume, timing and mix of
maintenance and repair work on our rental equipment may vary quarter-to-quarter and year-to-year. Generally, increases in labor and
raw material costs will also increase the acquisition cost of new modular units and increase the repair and maintenance costs of our fleet.
We also maintain a fleet of service trucks and use subcontractor companies for the delivery, set-up, return delivery and dismantle of
modulars for our customers. We rely on our subcontractor service companies to meet customer demands for timely shipment and return,
and the loss or inadequate number of subcontractor service companies may cause prices to increase, while negatively impacting our
reputation and operating performance. During periods of rising prices for labor, raw materials or fuel, and in particular, when the prices
increase rapidly or to levels significantly higher than normal, we may incur significant increases in our acquisition costs for new modular
units and incur higher operating costs that we may not be able to recoup from our customers, which would reduce our profitability.
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Failure by third parties to manufacture our products timely or properly may harm our reputation and financial condition.
We are dependent on third parties to manufacture our products even though we are able to purchase products from a variety of
third-party suppliers. Mobile Modular purchases new modulars from various manufacturers who build to Mobile Modular’s design
specifications. With the exception of Enviroplex, none of the principal suppliers are affiliated with the Company. During 2020, Mobile
Modular purchased 45% of its modular product from one manufacturer. The Company believes that the loss of any of its primary
manufacturers of modulars could have an adverse effect on its operations since Mobile Modular could experience higher prices and
longer delivery lead times for modular product until other manufacturers were able to increase their production capacity.
Failure to properly design, manufacture, repair and maintain the modular product may result in impairment charges, potential
litigation and reduction of our operating results and cash flows.
We estimate the useful life of the modular product to be 18 years with a residual value of 50%. However, proper design,
manufacture, repairs and maintenance of the modular product during our ownership is required for the product to reach the estimated
useful life of 18 years with a residual value of 50%. If we do not appropriately manage the design, manufacture, repair and maintenance
of our modular product, or otherwise delay or defer such repair or maintenance, we may be required to incur impairment charges for
equipment that is beyond economic repair costs or incur significant capital expenditures to acquire new modular product to serve demand.
In addition, such failures may result in personal injury or property damage claims, including claims based on presence of mold, and
termination of leases or contracts by customers. Costs of contract performance, potential litigation, and profits lost from termination
could accordingly reduce our future operating results and cash flows.
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Our warranty costs may increase and warranty claims could damage our reputation and negatively impact our revenues and
operating income.
Sales of new relocatable modular buildings not manufactured by us are typically covered by warranties provided by the
manufacturer of the products sold. We provide ninety-day warranties on certain modular sales of used rental units and one-year
warranties on equipment manufactured by our Enviroplex subsidiary. Historically, our warranty costs have not been significant, and
we monitor the quality of our products closely. If a defect were to arise in the installation of our equipment at the customer’s facilities
or in the equipment acquired from our suppliers or by our Enviroplex subsidiary, we may experience increased warranty claims. Such
claims could disrupt our sales operations, damage our reputation and require costly repairs or other remedies, negatively impacting
revenues and operating income.
SPECIFIC RISKS RELATED TO OUR ELECTRONIC TEST EQUIPMENT BUSINESS SEGMENT:
Market risk and cyclical downturns in the industries using test equipment may result in periods of low demand for our product
resulting in excess inventory, impairment charges and reduction of our operating results and cash flows.
TRS-RenTelco’s revenues are derived from the rental and sale of general purpose and communications test equipment to a broad
range of companies, from Fortune 500 to middle and smaller market companies, in the aerospace, defense, communications,
manufacturing and semiconductor industries. Electronic test equipment rental and sales revenues are primarily affected by the business
activity within these industries related to research and development, manufacturing, and communication infrastructure installation and
maintenance. Historically, these industries have been cyclical and have experienced periodic downturns, which can have a material
adverse impact on the industry’s demand for equipment, including our rental electronic test equipment. In addition, the severity and
length of any downturn in an industry may also affect overall access to capital, which could adversely affect our customers and result in
excess inventory and impairment charges. During periods of reduced and declining demand for test equipment, we are exposed to
additional receivable risk from non-payment and may need to rapidly align our cost structure with prevailing market conditions, which
may negatively impact our operating results and cash flows.
Seasonality of our electronic test equipment business may impact quarterly results.
Generally, rental activity declines in the fourth quarter month of December and the first quarter months of January and February.
These months may have lower rental activity due to holiday closures, particularly by larger companies, inclement weather and its impact
on various field related communications equipment rentals, and companies’ operational recovery from holiday closures which may
impact the start-up of new projects coming online in the first quarter. These seasonal factors historically have impacted quarterly results
in each year’s first and fourth quarter, but we are unable to predict how such factors may impact future periods.
Our rental test equipment may become obsolete or may no longer be supported by a manufacturer, which could result in an
impairment charge.
Electronic test equipment is characterized by changing technology and evolving industry standards that may render our existing
equipment obsolete through new product introductions, or enhancements, before the end of its anticipated useful life, causing us to incur
-24-
impairment charges. We must anticipate and keep pace with the introduction of new hardware, software and networking technologies
and acquire equipment that will be marketable to our current and prospective customers.
Additionally, some manufacturers of our equipment may be acquired or cease to exist, resulting in a future lack of support for
equipment purchased from those manufacturers. This could result in the remaining useful life becoming shorter, causing us to incur an
impairment charge. We monitor our manufacturers’ capacity to support their products and the introduction of new technologies, and
we acquire equipment that will be marketable to our current and prospective customers. However, any prolonged economic downturn
could result in unexpected bankruptcies or reduced support from our manufacturers. Failure to properly select, manage and respond to
the technological needs of our customers and changes to our products through their technology life cycle may cause certain electronic
test equipment to become obsolete, resulting in impairment charges, which may negatively impact operating results and cash flows.
If we do not effectively compete in the rental equipment market, our operating results will be materially and adversely affected.
The electronic test equipment rental business is characterized by intense competition from several competitors, including Electro
Rent Corporation, Continental Resources and TestEquity, some of which may have access to greater financial and other resources than
we do. Although no single competitor holds a dominant market share, we face competition from these established entities and new
entrants in the market. We believe that we anticipate and keep pace with the introduction of new products and acquire equipment that
will be marketable to our current and prospective customers. We compete on the basis of a number of factors, including product
availability, price, service and reliability. Some of our competitors may offer similar equipment for lease, rental or sale at lower prices
and may offer more extensive servicing, or financing options. Failure to adequately forecast the adoption of, and demand for, new or
existing products may cause us not to meet our customers’ equipment requirements and may materially and adversely affect our
operating results.
If we are not able to obtain equipment at favorable rates, there could be a material adverse effect on our operating results and
reputation.
The majority of our rental equipment portfolio is comprised of general purpose test and measurement instruments purchased from
leading manufacturers such as Keysight Technologies, Rhode & Schwarz and Tektronix, a division of Fortive Corporation. We depend
on purchasing equipment from these manufacturers and suppliers for use as our rental equipment. If, in the future, we are not able to
purchase necessary equipment from one or more of these suppliers on favorable terms, we may not be able to meet our customers’
demands in a timely manner or for a rental rate that generates a profit. If this should occur, we may not be able to secure necessary
equipment from an alternative source on acceptable terms and our business and reputation may be materially and adversely affected.
If we are not able to anticipate and mitigate the risks associated with operating internationally, there could be a material adverse
effect on our operating results.
Currently, total foreign country customers and operations account for less than 10% of the Company’s revenues. In recent years
some of our customers have expanded their international operations faster than domestic operations, and this trend may continue. Over
time, the amount of our international business may increase if we focus on international market opportunities. Operating in foreign
countries subjects the Company to additional risks, any of which may adversely impact our future operating results, including:
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international political, economic and legal conditions including tariffs and trade barriers;
our ability to comply with customs, anti-corruption, import/export and other trade compliance regulations, together with
any unexpected changes in such regulations;
greater difficulty in our ability to recover rental equipment and obtain payment of the related trade receivables;
additional costs to establish and maintain international subsidiaries and related operations;
difficulties in attracting and retaining staff and business partners to operate internationally;
language and cultural barriers;
seasonal reductions in business activities in the countries where our international customers are located;
difficulty with the integration of foreign operations;
longer payment cycles;
currency fluctuations; and
potential adverse tax consequences.
-25-
Unfavorable currency exchange rates may negatively impact our financial results in U.S. dollar terms.
We receive revenues in Canadian dollars from our business activities in Canada. Conducting business in currencies other than
U.S. dollars subjects us to fluctuations in currency exchange rates. If the currency exchange rates change unfavorably, the value of net
receivables we receive in foreign currencies and later convert to U.S. dollars after the unfavorable change would be diminished. This
could have a negative impact on our reported operating results. We currently do not engage in hedging strategies to mitigate this risk.
SPECIFIC RISKS RELATED TO OUR LIQUID AND SOLID CONTAINMENT TANKS AND BOXES BUSINESS
SEGMENT:
We may be brought into tort or environmental litigation or held responsible for cleanup of spills if the customer fails to perform,
or an accident occurs in the use of our rental products, which could materially adversely affect our business, future operating
results or financial position.
Our rental tanks and boxes are used by our customers to store non-hazardous and certain hazardous liquids and solids on the
customer’s site. Our customers are generally responsible for proper operation of our tank and box rental equipment while on rent and
returning a cleaned and undamaged container upon completion of use, but exceptions may be granted and we cannot always assure that
these responsibilities are fully met in all cases. Although we require the customer to carry commercial general liability insurance in a
minimum amount of $5,000,000, such policies often contain pollution exclusions and other exceptions. Furthermore, we cannot be
certain our liability insurance will always be sufficient. In addition, if an accident were to occur involving our rental equipment or a
spill of substances were to occur when the tank or box was in transport or on rent with our customer, a claim could be made against us
as owner of the rental equipment.
In the event of a spill or accident, we may be brought into a lawsuit or enforcement action by either our customer or a third
party on numerous potential grounds, including an allegation that an inherent flaw in a tank or box contributed to an accident or that
the tank had suffered some undiscovered harm from a previous customer’s prior use. In the event of a spill caused by our customers,
we may be held responsible for cleanup under environmental laws and regulations concerning obligations of suppliers of rental
products to effect remediation. In addition, applicable environmental laws and regulations may impose liability on us for the conduct
of third parties, or for actions that complied with applicable regulations when taken, regardless of negligence or fault. Substantial
damage awards have also been made in certain jurisdictions against lessors of industrial equipment based upon claims of personal
injury, property damage, and resource damage caused by the use of various products. While we take what we believe are reasonable
precautions that our rental equipment is in good and safe condition prior to rental and carry insurance to protect against certain risks
of loss or accidents, such liability could adversely impact our profitability.
The liquid and solid containment rental industry is highly competitive, and competitive pressures could lead to a decrease in
our market share or in rental rates and our ability to rent, or sell, equipment at favorable prices, which could adversely affect
our operating results.
The liquid and solid containment rental industry is highly competitive. We compete against national, regional and local companies,
including United Rentals, Rain For Rent and Mobile Mini, all of which may be larger than we are, may offer a wider range of products
and services and may have greater financial and marketing resources than we have. Some of our competitors also have longer operating
histories, lower cost basis of rental equipment and lower cost structures than we have. In addition, certain of our competitors are more
geographically diverse than we are and have greater name recognition among customers than we do. As a result, our competitors that
have these advantages may be better able to attract customers and provide their products and services at lower rental rates. Some
competitors offer different approaches to liquid storage, such as large-volume modular tanks that may have better economics and
compete with conventional frac tanks in certain oil and gas field applications. We may in the future encounter increased competition in
the markets that we serve from existing competitors or from new market entrants. In July 2020, Wilscot acquired Mobile Mini and in
July 2018, United Rentals, Inc. completed the acquisition of BakerCorp. Industry consolidation may create additional competition for
customers and provide the combined entity access to greater financial resources than we have.
We believe that equipment quality, service levels, rental rates and fleet size are key competitive factors in the liquid and solid
containment rental industry. From time to time, we or our competitors may attempt to compete aggressively by lowering rental rates or
prices. Competitive pressures could adversely affect our revenues and operating results by decreasing our market share or depressing
rental rates. To the extent we lower rental rates or increase our fleet in order to retain or increase market share, our operating margins
would be adversely impacted. In addition, we may not be able to match a larger competitor’s price reductions or fleet investment
because of its greater financial resources, all of which could adversely impact our operating results through a combination of a decrease
in our market share, revenues and operating income.
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Market risk, commodity price volatility, regulatory changes or interruptions and cyclical downturns in the industries using
tanks and boxes may result in periods of low demand for our products resulting in excess inventory, impairment charges and
reduction of our operating results and cash flows.
Adler Tanks’ revenues are derived from the rental of tanks and boxes to companies involved in oil and gas exploration, extraction
and refinement, environmental remediation and wastewater/groundwater treatment, infrastructure and building construction and various
industrial services, among others. We expect tank and box rental revenues will primarily be affected by the business activity within
these industries. Historically, these industries have been cyclical and have experienced periodic downturns, which have a material
adverse impact on the industry’s demand for equipment, including the tanks and boxes rented by us. Lower oil or gas prices may have
an adverse effect on our liquid and solid containment tanks and boxes business. Any steep decline in both domestic and international oil
and gas prices driven by materially higher supply levels and weak demand could have a significant negative impact on the industry’s
demand for equipment, especially if such market conditions continue for an extended period of time. If the price reduction causes
customers to limit or stop exploration, extraction or refinement activities, resulting in lower demand and pricing for renting Adler Tank’s
products, our financial results could be adversely impacted. Also, a weak U.S. economy may negatively impact infrastructure
construction and industrial activity. Any of these factors may result in excess inventory or impairment charges and reduce our operating
results and cash flows.
Changes in regulatory, or governmental, oversight of hydraulic fracturing could materially adversely affect the demand for our
rental products and reduce our operating results and cash flows.
We believe that demand related to hydraulic fracturing has increased the total rental revenues and market size in recent years. Oil
and gas exploration and extraction (including use of tanks for hydraulic fracturing to obtain shale oil and shale gas) are subject to
numerous local, state and federal regulations. In the twelve months ended December 31, 2020, oil and gas exploration and production
accounted for approximately 7% of Adler Tanks’ rental revenues, and approximately 1% of the Company’s total revenues. The hydraulic
fracturing method of extraction has come under scrutiny in several states and by the Federal government due to the potential adverse
effects that hydraulic fracturing, and the liquids and chemicals used, may have on water quality and public health. In addition, the
disposal of wastewater from the hydraulic fracturing process into injection wells may increase the rate of seismic activity near drill sites
and could result in regulatory changes, delays or interruption of future activity. Changes in these regulations could limit, interrupt, or
stop exploration and extraction activities, which would negatively impact the demand for our rental products. Finally, it is possible that
changes in the technology utilized in hydraulic fracturing could make it less dependent on liquids and therefore lower the related
requirements for the use of our rental products, which would reduce our operating results and cash flows.
Seasonality of the liquid and solid containment rental industry may impact quarterly results.
Rental activity may decline in the fourth quarter month of December and the first quarter months of January and February. These
months may have lower rental activity in parts of the country where inclement weather may delay, or suspend, a company’s project.
The impact of these delays may be to decrease the number of tanks, or boxes, on rent until companies are able to resume their projects
when weather improves. These seasonal factors historically have impacted quarterly results in each year’s first and fourth quarter, but
we are unable to predict how such factors may impact future periods.
Significant increases in raw material, fuel and labor costs could increase our acquisition and operating costs of rental equipment,
which would increase operating costs and decrease profitability.
Increases in raw material costs such as steel and labor to manufacture liquid and solid containment tanks and boxes would increase
the cost of acquiring new equipment. These price increases could materially and adversely impact our financial condition and results
of operations if we are not able to recoup these increases through higher rental revenues. In addition, a significant amount of revenues
are generated from the transport of rental equipment to and from customers. We own delivery trucks, employ drivers and utilize
subcontractors to provide these services. The price of fuel can be unpredictable and beyond our control. During periods of rising fuel
and labor costs, and in particular when prices increase rapidly, we may not be able recoup these costs from our customers, which would
reduce our profitability.
We derive a meaningful amount of our revenue in our liquid and solid containment tank and boxes business from a limited
number of customers, the loss of one or more of which could have an adverse effect on our business.
Periodically, a meaningful portion of our revenue in our liquid and solid containment tank and boxes business may be generated
from a few major customers. Although we have some long-term relationships with our major customers, we cannot be assured that our
customers will continue to use our products or services or that they will continue to do so at historical levels. The loss of any meaningful
customer, the failure to collect a material receivable from a meaningful customer, any material reduction in orders by a meaningful
customer or the cancellation of a meaningful customer order could significantly reduce our revenues and consequently harm our financial
condition and our ability to fund our operations.
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We may not be able to quickly redeploy equipment returning from leases at equivalent prices.
Many of our rental transactions are short-term in nature with pricing established on a daily basis. The length of time that a
customer needs equipment can often be difficult to determine and can be impacted by a number of factors such as weather, customer
funding and project delays. In addition, our equipment is primarily used in the oil and gas, industrial plant services, environmental
remediation and infrastructure and building construction industries. Changes in the economic conditions facing any of those industries
could result in a significant number of units returning off rent, both for us and our competitors.
If the supply of rental equipment available on the market significantly increases due to units coming off rent, demand for and
pricing of our rental products could be adversely impacted. We may experience delays in remarketing our off-rent units to new
customers and incur cost to move the units to other regions where demand is stronger. Actions in these circumstances by our competitors
may also depress the market price for rental units. These delays and price pressures would adversely affect equipment utilization levels
and total revenues, which would reduce our profitability.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2.
PROPERTIES.
The Company’s corporate and administrative offices are located in Livermore, California in approximately 26,000 square feet.
The Company’s four reportable business segments currently conduct operations from the following locations:
Mobile Modular – Seven inventory centers, at which relocatable modular buildings and storage containers are displayed,
refurbished and stored are located in Livermore, California (137 acres in the San Francisco Bay Area), Mira Loma, California (79 acres
in the Los Angeles area), Pasadena, Texas (50 acres in the Houston area), in Grand Prairie, Texas (43 acres in the Dallas area),
Auburndale, Florida (123 acres in the Orlando area), Arcade, Georgia (48 acres in the Atlanta area) and Fredericksburg, Virginia (68
acres in the Washington D.C. area). The inventory centers conduct rental and sales operations from modular buildings, serving as
working models of the Company’s modular product. The Company also has a leased modular sales office in Charlotte, North Carolina
from which the states of North Carolina and South Carolina are served.
TRS-RenTelco – Electronic test equipment rental and sales operations are conducted from a 117,000 square foot leased facility in
Grapevine, Texas (Dallas area) and a sales office in Dollard-des-Ormeaux, Quebec (Montreal, Canada area).
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Adler Tanks – Adler Tanks operates from branch offices serving the Northeast, Mid-Atlantic, Midwest, Southeast, Southwest and
West. A number of our branch offices are leased and have remaining lease terms of one to three years, or are leased on a month to
month basis. We believe satisfactory alternative properties can be found in all of our markets if we do not renew our existing leased
properties.
Enviroplex – The Company’s wholly owned subsidiary, Enviroplex, manufactures modular buildings used primarily as classrooms
in California from its 108,000 square foot facility in Stockton, California (San Francisco Bay Area).
ITEM 3.
LEGAL PROCEEDINGS.
The Company is involved in various lawsuits and routine claims arising out of the normal course of its business. The Company
maintains insurance coverage for its operations and employees with appropriate aggregate, per occurrence and deductible limits as the
Company reasonably determines necessary or prudent with current operations and historical experience. The major policies include
coverage for property, general liability, auto, directors and officers, health, and workers’ compensation insurances. In the opinion of
management, the ultimate amount of liability not covered by insurance, if any, under any pending litigation and claims, individually or
in the aggregate, will not have a material adverse effect on the financial position or operating results of the Company.
ITEM 4. MINE SAFETY DISCLOSURES.
Not Applicable
-28-
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES.
The Company's common stock is traded in the NASDAQ Global Select Market under the symbol “MGRC”. As of February 23,
2021, the Company's common stock was held by approximately 40 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.
Stock Repurchase Plan
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. In August 2015, the Company’s Board of Directors authorized the Company to
repurchase 2,000,000 shares of the Company's outstanding common stock (the “Repurchase Plan”). The amount and time of the specific
repurchases are subject to prevailing market conditions, applicable legal requirements and other factors, including management’s
discretion. All shares repurchased by the Company are canceled and returned to the status of authorized but unissued shares of common
stock. There can be no assurance that any authorized shares will be repurchased and the repurchase program may be modified, extended
or terminated by the Board of Directors at any time. There were 282,221 shares of common stock repurchased during the twelve months
ended December 31, 2020 for the aggregate purchase price of $13.6 million or an average price of $48.25 per repurchased share. There
were no repurchases of common stock during the fourth quarter 2020 and twelve months ended December 31, 2019. As of December
31, 2020, 1,309,805 shares remain authorized for repurchase under the Repurchase Plan.
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ITEM 6.
SELECTED FINANCIAL DATA.
The following table summarizes the Company’s selected financial data for the five years ended December 31, 2020 and should
be read in conjunction with the detailed audited consolidated financial statements and related notes included in “Item 8. Financial
Statements and Supplementary Data” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Result of
Operations”.
Selected Consolidated Financial Data
(in thousands, except per share data)
Operations Data
Revenues
2020
Year Ended December 31,
2018
2017
2019
2016
Rental ............................................................................... $ 351,790
92,393
Rental related services .....................................................
444,183
Rental operations ........................................................
124,604
Sales .................................................................................
3,767
Other.................................................................................
572,554
Total revenues .......................................................
$ 353,889
101,038
454,927
110,229
5,074
570,230
$ 318,774
82,907
401,681
92,618
4,031
498,330
$ 289,417
78,068
367,485
91,500
3,049
462,034
$ 271,388
75,859
347,247
74,410
2,423
424,080
Costs and expenses
Direct costs of rental operations
Depreciation of rental equipment ...............................
Rental related services ................................................
Other ...........................................................................
Total direct costs of rental operations ...................
Costs of sales....................................................................
Total costs of revenues..........................................
Gross profit ......................................................
Selling and administrative expenses ................................
Income from operations..............................................
85,866
68,105
73,818
227,789
81,019
308,808
263,746
122,993
140,753
Other income (expense):
80,391
76,241
79,365
235,997
68,068
304,065
266,165
124,793
141,372
73,139
64,298
68,678
206,115
58,964
265,079
233,251
115,770
117,481
69,908
60,029
65,472
195,409
60,280
255,689
206,345
111,605
94,740
72,197
59,044
60,130
191,371
48,542
239,913
184,167
104,908
79,259
Interest expense ..........................................................
Foreign currency exchange gain (loss).......................
Income before provision (benefit) for income
taxes ......................................................................
Provision (benefit) for income taxes................................
132,044
30,060
Net income ............................................................ $ 101,984
Earnings per share:
Basic................................................................................. $
Diluted.............................................................................. $
4.22
4.16
Shares used in per share calculations:
(8,787)
78
(12,331)
84
(12,297)
(489)
(11,622)
334
(12,207)
(121)
129,125
32,319
96,806
3.99
3.93
$
$
$
$
$
$
104,695
25,289
79,406
83,452
(70,468)
$ 153,920
3.29
3.24
$
$
6.41
6.34
66,931
28,680
38,251
1.60
1.60
$
$
$
Basic.................................................................................
Diluted..............................................................................
24,157
24,531
24,250
24,623
24,141
24,540
23,999
24,269
23,900
23,976
Balance Sheet Data (at period end)
Rental equipment, at cost ...................................................... $ 1,530,841
Rental equipment, net............................................................ $ 938,116
Total assets ............................................................................ $ 1,275,744
Notes payable ........................................................................ $ 222,754
Shareholders' equity .............................................................. $ 682,604
24,128
Shares issued and outstanding ...............................................
28.29
Book value per share ............................................................. $
0.87
Total liabilities to equity........................................................
0.33
Debt (notes payable) to equity...............................................
15.6%
Return on average equity.......................................................
$
1.68
Cash dividends declared per common share ......................... $
$ 1,520,411
$ 967,500
$ 1,309,875
$ 293,431
$ 634,036
24,296
26.10
1.07
0.46
16.1%
$
1.50
$ 1,416,000
$ 901,015
$ 1,217,316
$ 298,564
$ 571,535
24,182
23.63
1.13
0.52
14.6%
$
1.36
$ 1,347,533
$ 862,320
$ 1,147,854
$ 303,414
$ 524,184
24,052
21.79
1.19
0.58
37.1%
$
1.04
$ 1,324,057
$ 856,371
$ 1,128,276
$ 326,266
$ 394,287
23,948
16.46
1.86
0.83
9.8%
1.02
$
$
$
$
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Adjusted EBITDA
To supplement the Company’s financial data presented on a basis consistent with accounting principles generally accepted in the
United States of America (“GAAP”), the Company presents “Adjusted EBITDA”, which is defined by the Company as net income
before interest expense, provision for income taxes, depreciation, amortization, non-cash impairment costs and share-based
compensation. The Company presents Adjusted EBITDA as a financial measure as management believes it provides useful information
to investors regarding the Company’s liquidity and financial condition and because management, as well as the Company’s lenders, use
this measure in evaluating the performance of the Company.
Management uses Adjusted EBITDA as a supplement to GAAP measures to further evaluate period-to-period operating
performance, compliance with financial covenants in the Company’s revolving lines of credit and senior notes and the Company’s ability
to meet future capital expenditure and working capital requirements. Management believes the exclusion of non-cash charges, including
share-based compensation, is useful in measuring the Company’s cash available for operations and performance of the Company.
Because management finds Adjusted EBITDA useful, the Company believes its investors will also find Adjusted EBITDA useful in
evaluating the Company’s performance.
Adjusted EBITDA should not be considered in isolation or as a substitute for net income, cash flows, or other consolidated income
or cash flow data prepared in accordance with GAAP or as a measure of the Company’s profitability or liquidity. Adjusted EBITDA is
not in accordance with or an alternative for GAAP, and may be different from non−GAAP measures used by other companies. Unlike
EBITDA, which may be used by other companies or investors, Adjusted EBITDA does not include share-based compensation charges.
The Company believes that Adjusted EBITDA is of limited use in that it does not reflect all of the amounts associated with the
Company’s results of operations as determined in accordance with GAAP and does not accurately reflect real cash flow. In addition,
other companies may not use Adjusted EBITDA or may use other non-GAAP measures, limiting the usefulness of Adjusted EBITDA
for purposes of comparison. The Company’s presentation of Adjusted EBITDA should not be construed as an inference that the
Company will not incur expenses that are the same as or similar to the adjustments in this presentation. Therefore, Adjusted EBITDA
should only be used to evaluate the Company’s results of operations in conjunction with the corresponding GAAP measures. The
Company compensates for the limitations of Adjusted EBITDA by relying upon GAAP results to gain a complete picture of the
Company’s performance. Because Adjusted EBITDA is a non-GAAP financial measure, as defined by the SEC, the Company includes
in the tables below reconciliations of Adjusted EBITDA to the most directly comparable financial measures calculated and presented in
accordance with GAAP.
Reconciliation of Net Income to Adjusted EBITDA
(dollar amounts in thousands)
2020
Provision (benefit) for income taxes................................
Interest expense................................................................
Depreciation and amortization .........................................
EBITDA ................................................................................
Impairment of rental assets ..............................................
Share-based compensation...............................................
Net income............................................................................. $ 101,984
30,060
8,787
94,643
235,474
—
5,549
Adjusted EBITDA 1............................................................... $ 241,023
Adjusted EBITDA margin 2 ..................................................
$
$
2019
96,806
32,319
12,331
89,476
230,932
—
5,892
$ 236,824
Year Ended December 31,
2018
79,406
25,289
12,297
81,975
198,967
39
4,111
$ 203,117
2017
$ 153,920
(70,468)
11,622
78,416
173,490
1,639
3,198
$ 178,327
$
2016
38,251
28,680
12,207
81,179
160,317
—
3,091
$ 163,408
42%
42%
41%
39%
39%
2
2
0
0
1
2
0
F
F
o
o
r
r
m
m
1
1
0
0
-
-
K
K
-31-
Reconciliation of Adjusted EBITDA to Net Cash Provided by Operating Activities
(dollar amounts in thousands)
Adjusted EBITDA 1 ............................................................... $
Interest paid ............................................................................
Income taxes paid, net of refunds received ............................
Gain on sale of used rental equipment ...................................
Foreign currency exchange (gain) loss...................................
Amortization of debt issuance costs.......................................
Change in certain assets and liabilities:
Accounts receivable, net ...................................................
Income taxes receivable....................................................
Prepaid expenses and other assets ....................................
Accounts payable and other liabilities ..............................
Deferred income ...............................................................
Net cash provided by operating activities .............................. $
2020
241,023
$
(9,050)
(34,903)
(19,329)
(78)
11
4,783
—
3,807
3,229
(8,989)
$
180,504
Year Ended December 31,
2018
203,117
$
(12,598)
(18,157)
(19,559)
489
20
2019
236,824
$
(12,475)
(17,528)
(21,309)
(84)
11
(6,310)
—
(13,530)
17,257
5,138
187,994
$
(15,144)
—
(9,351)
3,592
10,258
142,667
$
2017
178,327
$
(11,825)
(29,504)
(17,733)
(334)
50
(8,995)
—
3,124
7,559
1,720
122,389
$
2016
163,408
(12,436)
(15,555)
(13,739)
121
51
(1,860)
11,000
1,949
7,220
536
140,695
1
2
Adjusted EBITDA is defined as net income before interest expense, provision for income taxes, depreciation, amortization, non-cash impairment costs
and share-based compensation.
Adjusted EBITDA margin is calculated as Adjusted EBITDA divided by total revenues for the period.
Adjusted EBITDA is a component of two restrictive financial covenants for the Company’s unsecured Credit Facility, Series B
Senior Notes and Series C Senior Notes (as defined and more fully described under the heading “Item 7. Management’s Discussion and
Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources”). These instruments contain financial
covenants requiring the Company to not:
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1
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0
2
0
2
2
(cid:129)
(cid:129)
Permit the Consolidated Fixed Charge Coverage Ratio (as defined in the Credit Facility and the Note Purchase Agreement
(as defined and more fully described under the heading “Item 7. Management’s Discussion and Analysis of Financial
Condition and Results of Operation - Liquidity and Capital Resources” in this MD&A)) of Adjusted EBITDA (as defined
in the Credit Facility and the Note Purchase Agreement) to fixed charges as of the end of any fiscal quarter to be less than
2.50 to 1. At December 31, 2020, the actual ratio was 4.34 to 1.
Permit the Consolidated Leverage Ratio of funded debt (as defined in the Credit Facility and the Note Purchase Agreement)
to Adjusted EBITDA at any time during any period of four consecutive quarters to be greater than 2.75 to 1. At December
31, 2020, the actual ratio was 0.92 to 1.
At December 31, 2020, the Company was in compliance with each of these aforementioned covenants. There are no anticipated
trends that the Company is aware of that would indicate non-compliance with these covenants, though, significant deterioration in our
financial performance could impact the Company's ability to comply with these covenants.
-32-
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking
statements that involve risks and uncertainties. The Company’s actual results could differ materially from those anticipated in these
forward-looking statements as a result of certain factors, including those set forth in this section as well as those discussed under Part
I, “Item 1A. Risk Factors” and elsewhere in this document. This discussion should be read together with the financial statements and
the related notes thereto set forth in “Item 8. Financial Statements and Supplementary Data.”
Results of Operations
General
The Company, incorporated in 1979, is a leading rental provider of relocatable modular buildings for classroom and office space,
electronic test equipment for general purpose and communications needs, and liquid and solid containment tanks and boxes. The
Company’s primary emphasis is on equipment rentals. The Company is comprised of four reportable business segments: (1) its modular
building and portable storage container rental segment (“Mobile Modular”); (2) its electronic test equipment rental segment (“TRS-
RenTelco”); (3) its containment solutions for the storage of hazardous and non-hazardous liquids and solids segment (“Adler Tanks”);
and (4) its classroom manufacturing segment selling modular buildings used primarily as classrooms in California (“Enviroplex”). In
2020, Mobile Modular, TRS-RenTelco, Adler Tanks and Enviroplex contributed 62%, 26%, 6% and 6%, respectively, of the Company’s
income before provision for taxes (the equivalent of “pre-tax income”), compared to 54%, 27%, 11% and 8%, respectively, for 2019.
The Company generates its revenues primarily from the rental of its equipment on operating leases with sales of equipment
occurring in the normal course of business. The Company requires significant capital outlay to purchase its rental inventory and recovers
its investment through rental and sales revenues. Rental revenue and certain other service revenues negotiated as part of the lease
agreements with customers and related costs are recognized on a straight-line basis over the terms of the lease. Sales revenue and related
costs are recognized upon delivery and installation of the equipment to the customers. Sales revenues are less predictable and can
fluctuate from period to period depending on customer demands and requirements. Generally, rental revenues less cash operating costs
recover the equipment’s capitalized cost in a shorter period of time relative to the equipment’s potential rental life and when sold, sale
proceeds are usually above its net book value.
The Company’s rental operations include rental and rental related services revenues which comprised approximately 78% and
79% of the Company’s total revenues in 2020 and for the three years ended December 31, 2020, respectively. Over the past three years,
modulars, electronic test equipment and tanks and boxes comprised approximately 55%, 24% and 21%, respectively, of the cumulative
rental operations revenues. The Company’s direct costs of rental operations include depreciation of rental equipment, rental related
service costs, impairment of rental equipment, and other direct costs of rental operations (which include direct labor, supplies, repairs,
insurance, property taxes, license fees and amortization of certain lease costs).
2
2
0
0
1
2
0
F
F
o
o
r
r
m
m
1
1
0
0
-
-
K
K
The Company sells modular, electronic test equipment and liquid and solid containment tanks and boxes that are new, or
previously rented. The Company’s Enviroplex subsidiary manufactures and sells modular classrooms. The renting and selling of some
modular equipment requires a dealer’s license, which the Company has obtained from the appropriate governmental agencies. Sales
and other revenues of modulars, electronic test equipment and tanks and boxes have comprised approximately 22% and 21% of the
Company’s consolidated revenues in 2020 and for the three years ended December 31, 2020. Over the past three years, modulars,
electronic test equipment and tanks and boxes comprised approximately 76%, 23% and 1% of sales and other revenues, respectively.
The Company’s cost of sales includes the carrying value of the equipment sold and the direct costs associated with the equipment sold
such as delivery, installation, modifications and related site work.
The rental and sale of modulars to public school districts comprised 23%, 25% and 24% of the Company’s consolidated rental
and sales revenues for 2020, 2019 and 2018, respectively. (For more information, see “Item 1. Business – Relocatable Modular
Buildings – Classroom Rentals and Sales to Public Schools (K-12)” above.)
Selling and administrative expenses primarily include personnel and benefit costs, which includes share-based compensation,
depreciation and amortization of property, plant and equipment and intangible assets, bad debt expense, advertising costs, and
professional service fees. The Company believes that sharing of common facilities, financing, senior management, and operating and
accounting systems by all of the Company’s operations, results in an efficient use of overhead. Historically, the Company’s operating
margins have been impacted favorably to the extent its costs and expenses are leveraged over a large installed customer base. However,
there can be no assurance as to the Company’s ability to maintain a large installed customer base or ability to sustain its historical
operating margins.
-33-
Recent Developments
Dividends
In February 2021, the Company announced that its Board of Directors declared a cash dividend of $0.435 per common share for
the quarter ending March 31, 2021, an increase of 4% over the prior year’s comparable quarter.
Credit Facility and Note Purchase Agreement
In March 2020, the Company renewed its $420 million credit facility with a syndicate of banks. The five-year facility matures on
March 31, 2025 and replaced the Company’s existing $420 million line of credit. B of A Securities, Inc. served as Sole Bookrunner and
Joint Lead Arranger. Bank of America, N.A. served as Administrative Agent, U.S. Bank National Association served as Joint Lead
Arranger and Syndication Agent, and MUFG Union Bank N.A. and Wells Fargo Bank, N.A. served as Syndication Agents.
In March 2020, the Company entered into an amended and restated $250 million note purchase and private shelf agreement with
Prudential Private Capital (the “Note Purchase Agreement”). In addition to governing the terms of the current $40 million Series B
Senior Notes and $60 million Series C Senior Notes outstanding, the Note Purchase Agreement allows for the issuance of up to an
additional $150 million of senior notes on terms to be determined at such time that any additional notes are issued.
In October 2020, the Company entered into a rate lock agreement with Prudential Private Capital, pursuant to which, the Company
agreed to a fixed interest rate of 2.57% for future issuance, if any, of senior unsecured notes in the aggregate amount of $40.0 million
with a 7-year maturity. If issued, the funding for such notes would occur on or before March 17, 2021 and would be subject to the terms
and conditions of the Note Purchase Agreement.
COVID-19
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1
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0
2
0
2
2
The outbreak of a new strain of coronavirus, COVID-19, which began in December 2019, has continued to spread globally
including to every state in the United States. The Center for Disease Control (“CDC”) and World Health Organization (“WHO”) have
recognized this outbreak as a pandemic, which has caused shutdowns to businesses and cities worldwide while disrupting supply chains,
business operations, travel, consumer confidence and business sentiment. Each of the states in which the Company operates, and in
some cases the localities as well, have previously issued orders requiring the closure of non-essential business and/or requiring residents
to stay at home, however, currently none of the Company’s locations are required to be closed by local or state order. The Company is
following guidelines established by the CDC and WHO and orders issued by state and local governments where the Company operates.
The Company has taken a number of precautionary health and safety measures to safeguard its employees and customers, while
maintaining business continuity to enable each of its operating segments and branch locations to continue providing services to
customers identified as essential businesses under the relevant state and local rules. The Company has implemented remote work
policies, restricted travel, separated work groups, enhanced cleaning and hygiene protocols in all of its facilities, products and vehicles,
and requires distancing protocols for production and logistical personnel. The Company is continuing to monitor and assessing orders
issued by federal, state and local governments to ensure compliance with evolving COVID-19 guidelines. The Company also continues
to monitor the impact of COVID-19 on its existing customers who themselves may be impacted by governmental shutdowns and other
impacts due to the governmental orders.
As of the date of this filing, significant uncertainty continues to exist concerning the magnitude of the impact and duration of the
COVID-19 pandemic. While the Company's operating segments and branch locations currently continue to operate, the Company’s
results of operations may be negatively impacted by project delays; early returns of equipment currently on rent with customers; overall
decreased customer demand for new rental orders, rental related services and sales of new and used rental equipment; and payment
delay, or non-payment, by customers who are significantly impacted by COVID-19. In light of the uncertain and rapidly evolving
situation relating to the COVID-19 pandemic, the Company has taken a number of precautionary measures to manage its resources
conservatively by reducing and/or deferring non-essential capital expenditures and operating expenses to mitigate the adverse impact of
the pandemic. The Company will continue to assess its capital expenditure needs against its cash availability during the crisis to make
the most strategic decisions for its business. Furthermore, the Company believes that its recently renewed $420 million credit facility,
coupled with its ability to access additional capital through the issuance of up to $150 million in additional senior notes, will strengthen
the Company’s liquidity position and serve to mitigate some of the operational risk related to decreased customer demand for new rental
orders and sales resulting from the COVID-19 pandemic.
While the Company has not seen a significant impact from COVID-19 in the financial results for the year ended December 31,
2020 as set forth in the below section discussing the results of operations for the year ended December 31, 2020, the Company is
currently unable to determine or predict the full nature, duration or scope of the overall impact the COVID-19 pandemic will have on
its business, results of operations, liquidity or capital resources. The Company will continue to actively monitor the situation and may
take further actions that alter its business operations as may be required by federal, state or local authorities or that the Company
determines are in the best interests of employees, customers and shareholders.
-34-
Percentage of Revenue Table
The following table sets forth for the periods indicated the results of operations as a percentage of the Company’s total revenues
and the percentage of changes in the amount of such of items as compared to the amount in the indicated prior period:
Percent of Total Revenues
Percent Change
Three Years
2020–2018
Year Ended December 31,
2019
2018
2020
2020 over
2019
2019 over
2018
Revenues
Rental ......................................................................
Rental related services ............................................
Rental operations...............................................
Sales ........................................................................
Other .......................................................................
Total revenues ........................................
62%
17
79
20
1
100
61%
17
78
22
—
100
62%
18
80
19
1
100
64%
17
81
19
—
100
(1)%
(9)
(2)
13
(26)
0
Costs and expenses
Direct costs of rental operations
Depreciation of rental equipment ......................
Rental related services.......................................
Other..................................................................
Total direct costs of rental operations..........
Cost of sales .................................................................
Total costs...............................................
Gross profit.............................................
Selling and administrative expenses ............................
Income from operations ....................................
Other income (expense):
Interest expense .................................................
Foreign currency exchange gain (loss)..............
Income before provision for income
taxes ............................................................
Provision for income taxes...........................................
Net income .............................................
nm = not meaningful
11%
22
13
19
26
14
10
19
16
14
15
15
14
8
20
0
nm
2
2
0
0
1
2
0
F
F
o
o
r
r
m
m
1
1
0
0
-
-
K
K
15
13
14
41
12
53
47
23
24
2
—
15
12
13
40
14
54
46
21
25
2
—
14
13
14
41
12
53
47
22
25
2
—
15
13
14
42
11
53
47
23
24
3
—
7
(11)
(7)
(3)
19
2
(1)
(1)
0
(29)
nm
22
5
17%
23
5
18%
23
6
17%
21
5
16%
2
(7)
5%
23
28
22%
-35-
Twelve Months Ended December 31, 2020 Compared to
Twelve Months Ended December 31, 2019
Overview
Consolidated revenues in 2020 increased to $572.6 million from $570.2 million in 2019. Consolidated net income in 2020
increased to $102.0 million, or $4.16 per diluted share in 2020, compared to $96.8 million, or $3.93 per diluted share, in 2019. The
Company’s year over year total revenue increase was primarily due to higher sales revenues, partly offset by lower rental and rental
related services revenues as more fully described below.
For 2020 compared to 2019, on a consolidated basis:
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
Gross profit decreased $2.4 million, or 1%, to $263.7 million. Mobile Modular’s gross profit increased $12.3 million, or
9%, due to higher gross profit on rental, rental related services and sales revenues. TRS-RenTelco’s gross profit increased
$0.1 million, primarily due to higher gross profit on sales and rental related services revenues. Enviroplex’s gross profit
decreased $1.9 million, or 13%, due to $7.1 million lower sales revenues. Adler Tanks’ gross profit decreased $12.9 million,
or 28%, due to lower gross profit on rental, rental related services and sales revenues.
Selling and administrative expenses decreased $1.8 million, or 1%, to $123.0 million, primarily due to decreased travel,
meals and meeting expenses.
Interest expense decreased $3.5 million, or 29%, due to 21% lower net average interest rate of 3.25% in 2020 compared to
4.10% in 2019 and 10% lower average debt levels of the Company.
Pre-tax income contribution was 62%, 26% and 6% by Mobile Modular, TRS-RenTelco and Adler Tanks, respectively, in
2019, compared to 54%, 27% and 11%, respectively, in 2019. These results are discussed on a segment basis below. Pre-
tax income contribution by Enviroplex was 6% and 8% in 2020 and 2019, respectively.
The provision for income taxes resulted in an effective tax rate of 22.8% and 25.0% for the twelve months ended December
31, 2020 and 2019, respectively.
Adjusted EBITDA increased $4.2 million, or 2%, to $241.0 million in 2020. Adjusted EBITDA is a non-GAAP financial
measure and is defined as net income before interest expense, provision for income taxes, depreciation, amortization, non-
cash impairment costs and share-based compensation. A reconciliation of Adjusted EBITDA to net cash provided by
operating activities and net income to Adjusted EBITDA can be found in “Item 6. Selected Financial Data.” on page 30.
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-36-
Mobile Modular
For 2020, Mobile Modular’s total revenues increased $20.5 million, or 7%, to $321.5 million compared to 2019, primarily due to
higher sales and rental revenues, partly offset by lower rental related services. The revenue increase, together with higher gross profit
on rental, rental related services and sales revenues, partly offset by higher selling and administrative expenses, resulted in an increase
in pre-tax income of $12.3 million, or 18%, to $82.3 million in 2020.
The following table summarizes year-to-year results for each revenue and gross profit category, income from operations, pre-tax
income, and other selected information.
Mobile Modular – 2020 compared to 2019
(dollar amounts in thousands)
Year Ended December 31,
2020
2019
Increase (Decrease)
$
%
Revenues
Rental................................................................................................. $
Rental related services.......................................................................
Rental operations .........................................................................
Sales...................................................................................................
Other ..................................................................................................
Total revenues ...................................................................
Costs and Expenses
Direct costs of rental operations:
Depreciation of rental equipment.................................................
Rental related services .................................................................
Other ............................................................................................
Total direct costs of rental operations ....................................
Costs of sales .....................................................................................
Total costs of revenues......................................................
Gross Profit
Rental.................................................................................................
Rental related services.......................................................................
Rental operations .........................................................................
Sales...................................................................................................
Other ..................................................................................................
Total gross profit...............................................................
Selling and administrative expenses..................................................
Income from operations.....................................................................
Interest expense allocation ................................................................
Pre-tax income .................................................................. $
$
188,719
67,527
256,246
63,863
1,415
321,524
22,967
48,910
47,762
119,639
46,011
165,650
$
182,316
69,395
251,711
47,043
2,256
301,010
22,071
51,787
51,136
124,994
32,398
157,392
117,990
18,617
136,607
17,852
1,416
155,875
68,470
87,405
(5,104)
$
82,301
109,109
17,608
126,717
14,645
2,256
143,618
65,699
77,919
(7,946)
$
69,973
Other Selected Information
Average rental equipment 1 ............................................................... $
Average rental equipment on rent ..................................................... $
Average monthly total yield 2............................................................
Average utilization 3 ..........................................................................
Average monthly rental rate 4............................................................
Period end rental equipment 1............................................................ $
Period end utilization 3 ...............................................................
1
2
3
825,614
637,500
$
$
1.88%
77.2%
2.47%
$
76.0%
836,531
795,250
629,459
$
$
1.90%
79.20%
2.41%
$
79.1%
814,367
6,403
(1,868)
4,535
16,820
(841)
20,514
896
(2,877)
(3,374)
(5,355)
13,613
8,258
8,881
1,009
9,890
3,207
(840)
12,257
2,771
9,486
(2,842)
12,328
30,364
8,041
22,164
2
2
0
0
1
2
0
F
F
o
o
r
r
m
m
1
1
0
0
-
-
K
K
4%
(3)%
2%
36%
(37)%
7%
4%
(6)%
(7)%
(4)%
42%
5%
8%
6%
8%
22%
(37)%
9%
4%
12%
(36)%
18%
4%
1%
(1)%
(3)%
2%
3%
(4)%
Average and Period end rental equipment represents the cost of rental equipment excluding new equipment inventory and accessory equipment.
Average monthly total yield is calculated by dividing the averages of monthly rental revenues by the cost of rental equipment for the period.
Period end utilization is calculated by dividing the cost of rental equipment on rent by the total cost of rental equipment excluding new equipment inventory and
accessory equipment. Average utilization for the period is calculated using the average month end costs of the rental equipment.
Average monthly rental rate is calculated by dividing the averages of monthly rental revenues by the cost of rental equipment on rent for the period.
4
-37-
Mobile Modular’s gross profit for 2020 increased $12.3 million, or 9%, to $155.9 million. For the year ended December 31, 2020
compared to the year ended December 31, 2019:
(cid:129)
(cid:129)
(cid:129)
Gross Profit on Rental Revenues – Rental revenues increased $6.4 million, or 4%, due to 1% higher average rental
equipment on rent and 2% higher average monthly rental rates. As a percentage of rental revenues, depreciation was 12%
in 2020 and 2019 and other direct costs were 25% in 2020 and 28% in 2019, which resulted in gross margin percentage of
63% in 2020 compared to 60% and 2019. The higher rental revenues and higher rental margins resulted in gross profit on
rental revenues increasing $8.9 million, or 8%, to $118.0 million in 2020.
Gross Profit on Rental Related Services – Rental related services revenues decreased $1.9 million, or 3%, compared to
2019. Most of these service revenues are negotiated with the initial lease and are recognized on a straight-line basis with
the associated costs over the initial term of the lease. The decrease in rental related services revenues was primarily
attributable to lower amortization of modular building delivery and return delivery and dismantle revenues and lower repair
revenues, partly offset by increased site related services revenues. The lower revenues offset by higher gross margin
percentage of 28% in 2020 compared to 25% in 2019 resulted in rental related services gross profit increasing $1.0 million,
or 6%, to $18.6 million in 2020.
Gross Profit on Sales – Sales revenues increased $16.8 million, or 36%, primarily due to higher new and used equipment
sales. The higher sales revenues, partly offset by lower gross margins of 28% in 2020 compared to 31% in 2019, resulted
in sales gross profit increasing $3.2 million, or 22%, to $17.9 million in 2020. Sales occur routinely as a normal part of
Mobile Modular’s rental business; however, these sales can fluctuate from period to period depending on customer
requirements, equipment availability and funding.
For 2020, Mobile Modular’s selling and administrative expenses increased $2.8 million, or 4%, to $68.5 million, primarily due to
higher allocated corporate expenses and increased salaries and benefit costs, partly offset by lower travel, meals and meeting costs.
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-38-
TRS-RenTelco
For 2020, TRS-RenTelco’s total revenues increased $9.3 million, or 7%, to $140.8 million compared to 2019, primarily due to
higher rental and sales revenues. Pre-tax income increased $0.3 million, or 1%, to $34.5 million for 2020, primarily due to higher gross
profit on sales and rental related services revenues and lower selling and administrative expenses.
The following table summarizes year-to-year results for each revenue and gross profit category, income from operations, pre-tax
income, and other selected information.
TRS-RenTelco – 2020 compared to 2019
(dollar amounts in thousands)
Year Ended December 31,
Increase (Decrease)
2020
2019
$
%
Revenues
Rental ................................................................................................ $
Rental related services ......................................................................
Rental operations .........................................................................
Sales ..................................................................................................
Other..................................................................................................
Total revenues...................................................................
$
109,083
3,080
112,163
26,618
2,030
140,811
$
103,704
3,260
106,964
22,106
2,413
131,483
Costs and Expenses
Direct costs of rental operations:
Depreciation of rental equipment ................................................
Rental related services .................................................................
Other ............................................................................................
Total direct costs of rental operations ....................................
Costs of sales.....................................................................................
Total costs of revenues .....................................................
Gross Profit
Rental ................................................................................................
Rental related services ......................................................................
Rental operations .........................................................................
Sales ..................................................................................................
Other..................................................................................................
Total gross profit...............................................................
Selling and administrative expenses .................................................
Income from operations ....................................................................
Interest expense allocation ................................................................
Foreign currency exchange gain .......................................................
Pre-tax income .................................................................. $
46,472
2,419
17,133
66,024
13,923
79,947
45,478
661
46,139
12,695
2,030
60,864
24,306
36,558
(2,133)
78
34,503
$
41,948
2,791
16,303
61,042
9,693
70,735
45,453
469
45,922
12,413
2,413
60,748
24,645
36,103
(1,970)
84
34,217
$
Other Selected Information
Average rental equipment 1............................................................... $
Average rental equipment on rent ..................................................... $
Average monthly total yield 2 ...........................................................
Average utilization 3..........................................................................
Average monthly rental rate 4 ...........................................................
Period end rental equipment 1 ........................................................... $
Period end utilization 3 ......................................................................
1
2
3
336,399
222,748
$
$
2.70%
66.2%
4.08%
$
67.4%
306,426
202,832
$
$
2.82%
66.2%
4.26%
$
64.5%
331,528
333,613
5,379
(180)
5,199
4,512
(383)
9,328
4,524
(372)
830
4,982
4,230
9,212
25
192
217
282
(383)
116
(339)
455
163
(6)
286
29,973
19,916
(2,085)
2
2
0
0
1
2
0
F
F
o
o
r
r
m
m
1
1
0
0
-
-
K
K
5%
(6)%
5%
20%
(16)%
7%
11%
(13)%
5%
8%
44%
13%
0%
41%
0%
2%
(16)%
0%
(1)%
1%
8%
(7)%
1%
10%
10%
(4)%
—
(4)%
(1)%
4%
Average and Period end rental equipment represents the cost of rental equipment excluding accessory equipment.
Average monthly total yield is calculated by dividing the averages of monthly rental revenues by the cost of rental equipment for the period.
Period end utilization is calculated by dividing the cost of rental equipment on rent by the total cost of rental equipment excluding accessory equipment. Average
utilization for the period is calculated using the average month end costs of the rental equipment.
Average monthly rental rate is calculated by dividing the averages of monthly rental revenues by the cost of rental equipment on rent for the period.
4
-39-
TRS-RenTelco’s gross profit for 2020 increased $0.1 million to $60.9 million. For the year ended December 31, 2020 compared
to the year ended December 31, 2019:
(cid:129)
(cid:129)
Gross Profit on Rental Revenues – Rental revenues increased $5.4 million, or 5%, to $109.1 million with depreciation
expense increasing $4.5 million, or 11%, and other direct costs increasing $0.8 million, or 5%, resulting in a comparable
gross profit on rental revenues of $45.5 million in 2020 and 2019. As a percentage of rental revenues, depreciation was
43% in 2020 and 40% in 2019 and other direct costs was 16% in 2020 and 2019, which resulted in gross margin percentage
of 42% in 2020 compared to 44% in 2019. The rental revenues increase was due to 10% higher average rental equipment
on rent, partly offset by 4% lower average monthly rental rates.
Gross Profit on Sales – Sales revenues increased $4.5 million, or 20%, to $26.6 million in 2020. Gross profit on sales
increased $0.3 million with gross margin percentage decreasing to 48% from 56% in 2019, primarily due to lower gross
margins on used equipment sales. Sales occur routinely as a normal part of TRS-RenTelco’s rental business; however, these
sales and related gross margins can fluctuate from period to period depending on customer requirements, equipment
availability and funding.
For 2020, TRS-RenTelco’s selling and administrative expenses decreased $0.3 million, or 1%, to $24.3 million, primarily due to
lower salaries and benefit costs and lower travel, meals and meeting expenses, partly offset by higher allocated corporate expenses.
K
-
0
1
m
r
o
F
0
2
0
2
2
-40-
Adler Tanks
For 2020, Adler Tanks’ total revenues decreased $20.4 million, or 21%, to $77.5 million compared to 2019, primarily due to lower
rental and rental related services revenues. Pre-tax income decreased $7.0 million, primarily due to lower gross profit on rental, rental
related services and sales, partly offset by lower selling and administrative expenses.
The following table summarizes year-to-year results for each revenue and gross profit category, income from operations, pre-tax
income and other selected information.
Adler Tanks – 2020 compared to 2019
(dollar amounts in thousands)
Year Ended December 31,
Increase (Decrease)
2020
2019
$
%
Revenues
Rental ................................................................................................ $
Rental related services ......................................................................
Rental operations .........................................................................
Sales ..................................................................................................
Other..................................................................................................
Total revenues...................................................................
Costs and Expenses
Direct costs of rental operations:
Depreciation of rental equipment ................................................
Rental related services .................................................................
Other ............................................................................................
Total direct costs of rental operations ....................................
Costs of sales.....................................................................................
Total costs of revenues .....................................................
Gross Profit
Rental ................................................................................................
Rental related services ......................................................................
Rental operations .........................................................................
Sales ..................................................................................................
Other..................................................................................................
Total gross profit...............................................................
Selling and administrative expenses .................................................
Income from operations ....................................................................
Interest expense allocation ................................................................
Pre-tax income .................................................................. $
$
53,988
21,786
75,774
1,386
322
77,482
16,427
16,776
8,923
42,126
1,277
43,403
$
67,869
28,383
96,252
1,266
405
97,923
16,372
21,663
11,926
49,961
948
50,909
28,638
5,010
33,648
109
322
34,079
24,764
9,315
(2,107)
$
7,208
39,571
6,720
46,291
318
405
47,014
29,321
17,693
(3,436)
$
14,257
Other Selected Information
Average rental equipment 1............................................................... $
Average rental equipment on rent ..................................................... $
Average monthly total yield 2 ...........................................................
Average utilization 3..........................................................................
Average monthly rental rate 4 ...........................................................
Period end rental equipment 1 ........................................................... $
Period end utilization 3 ......................................................................
1
2
3
314,797
140,323
$
$
1.43%
44.6%
3.21%
$
39.8%
313,810
171,664
$
$
1.80%
54.7%
3.29%
$
48.4%
314,443
314,976
(13,881)
(6,597)
(20,478)
120
(83)
(20,441)
55
(4,887)
(3,003)
(7,835)
329
(7,506)
(10,933)
(1,710)
(12,643)
(209)
(83)
(12,935)
(4,557)
(8,378)
(1,329)
(7,049)
987
(31,341)
(533)
2
2
0
0
1
2
0
F
F
o
o
r
r
m
m
1
1
0
0
-
-
K
K
(20)%
(23%)
(21%)
9%
(20%)
(21%)
0%
(23%)
(25%)
(16%)
35%
(15%)
(28%)
(25%)
(27%)
nm
-20%
(28)%
(16)%
(47)%
(39)%
(49)%
0%
(18)%
(21)%
(18)%
(2)%
(0)%
(18%)
Average and Period end rental equipment represents the cost of rental equipment excluding new equipment inventory and accessory equipment.
Average monthly total yield is calculated by dividing the averages of monthly rental revenues by the cost of rental equipment for the period.
Period end utilization is calculated by dividing the cost of rental equipment on rent by the total cost of rental equipment excluding new equipment inventory and
accessory equipment. Average utilization for the period is calculated using the average month end costs of the rental equipment.
Average monthly rental rate is calculated by dividing the averages of monthly rental revenues by the cost of rental equipment on rent for the period.
4
-41-
Adler Tanks’ gross profit for 2020 decreased $12.9 million, or 28%, to $34.1 million. For the year ended December 31, 2020
compared to year ended December 31, 2019:
(cid:129)
(cid:129)
Gross Profit on Rental Revenues – Rental revenues decreased $13.9 million, or 20%, to $54.0 million, due to 18% lower
average rental equipment on rent and 2% lower average monthly rental rates in 2020 as compared to 2019. The rental
revenue decrease was primarily due to COVID-19 related business disruptions and a decrease in the price of oil and gas,
which contributed to weaker activities in multiple geographic and market segments. As a percentage of rental revenues,
depreciation was 30% and 24% in 2020 and 2019, respectively, and other direct costs were 17% and 18% in 2020 and 2019,
respectively, which resulted in gross margin percentages of 53% in 2020 compared to 58% in 2019. The lower rental
revenues, together with lower rental margins resulted in gross profit on rental revenues decreasing $10.9 million, or 28%,
to $28.6 million in 2020.
Gross Profit on Rental Related Services – Rental related services revenues decreased $6.6 million, or 23%, compared to
2019. The lower revenues together with lower gross margin percentage of 23% in 2020 compared to 24% in 2019 resulted
in rental related services gross profit decreasing $1.7 million, or 25%, to $5.0 million in 2020.
For 2020, Adler Tanks’ selling and administrative expenses decreased $4.6 million, or 16%, to $24.8 million, primarily due to
lower salaries and employee benefit costs, travel, meals and meeting expenses and lower corporate allocated expenses.
K
-
0
1
m
r
o
F
0
2
0
2
2
-42-
Twelve Months Ended December 31, 2019 Compared to
Twelve Months Ended December 31, 2018
Overview
Consolidated revenues in 2019 increased 14%, to $570.2 million from $498.3 million in 2018. Consolidated net income in 2019
increased to $96.8 million, or $3.93 per diluted share in 2019, compared to $79.4 million, or $3.24 per diluted share, in 2018. The
Company’s year over year total revenue increase was primarily due to higher rental, rental related services and sales revenues as more
fully described below.
For 2019 compared to 2018, on a consolidated basis:
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
Gross profit increased $32.9 million, or 14%, to $266.2 million. Mobile Modular’s gross profit increased $22.9 million, or
19%, due to higher gross profit on rental, rental related services and sales revenues. TRS-RenTelco’s gross profit increased
$6.0 million, or 11%, primarily due to higher gross profit on rental revenues. Enviroplex’s gross profit increased $5.0
million, or 53%, due to $10.8 million higher sales revenues and higher gross margins of 37.1% compared to 33.3% in 2018.
Adler Tanks’ gross profit decreased $1.0 million, or 2%, due to lower gross profit on rental revenues, partly offset by higher
gross profit on rental related services and sales revenues.
Selling and administrative expenses increased $9.0 million, or 8%, to $124.8 million, primarily due to increased salaries
and employee benefit costs.
Interest expense was flat at $12.3 million, as 3% higher net average interest rate was offset by 3% lower average debt levels
of the Company.
Pre-tax income contribution was 54%, 27% and 11% by Mobile Modular, TRS-RenTelco and Adler Tanks, respectively, in
2019, compared to 53%, 28% and 14%, respectively, in 2018. These results are discussed on a segment basis below. Pre-
tax income contribution by Enviroplex was 8% and 5% in 2019 and 2018, respectively.
The provision for income taxes resulted in an effective tax rate of 25.0% and 24.2% for the twelve months ended December
31, 2019 and 2018, respectively.
Adjusted EBITDA increased $33.7 million, or 17%, to $236.8 million in 2019. Adjusted EBITDA is a non-GAAP financial
measure and is defined as net income before interest expense, provision for income taxes, depreciation, amortization, non-
cash impairment costs and share-based compensation. A reconciliation of Adjusted EBITDA to net cash provided by
operating activities and net income to Adjusted EBITDA can be found in “Item 6. Selected Financial Data.” on page 30.
2
2
0
0
1
2
0
F
F
o
o
r
r
m
m
1
1
0
0
-
-
K
K
-43-
Mobile Modular
For 2019, Mobile Modular’s total revenues increased $46.4 million, or 18%, to $301.0 million compared to 2018, primarily due
to higher rental, rental related services and sales revenues. The revenue increase, together with higher gross profit on rental, rental
related services and sales revenues, partly offset by higher selling and administrative expenses, resulted in an increase in pre-tax income
of $14.4 million, or 26%, to $70.0 million in 2019.
The following table summarizes year-to-year results for each revenue and gross profit category, income from operations, pre-tax
income, and other selected information.
Mobile Modular – 2019 compared to 2018
(dollar amounts in thousands)
Year Ended December 31,
2019
2018
Increase (Decrease)
$
%
Revenues
Rental ................................................................................................ $
Rental related services.......................................................................
Rental operations .........................................................................
Sales ..................................................................................................
Other..................................................................................................
Total revenues...................................................................
Costs and Expenses
Direct costs of rental operations:
Depreciation of rental equipment ................................................
Rental related services .................................................................
Other ............................................................................................
Total direct costs of rental operations ....................................
Costs of sales .....................................................................................
Total costs of revenues......................................................
Gross Profit
Rental ................................................................................................
Rental related services.......................................................................
Rental operations .........................................................................
Sales ..................................................................................................
Other..................................................................................................
Total gross profit...............................................................
Selling and administrative expenses..................................................
Income from operations.....................................................................
Interest expense allocation ................................................................
Pre-tax income .................................................................. $
$
182,316
69,395
251,711
47,043
2,256
301,010
22,071
51,787
51,136
124,994
32,398
157,392
$
159,136
54,696
213,832
39,467
1,275
254,574
21,200
41,701
42,812
105,713
28,111
133,824
109,109
17,608
126,717
14,645
2,256
143,618
65,699
77,919
(7,946)
$
69,973
95,123
12,995
108,118
11,357
1,275
120,750
58,017
62,733
(7,132)
$
55,601
K
-
0
1
m
r
o
F
0
2
0
2
2
Other Selected Information
Average rental equipment 1 ............................................................... $
Average rental equipment on rent ..................................................... $
Average monthly total yield 2............................................................
Average utilization 3..........................................................................
Average monthly rental rate 4............................................................
Period end rental equipment 1 ........................................................... $
Period end utilization 3 ......................................................................
1
2
3
795,250
629,459
$
$
1.90%
79.2%
2.41%
$
79.1%
814,367
756,513
591,236
$
$
1.75%
78.20%
2.24%
$
79.3%
775,492
Average and Period end rental equipment represents the cost of rental equipment excluding new equipment inventory and accessory equipment.
Average monthly total yield is calculated by dividing the averages of monthly rental revenues by the cost of rental equipment for the period.
Period end utilization is calculated by dividing the cost of rental equipment on rent by the total cost of rental equipment excluding new equipment inventory and
accessory equipment. Average utilization for the period is calculated using the average month end costs of the rental equipment.
Average monthly rental rate is calculated by dividing the averages of monthly rental revenues by the cost of rental equipment on rent for the period.
4
23,180
14,699
37,879
7,576
981
46,436
871
10,086
8,324
19,281
4,287
23,568
13,986
4,613
18,599
3,288
981
22,868
7,682
15,186
814
14,372
38,737
38,223
38,875
15%
27%
18%
19%
77%
18%
4%
24%
19%
18%
15%
18%
15%
35%
17%
29%
77%
19%
13%
24%
11%
26%
5%
6%
9%
1%
8%
5%
0%
-44-
Mobile Modular’s gross profit for 2019 increased $22.9 million, or 19%, to $143.6 million. For the year ended December 31,
2019 compared to the year ended December 31, 2018:
(cid:129)
(cid:129)
(cid:129)
Gross Profit on Rental Revenues – Rental revenues increased $23.2 million, or 15%, due to 6% higher average rental
equipment on rent and 8% higher average monthly rental rates. As a percentage of rental revenues, depreciation was 12%
in 2019 compared to 13% in 2018 and other direct costs were 28% in 2019 and 27% in 2018, which resulted in gross margin
percentage of 60% in 2019 and 2018. The higher rental revenues and comparable rental margins resulted in gross profit on
rental revenues increasing $14.0 million, or 15%, to $109.1 million in 2019.
Gross Profit on Rental Related Services – Rental related services revenues increased $14.7 million, or 27%, compared to
2018. Most of these service revenues are negotiated with the initial lease and are recognized on a straight-line basis with
the associated costs over the initial term of the lease. The increase in rental related services revenues was primarily
attributable to higher amortization of modular building delivery and return delivery and dismantle revenues and increased
services performed during the lease. The higher revenues and higher gross margin percentage of 25% in 2019 compared to
24% in 2018 resulted in rental related services gross profit increasing $4.6 million, or 35%, to $17.6 million in 2019.
Gross Profit on Sales – Sales revenues increased $7.6 million, or 19%, primarily due to higher new and used equipment
sales. The higher sales revenues, together with higher gross margins of 31% in 2019 compared to 29% in 2018, resulted in
sales gross profit increasing $3.3 million, or 29%, to $14.6 million in 2019. Sales occur routinely as a normal part of Mobile
Modular’s rental business; however, these sales can fluctuate from period to period depending on customer requirements,
equipment availability and funding.
For 2019, Mobile Modular’s selling and administrative expenses increased $7.7 million, or 13%, to $65.7 million, primarily due
to increased employee headcount, salaries and benefit costs and higher allocated corporate expenses.
2
2
0
0
1
2
0
F
F
o
o
r
r
m
m
1
1
0
0
-
-
K
K
-45-
TRS-RenTelco
For 2019, TRS-RenTelco’s total revenues increased $12.8 million, or 11%, to $131.5 million compared to 2018, primarily due to
higher rental revenues, partly offset by lower sales revenues. Pre-tax income increased $5.5 million, or 19%, to $34.2 million for 2019,
primarily due to higher gross profit on rental revenues, partly offset by higher selling and administrative expenses.
The following table summarizes year-to-year results for each revenue and gross profit category, income from operations, pre-tax
income, and other selected information.
TRS-RenTelco – 2019 compared to 2018
(dollar amounts in thousands)
Year Ended December 31,
Increase (Decrease)
2019
2018
$
%
Revenues
Rental ................................................................................................ $
Rental related services ......................................................................
Rental operations .........................................................................
Sales ..................................................................................................
Other..................................................................................................
Total revenues...................................................................
$
103,704
3,260
106,964
22,106
2,413
131,483
$
89,937
3,300
93,237
23,061
2,359
118,657
13,767
(40)
13,727
(955)
54
12,826
15%
(1)%
15%
(4)%
2%
11%
16%
3%
11%
14%
(7)%
11%
16%
(22)%
15%
(1)%
2%
11%
8%
13%
(27)%
nm
19%
11%
17%
4%
6%
(2)%
18%
4%
5,937
93
1,604
7,634
(783)
6,851
6,226
(133)
6,093
(172)
54
5,975
1,822
4,153
(726)
573
5,452
30,535
29,813
49,708
K
-
0
1
m
r
o
F
0
2
0
2
2
Costs and Expenses
Direct costs of rental operations:
Depreciation of rental equipment ................................................
Rental related services .................................................................
Other ............................................................................................
Total direct costs of rental operations ....................................
Costs of sales.....................................................................................
Total costs of revenues .....................................................
Gross Profit
Rental ................................................................................................
Rental related services ......................................................................
Rental operations .........................................................................
Sales ..................................................................................................
Other..................................................................................................
Total gross profit...............................................................
Selling and administrative expenses .................................................
Income from operations ....................................................................
Interest expense allocation ................................................................
Foreign currency exchange gain (loss) .............................................
Pre-tax income .................................................................. $
41,948
2,791
16,303
61,042
9,693
70,735
45,453
469
45,922
12,413
2,413
60,748
24,645
36,103
(1,970)
84
34,217
$
36,011
2,698
14,699
53,408
10,476
63,884
39,227
602
39,829
12,585
2,359
54,773
22,823
31,950
(2,696)
(489)
$
28,765
Other Selected Information
Average rental equipment 1............................................................... $
Average rental equipment on rent ..................................................... $
Average monthly total yield 2 ...........................................................
Average utilization 3..........................................................................
Average monthly rental rate 4 ...........................................................
Period end rental equipment 1 ........................................................... $
Period end utilization 3 ......................................................................
1
2
3
306,426
202,832
$
$
2.82%
66.2%
4.26%
$
64.5%
275,891
173,019
$
$
2.72%
62.7%
4.33%
$
62.1%
333,613
283,905
Average and Period end rental equipment represents the cost of rental equipment excluding accessory equipment.
Average monthly total yield is calculated by dividing the averages of monthly rental revenues by the cost of rental equipment for the period.
Period end utilization is calculated by dividing the cost of rental equipment on rent by the total cost of rental equipment excluding accessory equipment. Average
utilization for the period is calculated using the average month end costs of the rental equipment.
Average monthly rental rate is calculated by dividing the averages of monthly rental revenues by the cost of rental equipment on rent for the period.
4
nm = Not meaningful
-46-
TRS-RenTelco’s gross profit for 2019 increased $6.0 million, or 11%, to $60.7 million. For the year ended December 31, 2019
compared to the year ended December 31, 2018:
(cid:129)
(cid:129)
Gross Profit on Rental Revenues – Rental revenues increased $13.8 million, or 15%, to $103.7 million with depreciation
expense increasing $5.9 million, or 16%, and other direct costs increasing $1.6 million, or 11%, resulting in an increase in
gross profit on rental revenues of $6.2 million, or 16%, to $45.5 million in 2019. As a percentage of rental revenues,
depreciation was 40% in 2019 and 2018 and other direct costs was 16% in 2019 and 2018, which resulted in gross margin
percentage of 44% in 2019 and 2018. The rental revenues increase was due to 17% higher average rental equipment on
rent, partly offset by 2% lower average monthly rental rates.
Gross Profit on Sales – Sales revenues decreased $1.0 million, or 4%, to $22.1 million in 2019. Gross profit on sales
decreased $0.2 million with gross margin percentage increasing to 56% from 55% in 2018, primarily due to higher gross
margins on used equipment sales. Sales occur routinely as a normal part of TRS-RenTelco’s rental business; however, these
sales and related gross margins can fluctuate from period to period depending on customer requirements, equipment
availability and funding.
For 2019, TRS-RenTelco’s selling and administrative expenses increased $1.8 million, or 8%, to $24.6 million, primarily due to
higher salaries and employee benefit costs and higher allocated corporate expenses.
2
2
0
0
1
2
0
F
F
o
o
r
r
m
m
1
1
0
0
-
-
K
K
-47-
Adler Tanks
For 2019, Adler Tanks’ total revenues increased $1.9 million, or 2%, to $97.9 million compared to 2018, primarily due to higher
rental related services and sales revenues, partly offset by lower rental revenues. Pre-tax income decreased $0.5 million, primarily due
to lower gross profit on rental revenues, partly offset by higher gross profit on rental related services and lower selling and administrative
expenses.
The following table summarizes year-to-year results for each revenue and gross profit category, income from operations, pre-tax
income and other selected information.
Adler Tanks – 2019 compared to 2018
(dollar amounts in thousands)
Year Ended December 31,
Increase (Decrease)
2019
2018
$
%
Revenues
Rental ................................................................................................ $
Rental related services ......................................................................
Rental operations .........................................................................
Sales ..................................................................................................
Other..................................................................................................
Total revenues...................................................................
Costs and Expenses
Direct costs of rental operations:
Depreciation of rental equipment ................................................
Rental related services .................................................................
Other ............................................................................................
Total direct costs of rental operations ....................................
Costs of sales.....................................................................................
Total costs of revenues .....................................................
Gross Profit
Rental ................................................................................................
Rental related services ......................................................................
Rental operations .........................................................................
Sales ..................................................................................................
Other..................................................................................................
Total gross profit...............................................................
Selling and administrative expenses .................................................
Income from operations ....................................................................
Interest expense allocation ................................................................
Pre-tax income .................................................................. $
K
-
0
1
m
r
o
F
0
2
0
2
2
$
67,869
28,383
96,252
1,266
405
97,923
16,372
21,663
11,926
49,961
948
50,909
$
69,701
24,911
94,612
1,044
397
96,053
15,928
19,899
11,167
46,994
1,004
47,998
39,571
6,720
46,291
318
405
47,014
29,321
17,693
(3,436)
$
14,257
42,607
5,012
47,619
39
397
48,055
30,026
18,029
(3,252)
$
14,777
Other Selected Information
Average rental equipment 1............................................................... $
Average rental equipment on rent ..................................................... $
Average monthly total yield 2 ...........................................................
Average utilization 3..........................................................................
Average monthly rental rate 4 ...........................................................
Period end rental equipment 1 ........................................................... $
Period end utilization 3 ......................................................................
1
2
3
313,810
171,664
$
$
1.80%
54.7%
3.29%
$
48.4%
310,401
185,809
$
$
1.87%
59.9%
3.13%
$
56.4%
314,976
312,186
Average and Period end rental equipment represents the cost of rental equipment excluding new equipment inventory and accessory equipment.
Average monthly total yield is calculated by dividing the averages of monthly rental revenues by the cost of rental equipment for the period.
Period end utilization is calculated by dividing the cost of rental equipment on rent by the total cost of rental equipment excluding new equipment inventory and
accessory equipment. Average utilization for the period is calculated using the average month end costs of the rental equipment.
Average monthly rental rate is calculated by dividing the averages of monthly rental revenues by the cost of rental equipment on rent for the period.
4
(1,832)
3,472
1,640
222
8
1,870
444
1,764
759
2,967
(56)
2,911
-
(3,036)
1,708
(1,328)
279
8
(1,041)
(705)
(336)
184
(520)
3,409
(14,145)
2,790
(3)%
14%
2%
21%
2%
2%
3%
9%
7%
6%
(6%)
6%
(7%)
34%
(3%)
nm
2%
(2)%
(2)%
(2)%
6%
(4)%
1%
(8)%
(4)%
(9)%
5%
1%
(14%)
-48-
Adler Tanks’ gross profit for 2019 decreased $1.0 million, or 2%, to $47.0 million. For the year ended December 31, 2019
compared to year ended December 31, 2018:
(cid:129)
(cid:129)
Gross Profit on Rental Revenues – Rental revenues decreased $1.8 million, or 3%, to $67.9 million, due to 8% lower
average rental equipment on rent, partly offset by 5% higher average monthly rental rates in 2019 as compared to 2018. As
a percentage of rental revenues, depreciation was 24% and 23% in 2019 and 2018, respectively, and other direct costs were
18% and 16% in 2019 and 2018, respectively, which resulted in gross margin percentages of 58% in 2019 compared to 61%
in 2018. The lower rental revenues, together with lower rental margins resulted in gross profit on rental revenues decreasing
$3.0 million, or 7%, to $39.6 million in 2019.
Gross Profit on Rental Related Services – Rental related services revenues increased $3.5 million, or 14%, compared to
2018, primarily due to increased cleaning and repair revenues. The higher revenues together with higher gross margin
percentage of 24% in 2019 compared to 20% in 2018 resulted in rental related services gross profit increasing $1.7 million,
or 34%, to $6.7 million in 2019.
For 2019, Adler Tanks’ selling and administrative expenses decreased $0.7 million, or 2%, to $29.3 million, primarily due to
decreased employee headcount, salaries and benefit costs.
2
2
0
0
1
2
0
F
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K
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-49-
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-
0
1
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2
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2
2
Liquidity and Capital Resources
The Company’s rental businesses are capital intensive and generate significant cash flows. Cash flows for the Company in 2020
as compared to 2019 are summarized as follows:
Cash Flows from Operating Activities: The Company’s operations provided net cash flow of $180.5 million for 2020 as
compared to $188.0 million in 2019. The 4% decrease was primarily attributable to decreased deferred income and deferred income
taxes, a lower decrease in accounts payable and accrued liabilities and other balance sheet changes.
Cash Flows from Investing Activities: Net cash used in investing activities was $53.0 million for 2020 as compared to $143.1
million in 2019. The $90.1 million decrease was primarily due to $81.4 million lower purchases of rental equipment of $86.3 million
in 2020, compared to 2019, and $7.8 million lower cash paid for acquisition of business assets, partly offset by $1.6 million higher
purchases of property, plant and equipment and $2.6 million higher proceeds from sales of used rental equipment.
Cash Flows from Financing Activities: Net cash used in financing activities was $128.5 million in 2020 as compared to $44.0
million in 2019. The $84.4 million increase was primarily due to $65.5 million higher net repayment under bank lines of credit, $13.6
million higher repurchases of common stock and $4.3 million higher dividend payments.
Significant capital expenditures are required to maintain and grow the Company’s rental assets. During the last three years, the
Company has financed its working capital and capital expenditure requirements through cash flows from operations, proceeds from the
sale of rental equipment and from bank borrowings. Sales occur routinely as a normal part of the Company’s rental businesses. However,
these sales can fluctuate from period to period depending on customer requirements and funding. Although the net proceeds received
from sales may fluctuate from period to period, the Company believes its liquidity will not be adversely impacted from lower sales in
any given year because it believes it has the ability to increase its bank borrowings, offer additional notes and conserve its cash in the
future by reducing the amount of cash it uses to purchase rental equipment, pay dividends, or repurchase the Company’s common stock.
As the following table indicates, cash flow provided by operating activities and proceeds from sales of used rental equipment have
been greater than rental equipment purchases over the past three years.
Funding of Rental Asset Growth
(amounts in thousands)
Cash provided by operating activities ................................................ $
Proceeds from sales of used rental equipment ...................................
Cash available for purchase of rental equipment ...............................
Purchases of rental equipment............................................................
Cash paid for acquisition of business assets.......................................
Cash available for other uses.............................................................. $
$
$
2020
180,504
47,052
227,556
(86,329)
—
141,227
Year Ended December 31,
2019
187,994
44,447
232,441
(167,703)
(7,808)
$
56,930
$
$
2018
142,667
41,786
184,453
(123,071)
(7,543)
53,839
$
Three Year
Totals
511,165
133,285
644,450
(377,103)
(15,351)
251,996
In addition to increasing its rental assets, the Company had other capital expenditures for property, plant and equipment of $13.7
million in 2020, $12.1 million in 2019 and $15.7 million in 2018, and has used cash to provide returns to its shareholders in the form of
cash dividends. The Company paid cash dividends of $39.8 million, $35.5 million and $30.9 million in the years ended December 31,
2020, 2019 and 2018, respectively.
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. In August 2015, the Company’s Board of Directors authorized the Company to
repurchase 2,000,000 shares of the Company's outstanding common stock (the “Repurchase Plan”). The amount and time of the specific
repurchases are subject to prevailing market conditions, applicable legal requirements and other factors, including management’s
discretion. All shares repurchased by the Company are canceled and returned to the status of authorized but unissued shares of common
stock. There can be no assurance that any authorized shares will be repurchased and the repurchase program may be modified, extended
or terminated by the Board of Directors at any time. There were 282,221 shares of common stock repurchased during the twelve months
ended December 31, 2020 for the aggregate purchase price of $13.6 million or an average price of $48.25 per repurchased share. There
were no repurchases of common stock during the twelve months ended December 31, 2019. As of December 31, 2020, 1,309,805 shares
remain authorized for repurchase under the Repurchase Plan.
-50-
Unsecured Revolving Lines of Credit
On March 31, 2020, 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 $420.0 million unsecured revolving credit facility (which may be further increased to $670.0 million by adding
one or more tranches of term loans and/or increasing the aggregate revolving commitments), which includes a $25.0 million sublimit
for the issuance of standby letters of credit and a $10.0 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, the “the Prior NPA”): (i) the $40.0 million aggregate outstanding principal of notes issued March 17,
2014 and due March 17, 2021, and (ii) the $60.0 million aggregate outstanding principal of notes issued November 5, 2015 and due
November 5, 2022. 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 March 31, 2025 and replaced the Company’s prior $420.0 million credit facility dated
March 31, 2016 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 March 31, 2020.
On March 31, 2020, the Company entered into an amended and restated Credit Facility Letter Agreement and a Credit Line Note
in favor of MUFG Union Bank, N.A., which provides for a $12.0 million line of credit facility related to its cash management services
(“Sweep Service Facility”). The Sweep Service Facility matures on the earlier of March 31, 2025, or the date the Company ceases to
utilize MUFG Union Bank, N.A. for its cash management services. The Sweep Service Facility replaced the Company’s prior $12.0
million sweep service facility, dated as of March 31, 2016.
At December 31, 2020, under the Credit Facility and Sweep Service Facility, the Company had unsecured lines of credit that
permit it to borrow up to $432.0 million of which $122.8 million was outstanding. The Credit Facility contains financial covenants
requiring the Company to not (all defined terms used below not otherwise defined herein have the meaning assigned to such terms in
the Amended Credit Facility):
(cid:129)
(cid:129)
Permit the Consolidated Fixed Charge Coverage Ratio of EBITDA to fixed charges as of the end of any fiscal quarter to be
less than 2.50 to 1. At December 31, 2020, the actual ratio was 4.34 to 1.
Permit the Consolidated Leverage Ratio of funded debt to EBITDA at any time during any period of four consecutive fiscal
quarters to be greater than 2.75 to 1. At December 31, 2020, the actual ratio was 0.92 to 1.
At December 31, 2020, the Company was in compliance with each of the aforementioned covenants. There are no anticipated
trends that the Company is aware of that would indicate non-compliance with these covenants, although significant deterioration in our
financial performance could impact the Company’s ability to comply with these covenants.
2
2
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K
Note Purchase and Private Shelf Agreement
In March 2020, the Company entered into an Amended and Restated Note Purchase and Private Shelf Agreement (the “Note
Purchase Agreement”) with PGIM, Inc. (“PGIM”) and the holders of Series B and Series C Notes previously issued pursuant to the
Prior NPA, among the Company and the other parties to the Note Purchase Agreement. The Note Purchase Agreement amended and
restated, and superseded in its entirety, the Prior NPA. Pursuant to the Prior NPA, the Company issued (i) $40.0 million aggregate
principal amount of its 3.68% Series B Senior Notes due March 17, 2021, and (ii) $60.0 million aggregate principal amount of its 3.84%
Series C Senior Notes due November 5, 2022, to which the terms of the Note Purchase Agreement shall apply.
In addition, pursuant to the Note Purchase Agreement, the Company may authorize the issuance and sale of additional senior notes
(the “Shelf Notes”) in the aggregate principal amount of (x) $250 million minus (y) the amount of other notes (such as the Series B
Senior Notes and Series C Senior Notes, each defined below) then outstanding, to be dated the date of issuance thereof, to mature, in
case of each Shelf Note so issued, no more than 15 years after the date of original issuance thereof, to have an average life, in the case
of each Shelf Note so issued, of no more than 15 years after the date of original issuance thereof, to bear interest on the unpaid balance
thereof from the date thereof at the rate per annum, and to have such other particular terms, as shall be set forth, in the case of each Shelf
Note so issued, in accordance with the Note Purchase Agreement. Shelf Notes may be issued and sold from time to time at the discretion
of the Company’s Board of Directors and in such amounts as the Board of Directors may determine, subject to prospective purchasers’
agreement to purchase the Shelf Notes. The Company will sell the Shelf Notes directly to such purchasers. The full net proceeds of
each Shelf Note will be used in the manner described in the applicable Request for Purchase with respect to such Shelf Note.
On October 1, 2020, the Company entered into a rate lock agreement with Prudential Private Capital, pursuant to which, the
Company agreed to a fixed interest rate of 2.57% for future issuance, if any, of senior unsecured notes in the aggregate amount of $40.0
million with a 7-year maturity. If issued, the funding for such notes would occur on or before March 17, 2021 and would be subject to
the terms and conditions of the Note Purchase Agreement.
-51-
3.68% Senior Notes Due in 2021
In March 2014, the Company issued and sold to the Purchasers a $40.0 million aggregate principal amount of its 3.68% Series B
Senior Notes (the “Series B Senior Notes”) pursuant to the terms of the Note Purchase Agreement, as amended. The Series B Senior
Notes are an unsecured obligation of the Company and bear interest at a rate of 3.68% per annum and mature on March 17, 2021.
Interest on the Series B Senior Notes is payable semi-annually beginning on September 17, 2014 and continuing thereafter on March 17
and September 17 of each year until maturity. The principal balance is due when the notes mature in 2021. The full net proceeds from
the Series B Senior Notes were used for working capital and other general corporate purposes. At December 31, 2020, the principal
balance outstanding under the Series B Senior Notes was $40.0 million.
3.84% Senior Notes Due in 2022
In November 2015, the Company issued and sold to the Purchasers a $60.0 million aggregate principal amount of its 3.84% Series
C Senior Notes (the “Series C Senior Notes”) pursuant to the terms of the Note Purchase Agreement, as amended. The Series C Senior
Notes are an unsecured obligation of the Company and bear interest at a rate of 3.84% per annum and mature on November 5, 2022.
Interest on the Series C Senior Notes is payable semi-annually beginning on May 5, 2016 and continuing thereafter on November 5 and
May 5 of each year until maturity. The principal balance is due when the notes mature in 2022. The full net proceeds from the Series
C Senior Notes were used to reduce the outstanding balance on the Company’s revolving credit line. At December 31, 2020, the
principal balance outstanding under the Series C Senior Notes was $60.0 million.
K
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2
2
Among other restrictions, the Note Purchase Agreement, under which the Series B Senior Notes and Series C Senior Notes were
sold, contains financial covenants requiring the Company to not (all defined terms used below not otherwise defined herein have the
meaning assigned to such terms in the Note Purchase Agreement):
(cid:129)
(cid:129)
Permit the Consolidated Fixed Charge Coverage Ratio of EBITDA (as defined in the Note Purchase Agreement) to fixed
charges as of the end of any fiscal quarter to be less than 2.50 to 1. At December 31, 2020, the actual ratio was 4.34 to 1.
Permit the Consolidated Leverage Ratio of funded debt to EBITDA (as defined in the Note Purchase Agreement) at any
time during any period of four consecutive quarters to be greater than 2.75 to 1. At December 31, 2020, the actual ratio was
0.92 to 1.
At December 31, 2020, the Company was in compliance with each of the aforementioned covenants. There are no anticipated
trends that the Company is aware of that would indicate non-compliance with these covenants, although significant deterioration in our
financial performance could impact the Company’s ability to comply with these covenants.
Although no assurance can be given, the Company believes it will continue to be able to negotiate general bank lines of credit and
issue senior notes adequate to meet capital requirements not otherwise met by operational cash flows and proceeds from sales of rental
equipment. Furthermore, the Company believes it has the financial resources to weather the expected impacts of COVID-19. However,
the Company has limited insight into the extent to which its business may be impacted by COVID-19, and there are many uncertainties,
including how long and how severely the Company will be impacted. An extended and severe impact may materially and adversely
affect the Company’s future operations, financial position and liquidity.
Contractual Obligations and Commitments
At December 31, 2020, the Company’s material contractual obligations and commitments consisted of outstanding borrowings
under our credit facilities expiring in 2025, outstanding amounts under our 3.68% and 3.84% senior notes due in 2021 and 2022,
respectively, and operating leases for facilities. The operating lease amounts exclude property taxes and insurance. The table below
provides a summary of the Company’s contractual obligations and reflects expected payments due as of December 31, 2020 and does
not reflect changes that could arise after that date.
Payments Due by Period
(dollar amounts in thousands)
Revolving lines of credit ........................................................ $
3.68% Series B senior notes due in 2021 ...............................
3.84% Series C senior notes due in 2022 ...............................
Operating leases for facilities .................................................
Total contractual obligations .................................................. $
Total
122,771
41,472
64,614
6,705
235,562
$
$
Within
1 Year
—
41,472
1,158
2,333
44,963
-52-
Within
2 to 3 Years
—
—
63,456
3,074
66,530
$
$
Within
4 to 5 Years
122,771
—
—
1,298
124,069
$
$
More than
5 Years
$
$
—
—
—
—
—
The Company believes that its needs for working capital and capital expenditures through 2021 and beyond will be adequately
met by operating cash flow, proceeds from the sale of rental equipment, and bank borrowings.
Please see the Company's Consolidated Statements of Cash Flows on page 65 for a more detailed presentation of the sources and
uses of the Company's cash.
Critical Accounting Policies
In response to the SEC’s Release No. 33-8040, “Cautionary Advice Regarding Disclosure About Critical Accounting Policies,”
the Company has identified the most critical accounting policies upon which its financial status depends. The Company determined its
critical accounting policies by considering those policies that involve the most complex or subjective decisions or assessments. The
Company has identified that its most critical accounting policies are those related to revenue recognition, depreciation, maintenance,
repair and refurbishment, impairment of rental equipment and impairment of goodwill and intangible assets. Descriptions of these
accounting policies are found in both the notes to the consolidated financial statements and at relevant sections in this Management’s
Discussion and Analysis.
Revenue recognition:
Lease revenue - Rental revenues from operating leases are recognized on a straight-line basis over the term of the lease for all
operating segments. Rental billings for periods extending beyond period end are recorded as deferred income and are recognized in the
period earned. Rental related services revenues are primarily associated with relocatable modular building and liquid and solid
containment tanks and boxes leases. For modular building leases, rental related services revenues for modifications, delivery,
installation, dismantle and return delivery are lease related because the payments are considered minimum lease payments that are an
integral part of the negotiated lease agreement with the customer. These revenues are recognized on a straight-line basis over the term
of the lease. Certain leases are accounted for as sales-type 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 sales-type leases and
rental income on facility leases.
Non-lease revenue - Sales revenue is recognized upon delivery and installation of the equipment to customers. Certain leases
are accounted for as sales-type 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. The Company typically recognizes non-lease related revenues at a point in time because
the customer does not simultaneously consume the benefits of the Company’s promised goods and services, or performance obligations,
and obtain control when delivery and installation are complete. For contracts that have multiple performance obligations, the transaction
price is allocated to each performance obligation in the contract based on the Company’s best estimate of the standalone selling prices
of each distinct performance obligation in the contract. The standalone selling price is typically determined based upon the expected
cost plus an estimated margin of each performance obligation.
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K
Depreciation - The estimated useful lives and estimated residual values used for rental equipment are based on the Company’s
experience as to the economic useful life and sale value of its products. Additionally, to the extent information is publicly available, the
Company also compares its depreciation policies to other companies with similar rental products for reasonableness.
The lives and residual values of rental equipment are subject to periodic evaluation. For modular equipment, external factors to
consider may include, but are not limited to, changes in legislation, regulations, building codes, local permitting, and supply or demand.
Internal factors for modulars may include, but are not limited to, change in equipment specifications, condition of equipment, or
maintenance policies. For electronic test equipment, external factors to consider may include, but are not limited to, technological
advances, changes in manufacturers’ selling prices, and supply or demand. Internal factors for electronic test equipment may include,
but are not limited to, change in equipment specifications, condition of equipment or maintenance policies. For liquid and solid
containment tanks and boxes, external factors to consider may include, but are not limited to, changes in Federal and State legislation,
the types of materials stored and the frequency of movements and uses. Internal factors for liquid and solid containment tanks and boxes
may include, but are not limited to, change in equipment specifications and maintenance policies.
Changes in useful lives or residual values will impact depreciation expense and any gain or loss from the sale of used equipment.
Depending on the magnitude of such changes, the impact on the financial statements could be significant.
-53-
Maintenance, repair and refurbishment - Maintenance and repairs are expensed as incurred. The direct material and labor
costs of value-added additions or major refurbishment of modular buildings are capitalized to the extent the refurbishment significantly
improves the quality and adds value or life to the equipment. Judgment is involved as to when these costs should be capitalized. The
Company’s policies narrowly limit the capitalization of value-added items to specific additions such as restrooms, sidewalls and
ventilation upgrades. In addition, only major refurbishment costs incurred near the end of the estimated useful life of the rental
equipment, which extend its useful life, and are subject to certain limitations, are capitalized. Changes in these policies could impact the
Company’s financial results.
Impairment of rental equipment - The carrying value of the Company’s rental equipment is its capitalized cost less accumulated
depreciation. To the extent events or circumstances indicate that the carrying value cannot be recovered, an impairment loss is
recognized to reduce the carrying value to fair value. The Company determines fair value based upon the condition of the equipment
and the projected net cash flows from its rental and sale considering current market conditions. Additionally, if the Company decides
to sell or otherwise dispose of the rental equipment, it is carried at the lower of cost or fair value less costs to sell or dispose. Due to
uncertainties inherent in the valuation process and market conditions, it is reasonably possible that actual results of operating and
disposing of rental equipment could be materially different than current expectations.
Impairment of goodwill and intangible assets - The Company assesses the carrying amount of its recorded goodwill and
intangible assets annually or in interim periods if circumstances indicate an impairment may have occurred. The impairment review is
performed by first assessing qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is
less than its carrying amount. The evaluation consists of estimating the fair value of the reporting unit based on discounted cash flows
using revenue and after tax profit estimates. Management then compares its estimate of the fair value of the reporting unit with the
reporting unit’s carrying amount, which includes goodwill and intangible assets. If the estimated fair value of the reporting unit exceeds
the carrying value of the net assets assigned to that unit, then goodwill and intangible assets are not impaired. If the carrying value of
the net assets assigned to the reporting unit were to exceed its fair value, an impairment loss is recorded for the amount equal to the
difference the reporting unit’s carrying value exceeds the estimated fair value.
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 a majority 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, but there can
be no assurance that the Company will be able to continue to pass on increased costs to customers in the future.
Off Balance Sheet Transactions
As of December 31, 2020, the Company did not have any “off-balance-sheet arrangements,” as defined in Item 303(a)(4)(ii) of
Regulation S-K.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company is exposed to cash flow and fair value risk due to changes in interest rates with respect to its 3.68% and 3.84%
senior notes due in 2021 and 2022, respectively, and its revolving lines of credit. Weighted average variable rates are based on implied
forward rates in the yield curve at December 31, 2020. The estimate of fair value of the Company’s fixed rate debt is based on the
borrowing rates currently available to the Company for bank loans with similar terms and average maturities. The table below presents
principal cash flows by expected annual maturities, related weighted average interest rates and estimated fair value for the Company’s
Series B and Series C Senior Notes and the Company’s revolving lines of credit under the Credit Facility and Sweep Service Facility as
of December 31, 2020.
K
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1
m
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2
2
(dollar amounts in thousands)
2021
Revolving lines of credit............................. $ —
Weighted average interest rate....................
—
3.68% Series B senior notes due in
2021 ........................................................... $40,000
Stated interest rate.......................................
3.84% Series C senior notes due in
2022 ........................................................... $ —
—
Stated interest rate.......................................
2022
$ —
—
2024
2023
$ — $ — $122,771
— —
Thereafter
$
2.11%
2025
— $122,771
—
2.11%
Total
Estimated
Fair Value
$122,771
$ —
—
$ — $ — $
— —
3.68%
$60,000
$ — $ — $
3.84% — —
-54-
$
$
—
—
—
—
— $ 40,000
—
3.68%
$ 41,011
— $ 60,000
—
3.84%
$ 62,085
The Company formed a wholly owned Canadian subsidiary, TRS-RenTelco Inc., in 2004 in conjunction with the TRS acquisition
and a wholly owned Indian subsidiary, TRS-RenTelco India Private Limited, in 2013. The Company commenced the closure of its
Indian operations during 2017. The Canadian operations of the Company subject it to foreign currency risks (i.e. the possibility that the
financial results could be better or worse than planned because of changes in foreign currency exchange rates). Currently, the Company
does not use derivative instruments to hedge its economic exposure with respect to assets, liabilities and firm commitments denominated
in foreign currencies. In 2020, the Company experienced minimal impact on net income due to foreign exchange rate fluctuations.
Although there can be no assurances, given the size of the Canadian operations, the Company does not expect future foreign exchange
gains and losses to be significant.
The Company has no derivative financial instruments that expose the Company to significant market risk.
2
2
0
0
1
2
0
F
F
o
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r
r
m
m
1
1
0
0
-
-
K
K
-55-
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Index
Management’s Report on Internal Control over Financial Reporting ..............................................................................................
Page
57
Reports of Independent Registered Public Accounting Firm ...........................................................................................................
58
Consolidated Financial Statements
Consolidated Balance Sheets as of December 31, 2020 and 2019 ..............................................................................................
Consolidated Statements of Income for the Years Ended December 31, 2020, 2019 and 2018 .................................................
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2020, 2019 and 2018 .......................
Consolidated Statements of Shareholders’ Equity for the Years Ended December 31, 2020, 2019 and 2018 ...........................
Consolidated Statements of Cash Flows for the Years Ended December 31, 2020, 2019 and 2018...........................................
Notes to Consolidated Financial Statements.....................................................................................................................................
61
62
63
64
65
66
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0
1
m
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0
2
0
2
2
-56-
Management’s Report on Internal Control over Financial Reporting
The Company’s management is responsible for the preparation and integrity of the consolidated financial statements appearing in
our Annual Report filed on Form 10-K. The consolidated financial statements were prepared in conformity with United States generally
accepted accounting principles and include amounts based on management’s estimates and judgments. All other financial information
in this report has been presented on a basis consistent with the information included in the financial statements.
The Company’s management is also responsible for establishing and maintaining adequate internal control over financial reporting
as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. The Company maintains a system
of internal control that is designed to provide reasonable assurance as to the reliable preparation and presentation of the consolidated
financial statements, as well as to safeguard assets from unauthorized use or disposition.
The Company’s system of internal control over financial reporting is embodied in the Company’s Code of Business Conduct and
Ethics. It sets the tone of our organization and includes factors such as integrity and ethical values. Our internal control over financial
reporting is supported by formal policies and procedures, which are reviewed, modified and improved as changes occur in business
conditions and operations.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections
of any evaluation of effectiveness to future periods are subject to risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies and procedures may deteriorate.
The Audit Committee of the Board of Directors, which is composed solely of outside directors, meets periodically with members
of management and the independent auditors to review and discuss internal control over financial reporting, as well as accounting and
financial reporting matters. The independent auditors report to the Audit Committee and accordingly have full and free access to the
Audit Committee at any time.
The Company’s management conducted an evaluation of the effectiveness of our internal control over financial reporting as of
December 31, 2020 based on the criteria set forth in the 2013 Internal Control — Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission. Based on its evaluation, management has concluded that, as of December 31,
2020, the Company’s internal control over financial reporting was effective based on those criteria.
2
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Report of Independent Registered Public Accounting Firm
Board of Directors and Shareholders
McGrath RentCorp
Opinion on internal control over financial reporting
We have audited the internal control over financial reporting of McGrath RentCorp (a California corporation) and subsidiaries (the
“Company”) as of December 31, 2020, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). In our opinion, the Company maintained, in all
material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in the 2013
Internal Control—Integrated Framework issued by COSO.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”),
the consolidated financial statements of the Company as of and for the year ended December 31, 2020, and our report dated February
23, 2021 expressed an unqualified opinion on those financial statements.
Basis for opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of
the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control
over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based
on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company
in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission
and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness
exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such
other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and limitations of internal control over financial reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in
accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention
or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
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/s/ GRANT THORNTON LLP
San Jose, California
February 23, 2021
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Report of Independent Registered Public Accounting Firm
Board of Directors and Shareholders
McGrath RentCorp
Opinion on the financial statements
We have audited the accompanying consolidated balance sheets of McGrath RentCorp (a California corporation) and subsidiaries (the
“Company”) as of December 31, 2020 and 2019, the related consolidated statements of income, comprehensive income, shareholders’
equity, and cash flows for each of the three years in the period ended December 31, 2020, and the related notes (collectively referred to
as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the
Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period
ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”),
the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in the 2013 Internal
Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and
our report dated February 23, 2021 expressed an unqualified opinion.
Basis for opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the
Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to
be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to
error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence
regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used
and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe
that our audits provide a reasonable basis for our opinion.
Critical audit matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was
communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material
to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of
critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by
communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or
disclosures to which it relates.
Valuation of TRS-RenTelco rental equipment
As described further in Note 1 to the financial statements, the Company evaluates the carrying value of rental equipment for
impairment whenever events and circumstances have occurred that would indicate the carrying amount may not be fully recoverable.
We identified the valuation of the Company’s TRS-RenTelco rental equipment as a critical audit matter.
The principal consideration for our determination of the valuation of the TRS-RenTelco rental equipment as a critical audit matter is
that the TRS-RenTelco rental equipment can be sensitive to new developments in technology, which creates the risk that equipment
could become obsolete or impaired. Management’s impairment analysis relies on estimates of future financial performance of its
rental equipment. These estimates include assumptions based upon historical and projected results including utilization, rental pricing
and the equipment’s useful life and expected sales proceeds. The failure to achieve these projections might be indicators of potential
impairment.
Our audit procedures related to the impairment of TRS-RenTelco rental equipment included the following, among others.
(cid:129) We tested the design and operating effectiveness of controls relating to the impairment process, determination of the
assumptions, and review of equipment that didn’t meet assumed performance thresholds.
(cid:129) We evaluated the appropriateness of useful lives assigned to the rental equipment.
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(cid:129) We analyzed trends in utilization and yield at a disaggregated product level, both year-over-year and quarter-over-quarter to
evaluate if indicators of impairment were present for any particular product.
(cid:129)
For a sample of assets, we inspected underlying documents and compared to the information in management’s analysis for
accuracy.
(cid:129) We independently identified any underperforming assets by recalculating management’s analysis performed by using actual
margins on sales proceeds.
(cid:129)
For assets discussed above, we inquired of management with respect to the assets and factors driving assessment of
realizability and corroborated explanations received.
/s/ GRANT THORNTON LLP
We have served as the Company’s auditor since 2002.
San Jose, California
February 23, 2021
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MCGRATH RENTCORP
CONSOLIDATED BALANCE SHEETS
(in thousands)
Assets
Cash ....................................................................................................................................... $
Accounts receivable, net of allowance for doubtful accounts of $2,100 in 2020
and $1,883 in 2019 .............................................................................................................
Rental equipment, at cost:
Relocatable modular buildings.........................................................................................
Electronic test equipment.................................................................................................
Liquid and solid containment tanks and boxes ................................................................
Less accumulated depreciation ........................................................................................
Rental equipment, net ......................................................................................................
Property, plant and equipment, net........................................................................................
Prepaid expenses and other assets .........................................................................................
Intangible assets, net..............................................................................................................
Goodwill ................................................................................................................................
Total assets ............................................................................................................ $
Liabilities and Shareholders' Equity
Liabilities:
Notes payable................................................................................................................... $
Accounts payable and accrued liabilities .........................................................................
Deferred income...............................................................................................................
Deferred income taxes, net...............................................................................................
Total liabilities ......................................................................................................
Shareholders’ equity:
Common stock, no par value - Authorized 40,000 shares
Issued and outstanding - 24,128 shares as of December 31, 2020 and 24,296
shares as of December 31, 2019 .................................................................................
Retained earnings.............................................................................................................
Accumulated other comprehensive loss...........................................................................
Total shareholders’ equity.....................................................................................
Total liabilities and shareholders’ equity .............................................................. $
The accompanying notes are an integral part of these consolidated financial statements.
December 31,
2020
2019
1,238 $
2,342
123,316
128,099
882,115
333,020
315,706
1,530,841
(592,725)
938,116
136,210
41,549
7,118
28,197
1,275,744 $
222,754 $
108,334
45,975
216,077
593,140
868,807
335,343
316,261
1,520,411
(552,911)
967,500
131,047
45,356
7,334
28,197
1,309,875
293,431
109,174
54,964
218,270
675,839
106,289
576,419
(104)
682,604
1,275,744 $
106,360
527,746
(70)
634,036
1,309,875
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MCGRATH RENTCORP
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
Revenues
Rental .................................................................................................... $
Rental related services ..........................................................................
Rental operations .............................................................................
Sales ......................................................................................................
Other......................................................................................................
Total revenues.......................................................................
Costs and Expenses
Direct costs of rental operations:
Depreciation of rental equipment ....................................................
Rental related services .....................................................................
Other ................................................................................................
Total direct costs of rental operations...................................
Costs of sales.........................................................................................
Total costs of revenues .........................................................
Gross profit......................................................................
Selling and administrative expenses .....................................................
Income from operations...................................................................
Other income (expense):
Interest expense ...............................................................................
Foreign currency exchange gain......................................................
Income before provision for income taxes.................................
Provision for income taxes....................................................................
Net income ................................................................................. $
Earnings per share:
Basic...................................................................................................... $
Diluted................................................................................................... $
Shares used in per share calculation:
Basic......................................................................................................
Diluted...................................................................................................
Cash dividends declared per share ............................................................. $
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Year Ended December 31,
2019
2018
351,790
92,393
444,183
124,604
3,767
572,554
85,866
68,105
73,818
227,789
81,019
308,808
263,746
122,993
140,753
(8,787)
78
132,044
30,060
101,984
4.22
4.16
24,157
24,531
1.68
$
$
$
$
$
$
353,889
101,038
454,927
110,229
5,074
570,230
80,391
76,241
79,365
235,997
68,068
304,065
266,165
124,793
141,372
(12,331)
84
129,125
32,319
96,806
3.99
3.93
24,250
24,623
1.50
$
$
$
$
318,774
82,907
401,681
92,618
4,031
498,330
73,139
64,298
68,678
206,115
58,964
265,079
233,251
115,770
117,481
(12,297)
(489)
104,695
25,289
79,406
3.29
3.24
24,141
24,540
1.36
The accompanying notes are an integral part of these consolidated financial statements.
-62-
MCGRATH RENTCORP
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
Net income ........................................................................................................
Other comprehensive income (loss):
Foreign currency translation adjustment .....................................................
Tax benefit (provision) ................................................................................
Comprehensive income.....................................................................................
$
$
Year Ended December 31,
2020
2019
2018
101,984 $
96,806 $
79,406
(48)
14
101,950 $
(29)
8
96,785 $
161
(42)
79,525
The accompanying notes are an integral part of these consolidated financial statements
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MCGRATH RENTCORP
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands, except per share amounts)
Balance at December 31, 2017.......................................................
Net income..................................................................................
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 at $1.36 per share .........................................
Other comprehensive gain ..........................................................
Balance at December 31, 2018.......................................................
Net income..................................................................................
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 at $1.50 per share .........................................
Other comprehensive loss...........................................................
Balance at December 31, 2019.......................................................
Net income..................................................................................
Share-based compensation..........................................................
Common stock issued under stock plans, net of shares
withheld for employee taxes....................................................
Repurchased common stock .......................................................
Taxes paid related to net share settlement of stock awards ........
Dividends accrued at $1.68 per share .........................................
Other comprehensive loss...........................................................
Balance at December 31, 2020.......................................................
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Common Stock
Shares
24,052 $ 102,947
Amount
—
—
—
4,111
Retained
Earnings
$ 421,405
Accumulated
Other
Comprehensive
Income (Loss)
$
79,406
—
Total
Shareholders’
Equity
(168) $ 524,184
79,406
4,111
—
—
130
—
—
—
—
(3,257)
—
—
—
—
(33,028)
—
24,182 103,801 467,783
96,806
—
—
5,892
—
—
114
—
—
—
—
(3,333)
—
—
—
—
(36,843)
—
24,296 106,360 527,746
— 101,984
—
—
—
5,549
114
(282)
—
—
—
—
(12,373)
—
(40,938)
—
24,128 $ 106,289 $ 576,419 $
—
(1,244)
(4,376)
—
—
—
—
(3,257)
—
(33,028)
—
119
119
(49) 571,535
96,806
—
5,892
—
—
—
(3,333)
—
(36,843)
—
(21)
(21)
(70) 634,036
— 101,984
5,549
—
—
—
—
—
(34)
—
(13,617)
(4,376)
(40,938)
(34)
(104) $ 682,604
The accompanying notes are an integral part of these consolidated financial statements.
-64-
MCGRATH RENTCORP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Cash Flows from Operating Activities:
Net income................................................................................................... $
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization ...............................................................
Impairment of rental assets ....................................................................
Provision for doubtful accounts .............................................................
Share-based compensation .....................................................................
Gain on sale of used rental equipment ...................................................
Foreign currency exchange (gain) loss ..................................................
Amortization of debt issuance costs.......................................................
Change in:
Accounts receivable..........................................................................
Prepaid expenses and other assets ....................................................
Accounts payable and accrued liabilities..........................................
Deferred income ...............................................................................
Deferred income taxes ......................................................................
Net cash provided by operating activities ...................................
Cash Flows from Investing Activities:
Purchases of rental equipment .....................................................................
Purchases of property, plant and equipment................................................
Cash paid for acquisition of business assets................................................
Proceeds from sales of used rental equipment.............................................
Net cash used in investing activities ...........................................
Cash Flows from Financing Activities:
Net (repayment) borrowing under bank lines of credit ...............................
Principal payments on Series A senior notes...............................................
Repurchase of common stock......................................................................
Taxes paid related to net share settlement of stock awards .........................
Payment of dividends ..................................................................................
Net cash used in financing activities ...........................................
Effect of foreign currency exchange rate changes on cash ...............................
Net (decrease) increase in cash ...................................................
Cash balance, beginning of period ....................................................................
Cash balance, end of period .............................................................................. $
Supplemental Disclosure of Cash Flow Information:
Interest paid, during the period ......................................................................... $
Net income taxes paid, during the period ......................................................... $
Dividends accrued during the period, not yet paid ........................................... $
Rental equipment acquisitions, not yet paid ..................................................... $
2020
Year Ended December 31,
2019
2018
101,984 $
96,806 $
79,406
94,643
—
1,343
5,549
(19,329)
(78)
11
3,440
3,807
316
(8,989)
(2,193)
180,504
(86,329)
(13,724)
—
47,052
(53,001)
(70,689)
—
(13,617)
(4,376)
(39,769)
(128,451)
(156)
(1,104)
2,342
1,238 $
9,050 $
34,903 $
10,083 $
4,373 $
89,476
—
1,013
5,892
(21,309)
(84)
11
(7,323)
(13,530)
20,298
5,138
11,606
187,994
(167,703)
(12,080)
(7,808)
44,447
(143,144)
(5,144)
—
—
(3,333)
(35,539)
(44,016)
—
834
1,508
2,342 $
12,475 $
17,528 $
9,489 $
6,496 $
81,975
39
581
4,111
(19,559)
489
20
(15,725)
(9,351)
(1,612)
10,258
12,035
142,667
(123,071)
(15,664)
(7,543)
41,786
(104,492)
15,130
(20,000)
—
(3,257)
(30,939)
(39,066)
(102)
(993)
2,501
1,508
12,598
18,157
8,388
9,695
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The accompanying notes are an integral part of these consolidated financial statements.
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MCGRATH RENTCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
McGrath RentCorp and its wholly-owned subsidiaries (the “Company”) is a California corporation organized in 1979. The
Company is a diversified business to business rental company with four rental divisions; relocatable modular buildings, portable storage
containers, electronic test equipment and liquid and solid containment tanks and boxes. Although the Company’s primary emphasis is
on equipment rentals, sales of equipment occur in the normal course of business. The Company is comprised of four reportable business
segments: modular building and portable storage segment (“Mobile Modular”), electronic test equipment segment (“TRS-RenTelco”),
containment solutions for the storage of hazardous and non-hazardous liquids and solids segment (“Adler Tanks”) and classroom
manufacturing division selling modular classrooms in California (“Enviroplex”).
Principles of Consolidation
The consolidated financial statements include the accounts of McGrath RentCorp and its wholly-owned subsidiaries. All
intercompany accounts and transactions have been eliminated in consolidation.
Revenue Recognition
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Lease revenues - Rental revenues from operating leases are recognized on a straight-line basis over the term of the lease for all
operating segments. Rental billings for periods extending beyond period end are recorded as deferred income and are recognized in the
period earned. Rental related services revenues are primarily associated with relocatable modular building and liquid and solid
containment tanks and boxes leases. For modular building leases, rental related services revenues for modifications, delivery,
installation, dismantle and return delivery are lease related because the payments are considered minimum lease payments that are an
integral part of the negotiated lease agreement with the customer. These revenues are recognized on a straight-line basis over the term
of the lease. Certain leases are accounted for as sales-type 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 sales-type leases and
rental income on facility leases.
Non-lease revenues - Sales revenue is recognized upon delivery and installation of the equipment to customers. Certain leases
are accounted for as sales-type 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 revenue is recognized when earned and primarily includes interest income on sales-type leases, rental income on facility
leases and certain logistics services.
Sales taxes charged to customers are reported on a net basis and are excluded from revenues and expenses.
Depreciation of Rental Equipment
Rental equipment is 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 buildings, portable storage containers and tanks and boxes are
capitalized to the extent the refurbishment significantly adds value to, or extends the life of the equipment. Maintenance and repairs are
expensed as incurred.
The estimated useful lives and residual values of the Company’s rental equipment used for financial reporting purposes are as
follows:
Relocatable modular buildings.............................................................................. 18 years, 50% residual value
Relocatable modular accessories........................................................................... 3 to 18 years, no residual value
Blast resistant modules.......................................................................................... 20 years, no residual value
Portable storage containers.................................................................................... 25 years, 62.5% residual value
Electronic test equipment and accessories ............................................................ 1 to 8 years, no residual value
Liquid and solid containment tanks and boxes and accessories............................ 3 to 20 years, no residual value
-66-
Costs of Rental Related Services
Costs of rental related services are primarily associated with relocatable modular building leases and liquid and solid containment
tank and boxes. Modular building leases primarily consist of costs for services to be provided under the negotiated lease agreement for
delivery, installation, modifications, skirting, additional site-related work, and dismantle and return delivery. Costs related to these
services are recognized on a straight-line basis over the term of the lease. Costs of rental related services associated with liquid and
solid containment solutions consists of costs of delivery, removal and cleaning of the tanks and boxes. These costs are recognized in
the period the service is performed.
Impairment of Long-Lived Assets
The Company evaluates the carrying value of rental equipment and identifiable definite lived intangible assets for impairment
whenever events or circumstances have occurred that would indicate the carrying amount may not be fully recoverable. A key element
in determining the recoverability of long-lived assets is the Company’s outlook as to the future market conditions for its rental equipment.
If the carrying amount is not fully recoverable, an impairment loss is recognized to reduce the carrying amount to fair value. The
Company determines fair value based upon the condition of the rental equipment and the projected net cash flows from its rental and
sale considering current market conditions. Goodwill and identifiable indefinite lived assets are evaluated for potential impairment
annually or when circumstances indicate potential impairment may have occurred. Impairment losses, if any, are determined based
upon the excess of carrying value over the estimated fair value of the asset. There were no impairments of long-lived assets during the
years ended December 31, 2020 and 2019. The Company recorded an impairment of modular rental equipment of $0.1 million for the
year ended December 31, 2018.
Other Direct Costs of Rental Operations
Other direct costs of rental operations include direct labor, supplies, repairs, insurance, property taxes, license fees, impairment
of rental equipment and certain modular lease costs charged to customers in the negotiated rental rate, which are recognized on a straight-
line basis over the term of the lease.
Cost of Sales
Cost of sales in the Consolidated Statements of Income includes the carrying value of the equipment sold and all direct costs
associated with the sale.
Warranty Reserves
Sales of new relocatable modular buildings, portable storage containers, electronic test equipment and related accessories and
liquid and solid containment tanks and boxes not manufactured by the Company are typically covered by warranties provided by the
manufacturer of the products sold. 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, the Company has not found it necessary to establish such reserves to date as
warranty costs have not been significant.
Property, Plant and Equipment
Property, plant and equipment are stated at cost, net of accumulated depreciation. Depreciation is recognized on a straight-line
basis for financial reporting purposes, and on an accelerated basis for income tax purposes. Depreciation expense for property, plant
and equipment is included in “Selling and administrative expenses” and “Rental related services” in the Consolidated Statements of
Income. Maintenance and repairs are expensed as incurred.
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Property, plant and equipment consist of the following:
(dollar amounts in thousands)
Land.......................................................................................................
Land improvements...............................................................................
Buildings ...............................................................................................
Furniture, office equipment and software .............................................
Vehicles and machinery ........................................................................
Less accumulated depreciation..............................................................
Construction in progress........................................................................
Estimated
useful life
in years
Indefinite
20 – 50
30
3 – 10
5 – 25
$
$
December 31,
2020
2019
$
54,429
59,249
32,306
36,882
43,101
225,967
(91,514)
134,453
1,757
136,210
$
54,423
52,325
29,848
36,610
41,877
215,083
(84,308)
130,775
272
131,047
Property, plant and equipment depreciation expense was $8.6 million, $8.2 million and $8.0 million for the years ended December
31, 2020, 2019 and 2018, respectively. Construction in progress at December 31, 2020 and 2019 consisted primarily of costs related to
acquisition of land, land improvements and information technology upgrades.
Capitalized Software Costs
The Company capitalizes certain development costs incurred in connection with its internal use software. Costs incurred in the
preliminary stages of development are expensed as incurred. Once an application has reached the development stage, direct internal
and external costs are capitalized until the software is substantially complete and ready for its intended use. These costs generally
include external direct costs of materials and services consumed in the project and internal costs, such as payroll and benefits of those
employees directly associated with the development of the software. Maintenance, training and post implementation costs are expensed
as incurred. The Company also capitalizes costs related to specific upgrades and enhancements when it is probable the expenditures
will result in additional functionality. Capitalized software costs are included in property, plant and equipment. The Company
capitalized $0.1 million and $3.0 million in internal use software during the years ended December 31, 2020 and 2019, respectively.
Advertising Costs
Advertising costs are expensed as incurred. Total advertising expenses were $3.9 million, $3.6 million and $3.2 million for the
years ended December 31, 2020, 2019 and 2018.
K
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0
1
m
r
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0
2
0
2
2
Income Taxes
Income taxes are accounted for using an asset and liability approach. Deferred tax assets and liabilities are recorded for the effect
of temporary differences between the tax basis of assets and liabilities and their reported amounts in the consolidated financial
statements. Deferred tax assets and deferred tax liabilities are adjusted to the extent necessary to reflect tax rates expected to be in effect
when temporary differences reverse. Adjustments may be required to deferred tax assets and deferred tax liabilities due to changes in
tax laws and audit adjustments by tax authorities. A valuation allowance would be established if, based on the weight of available
evidence, management believes that it is more likely than not that some portion or all of a recorded deferred tax asset would not be
realized in future periods. To the extent adjustments are required in any given period, the adjustments would be included within the
“Provision for income taxes” in the Consolidated Statements of Income.
Goodwill and Intangible Assets
Purchase prices of acquired businesses are allocated to the assets and liabilities acquired based on the estimated fair values on the
respective acquisition dates. Based on these values, the excess purchase prices over the fair value of the net assets acquired are allocated
to goodwill and other intangible assets. Intangible assets related to customer relationships are amortized over eleven years. At December
31, 2020 and 2019, goodwill and trade name intangible assets which have indefinite lives totaled $34.1 million.
The Company assesses potential impairment of its goodwill and intangible assets when there is evidence that events or
circumstances have occurred that would indicate the recovery of an asset’s carrying value is unlikely. The Company also assesses
potential impairment of its goodwill and intangible assets with indefinite lives on an annual basis regardless of whether there is evidence
of impairment. If indicators of impairment were to be present in intangible assets used in operations and future discounted cash flows
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were not expected to be sufficient to recover the assets’ carrying amount, an impairment loss would be charged to expense in the period
identified. The amount of an impairment loss would be recognized as the excess of the asset’s carrying value over its fair value. Factors
the Company considers important, which may cause impairment include, among others, significant changes in the manner of use of the
acquired asset, negative industry or economic trends, and significant underperformance relative to historical or projected operating
results.
The impairment review of the Company’s goodwill is performed by first assessing qualitative factors to determine whether it is
more likely than not that the fair value of a reporting unit is less than its carrying amount. The fair value of the reporting unit is compared
to its carrying value to determine if the goodwill is impaired. If the fair value of the reporting unit exceeds the carrying value of the net
assets assigned to that unit, then goodwill is not impaired. If the carrying value of the net assets assigned to the reporting unit were to
exceed its fair value, then a goodwill impairment loss is recorded for the amount the reporting unit’s carrying value exceeds the estimated
fair value.
The Company conducted its annual impairment analysis in the fourth quarter of 2020. The impairment analysis did not result in
an impairment charge for the fiscal year ended 2020. There were no impairment charges in 2019 or 2018. Determining the fair value
of a reporting unit is judgmental and involves the use of significant estimates and assumptions. The Company based its fair value
estimates on assumptions that it believes are reasonable but are uncertain and subject to changes in market conditions.
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. Diluted EPS is computed assuming conversion of all potentially dilutive securities including the dilutive
effects of stock options, unvested restricted stock awards and other potentially dilutive securities. The table below presents the weighted-
average common stock used to calculate basic and diluted earnings per share:
(in thousands)
Weighted-average common stock for calculating basic
earnings per share ...............................................................................
Effect of potentially dilutive securities from equity-based
compensation......................................................................................
Weighted-average common stock for calculating diluted
earnings per share ...............................................................................
2020
Year Ended December 31,
2019
2018
24,157
24,250
24,141
374
373
399
24,531
24,623
24,540
2
2
0
0
1
2
0
F
F
o
o
r
r
m
m
1
1
0
0
-
-
K
K
In 2020, 2019 and 2018, there were no shares having an anti-dilutive effect requiring exclusion from the computation of diluted
earnings per share.
The Company has 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. In August 2015, the Company’s Board of Directors authorized the Company to repurchase up
to 2,000,000 shares of the Company's outstanding common stock (the “Repurchase Plan”). The amount and time of the specific
repurchases are subject to prevailing market conditions, applicable legal requirements and other factors, including management’s
discretion. All shares repurchased by the Company are canceled and returned to the status of authorized but unissued shares of common
stock. There can be no assurance that any authorized shares will be repurchased and the Repurchase Plan may be modified, extended or
terminated by the Board of Directors at any time. In the twelve months ended December 31, 2020, the company repurchased 282,221
shares of its common stock for an average purchase price of $48.25 per share or an aggregate price of $13.6 million. There were no
repurchases of common stock during the twelve months ended December 31, 2019 and 2018. As of December 31, 2020, 1,309,805
shares remain authorized for repurchase.
Accounts Receivable and Concentration of Credit Risk
The Company’s accounts receivable consist of amounts due from customers for rentals, sales, financed sales and unbilled amounts
for the portion of modular building end-of-lease services earned, which were negotiated as part of the lease agreement. Unbilled
receivables related to end-of-lease services, which consists of dismantle and return delivery of buildings, were $38.7 million at December
31, 2020 and $37.2 million at December 31, 2019. The Company sells primarily on 30-day terms, individually performs credit evaluation
procedures on its customers on each transaction and will require security deposits from its customers when a significant credit risk is
identified. The Company records an allowance for doubtful accounts in amounts equal to the estimated losses expected to be incurred
in the collection of the accounts receivable. The estimated losses are based on historical collection experience in conjunction with an
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evaluation of the current status of the existing accounts. Customer accounts are written off against the allowance for doubtful accounts
when an account is determined to be uncollectable. The allowance for doubtful accounts activity was as follows:
(in thousands)
Beginning balance, January 1 .................................................................................. $
Provision for doubtful accounts...............................................................................
Write-offs, net of recoveries ....................................................................................
Ending balance, December 31 ................................................................................. $
2020
2019
$
1,883
1,343
(1,126)
$
2,100
1,883
1,013
(1,013)
1,883
Financial instruments that potentially subject the Company to concentration of credit risk consist primarily of trade accounts
receivable. From time to time, the Company maintains cash balances in excess of the Federal Deposit Insurance Corporation limits.
Fair Value of Financial Instruments
The Company believes that the carrying amounts for cash, accounts receivable, accounts payable and notes payable approximate
their fair values except for fixed rate debt included in notes payable which has an estimated fair value of $103.1 million and $101.4
million compared to the recorded value of $100.0 million as of December 31, 2020 and 2019, respectively. The estimates of fair value
of the Company’s fixed rate debt are based on the borrowing rates currently available to the Company for bank loans with similar terms
and average maturities.
Foreign Currency Transactions and Translation
The Company's Canadian subsidiary, TRS-RenTelco Inc., a British Columbia corporation (“TRS-Canada”), functions as a branch
sales office for TRS-RenTelco in Canada. The functional currency for TRS-Canada is the U.S. dollar. Foreign currency transaction
gains and losses of TRS-Canada are reported in the results of operations in the period in which they occur.
The Company’s Indian subsidiary, TRS-RenTelco India Private Limited (“TRS-India”), functioned as a rental and sales office for
TRS-RenTelco in India, which commenced its closure during 2017. The functional currency for TRS-India is the Indian Rupee. All
assets and liabilities of TRS-India are translated into U.S. dollars at period-end exchange rates and all income statement amounts are
translated at the average exchange rate for each month within the year.
Currently, the Company does not use derivative instruments to hedge its economic exposure with respect to assets, liabilities and
firm commitments as the foreign currency transactions and risks to date have not been significant.
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1
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2
2
Share-Based Compensation
The Company measures and recognizes the compensation expense for all share-based awards made to employees and directors,
including stock options, stock appreciation rights (“SARs”) and restricted stock units (“RSUs”), based upon estimated fair values. The
fair value of stock options and SARs is estimated on the date of grant using the Black-Scholes option pricing model and for RSUs based
upon the fair market value of the underlying shares of common stock as of the date of grant. The Company recognizes share-based
compensation cost ratably on a straight-line basis over the requisite service period, which generally equals the vesting period. For
performance-based RSUs, compensation costs are recognized when vesting conditions are met. In addition, the Company estimates the
probable number of shares of common stock that will be earned and the corresponding compensation cost until the achievement of the
performance goal is known. The Company recognizes forfeitures based on actual forfeitures when they occur. The Company records
share-based compensation costs in “Selling and administrative expenses” in the Consolidated Statements of Income. The Company
recognizes a benefit from share-based compensation in the Consolidated Statements of Shareholders’ Equity if an incremental tax benefit
is realized. Further information regarding share-based compensation can be found in “Note 8 –Benefit Plans”.
Use of Estimates
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United
States of America 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. The most significant estimates included in the financial
statements are the future cash flows and fair values used to determine the recoverability of the rental equipment and identifiable definite
lived intangible assets carrying value, the various assets’ useful lives and residual values, and the allowance for doubtful accounts.
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NOTE 2. NEW ACCOUNTING PRONOUNCEMENTS
In December 2019, the FASB issued Accounting Standard Update (“ASU”) 2019-12, Income Taxes (Topic 740): Simplifying the
Accounting for Income Taxes, expected to reduce cost and complexity related to the accounting for income taxes. The ASU removes
specific exceptions to the general principles in Topic 740 in Generally Accepted Accounting Principles (GAAP). It eliminates the need
for an organization to analyze whether the following apply in a given period: exception to the incremental approach for intra-period tax
allocation; exceptions to accounting for basis differences when there are ownership changes in foreign investments; and exception in
interim period income tax accounting for year-to-date losses that exceed anticipated losses. The ASU also improves financial statement
preparers’ application of income tax-related guidance and simplifies GAAP for: franchise taxes that are partially based on income;
transactions with a government that result in a step up in the tax basis of goodwill; separate financial statements of legal entities that are
not subject to tax; and enacted changes in tax laws in interim periods. For public business entities, this ASU is effective for fiscal years,
and interim periods within those fiscal years, beginning after December 15, 2020. The Company does not expect the adoption of this
ASU to have a material impact on its consolidated financial statements.
NOTE 3. IMPLEMENTED ACCOUNTING PRONOUNCEMENTS
Effective January 1, 2020, the Company adopted ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the
Test for Goodwill Impairment, intended to simplify the subsequent accounting for goodwill acquired in a business combination. Prior
guidance required utilizing a two-step process to review goodwill for impairment. A second step was required if there was an indication
that an impairment may exist, and the second step required calculating the potential impairment by comparing implied fair value of the
reporting unit’s goodwill with the carrying amount of the goodwill. The new guidance eliminates the second step from the goodwill
impairment test. Under the new guidance, an entity should perform its annual, or interim, goodwill impairment test by comparing the
estimated fair value of a reporting unit with its carrying amount. An entity would recognize an impairment charge for the amount by
which the carrying amount exceeds the reporting unit's estimated fair value. The adoption of this new guidance did not have a material
impact on the Company’s condensed consolidated financial statements.
The Company adopted ASU 2016-13, Financial Instruments – Credit Losses (Topic 326) effective January 1, 2020. Under the
new guidance, companies are required to present financial assets held at amortized cost and available for sale debt securities net of the
amount expected to be collected. The new guidance requires the measurement of expected credit losses to be based on relevant
information from past events, including historical experiences, current conditions and reasonable and supportable forecasts that affect
collectability. The adoption of this new guidance did not have a material impact on the Company’s condensed consolidated financial
statements.
2
2
0
0
1
2
0
F
F
o
o
r
r
m
m
1
1
0
0
-
-
K
K
Trade accounts receivable
The allowance for doubtful accounts is based on the Company’s assessment of the collectability of customer accounts receivable
from operating lease and non-lease revenues. The Company regularly reviews the allowance by considering factors such as historical
payment experience and trends, the age of the accounts receivable balances, the Company’s operating segment, customer industry, credit
quality and current economic conditions that may affect a customer’s ability to pay. The Company recognized bad debt expense of $1.3
million, $1.0 million and 0.6 million for the twelve months ended December 31, 2020, 2019 and 2018, respectively. The allowance for
doubtful accounts was $2.1 million, $1.9 million and $1.9 million at December 31, 2020, 2019 and 2018, respectively.
Net investment in sales-type leases
The Company enters into sales-type leases with certain qualified customers to purchase its rental equipment, primarily at its TRS-
RenTelco operating segment. Sales-type leases have terms that generally range from 12 to 36 months and are collateralized by a security
interest in the underlying rental asset. The net investment in sales-type leases was $1.8 million at December 31, 2020 and $2.9 million
at December 31, 2019. The Company’s assessment of current expected losses on these receivables was not material and no credit loss
expense was provided as of December 31, 2020. The Company regularly reviews the allowance by considering factors such as historical
payment experience, the age of the lease receivable balances, credit quality and current economic conditions that may affect a customer's
ability to pay. Lease receivables are considered past due 90 days after invoice. The Company manages the credit risk in net investment
in sales-type leases, on an ongoing basis, using a number of factors, including, but not limited to the following: historical payment
history, credit score, size of operations, length of time in business, industry, historical profitability, historical cash flows, liquidity and
past due amounts. The Company uses credit scores obtained from external credit bureaus as a key indicator for the purposes of
determining credit quality of its new customers. The Company does not own available for sale debt securities or other financial assets
at December 31, 2020.
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K
-
0
1
m
r
o
F
0
2
0
2
2
NOTE 4. LEASES
Lessee
The Company leases real estate for certain of its branch offices and rental equipment storage yards, vehicles and equipment used
in its rental operations. The Company determines if an arrangement is a lease at inception. The Company has leases with lease and
non-lease components, which are accounted for separately. Right-Of-Use (“ROU”) assets and liabilities are recognized on the
commencement date based on the present value of lease payments over the lease term. Variable lease payments are excluded from the
ROU assets and lease liabilities and are recognized in the period in which the obligation for those payments is incurred, which are not
material. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants. The
Company uses the interest rate stated in the lease as the discount rate. If the interest rate is not stated, the Company uses its incremental
borrowing rate based on information available on lease commencement date in determining the present value of lease payments. Many
of the Company’s real estate lease agreements include options to extend the lease, which are not included in the minimum lease terms
unless they are reasonably certain to be exercised. These leases include one or more options to renew, with renewal terms that may
extend the lease term from one to three years. The amount of payments associated with such options is not material. Short-term leases
are leases having a term of twelve months or less and exclude leases with a lease term of one month or less. The Company recognizes
short-term leases on a straight-line basis and does not record a related ROU asset or liability for such leases. At December 31, 2020 and
2019 the Company’s ROU assets and operating lease liabilities was $8.3 million and $9.9 million, respectively, which are recorded in
Prepaid expenses and other assets and Accounts payable and accrued liabilities on the Company’s Consolidated Balance Sheets.
During the year ended December 31, 2020, operating lease expense was $3.8 million, which includes short term lease expense of
$0.1 million. At December 31, 2020, the weighted-average remaining lease term for operating leases was 3.2 years and the weighted
average discount rate was 3.95%. The Company had no sub-lease income during the year ended December 31, 2020, and did not have
any finance leases as of December 31, 2020.
Supplemental cash flow information related to leases was as follows:
(in thousands)
Year Ended December 31,
2019
2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases .............................................. $
3,683 $
3,568
Right of use assets obtained in exchange for lease obligations:
Operating leases ......................................................................................... $
1,885 $
2,728
As of December 31, 2020, maturities of operating lease liabilities were as follows:
(in thousands)
Year ended December 31,
2021 ........................................................................................................................................... $
2022 ...........................................................................................................................................
2023 ...........................................................................................................................................
2024 ...........................................................................................................................................
2025 ...........................................................................................................................................
Thereafter ..................................................................................................................................
Total lease payments ..............................................................................................................
Less imputed interest.................................................................................................................
$
Lessor
3,294
2,372
1,756
1,066
293
—
8,781
(494)
8,287
The Company’s equipment rentals for each of its operating segments are governed by agreements that detail the lease terms and
conditions. The determination of whether these contracts with customers contain a lease generally does not require significant
judgement. The Company accounts for these rentals as operating leases. These leases do not include material amounts of variable
payments and the Company has made the accounting policy election to exclude all taxes assessed by a governmental authority. The
Company generally does not provide an option for the lessee to purchase the rented equipment at the end of the lease term, thus, does
not generate material revenue from sales of equipment under such options. Initial lease terms vary in length based upon customer needs
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and generally range from one to sixty months. Customers have the option to keep equipment on rent beyond the initial lease term on a
month-to month basis based upon their needs. All of the Company’s rental products have long useful lives relative to the typical rental
term with the original investment typically recovered in approximately three to five years. The rental products are typically rented for
a majority of the time owned and a significant portion of the original investment is recovered when sold from inventory. The Company’s
lease agreements do not contain residual value guarantees or restrictive covenants.
As of December 31, 2020, maturities of operating lease payments to be received in 2021 and thereafter were as follows:
(in thousands)
Year Ended December 31,
2021 ........................................................................................................................................... $
2022 ...........................................................................................................................................
2023 ...........................................................................................................................................
2024 ...........................................................................................................................................
2025 ...........................................................................................................................................
Thereafter ..................................................................................................................................
$
83,482
24,208
7,680
2,741
542
10
118,663
In the year ended December 31, 2020, the Company’s lease revenues were $401.9 million, consisting of $399.5 of operating lease
revenues and $2.4 million of finance lease revenues. The Company has entered into finance leases to finance certain equipment sales
to customers. The lease agreements have a bargain purchase option at the end of the lease term. 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. For the year ended December
31, 2020, the Company’s finance lease revenues included $2.2 million of sales revenues and $0.2 million of interest income. The
minimum lease payments receivable and the net investment are included in Accounts receivable on the Company’s Consolidated Balance
Sheet for such leases, which were as follows:
(in thousands)
Gross minimum lease payments receivable .............................................................................. $
Less – unearned interest ............................................................................................................
Net investment in finance lease receivables .............................................................................. $
December 31, 2020
1,953
(166)
1,787
As of December 31, 2020, the future minimum lease payments under non-cancelable finance leases to be received in 2021 and
thereafter were as follows:
2
2
0
0
1
2
0
F
F
o
o
r
r
m
m
1
1
0
0
-
-
K
K
(in thousands)
Year Ended December 31,
2021 ........................................................................................................................................... $
2022 ...........................................................................................................................................
2023 ...........................................................................................................................................
2024 ...........................................................................................................................................
Thereafter ..................................................................................................................................
Total minimum future lease payments to be received............................................................... $
1,463
267
49
8
—
1,787
NOTE 5. REVENUE RECOGNITION
The Company’s accounting for revenues is governed by two accounting standards. The majority of the Company’s revenues are
considered lease or lease related and are accounted for in accordance with Topic 840, Leases. Revenues determined to be non-lease
related are accounted for in accordance with ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which was
adopted by the Company on January 1, 2018. The Company utilized the modified retrospective method of adoption and there was no
impact on its condensed consolidated financial statements, nor was there a cumulative effect of initially applying the new standard. The
Company accounts for revenues when approval and commitment from both parties have been obtained, the rights of the parties are
identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable. The
Company typically recognizes non-lease related revenues at a point in time because the customer does not simultaneously consume the
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benefits of the Company’s promised goods and services, or performance obligations, and obtain control when delivery and installation
are complete. For contracts that have multiple performance obligations, the transaction price is allocated to each performance obligation
in the contract based on the Company’s best estimate of the standalone selling prices of each distinct performance obligation in the
contract. The standalone selling price is typically determined based upon the expected cost plus an estimated margin of each
performance obligation.
The Company generally rents and sells to customers on 30 day payment terms. The Company does not typically offer variable
payment terms, or accept non-monetary consideration. Amounts billed and due from the Company’s customers are classified as
Accounts receivable on the Company’s consolidated balance sheet. For certain sales of modular buildings, progress payments from the
customer are received during the manufacturing of new equipment, or the preparation of used equipment. 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 sheets and totaled $11.3 million and $17.5 million at December
31, 2020 and 2019, respectively. Sales revenues totaling $17.0 million were recognized during the year ended December 31, 2020,
which were included in the contract liability balance at December 31, 2019. 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 sheets and totaled $1.4 million and
$1.0 million at December 31, 2020 and 2019, respectively.
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Lease Revenues
Rental revenues from operating leases are recognized on a straight-line basis over the term of the lease for all operating segments.
Rental billings for periods extending beyond period end are recorded as deferred income and are recognized in the period earned. Rental
related services revenues are primarily associated with relocatable modular building and liquid and solid containment tanks and boxes
leases. For modular building leases, rental related services revenues for modifications, delivery, installation, dismantle and return
delivery are lease related because the payments are considered minimum lease payments that are an integral part of the negotiated lease
agreement with the customer. These revenues are recognized on a straight-line basis over the term of the lease. Certain leases are
accounted for as sales-type 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 sales-type leases and rental income on facility
leases.
Non-Lease Revenues
Non-lease revenues are recognized in the period when control of the performance obligation is transferred, in an amount that
reflects the consideration the Company expects to be entitled to receive in exchange for those goods or services. For liquid and solid
containment solutions, portable storage containers and electronic test equipment, rental related services revenues for delivery and return
delivery are considered non-lease revenues.
Sales revenues are typically recognized at a point in time, which occurs upon the completion of delivery, installation and
acceptance of the equipment by the customer. Accounting for non-lease revenues requires judgment in determining the point in time
the customer gains control of the equipment and the appropriate accounting period to recognize revenue.
Sales taxes charged to customers are reported on a net basis and are excluded from revenues and expenses.
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The following table disaggregates the Company’s revenues by lease (within the scope of Topic 840) and non-lease revenues
(within the scope of Topic 606) and the underlying service provided for the three years ended December 31, 2020, 2019 and 2018:
(in thousands)
Year Ended December 31,
2020
Leasing......................................................................... $ 235,003 $ 112,210 $
Non-lease:
RenTelco
Mobile
Modular
TRS-
Rental related services............................................
Sales........................................................................
Other .......................................................................
Total non-lease .......................................................
2,618
24,461
1,522
28,601
Total revenues ................................................... $ 321,524 $ 140,811 $
22,576
63,863
82
86,521
2019
Leasing......................................................................... $ 234,032 $ 108,044 $
Non-lease:
Rental related services............................................
Sales........................................................................
Other .......................................................................
Total non-lease .......................................................
2,599
18,995
1,845
23,439
Total revenues ................................................... $ 301,010 $ 131,483 $
18,964
47,045
969
66,978
Adler
Tanks
Enviroplex
Consolidated
54,710 $
— $ 401,923
21,320
1,386
66
22,772
77,482 $
46,514
—
122,447
32,737
1,670
—
32,737
170,631
32,737 $ 572,554
68,917 $
— $ 410,993
27,634
1,266
106
29,006
97,923 $
49,197
—
107,120
39,814
2,920
—
39,814
159,237
39,814 $ 570,230
2018
Leasing......................................................................... $ 200,214 $
Non-lease:
94,345 $
70,653 $
— $ 365,212
Rental related services............................................
Sales........................................................................
Other .......................................................................
Total non-lease .......................................................
2,607
19,895
1,810
24,312
Total revenues ................................................... $ 254,574 $ 118,657 $
14,870
39,467
23
54,360
24,276
1,044
80
25,400
96,053 $
41,753
—
89,452
29,046
1,913
—
29,046
133,118
29,046 $ 498,330
2
2
0
0
1
2
0
F
F
o
o
r
r
m
m
1
1
0
0
-
-
K
K
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. Sales of new relocatable modular buildings, portable storage containers, electronic test
equipment and related accessories and liquid and solid containment tanks and boxes not manufactured by the Company are typically
covered by warranties provided by the manufacturer of the products sold. 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, the Company has not found it necessary to establish
such reserves to date as warranty costs have not been significant.
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 building leases. Incremental costs for obtaining a contract for all other operating
segments are expensed in the period incurred because the lease term is typically less than 12 months.
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NOTE 6. NOTES PAYABLE
Notes payable consists of the following:
(in thousands)
Unsecured revolving lines of credit ......................................................................... $
3.68% Series B senior notes due in 2021 ................................................................
3.84% Series C senior notes due in 2022 ................................................................
Unamortized debt issuance cost...............................................................................
$
December 31,
2020
2019
$
122,771
40,000
60,000
222,771
(17)
$
222,754
193,459
40,000
60,000
293,459
(28)
293,431
K
-
0
1
m
r
o
F
0
2
0
2
2
As of December 31, 2020, the future minimum payments under the unsecured revolving lines of credit, 3.68% Series B senior notes
due in 2021 and 3.84% Series C senior notes due in 2022 are as follows:
(in thousands)
Year Ended December 31,
2021 ................................................................................................................................................... $
2022 ...................................................................................................................................................
2023 ...................................................................................................................................................
2024 ...................................................................................................................................................
2025 ...................................................................................................................................................
$
40,000
60,000
—
—
122,771
222,771
Unsecured Revolving Lines of Credit
On March 31, 2020, 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 $420.0 million unsecured revolving credit facility (which may be further increased to $670.0 million by adding
one or more tranches of term loans and/or increasing the aggregate revolving commitments), which includes a $25.0 million sublimit
for the issuance of standby letters of credit and a $10.0 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, the “the Prior NPA”): (i) the $40.0 million aggregate outstanding principal of notes issued March 17,
2014 and due March 17, 2021, and (ii) the $60.0 million aggregate outstanding principal of notes issued November 5, 2015 and due
November 5, 2022. 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 March 31, 2025 and replaced the Company’s prior $420.0 million credit facility dated March
31, 2016 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 March 31, 2020.
On March 31, 2020, the Company entered into an amended and restated Credit Facility Letter Agreement and a Credit Line Note
in favor of MUFG Union Bank, N.A., which provides for a $12.0 million line of credit facility related to its cash management services
(“Sweep Service Facility”). The Sweep Service Facility matures on the earlier of March 31, 2025, or the date the Company ceases to
utilize MUFG Union Bank, N.A. for its cash management services. The Sweep Service Facility replaced the Company’s prior $12.0
million sweep service facility, dated as of March 31, 2016.
At December 31, 2020, under the Credit Facility and Sweep Service Facility, the Company had unsecured lines of credit that
permit it to borrow up to $432.0 million of which $122.8 million was outstanding. The Amended Credit Facility contains financial
covenants requiring the Company to not (all defined terms used below not otherwise defined herein have the meaning assigned to such
terms in the Amended Credit Facility):
(cid:129)
(cid:129)
Permit the Consolidated Fixed Charge Coverage Ratio of EBITDA to fixed charges as of the end of any fiscal quarter to be
less than 2.50 to 1. At December 31, 2020, the actual ratio was 4.34 to 1.
Permit the Consolidated Leverage Ratio of funded debt to EBITDA at any time during any period of four consecutive fiscal
quarters to be greater than 2.75 to 1. At December 31, 2020, the actual ratio was 0.92 to 1.
-76-
Amounts borrowed under the Credit Facility bear interest at the Company’s option at either: (i) LIBOR plus a defined margin, or
(ii) the Agent bank’s prime rate (“base rate”) plus a margin. The applicable margin for each type of loan is measured based upon the
Consolidated Leverage Ratio at the end of the prior fiscal quarter and ranges from 1.00% to 1.75% for LIBOR loans and 0% to 0.75%
for base rate loans. In addition, the Company pays an unused commitment fee for the portion of the $420.0 million credit facility that
is not used. These fees are based upon the Consolidated Leverage Ratio and range from 0.15% to 0.30%. As of December 31, 2020
and 2019, the applicable margins were 1.25% for LIBOR based loans, 0.25% for base rate loans and 0.20% for unused fees. Amounts
borrowed under the Sweep Service Facility are based upon the MUFG Union Bank, N.A. base rate plus an applicable margin and an
unused commitment fee for the portion of the $12.0 million facility not used. The applicable base rate margin and unused commitment
fee rates for the Sweep Service Facility are the same as for the Amended Credit Facility. The following information relates to the lines
of credit for each of the following periods:
(dollar amounts in thousands)
Year Ended December 31,
2020
2019
Maximum amount outstanding ............................................................................... $
Average amount outstanding .................................................................................. $
Weighted average interest rate, during the period ..................................................
Prime interest rate, end of period ............................................................................
199,471
170,075
$
$
2.11%
3.25%
219,635
201,195
3.59%
4.75%
Note Purchase and Private Shelf Agreement
On March 31, 2020, the Company entered into an Amended and Restated Note Purchase and Private Shelf Agreement (the “Note
Purchase Agreement”) with PGIM, Inc. (“PGIM”) and the holders of Series B and Series C Notes previously issued pursuant to the
Prior NPA, among the Company and the other parties to the Note Purchase Agreement. The Note Purchase Agreement amended and
restated, and superseded in its entirety, the Prior NPA. Pursuant to the Prior NPA, the Company issued (i) $40.0 million aggregate
principal amount of its 3.68% Series B Senior Notes due March 17, 2021, and (ii) $60.0 million aggregate principal amount of its 3.84%
Series C Senior Notes due November 5, 2022, to which the terms of the Note Purchase Agreement shall apply.
In addition, pursuant to the Note Purchase Agreement, the Company may authorize the issuance and sale of additional senior notes
(the “Shelf Notes”) in the aggregate principal amount of (x) $250 million minus (y) the amount of other notes (such as the Series B
Senior Notes and Series C Senior Notes, each defined below) then outstanding, to be dated the date of issuance thereof, to mature, in
case of each Shelf Note so issued, no more than 15 years after the date of original issuance thereof, to have an average life, in the case
of each Shelf Note so issued, of no more than 15 years after the date of original issuance thereof, to bear interest on the unpaid balance
thereof from the date thereof at the rate per annum, and to have such other particular terms, as shall be set forth, in the case of each Shelf
Note so issued, in accordance with the Note Purchase Agreement. Shelf Notes may be issued and sold from time to time at the discretion
of the Company’s Board of Directors and in such amounts as the Board of Directors may determine, subject to prospective purchasers’
agreement to purchase the Shelf Notes. The Company will sell the Shelf Notes directly to such purchasers. The full net proceeds of
each Shelf Note will be used in the manner described in the applicable Request for Purchase with respect to such Shelf Note.
On October 1, 2020, the Company entered into a rate lock agreement with Prudential Private Capital, pursuant to which, the
Company agreed to a fixed interest rate of 2.57% for future issuance, if any, of senior unsecured notes in the aggregate amount of $40.0
million with a 7-year maturity. If issued, the funding for such notes would occur on or before March 17, 2021 and would be subject to
the terms and conditions of the Note Purchase Agreement.
2
2
0
0
1
2
0
F
F
o
o
r
r
m
m
1
1
0
0
-
-
K
K
3.68% Senior Notes Due in 2021
On March 17, 2014, the Company issued and sold to the purchaser a $40.0 million aggregate principal amount of its 3.68% Series
B Senior Notes (the “Series B Senior Notes”) pursuant to the terms of the Prior NPA. The Series B Senior Notes are an unsecured
obligation of the Company and bear interest at a rate of 3.68% per annum and mature on March 17, 2021. Interest on the Series B Senior
Notes is payable semi-annually beginning on September 17, 2014 and continuing thereafter on March 17 and September 17 of each year
until maturity. The full net proceeds from the Series B Senior Notes were used for working capital and other general corporate purposes.
At December 31, 2020, the principal balance outstanding under the Series B Senior Notes was $40.0 million.
3.84% Senior Notes Due in 2022
On November 5, 2015, the Company issued and sold to the purchaser a $60.0 million aggregate principal amount of its 3.84%
Series C Senior Notes (the “Series C Senior Notes”) pursuant to the terms of the Prior NPA. The Series C Senior Notes are an unsecured
obligation of the Company and bear interest at a rate of 3.84% per annum and mature on November 5, 2022. Interest on the Series C
Senior Notes is payable semi-annually beginning on May 5, 2016 and continuing thereafter on November 5 and May 5 of each year
until maturity. The principal balance is due when the notes mature on November 5, 2022. The full net proceeds from the Series C Senior
-77-
Notes were used to reduce the outstanding balance on the Company’s revolving credit line. At December 31, 2020, the principal balance
outstanding under the Series C Senior Notes was $60.0 million.
Among other restrictions, the Note Purchase Agreement, under which the Series A Senior Notes, Series B Senior Notes and Series
C Senior Notes were sold, contains financial covenants requiring the Company to not (all defined terms used below not otherwise
defined herein have the meaning assigned to such terms in the Note Purchase Agreement):
(cid:129)
(cid:129)
Permit the Consolidated Fixed Charge Coverage Ratio of EBITDA to fixed charges as of the end of any fiscal quarter to be
less than 2.50 to 1. At December 31, 2020, the actual ratio was 4.34 to 1.
Permit the Consolidated Leverage Ratio of funded debt to EBITDA at any time during any period of four consecutive
quarters to be greater than 2.75 to 1. At December 31, 2020, the actual ratio was 0.92 to 1.
At December 31, 2020, the Company was in compliance with each of the aforementioned covenants. There are no anticipated
trends that the Company is aware of that would indicate non-compliance with these covenants, though, significant deterioration in the
Company’s financial performance could impact its ability to comply with these covenants.
NOTE 7. INCOME TAXES
Income before provision (benefit) for income taxes consisted of the following:
K
-
0
1
m
r
o
F
0
2
0
2
2
(in thousands)
U.S......................................................................................................... $
Foreign ..................................................................................................
$
The provision (benefit) for income taxes consisted of the following:
2020
131,898 $
146
132,044 $
Year Ended December 31,
2019
129,045 $
80
129,125 $
2018
104,881
(186)
104,695
(in thousands)
Current:
U.S. Federal ..................................................................................... $
State .................................................................................................
Foreign.............................................................................................
Deferred:
U.S. Federal .....................................................................................
State .................................................................................................
Foreign.............................................................................................
Total ...................................................................................................... $
2020
Year Ended December 31,
2019
2018
23,975 $
6,545
1,733
32,253
(755)
(1,424)
(14)
(2,193)
30,060 $
11,744 $
7,353
1,616
20,713
10,719
895
(8)
11,606
32,319 $
7,270
4,253
1,731
13,254
10,355
1,637
43
12,035
25,289
The reconciliation of the U.S. federal statutory tax rate to the Company’s effective tax rate is as follows:
U.S. federal statutory rate .....................................................................
State taxes, net of federal benefit..........................................................
State deferred tax apportionment change, net of federal benefit ..........
Valuation allowance .............................................................................
Share-based compensation....................................................................
Enactment of the Tax Cuts and Jobs Act..............................................
Other .....................................................................................................
2020
Year Ended December 31,
2019
2018
21.0%
4.7
(1.6)
0.0
(1.4)
(0.3)
0.4
22.8%
21.0%
5.0
0.1
0.0
(1.6)
(0.1)
0.6
25.0%
21.0%
5.0
0.7
(0.5)
(1.9)
(0.1)
0.0
24.2%
-78-
The following table shows the deferred income taxes related to the temporary differences between the tax bases of assets and
liabilities and the respective amounts included in “Deferred income taxes, net” on the Company’s Consolidated Balance Sheets:
(in thousands)
Deferred tax liabilities:
December 31,
2020
2019
Accelerated depreciation .................................................................................... $
Prepaid costs currently deductible......................................................................
Other...................................................................................................................
Total deferred tax liabilities..........................................................................
$
217,125
5,039
5,970
228,134
Deferred tax assets:
Accrued costs not yet deductible........................................................................
Allowance for doubtful accounts .......................................................................
Deferred revenues ..............................................................................................
Share-based compensation .................................................................................
Total deferred tax assets, net of valuation allowance of $0.2 million in
2020 and 2019...............................................................................................
9,200
536
—
2,321
12,057
221,627
5,668
5,011
232,306
8,860
486
2,512
2,178
14,036
Deferred income taxes, net ...................................................................................... $
216,077
$
218,270
The Tax Cuts and Jobs Act (the “Tax Act”) was enacted in December 2017. Among other provisions, the Tax Act reduced the
U.S. federal corporate tax rate from 35% to 21% in 2018, required companies to pay a one-time transition tax on earnings of certain
foreign subsidiaries that were previously tax deferred and created new taxes on certain foreign-source earnings. As of December 31,
2019, the Company completed its accounting for the tax effects of enactment of the Tax Act without any material adjustments to its
previous estimates.
As of December 31, 2020, the Company did not have a deferred tax liability related to its foreign earnings because it did not have
any specific plans to repatriate funds from its international subsidiaries. The Company may do so in the future if a dividend can be
remitted with no material tax impact.
In December 2016, the Company decided to exit the Bangalore, India branch operations of its TRS-RenTelco electronics division.
The wind down of operations in India began in 2017. As a result, a valuation allowance was recorded against the deferred tax assets
that resulted primarily from accumulated net operating loss carry forwards in India that management estimated the benefit of which will
not be realized. As of December 31, 2020, the Company’s foreign net operating losses for tax purposes were $0.6 million. If not
realized, these carry forwards will begin to expire in 2023.
2
2
0
0
1
2
0
F
F
o
o
r
r
m
m
1
1
0
0
-
-
K
K
For income tax purposes, deductible compensation related to share-based awards is based on the value of the award when realized,
which may be different than the compensation expense recognized by the company for financial statement purposes which is based on
the award value on the date of grant. The difference between the value of the award upon grant, and the value of the award when
ultimately realized, creates either additional tax expense or benefit. In 2020, 2019 and 2018 exercise of share-based awards by
employees resulted in an excess tax benefit of $1.9 million, $2.1 million and $2.0 million, respectively.
The Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority
would more likely than not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the
amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon
ultimate settlement with the relevant tax authority. The Company evaluated all of its tax positions for which the statute of limitations
remained open and determined there were no material unrecognized tax benefits as of December 31, 2020 and 2019. In addition, there
have been no material changes in unrecognized benefits during 2020, 2019 and 2018.
The Company is subject to income taxes in the U.S. federal jurisdiction, and various states and foreign jurisdictions. Tax
regulations within each jurisdiction are subject to interpretation of the related tax laws and regulations and require the application of
significant judgment. With few exceptions, the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax
examinations by tax authorities for the years before 2016.
Our income tax returns are subject to examination by federal, state and foreign tax authorities. There may be differing
interpretations of tax laws and regulations, and as a result, disputes may arise with these tax authorities involving the timing and amount
of deductions and allocation of income.
-79-
The Company recognizes interest and penalties related to unrecognized tax benefits in the provision (benefit) for income taxes in
the accompanying Consolidated Statements of Income for all periods presented. Such interest and penalties were not significant for the
years ended December 31, 2020, 2019 and 2018.
NOTE 8. BENEFIT PLANS
Stock Plans
The Company adopted the 2016 Stock Incentive Plan (the “2016 Plan”), effective June 8, 2016, under which 2,000,000 shares of
the common stock of the Company, plus the number of shares that remain available for grants of awards under the Company's 2007
Stock Option Plan (the “2007 Plan”) and become available as a result of forfeiture, termination, or expiration of awards previously
granted under the 2007 Plan, were reserved for the grant of equity awards to its employees, directors and consultants. The equity awards
have a maximum term of 7 years at an exercise price of not less than 100% of the fair market value of the Company's common stock on
the date the equity award is granted. The 2016 Plan replaced the 2007 Plan.
The 2016 Plan provides for the grant of awards in the form of stock options, stock appreciation rights, restricted stock units
(“RSUs”), the vesting of which may be performance-based or service-based, and other rights and benefits. Each RSU issued reduces
the number of shares of the Company’s common stock available for grant under the 2016 Plan by two shares. There were no
modifications to the 2016 Plan and no awards classified as liabilities in the year ended December 31, 2020.
For the years ended December 31, 2020, 2019 and 2018, the share-based compensation expense was $5.5 million, $5.9 million
and $4.1 million, respectively, before provision for income taxes. The Company recorded a tax benefit of approximately $1.5 million,
$1.6 million and $1.1 million, respectively, related to the aforementioned share-based compensation expenses. There was no capitalized
share-based compensation expense in the years ended December 31, 2020, 2019 and 2018.
K
-
0
1
m
r
o
F
0
2
0
2
2
Stock Options
As of December 31, 2020, a cumulative total of 9,118,500 shares subject to options have been granted with exercise prices ranging
from $3.47 to $40.37. Of these, options have been exercised for the purchase of 6,378,218 shares, while options for 1,670,972 shares
have been terminated, and options for 409,410 shares with exercise prices ranging from $24.60 to $40.37 remained outstanding under
the stock plans. These options vest over five years and expire seven years after grant. To date, no options have been issued to any of
the Company’s non-employee advisors. As of December 31, 2020, 1,548,908 shares remained available for issuance of awards under
the stock plans.
A summary of the Company’s option activity and related information for the three years ended December 31, 2020 is as follows:
Number of
options
Weighted-
average
price
Weighted-
average
remaining
contractual
term
(in years)
Aggregate
intrinsic
value
(in millions)
Balance at December 31, 2017................................................ 1,208,860 $
—
(332,810)
(30,450)
845,600
—
(260,860)
(4,600)
580,140
—
(163,670)
(7,060)
409,410 $
309,695 $
97,645 $
Options granted ..................................................................
Options exercised...............................................................
Options cancelled/forfeited/expired...................................
Balance at December 31, 2018................................................
Options granted ..................................................................
Options exercised...............................................................
Options cancelled/forfeited/expired...................................
Balance at December 31, 2019................................................
Options granted ..................................................................
Options exercised...............................................................
Options cancelled/forfeited/expired...................................
Balance at December 31, 2020................................................
Exercisable at December 31, 2020 ..........................................
Expected to vest after December 31, 2020..............................
28.14
—
29.49
28.27
28.14
—
29.55
30.59
29.57
—
30.22
28.95
29.33
28.45
32.05
2.52 $
2.40 $
2.95 $
15.5
12.0
3.4
-80-
The intrinsic value of stock options at any point in time is calculated as the difference between the exercise price of the underlying
awards and the quoted price of the Company’s common stock. The aggregate intrinsic value of options exercised and sold under the
Company’s stock option plans was $11.9 million, $9.1 million and $9.0 million for the years ended December 31, 2020, 2019 and 2018,
respectively, determined as of the date of option exercise. As of December 31, 2020, there was approximately $0.5 million of total
unrecognized compensation cost related to unvested share-based compensation option arrangements granted under the Company’s stock
plans, which is expected to be recognized over a weighted-average period of less than one year.
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, 2020:
Exercise price
$20 – 25 .....................................................................
$25 – 30 .....................................................................
$30 – 35 .....................................................................
$35 – 40 .....................................................................
$40 – 45 .....................................................................
$20 – 45 .....................................................................
Options Exercisable
Options Outstanding
Weighted-
average
remaining
contractual
life
(Years)
Number
outstanding at
December 31,
2020
206,125
2,840
190,585
6,800
3,060
409,410
Weighted-
average grant
date value
Number
exercisable at
December 31,
2020
2.17 $
2.15 $
2.88 $
3.00 $
3.67 $
2.52 $
24.60 181,480 $
25.12
2,290 $
33.97 119,805 $
39.19
5,440 $
680 $
40.37
29.33 309,695 $
Weighted-
average grant
date value
24.60
25.13
33.79
39.19
40.37
28.45
The Company utilizes the Black-Scholes option-pricing model to estimate the fair value of share-based compensation at the date
of grant, which requires the use of accounting judgment and financial estimates, including estimates of the expected term option holders
will retain their vested stock options before exercising them, the estimated volatility of the Company’s stock price over the expected
term and the expected number of options that will be forfeited prior to the completion of their vesting requirements. Application of
alternative assumptions could produce significantly different estimates of the fair value of share-based compensation amounts
recognized in the Consolidated Statements of Income.
No options were granted in 2020, 2019 and 2018.
Restricted Stock Units
The following table summarizes the activity of the Company’s RSUs, which includes service-based and performance-based
awards, for the three years ended December 31, 2020:
2
2
0
0
1
2
0
F
F
o
o
r
r
m
m
1
1
0
0
-
-
K
K
Weighted-
average
grant date
fair value
Aggregate
intrinsic
value
(in millions)
Number
of shares
Balance at December 31, 2017..............................................................
RSUs granted ...................................................................................
RSUs vested .....................................................................................
RSUs cancelled/forfeited/expired ....................................................
Balance at December 31, 2018..............................................................
RSUs granted ...................................................................................
RSUs vested .....................................................................................
RSUs cancelled/forfeited/expired ....................................................
Balance at December 31, 2019..............................................................
RSUs granted ...................................................................................
RSUs vested .....................................................................................
RSUs cancelled/forfeited/expired ....................................................
Balance at December 31, 2020..............................................................
$
93,664
97,260
(30,214)
(21,200)
139,510
83,440
(25,862)
(840)
196,248
126,540
(89,225)
(7,593)
$
225,970
33.62
49.47
33.16
33.88
44.73
59.98
48.31
59.84
50.68
50.99
43.42
57.93
57.06
$
15.2
Performance-based RSUs issued prior to 2018 vest over five years, with 60% of the shares immediately vesting after three years
when the performance criteria has been determined to have been met and 20% of the remaining shares vesting annually at the anniversary
of the performance determination date, subject to continuous employment of the participant. The 2018, 2019 and 2020 performance-
-81-
based RSU grants vest after three years with 100% of the shares vesting immediately when performance criteria has been determined to
have been met. There were 184,091 performance-based RSUs expected to vest as of December 31, 2020. Service based RSUs issued
to the Company’s directors generally vest over twelve to fourteen months. Service based RSUs issued to the Company’s management
vest over three years. There were 93,040 service-based RSUs expected to vest as of December 31, 2020. No forfeitures are currently
expected. The total fair value of RSUs that vested during the years ended December 31, 2020, 2019 and 2018 based on the weighted
average grant date values was $3.9 million, $1.2 million and $1.0 million, respectively.
Share-based compensation expense for RSUs for the year ended December 31, 2020, 2019 and 2018 was $4.6 million, $4.7 million
and $2.6, respectively. As of December 31, 2020, the total unrecognized compensation expense related to unvested RSUs was $7.0
million and is expected to be recognized over a weighted-average period of 1.6 years.
Employee Stock Ownership and 401(k) Plans
The McGrath RentCorp Employee Stock Ownership and 401(k) Plan (the “KSOP”) provides that each participant may annually
contribute an elected percentage of his or her salary, not to exceed the statutory limit. Each employee who has at least three months of
service with the Company and is 21 years or older, is eligible to participate in the KSOP. The Company, at its discretion, may make
matching contributions. Contributions are expensed in the year approved by the Board of Directors. Dividends on the Company’s stock
held by the KSOP are treated as ordinary dividends and, in accordance with existing tax laws, are deducted by the Company in the year
paid. For the year ended December 31, 2020 dividends deducted by the Company were $0.4 million, which resulted in a tax benefit of
approximately $0.1 million in 2020.
At December 31, 2020, the KSOP held 240,187 shares, or 1% of the Company’s total common shares outstanding. These shares
are included in basic and diluted earnings per share calculations.
K
-
0
1
m
r
o
F
0
2
0
2
2
NOTE 9. SHAREHOLDERS’ EQUITY
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. In August 2015, the Company’s Board of Directors authorized the Company to
repurchase 2,000,000 shares of the Company's outstanding common stock (the “Repurchase Plan”). The amount and time of the specific
repurchases are subject to prevailing market conditions, applicable legal requirements and other factors, including management’s
discretion. All shares repurchased by the Company are canceled and returned to the status of authorized but unissued shares of common
stock. There can be no assurance that any authorized shares will be repurchased and the repurchase program may be modified, extended
or terminated by the Board of Directors at any time. There were 282,221 shares of common stock repurchased during the twelve months
ended December 31, 2020 for the aggregate purchase price of $13.6 million or an average price of $48.25 per repurchased share. There
were no repurchases of common stock during the twelve months ended December 31, 2019. As of December 31, 2020, 1,309,805 shares
remain authorized for repurchase under the Repurchase Plan.
NOTE 10. COMMITMENTS AND CONTINGENCIES
The Company leases certain facilities under various operating leases. Most of the lease agreements provide the Company with
the option of renewing its lease at the end of the lease term, at the fair rental value. In most cases, management expects that in the
normal course of business, facility leases will be renewed or replaced by other leases. Minimum payments under these leases, exclusive
of property taxes and insurance, are as follows:
(in thousands)
Year Ended December 31,
2021 ................................................................................................................................................... $
2022 ...................................................................................................................................................
2023 ...................................................................................................................................................
2024 ...................................................................................................................................................
2025 ...................................................................................................................................................
Thereafter ..........................................................................................................................................
$
2,334
1,718
1,356
1,005
293
—
6,706
Facility rent expense was $3.7 million in 2020, $3.9 million in 2019 and $3.5 million in 2018.
-82-
The Company is involved in various lawsuits and routine claims arising out of the normal course of its business. The Company
maintains insurance coverage for its operations and employees with appropriate aggregate, per occurrence and deductible limits as the
Company reasonably determines necessary or prudent with current operations and historical experience. The major policies include
coverage for property, general liability, auto, directors and officers, health, and workers’ compensation insurances. The Company
records a provision for a liability when it believes that it is both probable that a liability has been incurred and the amount can be
reasonably estimated. Significant judgment is required to determine both probability and the estimated amount. The Company reviews
these provisions at least quarterly and adjusts these provisions to reflect the impact of negotiations, settlements, rulings, advice of legal
counsel, and updated information. Litigation is inherently unpredictable and is subject to significant uncertainties, some of which are
beyond the Company’s control. In the opinion of management, there was not at least a reasonable possibility that the ultimate amount
of liability not covered by insurance, if any, under any pending litigation and claims, individually or in the aggregate, will have a material
adverse effect on the financial position or operating results of the Company.
The Company’s health plans are self-funded high deductible plans with annual stop-loss insurance of $200,000 per claim.
Beginning in 2019, the Company’s workers compensation insurance is underwritten by an insurance company with no stop-loss value
and $350,000 for prior claim years. Insurance providers are responsible for making claim payments that exceed these amounts on an
individual claim basis. In addition, the Company has stop loss insurance that pays for claim payments made during a twelve month
coverage period that exceeds certain specified thresholds in the aggregate. The Company records an expense when health and workers
compensation claim payments are made and accrues for the portion of claims incurred, but not yet paid at period end. The Company
makes these accruals based upon a combination of historical claim payments, loss development experience and actuarial estimates. A
high degree of judgment is required in developing the underlying assumptions and the resulting amounts to be accrued. In addition, our
assumptions will change as the Company’s loss experience develops. All of these factors have the potential for impacting the amounts
previously accrued and the Company may be required to increase or decrease the amounts previously accrued. At December 31, 2020
and 2019, accruals for the Company’s health and workers’ compensation high deductible plans were $2.2 million and $2.8 million,
respectively.
NOTE 11. INTANGIBLE ASSETS
Intangible assets consist of the following:
(dollar amounts in thousands)
Trade name ...........................................................................................
Customer relationships .........................................................................
Non-compete agreements .....................................................................
Less accumulated amortization.............................................................
Estimated
useful life
in years
Indefinite
11
5
December 31,
2020
December 31,
2019
$
$
5,871 $
10,644
157
16,672
(9,554)
7,118 $
5,871
10,644
157
16,672
(9,338)
7,334
2
2
0
0
1
2
0
F
F
o
o
r
r
m
m
1
1
0
0
-
-
K
K
Intangible assets with finite useful lives are amortized over their respective useful lives. Amortization expense in the years ended
December 31, 2020, 2019 and 2018 was $0.2 million, $0.9 million and $0.9 million, respectively. Based on the carrying values at
December 31, 2020 and assuming no subsequent impairment of the underlying assets, the annual amortization is expected to be $0.2
million in 2021 and $0.2 million in 2022 through 2026.
NOTE 12. RELATED PARTY TRANSACTIONS
There were no related party transactions in the years ended December 31, 2020 and 2019, or amounts owed to related parties at
such dates.
-83-
NOTE 13. SEGMENT REPORTING
FASB guidelines establish annual and interim reporting standards for an enterprise’s operating segments and related disclosures
about its products, services, geographic areas and major customers. In accordance with these guidelines the Company’s four reportable
segments are Mobile Modular, TRS-RenTelco, Adler Tanks and Enviroplex. Management focuses on several key measures to evaluate
and assess each segment’s performance including rental revenue growth, gross margin, and income before provision for income taxes.
Excluding interest expense, allocations of revenue and expense not directly associated with one of these segments are generally allocated
to Mobile Modular, TRS-RenTelco and Adler Tanks, based on their pro-rata share of direct revenues. Interest expense is allocated
amongst Mobile Modular, TRS-RenTelco and Adler Tanks based on their pro-rata share of average rental equipment at cost, goodwill,
intangible assets, 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, 2020, 2019 and 2018, for the Company’s
reportable segments is shown in the following tables:
Mobile
Modular
(dollar amounts in thousands)
Year Ended December 31,
2020
Rental revenues...................................................................... $ 188,719
67,527
Rental related services revenues ............................................
65,278
Sales and other revenues........................................................
321,524
Total revenues........................................................................
22,967
Depreciation of rental equipment ..........................................
155,874
Gross profit ............................................................................
68,470
Selling and administrative expenses ......................................
87,404
Income from operations .........................................................
5,104
Interest expense (income) allocation .....................................
82,300
Income before provision for income taxes.............................
39,078
Rental equipment acquisitions ...............................................
81,640
Accounts receivable, net (period end) ...................................
882,115
Rental equipment, at cost (period end) ..................................
611,590
Rental equipment, net book value (period end) .....................
Utilization (period end) 2..................................................
Average utilization 2 ........................................................
TRS-
RenTelco
Adler
Tanks
Enviroplex 1 Consolidated
$
$
$ 109,083
3,080
28,648
140,811
46,472
60,864
24,306
36,558
2,133
34,503
42,588
22,735
333,020
156,536
53,988
21,786
1,708
77,482
16,427
34,079
24,764
9,315
2,107
7,208
2,541
13,655
315,706
169,990
— $
—
32,737
32,737
—
12,929
5,453
7,476
(557)
8,033
—
5,286
351,790
92,393
128,371
572,554
85,866
263,746
122,993
140,753
8,787
132,044
84,207
123,316
— 1,530,841
938,116
—
76.0%
77.2%
67.4%
66.2%
39.8%
44.6%
K
-
0
1
m
r
o
F
0
2
0
2
2
-84-
Mobile
Modular
Segment Data (Continued)
(dollar amounts in thousands)
Year Ended December 31,
2019
Rental revenues ............................................................ $ 182,316
69,395
Rental related services revenues ..................................
Sales and other revenues ..............................................
49,299
Total revenues .............................................................. 301,010
22,071
Depreciation of rental equipment.................................
Gross profit .................................................................. 143,618
65,699
Selling and administrative expenses ............................
77,919
Income from operations ...............................................
7,946
Interest expense (income) allocation............................
69,973
Income before benefit for income taxes.......................
75,433
Rental equipment acquisitions .....................................
Accounts receivable, net (period end)..........................
83,182
Rental equipment, at cost (period end) ........................ 868,807
Rental equipment, net book value (period end) ........... 610,048
Utilization (period end) 2..............................................
Average utilization 2.....................................................
2018
Rental revenues ............................................................ $ 159,136
54,696
Rental related services revenues ..................................
Sales and other revenues ..............................................
40,742
Total revenues .............................................................. 254,574
21,200
Depreciation of rental equipment.................................
Gross profit .................................................................. 120,750
58,017
Selling and administrative expenses ............................
62,733
Income from operations ...............................................
7,132
Interest expense (income) allocation............................
55,601
Income before benefit for income taxes.......................
63,374
Rental equipment acquisitions .....................................
Accounts receivable, net (period end)..........................
72,295
Rental equipment, at cost (period end) ........................ 817,375
Rental equipment, net book value (period end) ........... 572,032
Utilization (period end) 2..............................................
Average utilization 2.....................................................
TRS-
RenTelco
Adler
Tanks
Enviroplex 1 Consolidated
$
$ 103,704
3,260
24,519
131,483
41,948
60,748
24,645
36,103
1,970
34,217
89,759
23,788
335,343
172,413
$ 67,869
28,383
1,671
97,923
16,372
47,014
29,321
17,693
3,436
14,257
4,826
17,281
316,261
185,039
— $ 353,889
101,038
—
115,303
39,814
570,230
39,814
80,391
—
266,165
14,785
124,793
5,128
141,372
9,657
12,331
(1,021)
129,125
10,678
170,018
—
128,099
3,848
— 1,520,411
967,500
—
79.1%
79.2%
64.5%
66.2%
48.4%
54.7%
$
$ 89,937
3,300
25,420
118,657
36,011
54,773
22,823
31,950
2,696
28,765
65,467
20,732
285,052
131,450
$ 69,701
24,911
1,441
96,053
15,928
48,055
30,026
18,029
3,252
14,777
5,257
19,992
313,573
197,533
— $ 318,774
82,907
—
96,649
29,046
498,330
29,046
73,139
—
233,251
9,673
115,770
4,904
117,481
4,769
12,297
(783)
104,695
5,552
134,098
—
121,016
7,997
— 1,416,000
901,015
—
2
2
0
0
1
2
0
F
F
o
o
r
r
m
m
1
1
0
0
-
-
K
K
79.3%
78.2%
62.1%
62.7%
56.4%
59.9%
Gross Enviroplex sales revenues were $34,014, $39,814 and $30,407 in 2020, 2019 and 2018, respectively. There were $1,277 and $1,361 inter-
1
segment sales to Mobile Modular in 2020 and 2018, which have been eliminated in consolidation. There were no inter-segment sales in 2019.
2
inventory and accessory equipment. The average utilization for the period is calculated using the average costs of rental equipment.
Utilization is calculated each month by dividing the cost of rental equipment on rent by the total cost of rental equipment excluding new equipment
No single customer accounted for more than 10% of total revenues during 2020, 2019 and 2018. Revenue from foreign country
customers accounted for 4%, 5% and 4% of the Company’s revenues for the same periods, respectively.
-85-
NOTE 14. QUARTERLY FINANCIAL INFORMATION (unaudited)
Quarterly financial information for each of the two years ended December 31, 2020 is summarized below:
(in thousands, except per share amounts)
Operations Data
Rental revenues....................................................... $
Total revenues.........................................................
Gross profit .............................................................
Income from operations..........................................
Income before provision for income taxes .............
Net income..............................................................
Earnings per share:
Basic .................................................................. $
Diluted............................................................... $
Dividends declared per share.................................. $
Shares used in per share calculations:
First
Second
2020
Third
Fourth
Year
89,506 $
129,453
61,656
29,702
26,614
20,159
85,629 $
137,673
63,232
32,692
30,625
22,549
88,138 $
156,448
68,204
37,333
35,495
28,101
88,517 $ 351,790
572,554
263,746
140,753
132,044
101,984
148,980
70,654
41,026
39,310
31,175
0.83 $
0.81 $
0.420 $
0.93 $
0.92 $
0.420 $
1.17 $
1.15 $
0.420 $
1.29 $
1.27 $
0.420 $
4.22
4.16
1.68
Basic ..................................................................
Diluted...............................................................
24,292
24,738
24,121
24,471
24,097
24,443
24,119
24,453
24,157
24,531
Balance Sheet Data
Rental equipment, net ............................................. $ 975,709 $ 969,681 $ 948,125 $ 938,116 $ 938,116
Total assets.............................................................. 1,314,429 1,312,342 1,295,380 1,275,744 1,275,744
222,754
Notes payable..........................................................
682,604
Shareholders’ equity ...............................................
222,754
682,604
272,149
643,836
291,544
637,604
249,980
661,614
K
-
0
1
m
r
o
F
0
2
0
2
2
Operations Data
Rental revenues....................................................... $
Total revenues.........................................................
Gross profit .............................................................
Income from operations..........................................
Income before provision for income taxes .............
Net income..............................................................
Earnings per share:
Basic .................................................................. $
Diluted............................................................... $
Dividends declared per share.................................. $
Shares used in per share calculations:
First
Second
2019
Third
Fourth
Year
82,696 $
122,008
57,005
27,310
24,251
18,449
88,105 $
127,439
59,881
29,066
25,965
19,488
90,857 $
173,562
78,282
46,748
43,455
32,468
92,231 $ 353,889
570,230
266,165
141,372
129,125
96,806
147,221
70,997
38,248
35,454
26,401
0.76 $
0.75 $
0.375 $
0.80 $
0.79 $
0.375 $
1.34 $
1.32 $
0.375 $
1.09 $
1.07 $
0.375 $
3.99
3.93
1.50
Basic ..................................................................
Diluted...............................................................
24,195
24,540
24,246
24,579
24,268
24,632
24,290
24,697
24,250
24,623
Balance Sheet Data
Rental equipment, net ............................................. $ 912,878 $ 943,152 $ 958,610 $ 967,500 $ 967,500
Total assets.............................................................. 1,239,633 1,280,249 1,306,223 1,309,875 1,309,875
293,431
Notes payable..........................................................
634,036
Shareholders’ equity ...............................................
293,431
634,036
301,878
592,309
289,464
580,643
301,469
616,715
-86-
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
None.
ITEM 9A. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures. The Company’s management under the supervision and with the participation
of the Company’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) is responsible for establishing and maintaining
“disclosure controls and procedures” (as defined in rules promulgated under the Securities Exchange Act of 1934, as amended) for the
Company. Based on their evaluation the CEO and CFO have concluded that the Company’s disclosure controls and procedures were
effective as of December 31, 2020.
Changes in Internal Control over Financial Reporting. During the last quarter of the Company’s fiscal year ended December 31,
2020, there were no changes in the Company’s internal control that have materially affected, or are reasonably likely to materially affect,
the Company’s internal control over financial reporting.
Limitations on the Effectiveness of Controls. A control system, no matter how well conceived and operated, can provide only
reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control
systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within a company have been detected.
The Company’s disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives, and the
CEO and CFO have concluded that these controls and procedures are effective at the “reasonable assurance” level.
Management’s Assessment of Internal Control. Management’s assessment of the effectiveness of the Company’s internal control
over financial reporting as of December 31, 2020, is discussed in the Management’s Report on Internal Control Over Financial Reporting
included on page 57.
The effectiveness of the Company’s internal control over financial reporting as of December 31, 2020 has been audited by Grant
Thornton LLP, the Company’s independent registered public accounting firm, and its report is included in this Annual Report on
Form 10-K.
ITEM 9B. OTHER INFORMATION.
None.
2
2
0
0
1
2
0
F
F
o
o
r
r
m
m
1
1
0
0
-
-
K
K
-87-
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
The information required by this Item is incorporated by reference to McGrath RentCorp’s definitive Proxy Statement with respect
to its 2021 Annual Meeting of Shareholders to be held on June 9, 2021.
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 2021 Annual Meeting of Shareholders to be held on June 9, 2021.
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS.
The information required by this Item is incorporated by reference to McGrath RentCorp’s definitive Proxy Statement with respect
to its 2021 Annual Meeting of Shareholders to be held on June 9, 2021.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE.
The information required by this Item is incorporated by reference to McGrath RentCorp’s definitive Proxy Statement with respect
to its 2021 Annual Meeting of Shareholders to be held on June 9, 2021.
ITEM 14.
PRINCIPAL ACCOUNTING FEES AND SERVICES.
The information required by this Item is incorporated by reference to McGrath RentCorp’s definitive Proxy Statement with respect
to its 2021 Annual Meeting of Shareholders to be held on June 9, 2021.
K
-
0
1
m
r
o
F
0
2
0
2
2
-88-
ITEM 15.
EXHIBITS, FINANCIAL STATEMENT SCHEDULES.
Index of documents filed as part of this report:
PART IV
1.
The following Consolidated Financial Statements of McGrath RentCorp are included in Item 8.
Management’s Report on Internal Control over Financial Reporting ...............................................
Reports of Independent Registered Public Accounting Firm: ..........................................................
Consolidated Financial Statements
Consolidated Balance Sheets as of December 31, 2020 and 2019...........................................
Consolidated Statements of Income for the Years Ended December 31, 2020, 2019 and
2018 ....................................................................................................................................
Consolidated Statements of Comprehensive Income for the Years Ended December 31,
2020, 2019 and 2018 ...........................................................................................................
Consolidated Statements of Shareholders’ Equity for the Years Ended December 31, 2020,
2019 and 2018 .....................................................................................................................
Consolidated Statements of Cash Flows for the Years Ended December 31, 2020, 2019 and
2018 .....................................................................................................................................
Notes to Consolidated Financial Statements ............................................................................
Page of this report
57
58
61
62
63
64
65
66
2.
3.
Financial Statement Schedules. None
Exhibits. See Index of Exhibits on page 90 of this report.
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.
2
2
0
0
1
2
0
F
F
o
o
r
r
m
m
1
1
0
0
-
-
K
K
-89-
3.2
4.1
4.1.1
4.1.2
4.2
4.2.1
4.2.2
4.2.3
K
-
0
1
m
r
o
F
0
2
0
2
2
Number
3.1
Articles of Incorporation of McGrath RentCorp. ‘P’
Description
Method of Filing
3.1.1
Amendment to Articles of Incorporation of McGrath RentCorp. ‘P’
3.1.2
Amendment to Articles of Incorporation of McGrath RentCorp.
Amended and Restated Bylaws
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.
Filed as exhibit 3.1 to the Company’s Registration Statement on Form S-1
(filed March 28, 1991 Registration No. 33-39633), and incorporated herein
by reference.
Filed as exhibit 3.1.2 to the Company’s Annual Report on Form 10-K for the
year ended December 31, 1997 (filed March 31, 1998), and incorporated
herein by reference.
Filed as exhibit 3.1 to the Company’s Current Report on Form 8-K (filed
January 6, 2021) and incorporated herein by reference.
Amended and Restated Note Purchase and Private Shelf Agreement between
the Company and PGIM, Inc., dated March 31, 2020.
Filed as exhibit 10.1 to the Company’s Current Report on Form 8-K (filed
April 3, 2020), and incorporated herein by reference.
Amendment, dated as of March 17, 2014, to the Note Purchase and Private
Shelf Agreement dated as of April 21, 2011 among the Company, Prudential
Investment Management, Inc., The Prudential Insurance Company of
America and Prudential Retirement Insurance and Annuity Company.
Amendment, dated as of February 9, 2016, to the Note Purchase and Private
Shelf Agreement dated as of April 21, 2011 among the Company, Prudential
Investment Management, Inc., The Prudential Insurance Company of
America and Prudential Retirement Insurance and Annuity Company, as
amended on March 17, 2014.
Credit Agreement dated as of March 31, 2020 among the Company, Bank of
America, N.A. as Administrative Agent, Swing Line Lender and L/C Issuer,
and The Other Lenders Party thereto.
Guaranty dated as of March 31, 2020 among certain domestic subsidiaries
of the Company in favor of Bank of America, N.A., in its capacity as the
administrative agent for the Lenders.
$12,000,000 committed Amended and Restated Credit Facility Letter
Agreement between the Company and MUFG Union Bank, N.A., dated as
of March 31, 2020.
Filed as exhibit 10.1 to the Company’s Current Report on Form 8-K (filed
March 20, 2014) and incorporated herein by reference.
Filed as exhibit 10.1 to the Company’s Current Report on Form 8-K (filed
February 11, 2016) and incorporated herein by reference.
Filed as exhibit 10.1 to the Company’s Current Report on Form 8-K (filed
April 3, 2020) and incorporated herein by reference.
Filed as exhibit 10.2 to the Company’s Current Report on Form 8-K (filed
April 3, 2020) and incorporated herein by reference.
Filed as exhibit 10.3 to the Company’s Current Report on Form 8-K (filed
April 3, 2020) and incorporated herein by reference.
$12,000,000 Amended and Restated Credit Line Note, dated March 31,
2020, in favor of MUFG Union Bank, N.A.
Filed as exhibit 10.4 to the Company’s Current Report on Form 8-K (filed
April 3, 2020) and incorporated herein by reference.
4.3
Description of Registrant’s Securities.
10.3
10.3.1
McGrath RentCorp Employee Stock Ownership Plan, as amended and
restated on December 31, 2008.
McGrath RentCorp Employee Stock Ownership Trust Agreement, as
amended and restated on December 31, 2008.
10.4
McGrath RentCorp 2007 Stock Incentive Plan.
10.4.1
Form of 2007 Stock Incentive Plan Stock Option Award and Agreement.
10.4.2
10.4.3
10.4.4
Form of 2007 Stock Incentive Plan Non-Qualified Stock Option Award and
Agreement.
Form of 2007 Stock Incentive Plan Stock Appreciation Right Award and
Agreement.
Form of 2007 Stock Incentive Plan Restricted Stock Unit Award and
Agreement.
Filed as exhibit 4.2.4 to the Company’s Annual Report on Form 10K for the
year ended December 31, 2019 (filed February 25, 2020), and incorporated
herein by reference.
Filed as exhibit 10.3 to the Company’s Annual Report on Form 10-K for the
year ended December 31, 2008 (filed February 26, 2009), and incorporated
herein by reference.
Filed as exhibit 10.3.1 to the Company’s Annual Report on Form 10-K for
the year ended December 31, 2008 (filed February 26, 2009), and
incorporated herein by reference.
Filed as exhibit 10.12 to the Company's Quarterly Report on Form 10-Q for
the quarter ended June 30, 2007 (filed August 2, 2007), and incorporated
herein by reference.
Filed as exhibit 10.12.1 to the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 2007 (filed August 2, 2007), and incorporated
herein by reference.
Filed as exhibit 10.12.2 to the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 2007 (filed August 2, 2007), and incorporated
herein by reference.
Filed as exhibit 10.4.3 to the Company’s Quarterly Report on Form 10-Q for
the quarter ended March 31, 2010 (filed May 6, 2010), and incorporated
herein by reference.
Filed as exhibit 10.4.4 to the Company’s Quarterly Report on Form 10-Q for
the quarter ended March 31, 2010 (filed May 6, 2010), and incorporated
herein by reference.
-90-
Number
Description
Method of Filing
10.5
10.6
McGrath RentCorp Employee Stock Ownership and 401(k) Plan
McGrath RentCorp Change in Control Severance Plan and Summary Plan
Description
10.7
McGrath RentCorp 2016 Stock Incentive Plan
Form of 2016 Stock Incentive Plan Restricted Stock Unit Award and
Agreement
Form of 2016 Stock Incentive Plan Performance-Based Restricted Stock
Unit Award and Agreement
Form of 2016 Stock Incentive Plan Stock Appreciation Right Award and
Agreement
Filed as exhibit 4.5 to the Company’s Registration Statement on Form S-8
(filed August 10, 2012) and incorporated herein by reference.
Filed as exhibit 10.7 to the Company's Quarterly Report on Form 10-Q for
the quarter ended June 30, 2013 (filed July 31, 2013), and incorporated
herein by reference.
Filed as Appendix A to the Company's Proxy Statement for the 2016 Annual
Meeting (filed April 29, 2016), and incorporated herein by reference.
Filed as exhibit 10.1.1 to the Company's Quarterly Report on Form 10-Q for
the quarter ended June 30, 2016 (filed August 2, 2016), and incorporated
herein by reference.
Filed as exhibit 10.1.2 to the Company's Quarterly Report on Form 10-Q for
the quarter ended June 30, 2016 (filed August 2, 2016), and incorporated
herein by reference.
Filed as exhibit 10.1.3 to the Company's Quarterly Report on Form 10-Q for
the quarter ended June 30, 2016 (filed August 2, 2016), and incorporated
herein by reference.
List of Subsidiaries.
Written Consent of Grant Thornton LLP.
Certification of Chief Executive Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
Filed herewith.
Filed herewith.
Filed herewith.
Certification of Chief Financial Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
Filed herewith.
Certification of Chief Executive Officer Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
Furnished herewith.
Certification of Chief Financial Officer Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
Furnished herewith.
The following materials from McGrath RentCorp’s annual Report on Form
10-K for the year ended December 31, 2020, formatted in iXBRL (Inline
eXtensible Business Reporting Language): (i) the Condensed Consolidated
Statement of Income, (ii) the Condensed Consolidated Balance Sheet, (iii)
the Condensed Consolidated Statement of Cash Flows, and (iv) Notes to
Condensed Consolidated Financial Statements.
2
2
0
0
1
2
0
F
F
o
o
r
r
m
m
1
1
0
0
-
-
K
K
10.7.1
10.7.2
10.7.3
21.1
23.1
31.1
31.2
32.1
32.2
101
104
Cover Page Interactive Data File (embedded within the inline XBRL
document).
‘P’ = exhibit was filed in paper form
-91-
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: February 23, 2021
MCGRATH RENTCORP
by:
by:
by:
/s/ Joseph F. Hanna
JOSEPH F. HANNA
Chief Executive Officer and President
(Principal Executive Officer)
/s/ Keith E. Pratt
KEITH E. PRATT
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
/s/ David M. Whitney
DAVID M. WHITNEY
Vice President and Controller
(Principal Accounting 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 indicated.
Name
K
-
0
1
m
r
o
F
0
2
0
2
2
/s/ Kim A. Box
KIM A. BOX
/s/ Smita Conjeevaram
SMITA CONJEEVARAM
/s/ William J. Dawson
WILLIAM J. DAWSON
/s/ Elizabeth A. Fetter
ELIZABETH A. FETTER
/s/ Joseph F. Hanna
JOSEPH F. HANNA
/s/ Bradley M. Shuster
BRADLEY M. SHUSTER
/s/ M. Richard Smith
M. RICHARD SMITH
/s/ Dennis P. Stradford
DENNIS P. STRADFORD
/s/ Ronald H. Zech
RONALD H. ZECH
Title
Director
Director
Director
Director
Date
February 23, 2021
February 23, 2021
February 23, 2021
February 23, 2021
Chief Executive Officer, President and Director
February 23, 2021
Director
Director
Director
February 23, 2021
February 23, 2021
February 23, 2021
Chairman of the Board
February 23, 2021
-92-