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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended February 28, 2005 or
[ ] Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from _____ to _____
Commission File Number: 0-9061
ELECTRO RENT CORPORATION
Exact name of registrant as specified in its charter
CALIFORNIA 95-2412961
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
6060 SEPULVEDA BOULEVARD
VAN NUYS, CALIFORNIA 91411-2501
(Address of Principal Executive Offices and Zip Code)
818 786-2525
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate by check mark whether the registrant is an accelerated
filer (as defined in Rule 12b-2 of the Exchange Act).
Yes X No
The number of shares outstanding of the registrant's common stock
as of March 8, 2005 was 25,067,361.
Page 1
ELECTRO RENT CORPORATION
FORM 10-Q
FEBRUARY 28, 2005
TABLE OF CONTENTS Page
Part I: FINANCIAL INFORMATION 3
Item 1. Financial Statements 3
Condensed Consolidated Statements of Income for the Three 3
Months and Nine Months Ended February 28, 2005 and February
29, 2004 (Unaudited)
Condensed Consolidated Balance Sheets at 4
February 28, 2005 and May 31, 2004 (Unaudited)
Condensed Consolidated Statements of Cash Flows for the 5
Nine Months Ended February 28, 2005 and February 29, 2004
(Unaudited)
Notes to Condensed Consolidated Financial Statements 6
(Unaudited)
Item 2. Management's Discussion and Analysis of 13
Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures 24
About Market Risk
Item 4. Controls and Procedures 24
Part II: OTHER INFORMATION 25
SIGNATURES 29
Page 2
Part I. FINANCIAL INFORMATION
- --------------------------------
Item 1. Financial Statements
ELECTRO RENT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited) (000's omitted except per share data)
Three Months Ended Nine Months Ended
Feb. 28 Feb. 29 Feb. 28 Feb. 29,
2005 2004 2005 2004
---------- ---------- ---------- ----------
Revenues:
Rentals and leases $ 18,846 $ 16,943 $ 59,485 $ 52,252
Sales of equipment
and other revenues 9,936 6,623 22,413 18,172
---------- ---------- ---------- ----------
Total revenues 28,782 23,566 81,898 70,424
---------- ---------- ---------- ----------
Operating expenses:
Depreciation of rental
and lease equipment 7,961 7,051 24,452 22,788
Costs of revenues other
than depreciation of
rental and lease equipment 3,732 3,993 10,127 11,245
Selling, general and
administrative expenses 7,466 7,453 22,022 25,010
---------- ---------- ---------- ----------
Total operating expenses 19,159 18,497 56,601 59,043
---------- ---------- ---------- ----------
Operating profit 9,623 5,069 25,297 11,381
Interest and investment
income, net 385 283 947 1,116
Income from litigation
settlement 0 0 1,758 0
---------- ---------- ---------- ----------
Income before income taxes 10,008 5,352 28,002 12,497
Income taxes 3,063 2,071 9,204 4,429
---------- ---------- ---------- ----------
Net income $ 6,945 $ 3,281 $ 18,798 $ 8,068
========== ========== ========== ==========
Earnings per share:
Basic $0.28 $0.13 $0.75 $0.32
Diluted $0.27 $0.13 $0.74 $0.32
Shares used in per
share calculation:
Basic 25,011 24,878 24,943 24,858
Diluted 25,547 24,977 25,317 24,937
See accompanying notes to
condensed consolidated financial statements.
Page 3
ELECTRO RENT CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)(000's omitted)
ASSETS
February 28 May 31,
2005 2004
---------- ----------
Cash and cash equivalents $ 23,238 $ 29,692
Marketable securities 59,000 52,475
Accounts receivable, net of allowance for
doubtful accounts of $835 and $1,157 10,424 8,095
Rental and lease equipment, net of accumulated
depreciation of $132,742 and $143,403 109,028 96,346
Other property, net of accumulated depreciation and
amortization of $12,126 and $11,547 15,726 16,084
Other 3,474 3,675
---------- ----------
$ 220,890 $ 206,367
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Accounts payable $ 7,173 $ 16,560
Accrued expenses and other 7,811 11,000
Deferred revenue 2,724 2,197
Deferred tax liability 14,231 7,994
---------- ----------
Total liabilities 31,939 37,751
---------- ----------
Shareholders' equity:
Preferred stock, $1 par - shares authorized 1,000,000;
none issued
Common stock, no par - shares authorized 40,000,000;
issued and outstanding 2005 - 25,062,459;
2004 - 24,897,539 21,039 19,502
Retained earnings 167,912 149,114
---------- ----------
Total shareholders' equity 188,951 168,616
---------- ----------
$ 220,890 $ 206,367
========== ==========
See accompanying notes to
condensed consolidated financial statements.
Page 4
ELECTRO RENT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) (000's omitted)
Nine Months Ended
Feb. 28 Feb. 29,
2005 2004
---------- ----------
Cash flows from operating activities:
Net income $ 18,798 $ 8,068
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 25,135 23,504
(Recapture) provision for losses
on accounts receivable (193) 518
Tax benefit for stock options exercised 180 1,441
Gain on sale of rental and lease equipment (9,131) (7,068)
Income from litigation settlement (1,758) 0
Deferred tax liability 6,237 (242)
Change in operating assets and liabilities:
Accounts receivable (2,136) (3,452)
Other assets 164 1,178
Accounts payable (889) (377)
Accrued expenses and other (1,431) 1,599
Deferred revenue 527 299
---------- ----------
Net cash provided by operating activities 35,503 25,468
---------- ----------
Cash flows from investing activities:
Proceeds from sale of rental and lease equipment 17,307 16,655
Payments for purchase of rental and lease equipment (53,864) (29,301)
Purchases of marketable securities (6,525) (17,000)
Payments for purchase of other property (232) (217)
---------- ----------
Net cash used in investing activities (43,314) (29,863)
---------- ----------
Cash flows from financing activities:
Proceeds from issuance of common stock 1,357 1,467
Payment for repurchase of common stock 0 (1,044)
Special distribution 0 (99,515)
---------- ----------
Net cash provided by (used in)
financing activities 1,357 (99,092)
---------- ----------
Net decrease in cash and cash equivalents (6,454) (103,487)
Cash and cash equivalents at beginning of period 29,692 151,448
---------- ----------
Cash and cash equivalents at end of period $ 23,238 $ 47,961
========== ==========
See accompanying notes to
condensed consolidated financial statements.
Page 5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(U.S. dollar amounts and shares in thousands,
except per share amounts)
Note 1: Basis of Presentation
The condensed consolidated financial statements included herein
have been prepared by Electro Rent Corporation without audit,
pursuant to the rules and regulations of the Securities and
Exchange Commission (the "SEC"). The condensed consolidated
financial statements include the accounts of Electro Rent
Corporation and its wholly owned subsidiaries, Genstar Rental
Electronics, Inc., and ER International, Inc. (collectively "we",
"us", or "our" hereafter) as consolidated with the elimination of
all intercompany transactions. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with accounting principles generally accepted in the
United States of America have been condensed or omitted pursuant
to such SEC rules and regulations. These condensed consolidated
financial statements reflect all adjustments and disclosures
which are, in the opinion of management, necessary for a fair
presentation of our financial position and results of operations
for the interim periods presented. These condensed consolidated
financial statements should be read in conjunction with the
audited financial statements and notes thereto included in our
latest Annual Report on Form 10-K.
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could
differ from those estimates, and results of operations for
interim periods are not necessarily indicative of results for the
full year.
Note 2: Stock-Based Compensation
At February 28, 2005, we had four stock option plans, which are
described more fully in Note 11 in our 2004 Annual Report on Form
10-K. We account for stock options using the intrinsic value
method under the provisions of Accounting Principles Board
("APB") Opinion No. 25 and provide pro forma net income and pro
forma earnings per share disclosures for employee stock option
grants as if the fair-value-based method, defined in Statement of
Financial Accounting Standards ("SFAS") No. 123 (as amended by
SFAS No. 148), "Accounting for Stock-Based Compensation", had
been applied. Had we determined compensation cost based on the
fair value at the grant date for the company's stock options
under SFAS No. 123, our net income would have been reduced to the
pro forma amounts indicated below for the three and nine month
periods presented:
Page 6
Three Months Nine Months
Ended Ended
---------------- ----------------
Feb. 28 Feb. 29 Feb. 28 Feb. 29
2005 2004 2005 2004
------- ------- ------- -------
Net income, as reported $6,945 $3,281 $18,798 $8,068
Deduct: Total stock-based
employee compensation
expense determined
under the fair value
based method for all
awards, net of
related tax effects (284) (251) (848) (751)
------- ------- ------- -------
Pro forma net income $6,661 $3,030 $17,950 $7,317
======= ======= ======= =======
Earnings per share:
Basic, as reported $0.28 $0.13 $0.75 $0.32
Basic - pro forma $0.27 $0.12 $0.72 $0.29
Diluted, as reported $0.27 $0.13 $0.74 $0.32
Diluted - pro forma $0.26 $0.12 $0.71 $0.29
The fair value of these options was estimated at grant date using
the Black-Scholes option pricing model with the following
weighted- average assumptions:
Three Months Nine Months
Ended Ended
---------------- ----------------
Feb. Feb. Feb. Feb.
28, 29, 28, 29,
2005 2004 2005 2004
------- ------- ------- -------
Average risk-free interest 3.5% 2.6% 3.5% 2.6%
rate
Expected dividend yield 0.0 0.0 0.0 0.0
Expected volatility 52.6 45.9 52.6 45.9
Expected life 5.0 5.0 5.0 5.0
As described in Note 10 of this Quarterly Report on Form 10-Q, on
January 14, 2004 we paid a $99.5 million special distribution to
shareholders. As a result, the Board approved an adjustment to
the exercise price of all of our outstanding options, effective
on the close of business on January 14, 2004. Consequently,
964,315 stock options with an average exercise price of $11.95
were adjusted to 1,327,237 stock options with an average exercise
price of $8.48. In accordance with FIN 44, "Accounting for
Certain Transactions involving Stock Compensation an
interpretation of APB Opinion No. 25," there was no accounting
consequence due to the changes made to the exercise price or the
number of shares other than future potential dilution to
shareholders because the aggregate intrinsic value of each award
immediately after the change was not greater than the aggregate
intrinsic value of the award immediately before the change, and
the ratio of the exercise price per share to the market value per
share was not reduced.
Page 7
On December 16, 2004, the Financial Accounting Standards Board
(FASB) issued SFAS No. 123R, "Share-Based Payment," requiring all
share-based payments to employees, including grants of employee
stock options, to be recognized as compensation expense in the
consolidated financial statements based on their fair values.
This standard is effective for the first interim or annual period
beginning after June 15, 2005 and includes two transition
methods. Upon adoption, we will be required to use either the
modified prospective or the modified retrospective transition
method. Under the modified prospective method, awards that are
granted, modified, or settled after the date of adoption should
be measured and accounted for in accordance with SFAS 123R.
Unvested equity-classified awards that were granted prior to the
effective date should continue to be accounted for in accordance
with SFAS 123, except that the Share-Based Payments must be
recognized in the income statement. Under the modified
retrospective approach, the previously-reported amounts are
restated (either to the beginning of the year of adoption or for
all periods presented) to reflect the SFAS 123 amounts in the
income statement. We are currently evaluating the impact of this
FASB standard and the transitional reporting alternatives
described.
Note 3: Impairment of Assets
We assess the carrying value of equipment on a quarterly basis or
when factors indicating an impairment are present. We recognize
impairment losses on the carrying value of equipment held for
rental and lease when the expected future undiscounted cash flows
from rent or lease are less than the asset's carrying value, in
which case the asset is written down to its estimated fair value.
There were no impairment losses recorded during the nine months
ended February 28, 2005 and February 29, 2004.
Note 4: Noncash Investing and Financing Activities
We had accounts payable and other accruals related to acquired
equipment totaling $6,205 and $14,703 as of February 28, 2005 and
May 31, 2004, respectively, and $8,386 and $6,243 as of February
29, 2004 and May 31, 2003, respectively, which amounts have
previously been paid, or will be paid in the following periods.
Note 5: Sales-type Leases
We had certain customer leases providing bargain purchase
options, which are accounted for as sales-type leases. Interest
income is recognized over the life of the lease using the
effective interest method. The minimum lease payments receivable
and the net investment included in other assets for such leases
are as follows at:
Page 8
February May
28, 31,
2005 2004
------ ------
Gross minimum lease payments receivable $ 485 $ 894
Less - unearned interest (24) (53)
------ ------
Net investment in sales-type lease
receivables $ 461 $ 841
====== ======
Note 6: Restructuring Charge
Due to the prolonged downturn in our industry, in May 2003 we
restructured our business as part of our continuing program to
create efficiencies within our operations. In the quarter ended
May 31, 2003, we recorded restructuring charges of $821 in
selling, general and administrative expenses, which included the
following:
The workforce was reduced by approximately 27 employees,
mainly in the Duluth, Georgia, warehouse and sales office,
resulting in a severance charge of approximately $220.
Approximately $113 was paid in May 2003, and the remainder
was paid in the first quarter of fiscal 2004.
In connection with the closing of the Duluth, Georgia,
warehouse, property and equipment disposed of or removed
from operations resulted in a charge of $31 and consisted
primarily of leasehold improvements, equipment and furniture
and fixtures. In addition, we incurred a charge of $570
associated with the lease related to the closed facility,
which represents the fair value of the liability determined
based on the remaining lease rentals, reduced by estimated
sublease rentals. Amounts accrued (net of estimated sublease
proceeds) related to the facility closure will be paid over
the remaining lease term through May 2005.
Remaining Cash Remaining
Liability Payments Liability
Balances Balances
as of as of
May 31, February
2004 28, 2005
-------- -------- --------
Lease commitments $261 $(211) $50
======== ======== ========
Note 7: Segment Reporting
SFAS No. 131, "Disclosure about Segments of an Enterprise and
Related Information," establishes annual and interim reporting
standards for an enterprise's operating segments and related
disclosures about its products, services, geographic areas and
major customers. Under SFAS No. 131, our operations are treated
as one operating segment.
Page 9
Although we have only one operating segment, we have two groups
of similar products: test and measurement (T&M) and data
products (DP) equipment. Our equipment pool, based on
acquisition cost, comprised $202,005 of T&M equipment and $39,765
of DP equipment at February 28, 2005, and $193,029 of T&M
equipment and $46,720 of DP equipment at May 31, 2004.
Revenues for these product groups were as follows for the three
months ended:
T&M DP Total
-------- -------- --------
February 28, 2005
-----------------
Rentals and leases $15,171 $3,675 $18,846
Sales of equipment and other
revenues 6,999 2,937 9,936
-------- -------- --------
$22,170 $6,612 $28,782
======== ======== ========
February 29, 2004
-----------------
Rentals and leases $12,287 $4,656 $16,943
Sales of equipment and other
revenues 6,213 410 6,623
-------- -------- --------
$18,500 $5,066 $23,566
======== ======== ========
Revenues for these product groups were as follows for the nine
months
ended:
T&M DP Total
-------- -------- --------
February 28, 2005
-----------------
Rentals and leases $ 45,907 $ 13,578 $ 59,485
Sales of equipment and other
Revenues 18,910 3,503 22,413
-------- -------- --------
$ 64,817 $ 17,081 $ 81,898
======== ======== ========
February 29, 2004
-----------------
Rentals and leases $ 37,159 $ 15,093 $ 52,252
Sales of equipment and other
Revenues 16,534 1,638 18,172
-------- -------- --------
$ 53,693 $ 16,731 $ 70,424
======== ======== ========
No single customer accounted for more than 10% of total revenues
during the first nine months of fiscal 2005 or fiscal 2004. In
addition, total foreign country customers and operations
accounted for no more than 10% of our revenues and long-lived
assets for the same periods.
Page 10
Note 8: Computation of Earnings Per Share
Following is a reconciliation of the denominator used in the
computation of basic and diluted EPS for the periods ended
February 28, 2005 and February 29, 2004:
Three Months Nine Months
ended ended
--------------- ---------------
Feb. Feb. Feb. Feb.
28, 29, 28, 29,
2005 2004 2005 2004
------- ------- ------- -------
Denominator:
Denominator for basic
earnings per
share-weighted average
common shares outstanding 25,011 24,878 24,943 24,858
Effect of dilutive
securities-options 536 99 374 79
------- ------- ------- -------
25,547 24,977 25,317 24,937
======= ======= ======= =======
Net income $6,945 $3,281 $18,798 $8,068
Earnings per share:
Basic $ 0.28 $ 0.13 $ 0.75 $ 0.32
Diluted $ 0.27 $ 0.13 $ 0.74 $ 0.32
Note 9: Commitments and Contingencies
We lease certain facilities under various operating leases. Most
of the lease agreements provide us with the option of renewing
our lease at the end of the initial lease term, at the fair
rental value, for periods of up to five years. In most cases,
management expects that, in the normal course of business,
facility leases will be renewed or replaced by other leases.
We are subject to legal proceedings and business disputes
involving ordinary and routine claims. The ultimate legal and
financial liability with respect to such matters cannot be
estimated with certainty and requires the use of estimates in
recording liabilities for potential litigation settlements.
Estimates for losses from litigation are made after consultation
with outside counsel. If estimates of potential losses
or the related facts and circumstances change in the future, we
may be required to record either more or less litigation expense.
It is management's opinion that none of the open matters at
February 28, 2005 will have a material adverse effect on our
financial condition or results of operations.
Page 11
Note 10: Extraordinary Distribution
On January 14, 2004, we paid a special distribution of $4.00 per
outstanding common share, or approximately $99.5 million to our
shareholders of record on December 16, 2003.
Note 11: Income From Litigation Settlement
On June 12, 2004, when all contingencies expired, we recognized
as other income $1,758 related to funds received from a class
action lawsuit. We participated as a member of the plaintiff
class as a purchaser of certain products under warranty.
Note 12: Income Taxes
We regularly evaluate our tax risks as required by Financial
Accounting Standards Board Statement of Financial Accounting
Standards No. 5. The third and second quarters of fiscal 2005
and the second quarter of fiscal 2004 include reductions in the
accrued liability for income taxes of $699, $655 and $400,
respectively, reflecting the recovery of tax reserves related to
completed tax audits and closed tax audit years.
Page 12
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
The following discussion addresses our financial condition as of
February 28, 2005 and the results of operations for the three and
nine months ended February 28, 2005 and February 29, 2004, and
cash flows for the nine month period ended February 28, 2005 and
February 29, 2004. This discussion should be read in conjunction
with the Management's Discussion and Analysis section included in
our 2004 Annual Report on Form 10-K (pages 5-11) to which the
reader is directed for additional information and the Risk
Factors set forth in Exhibit 99 to that Report.
General
We generate revenues through the rental, lease and sale of
electronic equipment, primarily test and measurement (T&M) and
personal computer-related (DP) equipment. For the first nine
months of fiscal 2005, 77.2% of rental and lease revenues were
derived from T&M equipment. This percentage has been increasing
over the last four years as a result of a steady erosion of DP
rental and lease revenues related to declines in product purchase
prices and unit volume and increasing T&M activity in
telecommunications, aerospace and defense markets during fiscal
2004 and in the first nine months of fiscal 2005. Rental
revenues comprised 78.3% of rental and lease revenue, which
percentage has also been increasing over the last four years due
to a significant decline in personal computer leasing activity in
the first nine months of fiscal 2005, and the increase in rental
activity that began in fiscal 2004.
A significant part of our T&M equipment portfolio is rented or
leased to large companies in the aerospace, defense, electronics
and telecommunications industries. We believe that a large part
of our T&M equipment is used in research and development
activities. We also rent equipment to companies of various sizes
representing a cross-section of American industry.
The profitability of our business also depends in significant
part on controlling the timing, pricing and mix of purchases and
sales of equipment. We seek to acquire new and used equipment at
attractive prices for the purpose of deriving a profit from a
combination of renting and/or selling such equipment. The sale of
equipment, either after acquisition or after it has been rented,
can comprise a significant portion of revenues and operating
profit. To maximize overall profit from the rental, leasing, and
sales of equipment, we manage our equipment pool on an on-going
basis by analyzing our product strategy for each specific
equipment class in light of that equipment's historical and
projected life cycle. In doing so, we must compare our estimate
of potential profit from rental with the potential profit from
the product's immediate sale and replacement with new or other
equipment. In our analysis, we assume depreciation and impairment
of equipment based on historical levels, although historical
trends are not necessarily indicative of future trends. Our
overall equipment management is complex and our product strategy
can change during a product's lifetime based upon numerous
factors, including the U.S. and global economy, interest rates
and new product launches. Our strategic equipment decisions are
based on the following fundamentals:
Page 13
Our acquisition cost;
Our estimates of current and future market demand for
rentals;
Our estimates of current and future supply of product;
The book value of the product after depreciation and other
impairment;
Our estimates of the effect of interest rates on rental and
leasing fees as well as capital financing; and
Our estimates of the potential current and future sale
prices.
If we are unable to accurately predict market trends, or if
demand for the equipment we supply declines, we can be left with
large lots of inventory that we are unable to rent or sell for a
profit. We assess the carrying value of the equipment pool on a
quarterly basis or when factors indicating impairment are
present. When the U.S. and global economy began to rebound in
fiscal 2004, we saw increased demand for our equipment, and were
able to sell equipment that was older and more fully depreciated
or that we had previously written down in years prior to fiscal
2004. Due in part to these events, we experienced greater than
normal gross margins on equipment sales in fiscal 2004 and in the
first nine months of fiscal 2005. We intend to maintain our
equipment management strategy, and, accordingly, we expect that
gross margins on sales will return to normal historical levels as
older and previously impaired equipment constitute a smaller
percentage of equipment sold.
However, results for future quarters are subject to future
events, as in the case of unusual opportunities for sales and
early termination of equipment leases. Such early terminations
can (i) result in sales proceeds to the extent that the customer
decides to purchase the equipment involved, (ii) accelerate lease
payments to the extent of lease termination fees, and/or (iii) to
the extent the customer does not purchase the equipment, increase
the pool of equipment for lease by us, which would adversely
affect future utilization unless we can rent, lease or sell that
equipment to another party.
We measure our overall level of profitability with the following
metrics:
Net income per diluted common share (EPS);
Net income as a percentage of average assets; and
Net income as a percentage of average equity.
Page 14
PROFITABILITY AND KEY BUSINESS TRENDS
In fiscal 2004 and in the first nine months of fiscal 2005, we
improved profitability with each successive quarter. Lower
selling, general and administrative expenses, improved gross
profit on equipment sales, higher asset levels on rent, and
higher rental yields led to this improvement.
During fiscal 2004, we began to focus on core T&M and DP markets.
Organic growth has been modest, consistent with the economic
environment. As a result, we have supplemented growth with the
March 2004 acquisition of a small disaster recovery business that
integrates with our existing DP business, however represents an
insignificant contribution to revenues. Focused, prudent growth
continues to be a primary goal for fiscal 2005.
Our profitability measurements are presented in the table below
for the nine months ended February 28, 2005 and February 29,
2004:
2005 2004
---- ----
Net income per diluted share $ 0.74 $ 0.32
Net income as a percentage of
average assets 11.7% 3.8%
Return on average equity 14.0% 4.2%
After several years of declines, T&M rental and lease activity
steadily increased during fiscal 2004 and the first nine months
of fiscal 2005, reflecting the strengthening global economy. DP
rental and lease demand continued to be soft in fiscal 2004 and
in the first nine months of fiscal 2005, although we have seen
some improvement in rental rates.
The amount of equipment on rent, based on acquisition cost,
increased from $102.1 million at February 29, 2004, to $105.1
million at February 28, 2005. Acquisition cost of equipment on
lease increased from $35.0 million at February 29, 2004, to $35.6
million at February 28, 2005. Overall utilization for our
equipment pool, again based on acquisition cost, increased from
60.6% at February 29, 2004, to 61.5% at February 28, 2005, which
reflects increasing customer demand and our continued liquidation
of under-performing assets and write-off of fully depreciated
assets. During the same period, monthly rental rates increased
by 11.0% but monthly lease rates decreased by 2.7%. There were
no impairment losses recorded during the nine months ended
February 28, 2005 and February 29, 2004.
We believe that demand for rental electronic equipment should
further improve as the U.S. economy continues to recover. Also,
increased defense spending on advanced weapons and intelligence
systems has historically also provided an increased demand for
our equipment. Until demand improves further, we will strive to
operate the business efficiently at the current activity level.
The following table shows the revenue and income trends over the
last five quarters (in thousands):
Page 15
Three Months Ended
-------------------
Feb. Nov. Aug. May 31, Feb.
28, 30, 31, 31 29,
2005 2004 2004 2004 2004
(1) (2) (3)
------ ------ ------ ------ ------
Rentals and leases $18,846 $21,031 $19,608 $18,016 $16,943
Sales of equipment
and other
revenues 9,936 6,466 6,011 5,670 6,623
Net income 6,945 6,226 5,627 3,916 3,281
(1) For the three months ended February 28, 2005, income taxes
were reduced by $699 due to a change in estimated liability.
(2) For the three months ended November 30, 2004, income taxes
were reduced by $655 due to a change in estimated liability.
(3) For the three months ended August 31, 2004, net income
included $1.8 million (pre-tax) related to funds received from a
class action lawsuit.
Critical Accounting Policies and Estimates
The preparation of condensed consolidated financial statements in
conformity with accounting principles generally accepted in the
United States of America requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. On a regular basis, management reviews these estimates
including those related to asset lives and depreciation methods,
impairment of long-lived assets including rental and lease
equipment, allowance for doubtful accounts and income taxes.
These estimates are based on management's historical experience
and on various other assumptions believed to be reasonable under
the circumstances. Actual results may differ from these estimates
under different assumptions or conditions. Management believes,
however, that the estimates, including those for the above-listed
items, are reasonable.
Management believes the following critical accounting policies
affect the more significant judgments and estimates used in the
preparation of our financial statements:
Asset lives and depreciation methods: Our primary business
involves the purchase and subsequent rental and leasing of long-
lived electronic equipment. Management has chosen asset lives
that it believes correspond to the economic life of the related
asset. Management has chosen depreciation methods that it
believes matches the benefit from the asset with the associated
costs. These judgments have been made based on management's
expertise in each equipment type that we carry. If the asset
life and depreciation method chosen do not reduce the book value
of the asset to at least the estimated future cash flows from the
asset to us, we would be required to record a loss on
revaluation. Depreciation methods and useful lives are
periodically reviewed and revised as deemed appropriate.
Page 16
Impairment of long-lived assets: When factors indicate an
impairment is present, management reviews the carrying value of
its rental and leasing equipment to determine if the carrying
value of the assets may not be recoverable due to current and
forecasted economic conditions. This requires management to make
estimates related to future cash flows from the assets and to
determine whether any deterioration is permanent. If these
estimates or the related assumptions change in the future,
management may be required to record additional impairment
charges.
Allowance for doubtful accounts: We maintain allowances for
doubtful accounts for estimated losses resulting from the
inability of customers to make rental and lease payments. These
estimates are primarily based on the amount of time that has
lapsed since payments were due, as well as specific knowledge
related to the ability of customers to make the required
payments. If the financial condition of our customers were to
deteriorate, additional allowances could be required that would
reduce income. Conversely, if the financial condition of the
customers were to improve or if legal remedies to collect past
due amounts are more successful than expected, the allowance for
doubtful accounts may need to be reduced and income would be
increased.
Income Taxes: As part of the process of preparing our
consolidated financial statements management is required to
estimate income taxes in each of the jurisdictions in which the
we operate. Significant management judgment is required in
determining the provision for income taxes and deferred tax
assets and liabilities. This process involves management
estimating actual current tax exposure together with assessing
temporary differences resulting from differing treatment of
items, such as depreciation and amortization, for tax and
accounting purposes. These differences result in deferred tax
assets and liabilities, which are included within our
consolidated balance sheet. We then assess the likelihood that
our deferred tax assets will be recovered. To the extent
management believes that recovery is not likely, we establish a
valuation allowance.
Page 17
Results of Operations
Comparison of Three Months Ended February 28, 2005 and
February 29, 2004
Revenues
Total revenues for the three months ended February 28, 2005 rose
$5.2 million, or 22.1%, to $28.8 million, compared to $23.6
million in the same period in the prior year. The increase in
total revenues was due to an increase in rental and lease
revenues of 11.2% while sales of equipment and other revenues
increased 50.0%.
Rental and lease revenues in the third quarter of fiscal 2005
increased 11.2% to $18.8 million from $16.9 million in the same
period of the prior year. This increase reflects higher demand
for T&M equipment in our major market segments, which we believe
stems from the general economic recovery. An early termination
of DP leases with one customer, as described below, resulted in a
decrease in monthly lease revenues of approximately $.3 million,
beginning in January 2005.
Sales of equipment and other revenues were $9.9 million in the
third quarter of fiscal 2005, compared to $6.6 million in the
third quarter of fiscal 2004, which is a 50.0% increase. This
increase is due to an early lease termination and related buyout
transaction with one customer as of December 31, 2004, which
resulted in proceeds of approximately $3.4 million. That amount
included the fair market value of the equipment and lease
termination charges.
We sell used equipment as a normal part of our rental business.
However, these sales can fluctuate from quarter to quarter and
year to year depending on equipment availability and customer
requirements and funding. Gross margin on sales increased to
$4.1 million, or 59.4%, in the third quarter of fiscal 2005, from
$2.7 million, or 43.4%, in the third quarter of fiscal 2004.
This increase was primarily the result of the customer buyout
transaction described above. In the third quarter of fiscal 2004
and in the third quarter of fiscal 2005, our gross margin on
sales has been relatively high, but we expect that it will return
to more normal levels over the next two years, as older and
previously impaired equipment constitute a smaller percentage of
equipment sold.
Operating Expenses
Depreciation of rental and lease equipment increased to $8.0
million, or 42.2% of rental and lease revenues, in the third
quarter of fiscal 2005, from $7.1 million, or 41.6% of rental and
lease revenues, in the third quarter of fiscal 2004. The
increased depreciation expense reflects higher expenditures for
new rental and lease equipment that began in fiscal 2004.
Page 18
Costs of revenues other than depreciation decreased to $3.7
million in the third quarter of fiscal 2005, or 6.5%, from $4.0
million in the third quarter of fiscal 2004. Costs of revenues
other than depreciation primarily includes the cost of equipment
sales, which decreased to 40.6% of equipment sales in the third
quarter of fiscal 2005, from 56.6% of equipment sales in the
third quarter of fiscal 2004. The decrease in this percentage
reflects the customer buyout transaction described above.
Selling, general and administrative expenses were unchanged at
$7.5 million in the third quarter of fiscal 2005 compared to the
third quarter of fiscal 2004. However, these expenses as a
percentage of total revenues decreased to 25.9% in the third
quarter of fiscal 2005 from 31.6% in the third quarter of fiscal
2004, due to the increase in revenues discussed above.
Interest and Investment Income
Net interest and investment income of $.4 million for the third
quarter of fiscal 2005 was 36.0% greater than $.3 million
recorded in the third quarter of fiscal 2004, which increase was
primarily due to higher interest rates.
Income Taxes
Our effective tax rate was 30.6% in the third quarter of fiscal
2005, compared to 38.7% for the same period in fiscal 2004. The
current quarter includes a reduction in the accrued liability for
income taxes of $.7 million reflecting the recovery of tax
reserves related to closed tax audit years.
Comparison of Nine Months Ended February 28, 2005 and
February 29, 2004
Revenues
Total revenues for the nine months ended February 28, 2005 rose
$11.5 million, or 16.3%, to $81.9 million, compared to $70.4
million in the same period in fiscal 2004. The increase in total
revenues was due to an increase in rental and lease revenues of
13.8%, while sales of equipment and other revenues increased
23.3%.
Rental and lease revenues in the first three quarters of fiscal
2005 increased to $59.5 million from $52.3 million in the same
period of fiscal 2004. This increase reflects higher demand for
T&M equipment in our major market segments, which we believe
stems from the general economic recovery. An early termination
of DP leases with one customer, as described below, resulted in a
decrease in monthly lease revenues of approximately $.3 million,
beginning in January 2005.
Sales of equipment and other revenues were $22.4 million in the
first three quarters of fiscal 2005, compared to $18.2 million in
the first three quarters of fiscal 2004. This increase is
primarily due to an early lease termination and related buyout
transaction with one customer as of December 31, 2004, which
resulted in proceeds of approximately $3.4 million. That amount
included the fair market value of the equipment and lease
termination charges.
Page 19
We sell used equipment as a normal part of our rental business.
However, these sales can fluctuate from quarter to quarter and
year to year depending on equipment availability and customer
requirements and funding. Gross margin on sales increased to
$9.1 million, or 52.8%, in the first three quarters of fiscal
2005, from $7.1 million, or 42.4%, in the first three quarters of
fiscal 2004. This increase was primarily the result of the
customer buyout transaction described above. During fiscal 2004
and the first nine months of fiscal 2005, our gross margin on
sales has been relatively high, but we expect that it will return
to more normal levels over the next two years, as older and
previously impaired equipment constitute a smaller percentage of
equipment sold.
Operating Expenses
Depreciation of rental and lease equipment increased to $24.5
million, or 41.1% of rental and lease revenues, in the first
three quarters of fiscal 2005 from $22.8 million, or 43.6% of
rental and lease revenues, in the first three quarters of fiscal
2004. The increased depreciation expense reflects higher
expenditures for new rental and lease equipment that began in
fiscal 2004. The decreased ratio reflects revenues increasing in
the current year at a rate higher than depreciation expense.
Costs of revenues other than depreciation decreased to $10.1
million in the first nine months of fiscal 2005, or 9.9%, from
$11.2 million in the first nine months of fiscal 2004. Costs of
revenues other than depreciation primarily includes the cost of
equipment sales, which decreased to 47.2% of equipment sales in
the first nine months of fiscal 2005 from 57.6% of equipment
sales in the first nine months of fiscal 2004. The decrease in
this percentage reflects the customer buyout transaction
described above.
Selling, general and administrative expenses decreased $3.0
million, or 11.9%, to $22.0 million in the first three quarters
of fiscal 2005 as compared to $25.0 million in the first three
quarters of fiscal 2004. These expenses as a percentage of total
revenues decreased from 35.5% in the first three quarters of
fiscal 2004 to 26.9% in the first three quarters of fiscal 2005.
The decline in SG&A expenses is largely due to an accrual in the
prior year for $2.3 million related to the retirement of our
corporate President and Chief Operating Officer. Also
contributing to the decline were reductions in personnel,
facility and freight costs, as well as lower bad debt expense.
Our total employee count is currently 242, a 6.7% decline from
February 29, 2004.
Interest and Investment Income
Net interest and investment income of $0.9 million for the first
three quarters of fiscal 2005 was 15.1% lower than $1.1 million
recorded in the first three quarters of the prior year, mainly as
a result of decreased investments due to the $99.5 million
special distribution paid to common shareholders on January 14,
2004, partially offset by higher interest rates in fiscal 2005.
Page 20
Income from Litigation Settlement
On June 12, 2004, when all contingencies expired, we recognized
as other income $1.8 million related to funds received from a
class action lawsuit. There was no comparable income in same
period of fiscal 2004.
Income Taxes
Our effective tax rate was 32.9% in the first three quarters of
fiscal 2005, compared to 35.4% in the same period of fiscal 2004.
The current nine-month period and the corresponding period last
year included reductions in the accrued liability for income
taxes of $1.4 million and $.4 million, respectively, reflecting
the recovery of tax reserves related to completed tax audits and
closed tax audit years.
Liquidity and Capital Resources
During the last three years, our primary capital requirements
have been purchases of rental and lease equipment. We generally
purchase equipment throughout each year to replace equipment that
has been sold, and to maintain adequate levels of rental
equipment to meet existing and new customer demands. During the
last twelve months we experienced an increase in overall rental
activity, including increases in rental rates. To support some
areas of potential growth for both T&M and DP equipment, and to
keep our equipment pool technologically up-to-date, we increased
purchases of equipment in the first nine months of fiscal 2005
over the comparable period in fiscal 2004.
On January 14, 2004, we paid a special distribution of $4 per
share, or approximately $99.5 million to our shareholders of
record on December 16, 2003. Following this distribution, cash
and cash equivalents have declined due to the higher level of
equipment purchases, and further declines could result if current
equipment purchase levels are sustained, we decide to pay another
special distribution, pay regular dividends, finance another
acquisition, or pursue other opportunities. We have invested our
cash balance in money market funds and marketable securities with
maturities of less than 90 days.
During the first nine months of fiscal 2005 and fiscal 2004 net
cash provided by operating activities was $35.5 million and $25.5
million, respectively. The increase in fiscal 2005 is primarily
the result of higher net income and deferred taxes related to
bonus depreciation in the current year as compared to the same
period in fiscal 2004.
Page 21
During the nine months ended February 28, 2005 net cash used in
investing activities was $43.3 million, compared to $29.9 million
in the same period of fiscal 2004. This increase is mostly
attributable to increased payments for the purchase of rental and
lease equipment partially offset by decreased payments for the
purchase of marketable securities.
During the first nine months of fiscal 2005 net cash flows from
financing activities were not significant. During the first nine
months of fiscal 2004 net cash flows used in financing activities
were $99.1 million, primarily due to the special distribution
described above.
We have a $10.0 million revolving line of credit with an
institutional lender, subject to certain restrictions, to meet
equipment acquisition needs as well as working capital and
general corporate requirements. We have had no bank borrowings
since the first quarter of fiscal 2001.
Page 22
SPECIAL NOTE ABOUT FORWARD-LOOKING STATEMENTS
Except for the historical statements and discussions, statements
contained in this Form 10-Q constitute forward-looking statements
within the meaning of section 21E of the Securities Exchange Act
of 1934. These forward-looking statements reflect the current
views of our management with respect to future events and
financial performance; however, you should not put undue reliance
on these statements. We undertake no obligation to update or
revise any forward-looking statements that are or may be affected
by developments, which our management does not deem material.
When used in this Form 10-Q, the words "anticipate," "believes,"
"expects," "intends," "future," and other similar expressions
identify forward-looking statements. These forward-looking
statements are subject to certain risks and uncertainties, not
all of which are disclosed in this Form 10-Q. Although we
believe our management's assumptions are reasonable, nonetheless,
it is likely that at least some of these assumptions will not
come true. Accordingly, our actual results will likely differ
from the outcomes contained in any forward-looking statement, and
those differences could be material. Factors that could cause or
contribute to these differences include, among others, those
risks and uncertainties discussed under the sections contained in
this Form 10-Q entitled "Management's Discussion and Analysis of
Financial Condition and Results of Operations," and in
"Quantitative and Qualitative Disclosure About Market Risk
Related to Interest Rates and Currency Rates," as well as in our
Annual Report on Form 10-K for the year ended May 31, 2004
including the "Risk Factors" attached as Exhibit 99 to that
document, our Proxy Statement for our 2004 Annual Meeting of
Shareholders and our other filings with the Securities and
Exchange Commission. Should one or more of the risks discussed,
or any other risks, materialize, or should one or more of our
underlying assumptions prove incorrect, our actual results may
vary materially from those anticipated, estimated, expected or
projected.
Page 23
Item 3. Quantitative and Qualitative Disclosures About Interest
Rates and Currency Rates
We are exposed to market risks related to changes in interest
rates and foreign currency exchange rates, however, we do not
believe those risks to be material in relation to our operations.
We do not have any derivative financial instruments.
As of February 28, 2005 and May 31, 2004, cash and cash
equivalents included money market securities, and we had
investments in marketable securities. Due to the short-term
duration of our investment portfolio, an immediate 10% change in
interest rates would not have a material effect on the fair
market value of our portfolio, therefore, we would not expect our
operating results or cash flows to be affected to any significant
degree by the effect of a sudden change in market interest rates
on our securities portfolio.
We are also subject to risks associated with foreign currency
rate fluctuations to the extent of financing arrangements for
rented and leased equipment denominated in Canadian dollars or
Euros. We have determined that hedging of these assets is not
cost effective and instead we attempt to minimize risks due to
currency and exchange rate fluctuations through working capital
management. We do not believe that any foreseeable change in
currency rates would materially or adversely affect our financial
position or results of operations.
Item 4: Controls and Procedures
(a) Evaluation of disclosure controls and procedures
Our management, with the participation of our Chief Executive
Officer and Chief Financial Officer, evaluated the effectiveness
of our disclosure controls and procedures as of the end of the
period covered by this report. Based on that evaluation, the
Chief Executive Officer and Chief Financial Officer concluded
that our disclosure controls and procedures as of the end of the
period covered by this report are functioning effectively to
provide reasonable assurance that the information required to be
disclosed by us in reports filed under the Securities Exchange
Act of 1934 is recorded, processed, summarized and reported
within the time periods specified in the SEC's rules and forms.
A controls system, no matter how well designed and operated,
cannot provide absolute assurance that the objectives of the
controls system are met, and no evaluation of controls can
provide absolute assurance that all control issues and instances
of fraud, if any, within a company have been detected.
(b) Change in Internal Control over Financial Reporting
No change in our internal control over financial reporting
occurred during our most recent fiscal quarter that has
materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.
Page 24
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Unregistered Sales of Equity Securities and Use of
Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 6. Exhibits
(a) (* Indicates compensation plan, contract or arrangement)
Exhibit # Description
- --------- -----------
3 Articles of Incorporation (Restated) and bylaws are
incorporated by reference to Exhibits 1.2 and 6.1,
respectively, of Registration Statement (Form S-14),
File No. 2-63532. A copy of the Restated Articles of
Incorporation and the Certificate of Amendment of
Restated Articles of Incorporation filed October 24,
1988 are incorporated by reference to Exhibit (3) to
the Annual Report (Form 10-K) for the fiscal year
ended May 31, 1989. A copy of the Certificate of
Amendment of Restated Articles of Incorporation filed
October 15, 1997 is filed as Exhibit (3) to the
Annual Report (Form 10-K) for the fiscal year ended
May 31, 1999. A copy of the amendment to the bylaws
adopted October 6, 1994 is incorporated by reference
to the Annual Report (Form 10-K) for the fiscal year
ended May 31, 1995. A copy of the amendment to the
bylaws adopted November 15, 1996 is incorporated by
reference to Exhibit (3) of the Annual Report (Form
10-K) for the fiscal year ended May 31, 1997
31.1 Rule 13a-14(a)/15d-14(a) Certification of Chief
Executive Officer
31.2 Rule 13a-14(a)/15d-14(a) Certification of Chief
Financial Officer
32.1 Section 1350 Certification by Principal Executive
Officer
32.2 Section 1350 Certification by Chief Financial Officer
Page 25
10(A)(1) The Electro Rent Corporation Employee Stock Ownership
And Savings Plan, June 1, 1985 Restatement, and the
Electro Rent Corporation Employee Stock Ownership And
Savings Plan Trust Agreement, are incorporated by
reference to Exhibits 10(A)-(1) and 10(A)-(2) of the
Registrant's Annual Report (Form 10-K) for the fiscal
year ended May 31, 1985. A copy of Amendment No. One
to the Restated ESOP is incorporated by reference to
Exhibit 10(A) of Registrant's Annual Report (Form 10-
K) for the fiscal year ended May 31, 1987.*
10(A)(2) A copy of the Electro Rent Corporation Employee Stock
Ownership And Savings Plan, Restated As Of June 1,
1989 is incorporated by reference to Exhibit 10(A) of
the Annual Report (Form 10-K) for the fiscal year
ended May 31, 1989.*
10(A)(3) Copies of the following documents amending and
supplementing the ESOSP and ESOP as heretofore
amended are incorporated by reference to Exhibit
10(A)-(1) to (7) of the Annual Report (Form 10-K) for
the fiscal year ended May 31, 1995:
10(A)(4) Adoption Agreement For The Vanguard Prototype 401(K)
Savings Plan dated August 1, 1994.*
10(A)(5) Electro Rent Corporation Savings Plan Trust Agreement
dated September 1, 1994.*
10(A)(6) Electro Rent Savings Plan Supplement To The Vanguard
Prototype 401(K) Savings Plan Adoption Agreement
dated September 24, 1994.*
10(A)(7) Second Amendment To Electro Rent Corporation Employee
Stock Ownership & Savings Plan (Restated As Of
June 1, 1989) dated as of June 1, 1991*
10(A)(8) Third Amendment To Electro Rent Corporation Employee
Stock Ownership And Savings Plan (Restated As Of
June 1, 1989) dated June 15, 1994*
10(A)(9) Fourth Amendment To Electro Rent Corporation Savings
Plan (Restated As Of June 1, 1989) dated September 1,
1994*
10(A)(10) Electro Rent Corporation Employee Stock Ownership
Plan Trust
Agreement dated September 1, 1994.*
10(A)(11) A copy of the GE Rentals Supplement to the Vanguard
Prototype 401(k) Savings Plan Adoption Agreement
adopted October 10, 1997 is incorporated by reference
to Exhibit 10(A) of the Annual Report (Form 10-K) for
the fiscal year ended May 31, 1998.*
10(C) A copy of the Electro Rent Corporation Supplemental
Retirement Plan is incorporated by reference to
Exhibit 10(C) of Registrant's Annual Report (Form 10-
K) for the fiscal year ended May 31, 1987.*
10(D)(1) The Executive Employment Agreement between the
Company and Daniel Greenberg, Chairman of the Board
of Directors and Chief Executive Officer, originally
entered into December 15, 1986 and amended
November 22, 1988 by Amendment No. One To Executive
Employment Agreement, as further amended and restated
as of July 15, 1992. A copy of the Executive
Employment Agreement (Amended And Restated as of
July 15, 1992), and as further amended as of
October 2001) is incorporated by reference to Exhibit
10(D)-(1) of Registrant's Annual Report (Form 10-K)
for the fiscal year ended May 31, 1993. A copy of
Amendment No. 1 to the Amended and Restated Executive
Employment Agreement, dated October 12, 2001 is
incorporated by reference to Exhibit 10(D)-(1) of
Registrant's Annual Report (Form 10-K) for the fiscal
year ended May 31, 2003.*
Page 26
10(D)(2) The Executive Employment Agreement between the
Company and William Weitzman, President and Chief
Operating Officer, originally entered into
December 15, 1986 and amended November 22, 1988 by
Amendment No. One To Executive Employment Agreement,
as further amended and restated as of July 15, 1992
and amended by Amendment No. 1 to the Amended and
Restated Executive Employment Agreement, dated
October 12, 2001. A copy of Executive Employment
Agreement (Amended And Restated as of July 15, 1992,
and as further amended as of October 2001) is
incorporated by reference to Exhibit 10(D)-(1) of
Registrant's Annual Report (Form 10-K) for the fiscal
year ended May 31, 1993. A copy of Amendment No. 1 to
the Amended and Restated Executive Employment
Agreement, dated October 12, 2001 is incorporated by
reference to Exhibit 10(D)(2) of the Registrant's
Annual Report (Form 10-K) for the fiscal year ended
May 31, 2002.*
10(D)(3) Letter setting forth terms of retirement of William
Weitzman, President and Chief Operating Officer, a
copy of which is incorporated by reference to
Exhibit 10(D)(3) of the Registrant's Current Report
on Form 8-K for events occurring October 9, 2003.
10(E)(1) A copy of the Electro Rent Corporation 1990 Stock
Option Plan, the Electro Rent Corporation Stock
Option Agreement (Incentive Stock Option) and the
Electro Rent Corporation Stock Option Agreement
(Nonstatutory Option) are incorporated by reference
to Exhibits 10(E)-(1), 10(E)-(2) and 10(E)-(3),
respectively to the Annual Report (Form 10-K) for the
fiscal year ended May 31, 1990. A copy of Amendment
Number One To Electro Rent Corporation 1990 Stock
Option Plan adopted October 3, 1991 is incorporated
by reference to Exhibit 10(E) of the Annual Report
(Form 10-K) for the fiscal year ended May 31, 1992. A
copy of Amendment Number Two To Electro Rent
Corporation 1990 Stock Option Plan adopted April 11,
1995 is incorporated by reference to Exhibit 10(E) of
the Annual Report (Form 10-K) for the fiscal year
ended May 31, 1995.*
10(E)(2) A copy of the Electro Rent Corporation 1996 Stock
Option Plan, the Electro Rent Corporation Stock
Option Agreement (Incentive Stock Options) and the
Electro Rent Corporation Stock Option Agreement
(Nonstatutory Stock Options) are incorporated by
reference to Exhibits (10)(E)-(1), (2) and (3)
respectively to the Annual Report (Form 10-K) for the
fiscal year ended May 31, 1996. A copy of Amendment
Number One To Electro Rent Corporation 1996 Stock
Option Plan adopted November 1, 1996 is incorporated
by reference to Exhibit 10(E) of the Annual Report
(Form 10-K) for the fiscal year ended May 31, 1998.*
Page 27
10(E)(3) A copy of the Electro Rent Corporation 1996 Director
Option Plan and the Electro Rent Corporation Stock
Option Agreement for the 1996 Director Option Plan
are incorporated by reference to Exhibits 10(E)-(4)
and (5) respectively to the Annual Report (Form 10-K)
for the fiscal year ended May 31, 1996.
10(E)(4) Electro Rent Corporation 1996 Director Option Plan
Amendment No. One is incorporated by reference to
Exhibit 10(E) to the Annual Report (Form 10-K) for
the fiscal year ended May 31, 2001.
10(E)(5) A copy of the Electro Rent Corporation 2002 Employee
Stock Option Plan, the Electro Rent Corporation Stock
Option Agreement (Incentive Stock Options) and the
Electro Rent Corporation Stock Option Agreement
(Nonstatutory Stock Options) is incorporated by
reference to Exhibit 10(E) of the Annual Report
(Form 10-K) for the fiscal year ended May 31, 2002.
Page 28
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereto duly authorized.
ELECTRO RENT CORPORATION
DATED: March 24, 2005
/s/ Craig R. Jones
Craig R. Jones
Vice President and Chief Financial Officer
Page 29